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G.R. No.

175356
December 3, 2013
MANILA MEMORIAL PARK, INC. AND LA FUNERARIA PAZ-SUCAT, INC., Petitioners,
vs.
SECRETARY OF THE DEPARTMENT OF SOCIAL WELFARE AND DEVELOPMENT and THE SECRETARY
OF THE DEPARTMENT OF FINANCE, Respondents.
DECISION
DEL CASTILLO, J.:
When a party challenges the constitutionality of a law, the burden of proof rests upon him.
Before us is a Petition for Prohibition2 under Rule 65 of the Rules of Court filed by petitioners Manila
Memorial Park, Inc. and La Funeraria Paz-Sucat, Inc., domestic corporations engaged in the business of
providing funeral and burial services, against public respondents Secretaries of the Department of Social
Welfare and Development (DSWD) and the Department of Finance (DOF).
Petitioners assail the constitutionality of Section 4 of Republic Act (RA) No. 7432, 3 as amended by RA
9257,4 and the implementing rules and regulations issued by the DSWD and DOF insofar as these allow
business establishments to claim the 20% discount given to senior citizens as a tax deduction.
Factual Antecedents
On April 23, 1992, RA 7432 was passed into law, granting senior citizens the following privileges:
SECTION 4. Privileges for the Senior Citizens. The senior citizens shall be entitled to the following:
a) the grant of twenty percent (20%) discount from all establishments relative to utilization of
transportation services, hotels and similar lodging establishment[s], restaurants and recreation centers
and purchase of medicine anywhere in the country: Provided, That private establishments may claim the
cost as tax credit;
b) a minimum of twenty percent (20%) discount on admission fees charged by theaters, cinema houses
and concert halls, circuses, carnivals and other similar places of culture, leisure, and amusement;
c) exemption from the payment of individual income taxes: Provided, That their annual taxable income
does not exceed the property level as determined by the National Economic and Development Authority
(NEDA) for that year;
d) exemption from training fees for socioeconomic programs undertaken by the OSCA as part of its work;
e) free medical and dental services in government establishment[s] anywhere in the country, subject to
guidelines to be issued by the Department of Health, the Government Service Insurance System and the
Social Security System;
f) to the extent practicable and feasible, the continuance of the same benefits and privileges given by the
Government Service Insurance System (GSIS), Social Security System (SSS) and PAG-IBIG, as the case may
be, as are enjoyed by those in actual service.
On August 23, 1993, Revenue Regulations (RR) No. 02-94 was issued to implement RA 7432. Sections 2(i)
and 4 of RR No. 02-94 provide:
Sec. 2. DEFINITIONS. For purposes of these regulations: i. Tax Credit refers to the amount representing
the 20% discount granted to a qualified senior citizen by all establishments relative to their utilization of
transportation services, hotels and similar lodging establishments, restaurants, drugstores, recreation
centers, theaters, cinema houses, concert halls, circuses, carnivals and other similar places of culture,
leisure and amusement, which discount shall be deducted by the said establishments from their gross
income for income tax purposes and from their gross sales for value-added tax or other percentage tax
purposes. x x x x Sec. 4. RECORDING/BOOKKEEPING REQUIREMENTS FOR PRIVATE ESTABLISHMENTS.
Private establishments, i.e., transport services, hotels and similar lodging establishments, restaurants,
recreation centers, drugstores, theaters, cinema houses, concert halls, circuses, carnivals and other similar
places of culture[,] leisure and amusement, giving 20% discounts to qualified senior citizens are required
to keep separate and accurate record[s] of sales made to senior citizens, which shall include the name,
identification number, gross sales/receipts, discounts, dates of transactions and invoice number for every
transaction. The amount of 20% discount shall be deducted from the gross income for income tax
purposes and from gross sales of the business enterprise concerned for purposes of the VAT and other
percentage taxes.
In Commissioner of Internal Revenue v. Central Luzon Drug Corporation, 5 the Court declared Sections 2(i)
and 4 of RR No. 02-94 as erroneous because these contravene RA 7432, 6 thus:
RA 7432 specifically allows private establishments to claim as tax credit the amount of discounts they
grant. In turn, the Implementing Rules and Regulations, issued pursuant thereto, provide the procedures
for its availment. To deny such credit, despite the plain mandate of the law and the regulations carrying
out that mandate, is indefensible. First, the definition given by petitioner is erroneous. It refers to tax credit
as the amount representing the 20 percent discount that "shall be deducted by the said establishments
from their gross income for income tax purposes and from their gross sales for value-added tax or other

percentage tax purposes." In ordinary business language, the tax credit represents the amount of such
discount. However, the manner by which the discount shall be credited against taxes has not been clarified
by the revenue regulations. By ordinary acceptation, a discount is an "abatement or reduction made from
the gross amount or value of anything." To be more precise, it is in business parlance "a deduction or
lowering of an amount of money;" or "a reduction from the full amount or value of something, especially a
price." In business there are many kinds of discount, the most common of which is that affecting the
income statement or financial report upon which the income tax is based.
xxxx
Sections 2.i and 4 of Revenue Regulations No. (RR) 2-94 define tax credit as the 20 percent discount
deductible from gross income for income tax purposes, or from gross sales for VAT or other percentage tax
purposes. In effect, the tax credit benefit under RA 7432 is related to a sales discount. This contrived
definition is improper, considering that the latter has to be deducted from gross sales in order to compute
the gross income in the income statement and cannot be deducted again, even for purposes of computing
the income tax. When the law says that the cost of the discount may be claimed as a tax credit, it means
that the amount when claimed shall be treated as a reduction from any tax liability, plain and simple.
The option to avail of the tax credit benefit depends upon the existence of a tax liability, but to limit the
benefit to a sales discount which is not even identical to the discount privilege that is granted by law
does not define it at all and serves no useful purpose. The definition must, therefore, be stricken down.
Laws Not Amended by Regulations
Second, the law cannot be amended by a mere regulation. In fact, a regulation that "operates to create a
rule out of harmony with the statute is a mere nullity;" it cannot prevail. It is a cardinal rule that courts "will
and should respect the contemporaneous construction placed upon a statute by the executive officers
whose duty it is to enforce it x x x." In the scheme of judicial tax administration, the need for certainty and
predictability in the implementation of tax laws is crucial. Our tax authorities fill in the details that
"Congress may not have the opportunity or competence to provide." The regulations these authorities
issue are relied upon by taxpayers, who are certain that these will be followed by the courts. Courts,
however, will not uphold these authorities interpretations when clearly absurd, erroneous or improper. In
the present case, the tax authorities have given the term tax credit in Sections 2.i and 4 of RR 2-94 a
meaning utterly in contrast to what RA 7432 provides. Their interpretation has muddled x x x the intent of
Congress in granting a mere discount privilege, not a sales discount. The administrative agency issuing
these regulations may not enlarge, alter or restrict the provisions of the law it administers; it cannot
engraft additional requirements not contemplated by the legislature.
In case of conflict, the law must prevail. A "regulation adopted pursuant to law is law." Conversely, a
regulation or any portion thereof not adopted pursuant to law is no law and has neither the force nor the
effect of law.7
On February 26, 2004, RA 92578 amended certain provisions of RA 7432, to wit:
SECTION 4. Privileges for the Senior Citizens. The senior citizens shall be entitled to the following:
(a) the grant of twenty percent (20%) discount from all establishments relative to the utilization of services
in hotels and similar lodging establishments, restaurants and recreation centers, and purchase of
medicines in all establishments for the exclusive use or enjoyment of senior citizens, including funeral and
burial services for the death of senior citizens;
xxxx
The establishment may claim the discounts granted under (a), (f), (g) and (h) as tax deduction based on
the net cost of the goods sold or services rendered: Provided, That the cost of the discount shall be allowed
as deduction from gross income for the same taxable year that the discount is granted. Provided, further,
That the total amount of the claimed tax deduction net of value added tax if applicable, shall be included
in their gross sales receipts for tax purposes and shall be subject to proper documentation and to the
provisions of the National Internal Revenue Code, as amended.
To implement the tax provisions of RA 9257, the Secretary of Finance issued RR No. 4-2006, the pertinent
provision of which provides:
SEC. 8. AVAILMENT BY ESTABLISHMENTS OF SALES DISCOUNTS AS DEDUCTION FROM GROSS INCOME.
Establishments enumerated in subparagraph (6) hereunder granting sales discounts to senior citizens on
the sale of goods and/or services specified thereunder are entitled to deduct the said discount from gross
income subject to the following conditions:
(1) Only that portion of the gross sales EXCLUSIVELY USED, CONSUMED OR ENJOYED BY THE SENIOR
CITIZEN shall be eligible for the deductible sales discount.
(2) The gross selling price and the sales discount MUST BE SEPARATELY INDICATED IN THE OFFICIAL
RECEIPT OR SALES INVOICE issued by the establishment for the sale of goods or services to the senior
citizen.
(3) Only the actual amount of the discount granted or a sales discount not exceeding 20% of the gross
selling price can be deducted from the gross income, net of value added tax, if applicable, for income tax
purposes, and from gross sales or gross receipts of the business enterprise concerned, for VAT or other
percentage tax purposes.
(4) The discount can only be allowed as deduction from gross income for the same taxable year that the
discount is granted.
(5) The business establishment giving sales discounts to qualified senior citizens is required to keep
separate and accurate record[s] of sales, which shall include the name of the senior citizen, TIN, OSCA ID,
gross sales/receipts, sales discount granted, [date] of [transaction] and invoice number for every sale
transaction to senior citizen.
(6) Only the following business establishments which granted sales discount to senior citizens on their sale
of goods and/or services may claim the said discount granted as deduction from gross income, namely:

xxxx
(i) Funeral parlors and similar establishments The beneficiary or any person who shall shoulder the
funeral and burial expenses of the deceased senior citizen shall claim the discount, such as casket,
embalmment, cremation cost and other related services for the senior citizen upon payment and
presentation of [his] death certificate.
The DSWD likewise issued its own Rules and Regulations Implementing RA 9257, to wit:
RULE VI DISCOUNTS AS TAX DEDUCTION OF ESTABLISHMENTS
Article 8. Tax Deduction of Establishments. The establishment may claim the discounts granted under
Rule V, Section 4 Discounts for Establishments, Section 9, Medical and Dental Services in Private Facilities
and Sections 10 and 11 Air, Sea and Land Transportation as tax deduction based on the net cost of the
goods sold or services rendered.
Provided, That the cost of the discount shall be allowed as deduction from gross income for the same
taxable year that the discount is granted; Provided, further, That the total amount of the claimed tax
deduction net of value added tax if applicable, shall be included in their gross sales receipts for tax
purposes and shall be subject to proper documentation and to the provisions of the National Internal
Revenue Code, as amended; Provided, finally, that the implementation of the tax deduction shall be
subject to the Revenue Regulations to be issued by the Bureau of Internal Revenue (BIR) and approved by
the Department of Finance (DOF).
Feeling aggrieved by the tax deduction scheme, petitioners filed the present recourse, praying that Section
4 of RA 7432, as amended by RA 9257, and the implementing rules and regulations issued by the DSWD
and the DOF be declared unconstitutional insofar as these allow business establishments to claim the 20%
discount given to senior citizens as a tax deduction; that the DSWD and the DOF be prohibited from
enforcing the same; and that the tax credit treatment of the 20% discount under the former Section 4 (a)
of RA 7432 be reinstated.
Issues
Petitioners raise the following issues:
A.
WHETHER THE PETITION PRESENTS AN ACTUAL CASE OR CONTROVERSY.
B.
WHETHER SECTION 4 OF REPUBLIC ACT NO. 9257 AND X X X ITS IMPLEMENTING RULES AND
REGULATIONS, INSOFAR AS THEY PROVIDE THAT THE TWENTY PERCENT (20%) DISCOUNT TO SENIOR
CITIZENS MAY BE CLAIMED AS A TAX DEDUCTION BY THE PRIVATE ESTABLISHMENTS, ARE INVALID AND
UNCONSTITUTIONAL.9
Petitioners Arguments
Petitioners emphasize that they are not questioning the 20% discount granted to senior citizens but are
only assailing the constitutionality of the tax deduction scheme prescribed under RA 9257 and the
implementing rules and regulations issued by the DSWD and the DOF. 10
Petitioners posit that the tax deduction scheme contravenes Article III, Section 9 of the Constitution, which
provides that: "[p]rivate property shall not be taken for public use without just compensation." 11
In support of their position, petitioners cite Central Luzon Drug Corporation, 12 where it was ruled that the
20% discount privilege constitutes taking of private property for public use which requires the payment of
just compensation,13 and Carlos Superdrug Corporation v. Department of Social Welfare and
Development,14 where it was acknowledged that the tax deduction scheme does not meet the definition of
just compensation.15
Petitioners likewise seek a reversal of the ruling in Carlos Superdrug Corporation 16 that the tax deduction
scheme adopted by the government is justified by police power. 17
They assert that "[a]lthough both police power and the power of eminent domain have the general welfare
for their object, there are still traditional distinctions between the two" 18 and that "eminent domain cannot
be made less supreme than police power." 19
Petitioners further claim that the legislature, in amending RA 7432, relied on an erroneous
contemporaneous construction that prior payment of taxes is required for tax credit. 20
Petitioners also contend that the tax deduction scheme violates Article XV, Section 4 21 and Article XIII,
Section 1122of the Constitution because it shifts the States constitutional mandate or duty of improving
the welfare of the elderly to the private sector. 23
Under the tax deduction scheme, the private sector shoulders 65% of the discount because only 35% 24 of it
is actually returned by the government.25
Consequently, the implementation of the tax deduction scheme prescribed under Section 4 of RA 9257
affects the businesses of petitioners.26
Thus, there exists an actual case or controversy of transcendental importance which deserves judicious
disposition on the merits by the highest court of the land.27
Respondents Arguments
Respondents, on the other hand, question the filing of the instant Petition directly with the Supreme Court
as this disregards the hierarchy of courts. 28
They likewise assert that there is no justiciable controversy as petitioners failed to prove that the tax
deduction treatment is not a "fair and full equivalent of the loss sustained" by them. 29
As to the constitutionality of RA 9257 and its implementing rules and regulations, respondents contend
that petitioners failed to overturn its presumption of constitutionality. 30
More important, respondents maintain that the tax deduction scheme is a legitimate exercise of the States
police power.31
Our Ruling
The Petition lacks merit.

There exists an actual case or controversy.


We shall first resolve the procedural issue. When the constitutionality of a law is put in issue, judicial
review may be availed of only if the following requisites concur: "(1) the existence of an actual and
appropriate case; (2) the existence of personal and substantial interest on the part of the party raising the
[question of constitutionality]; (3) recourse to judicial review is made at the earliest opportunity; and (4)
the [question of constitutionality] is the lis mota of the case."32
In this case, petitioners are challenging the constitutionality of the tax deduction scheme provided in RA
9257 and the implementing rules and regulations issued by the DSWD and the DOF. Respondents,
however, oppose the Petition on the ground that there is no actual case or controversy. We do not agree
with respondents. An actual case or controversy exists when there is "a conflict of legal rights" or "an
assertion of opposite legal claims susceptible of judicial resolution." 33
The Petition must therefore show that "the governmental act being challenged has a direct adverse effect
on the individual challenging it."34
In this case, the tax deduction scheme challenged by petitioners has a direct adverse effect on them. Thus,
it cannot be denied that there exists an actual case or controversy.
The validity of the 20% senior citizen discount and tax deduction scheme under RA 9257, as an
exercise of police power of the State, has already been settled in Carlos Superdrug
Corporation.
Petitioners posit that the resolution of this case lies in the determination of whether the legally mandated
20% senior citizen discount is an exercise of police power or eminent domain. If it is police power, no just
compensation is warranted. But if it is eminent domain, the tax deduction scheme is unconstitutional
because it is not a peso for peso reimbursement of the 20% discount given to senior citizens. Thus, it
constitutes taking of private property without payment of just compensation. At the outset, we note that
this question has been settled in Carlos Superdrug Corporation. 35
In that case, we ruled:
Petitioners assert that Section 4(a) of the law is unconstitutional because it constitutes deprivation of
private property. Compelling drugstore owners and establishments to grant the discount will result in a loss
of profit and capital because 1) drugstores impose a mark-up of only 5% to 10% on branded medicines;
and 2) the law failed to provide a scheme whereby drugstores will be justly compensated for the discount.
Examining petitioners arguments, it is apparent that what petitioners are ultimately questioning is the
validity of the tax deduction scheme as a reimbursement mechanism for the twenty percent (20%)
discount that they extend to senior citizens. Based on the afore-stated DOF Opinion, the tax deduction
scheme does not fully reimburse petitioners for the discount privilege accorded to senior citizens. This is
because the discount is treated as a deduction, a tax-deductible expense that is subtracted from the gross
income and results in a lower taxable income. Stated otherwise, it is an amount that is allowed by law to
reduce the income prior to the application of the tax rate to compute the amount of tax which is due.
Being a tax deduction, the discount does not reduce taxes owed on a peso for peso basis but merely offers
a fractional reduction in taxes owed. Theoretically, the treatment of the discount as a deduction reduces
the net income of the private establishments concerned. The discounts given would have entered the
coffers and formed part of the gross sales of the private establishments, were it not for R.A. No. 9257. The
permanent reduction in their total revenues is a forced subsidy corresponding to the taking of private
property for public use or benefit. This constitutes compensable taking for which petitioners would
ordinarily become entitled to a just compensation. Just compensation is defined as the full and fair
equivalent of the property taken from its owner by the expropriator. The measure is not the takers gain
but the owners loss. The word just is used to intensify the meaning of the word compensation, and to
convey the idea that the equivalent to be rendered for the property to be taken shall be real, substantial,
full and ample. A tax deduction does not offer full reimbursement of the senior citizen discount. As such, it
would not meet the definition of just compensation. Having said that, this raises the question of whether
the State, in promoting the health and welfare of a special group of citizens, can impose upon private
establishments the burden of partly subsidizing a government program. The Court believes so. The Senior
Citizens Act was enacted primarily to maximize the contribution of senior citizens to nation-building, and to
grant benefits and privileges to them for their improvement and well-being as the State considers them an
integral part of our society. The priority given to senior citizens finds its basis in the Constitution as set
forth in the law itself. Thus, the Act provides: SEC. 2. Republic Act No. 7432 is hereby amended to read as
follows:
SECTION 1. Declaration of Policies and Objectives. Pursuant to Article XV, Section 4 of the Constitution, it
is the duty of the family to take care of its elderly members while the State may design programs of social
security for them. In addition to this, Section 10 in the Declaration of Principles and State Policies provides:
"The State shall provide social justice in all phases of national development." Further, Article XIII, Section
11, provides: "The State shall adopt an integrated and comprehensive approach to health development
which shall endeavor to make essential goods, health and other social services available to all the people
at affordable cost. There shall be priority for the needs of the underprivileged sick, elderly, disabled,
women and children." Consonant with these constitutional principles the following are the declared policies
of this Act:

(f) To recognize the important role of the private sector in the improvement of the welfare of senior citizens
and to actively seek their partnership.
To implement the above policy, the law grants a twenty percent discount to senior citizens for medical and
dental services, and diagnostic and laboratory fees; admission fees charged by theaters, concert halls,
circuses, carnivals, and other similar places of culture, leisure and amusement; fares for domestic land, air
and sea travel; utilization of services in hotels and similar lodging establishments, restaurants and

recreation centers; and purchases of medicines for the exclusive use or enjoyment of senior citizens. As a
form of reimbursement, the law provides that business establishments extending the twenty percent
discount to senior citizens may claim the discount as a tax deduction. The law is a legitimate exercise of
police power which, similar to the power of eminent domain, has general welfare for its object. Police
power is not capable of an exact definition, but has been purposely veiled in general terms to underscore
its comprehensiveness to meet all exigencies and provide enough room for an efficient and flexible
response to conditions and circumstances, thus assuring the greatest benefits. Accordingly, it has been
described as "the most essential, insistent and the least limitable of powers, extending as it does to all the
great public needs." It is "[t]he power vested in the legislature by the constitution to make, ordain, and
establish all manner of wholesome and reasonable laws, statutes, and ordinances, either with penalties or
without, not repugnant to the constitution, as they shall judge to be for the good and welfare of the
commonwealth, and of the subjects of the same." For this reason, when the conditions so demand as
determined by the legislature, property rights must bow to the primacy of police power because property
rights, though sheltered by due process, must yield to general welfare. Police power as an attribute to
promote the common good would be diluted considerably if on the mere plea of petitioners that they will
suffer loss of earnings and capital, the questioned provision is invalidated. Moreover, in the absence of
evidence demonstrating the alleged confiscatory effect of the provision in question, there is no basis for its
nullification in view of the presumption of validity which every law has in its favor. Given these, it is
incorrect for petitioners to insist that the grant of the senior citizen discount is unduly oppressive to their
business, because petitioners have not taken time to calculate correctly and come up with a financial
report, so that they have not been able to show properly whether or not the tax deduction scheme really
works greatly to their disadvantage. In treating the discount as a tax deduction, petitioners insist that they
will incur losses because, referring to the DOF Opinion, for every P1.00 senior citizen discount that
petitioners would give, P0.68 will be shouldered by them as only P0.32 will be refunded by the government
by way of a tax deduction. To illustrate this point, petitioner Carlos Super Drug cited the anti-hypertensive
maintenance drug Norvasc as an example. According to the latter, it acquires Norvasc from the distributors
at P37.57 per tablet, and retails it at P39.60 (or at a margin of 5%). If it grants a 20% discount to senior
citizens or an amount equivalent to P7.92, then it would have to sell Norvasc at P31.68 which translates to
a loss from capital of P5.89 per tablet. Even if the government will allow a tax deduction, only P2.53 per
tablet will be refunded and not the full amount of the discount which is P7.92. In short, only 32% of the
20% discount will be reimbursed to the drugstores. Petitioners computation is flawed. For purposes of
reimbursement, the law states that the cost of the discount shall be deducted from gross income, the
amount of income derived from all sources before deducting allowable expenses, which will result in net
income. Here, petitioners tried to show a loss on a per transaction basis, which should not be the case. An
income statement, showing an accounting of petitioners' sales, expenses, and net profit (or loss) for a
given period could have accurately reflected the effect of the discount on their income. Absent any
financial statement, petitioners cannot substantiate their claim that they will be operating at a loss should
they give the discount. In addition, the computation was erroneously based on the assumption that their
customers consisted wholly of senior citizens. Lastly, the 32% tax rate is to be imposed on income, not on
the amount of the discount.
Furthermore, it is unfair for petitioners to criticize the law because they cannot raise the prices of their
medicines given the cutthroat nature of the players in the industry. It is a business decision on the part of
petitioners to peg the mark-up at 5%. Selling the medicines below acquisition cost, as alleged by
petitioners, is merely a result of this decision. Inasmuch as pricing is a property right, petitioners cannot
reproach the law for being oppressive, simply because they cannot afford to raise their prices for fear of
losing their customers to competition. The Court is not oblivious of the retail side of the pharmaceutical
industry and the competitive pricing component of the business. While the Constitution protects property
rights, petitioners must accept the realities of business and the State, in the exercise of police power, can
intervene in the operations of a business which may result in an impairment of property rights in the
process.
Moreover, the right to property has a social dimension. While Article XIII of the Constitution provides the
precept for the protection of property, various laws and jurisprudence, particularly on agrarian reform and
the regulation of contracts and public utilities, continuously serve as x x x reminder[s] that the right to
property can be relinquished upon the command of the State for the promotion of public good. Undeniably,
the success of the senior citizens program rests largely on the support imparted by petitioners and the
other private establishments concerned. This being the case, the means employed in invoking the active
participation of the private sector, in order to achieve the purpose or objective of the law, is reasonably
and directly related. Without sufficient proof that Section 4 (a) of R.A. No. 9257 is arbitrary, and that the
continued implementation of the same would be unconscionably detrimental to petitioners, the Court will
refrain from quashing a legislative act. 36 (Bold in the original; underline supplied)
We, thus, found that the 20% discount as well as the tax deduction scheme is a valid exercise of the police
power of the State.
No compelling reason has been proffered to overturn, modify or abandon the ruling in Carlos
Superdrug Corporation.
Petitioners argue that we have previously ruled in Central Luzon Drug Corporation 37 that the 20% discount
is an exercise of the power of eminent domain, thus, requiring the payment of just compensation. They
urge us to re-examine our ruling in Carlos Superdrug Corporation38 which allegedly reversed the ruling in
Central Luzon Drug Corporation.39
They also point out that Carlos Superdrug Corporation40 recognized that the tax deduction scheme under
the assailed law does not provide for sufficient just compensation. We agree with petitioners observation

that there are statements in Central Luzon Drug Corporation41 describing the 20% discount as an exercise
of the power of eminent domain, viz.:
[T]he privilege enjoyed by senior citizens does not come directly from the State, but rather from the
private establishments concerned. Accordingly, the tax credit benefit granted to these establishments can
be deemed as their just compensation for private property taken by the State for public use. The concept
of public use is no longer confined to the traditional notion of use by the public, but held synonymous with
public interest, public benefit, public welfare, and public convenience. The discount privilege to which our
senior citizens are entitled is actually a benefit enjoyed by the general public to which these citizens
belong. The discounts given would have entered the coffers and formed part of the gross sales of the
private establishments concerned, were it not for RA 7432. The permanent reduction in their total
revenues is a forced subsidy corresponding to the taking of private property for public use or benefit. As a
result of the 20 percent discount imposed by RA 7432, respondent becomes entitled to a just
compensation. This term refers not only to the issuance of a tax credit certificate indicating the correct
amount of the discounts given, but also to the promptness in its release. Equivalent to the payment of
property taken by the State, such issuance when not done within a reasonable time from the grant of
the discounts cannot be considered as just compensation. In effect, respondent is made to suffer the
consequences of being immediately deprived of its revenues while awaiting actual receipt, through the
certificate, of the equivalent amount it needs to cope with the reduction in its revenues. Besides, the
taxation power can also be used as an implement for the exercise of the power of eminent domain. Tax
measures are but "enforced contributions exacted on pain of penal sanctions" and "clearly imposed for a
public purpose." In recent years, the power to tax has indeed become a most effective tool to realize social
justice, public welfare, and the equitable distribution of wealth. While it is a declared commitment under
Section 1 of RA 7432, social justice "cannot be invoked to trample on the rights of property owners who
under our Constitution and laws are also entitled to protection. The social justice consecrated in our
[C]onstitution [is] not intended to take away rights from a person and give them to another who is not
entitled thereto." For this reason, a just compensation for income that is taken away from respondent
becomes necessary. It is in the tax credit that our legislators find support to realize social justice, and no
administrative body can alter that fact. To put it differently, a private establishment that merely breaks
even without the discounts yet will surely start to incur losses because of such discounts. The same
effect is expected if its mark-up is less than 20 percent, and if all its sales come from retail purchases by
senior citizens. Aside from the observation we have already raised earlier, it will also be grossly unfair to
an establishment if the discounts will be treated merely as deductions from either its gross income or its
gross sales. Operating at a loss through no fault of its own, it will realize that the tax credit limitation under
RR 2-94 is inutile, if not improper. Worse, profit-generating businesses will be put in a better position if they
avail themselves of tax credits denied those that are losing, because no taxes are due from the
latter.42 (Italics in the original; emphasis supplied)
The above was partly incorporated in our ruling in Carlos Superdrug Corporation 43 when we stated
preliminarily that
Petitioners assert that Section 4(a) of the law is unconstitutional because it constitutes deprivation of
private property. Compelling drugstore owners and establishments to grant the discount will result in a loss
of profit and capital because 1) drugstores impose a mark-up of only 5% to 10% on branded medicines;
and 2) the law failed to provide a scheme whereby drugstores will be justly compensated for the discount.
Examining petitioners arguments, it is apparent that what petitioners are ultimately questioning is the
validity of the tax deduction scheme as a reimbursement mechanism for the twenty percent (20%)
discount that they extend to senior citizens. Based on the afore-stated DOF Opinion, the tax deduction
scheme does not fully reimburse petitioners for the discount privilege accorded to senior citizens. This is
because the discount is treated as a deduction, a tax-deductible expense that is subtracted from the gross
income and results in a lower taxable income. Stated otherwise, it is an amount that is allowed by law to
reduce the income prior to the application of the tax rate to compute the amount of tax which is due.
Being a tax deduction, the discount does not reduce taxes owed on a peso for peso basis but merely offers
a fractional reduction in taxes owed. Theoretically, the treatment of the discount as a deduction reduces
the net income of the private establishments concerned. The discounts given would have entered the
coffers and formed part of the gross sales of the private establishments, were it not for R.A. No. 9257. The
permanent reduction in their total revenues is a forced subsidy corresponding to the taking of private
property for public use or benefit. This constitutes compensable taking for which petitioners would
ordinarily become entitled to a just compensation. Just compensation is defined as the full and fair
equivalent of the property taken from its owner by the expropriator. The measure is not the takers gain
but the owners loss. The word just is used to intensify the meaning of the word compensation, and to
convey the idea that the equivalent to be rendered for the property to be taken shall be real, substantial,
full and ample. A tax deduction does not offer full reimbursement of the senior citizen discount. As such, it
would not meet the definition of just compensation. Having said that, this raises the question of whether
the State, in promoting the health and welfare of a special group of citizens, can impose upon private
establishments the burden of partly subsidizing a government program. The Court believes so. 44
This, notwithstanding, we went on to rule in Carlos Superdrug Corporation45 that the 20% discount and tax
deduction scheme is a valid exercise of the police power of the State. The present case, thus, affords an
opportunity for us to clarify the above-quoted statements in Central Luzon Drug Corporation 46 and Carlos
Superdrug Corporation.47
First, we note that the above-quoted disquisition on eminent domain in Central Luzon Drug
Corporation48 is obiter dicta and, thus, not binding precedent. As stated earlier, in Central Luzon Drug
Corporation,49 we ruled that the BIR acted ultra vires when it effectively treated the 20% discount as a tax
deduction, under Sections 2.i and 4 of RR No. 2-94, despite the clear wording of the previous law that the

same should be treated as a tax credit. We were, therefore, not confronted in that case with the issue as to
whether the 20% discount is an exercise of police power or eminent domain. Second, although we
adverted to Central Luzon Drug Corporation50 in our ruling in Carlos Superdrug Corporation,51 this referred
only to preliminary matters. A fair reading of Carlos Superdrug Corporation 52 would show that we
categorically ruled therein that the 20% discount is a valid exercise of police power. Thus, even if the
current law, through its tax deduction scheme (which abandoned the tax credit scheme under the previous
law), does not provide for a peso for peso reimbursement of the 20% discount given by private
establishments, no constitutional infirmity obtains because, being a valid exercise of police power,
payment of just compensation is not warranted. We have carefully reviewed the basis of our ruling in
Carlos Superdrug Corporation53 and we find no cogent reason to overturn, modify or abandon it. We also
note that petitioners arguments are a mere reiteration of those raised and resolved in Carlos Superdrug
Corporation.54 Thus, we sustain Carlos Superdrug Corporation.55
Nonetheless, we deem it proper, in what follows, to amplify our explanation in Carlos Superdrug
Corporation56 as to why the 20% discount is a valid exercise of police power and why it may not, under the
specific circumstances of this case, be considered as an exercise of the power of eminent domain contrary
to the obiter in Central Luzon Drug Corporation.57
Police power versus eminent domain.
Police power is the inherent power of the State to regulate or to restrain the use of liberty and property for
public welfare.58
The only limitation is that the restriction imposed should be reasonable, not oppressive. 59
In other words, to be a valid exercise of police power, it must have a lawful subject or objective and a
lawful method of accomplishing the goal.60
Under the police power of the State, "property rights of individuals may be subjected to restraints and
burdens in order to fulfill the objectives of the government."61
The State "may interfere with personal liberty, property, lawful businesses and occupations to promote the
general welfare [as long as] the interference [is] reasonable and not arbitrary." 62
Eminent domain, on the other hand, is the inherent power of the State to take or appropriate private
property for public use.63
The Constitution, however, requires that private property shall not be taken without due process of law and
the payment of just compensation.64
Traditional distinctions exist between police power and eminent domain. In the exercise of police power, a
property right is impaired by regulation, 65 or the use of property is merely prohibited, regulated or
restricted66 to promote public welfare. In such cases, there is no compensable taking, hence, payment of
just compensation is not required. Examples of these regulations are property condemned for being
noxious or intended for noxious purposes (e.g., a building on the verge of collapse to be demolished for
public safety, or obscene materials to be destroyed in the interest of public morals) 67 as well as zoning
ordinances prohibiting the use of property for purposes injurious to the health, morals or safety of the
community (e.g., dividing a citys territory into residential and industrial areas). 68
It has, thus, been observed that, in the exercise of police power (as distinguished from eminent domain),
although the regulation affects the right of ownership, none of the bundle of rights which constitute
ownership is appropriated for use by or for the benefit of the public. 69
On the other hand, in the exercise of the power of eminent domain, property interests are appropriated
and applied to some public purpose which necessitates the payment of just compensation therefor.
Normally, the title to and possession of the property are transferred to the expropriating authority.
Examples include the acquisition of lands for the construction of public highways as well as agricultural
lands acquired by the government under the agrarian reform law for redistribution to qualified farmer
beneficiaries. However, it is a settled rule that the acquisition of title or total destruction of the property is
not essential for "taking" under the power of eminent domain to be present. 70
Examples of these include establishment of easements such as where the land owner is perpetually
deprived of his proprietary rights because of the hazards posed by electric transmission lines constructed
above his property71 or the compelled interconnection of the telephone system between the government
and a private company.72
In these cases, although the private property owner is not divested of ownership or possession, payment of
just compensation is warranted because of the burden placed on the property for the use or benefit of the
public.
The 20% senior citizen discount is an exercise of police power.
It may not always be easy to determine whether a challenged governmental act is an exercise of police
power or eminent domain. The very nature of police power as elastic and responsive to various social
conditions73 as well as the evolving meaning and scope of public use 74 and just compensation75 in eminent
domain evinces that these are not static concepts. Because of the exigencies of rapidly changing times,
Congress may be compelled to adopt or experiment with different measures to promote the general
welfare which may not fall squarely within the traditionally recognized categories of police power and
eminent domain. The judicious approach, therefore, is to look at the nature and effects of the challenged
governmental act and decide, on the basis thereof, whether the act is the exercise of police power or
eminent domain. Thus, we now look at the nature and effects of the 20% discount to determine if it
constitutes an exercise of police power or eminent domain. The 20% discount is intended to improve the
welfare of senior citizens who, at their age, are less likely to be gainfully employed, more prone to illnesses
and other disabilities, and, thus, in need of subsidy in purchasing basic commodities. It may not be amiss
to mention also that the discount serves to honor senior citizens who presumably spent the productive
years of their lives on contributing to the development and progress of the nation. This distinct cultural
Filipino practice of honoring the elderly is an integral part of this law. As to its nature and effects, the 20%

discount is a regulation affecting the ability of private establishments to price their products and services
relative to a special class of individuals, senior citizens, for which the Constitution affords preferential
concern.76
In turn, this affects the amount of profits or income/gross sales that a private establishment can derive
from senior citizens. In other words, the subject regulation affects the pricing, and, hence, the profitability
of a private establishment. However, it does not purport to appropriate or burden specific properties, used
in the operation or conduct of the business of private establishments, for the use or benefit of the public,
or senior citizens for that matter, but merely regulates the pricing of goods and services relative to, and
the amount of profits or income/gross sales that such private establishments may derive from, senior
citizens. The subject regulation may be said to be similar to, but with substantial distinctions from, price
control or rate of return on investment control laws which are traditionally regarded as police power
measures.77
These laws generally regulate public utilities or industries/enterprises imbued with public interest in order
to protect consumers from exorbitant or unreasonable pricing as well as temper corporate greed by
controlling the rate of return on investment of these corporations considering that they have a monopoly
over the goods or services that they provide to the general public. The subject regulation differs therefrom
in that (1) the discount does not prevent the establishments from adjusting the level of prices of their
goods and services, and (2) the discount does not apply to all customers of a given establishment but only
to the class of senior citizens. Nonetheless, to the degree material to the resolution of this case, the 20%
discount may be properly viewed as belonging to the category of price regulatory measures which affect
the profitability of establishments subjected thereto. On its face, therefore, the subject regulation is a
police power measure. The obiter in Central Luzon Drug Corporation, 78 however, describes the 20%
discount as an exercise of the power of eminent domain and the tax credit, under the previous law,
equivalent to the amount of discount given as the just compensation therefor. The reason is that (1) the
discount would have formed part of the gross sales of the establishment were it not for the law prescribing
the 20% discount, and (2) the permanent reduction in total revenues is a forced subsidy corresponding to
the taking of private property for public use or benefit. The flaw in this reasoning is in its premise. It
presupposes that the subject regulation, which impacts the pricing and, hence, the profitability of a private
establishment, automatically amounts to a deprivation of property without due process of law. If this were
so, then all price and rate of return on investment control laws would have to be invalidated because they
impact, at some level, the regulated establishments profits or income/gross sales, yet there is no provision
for payment of just compensation. It would also mean that overnment cannot set price or rate of return on
investment limits, which reduce the profits or income/gross sales of private establishments, if no just
compensation is paid even if the measure is not confiscatory. The obiter is, thus, at odds with the settled
octrine that the State can employ police power measures to regulate the pricing of goods and services,
and, hence, the profitability of business establishments in order to pursue legitimate State objectives for
the common good, provided that the regulation does not go too far as to amount to "taking." 79
In City of Manila v. Laguio, Jr.,80 we recognized that x x x a taking also could be found if government
regulation of the use of property went "too far." When regulation reaches a certain magnitude, in most if
not in all cases there must be an exercise of eminent domain and compensation to support the act. While
property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking.
No formula or rule can be devised to answer the questions of what is too far and when regulation becomes
a taking. In Mahon, Justice Holmes recognized that it was "a question of degree and therefore cannot be
disposed of by general propositions." On many other occasions as well, the U.S. Supreme Court has said
that the issue of when regulation constitutes a taking is a matter of considering the facts in each case. The
Court asks whether justice and fairness require that the economic loss caused by public action must be
compensated by the government and thus borne by the public as a whole, or whether the loss should
remain concentrated on those few persons subject to the public action. 81
The impact or effect of a regulation, such as the one under consideration, must, thus, be determined on a
case-to-case basis. Whether that line between permissible regulation under police power and "taking"
under eminent domain has been crossed must, under the specific circumstances of this case, be subject to
proof and the one assailing the constitutionality of the regulation carries the heavy burden of proving that
the measure is unreasonable, oppressive or confiscatory. The time-honored rule is that the burden of
proving the unconstitutionality of a law rests upon the one assailing it and "the burden becomes heavier
when police power is at issue."82
The 20% senior citizen discount has not been shown to be unreasonable, oppressive or confiscatory.
In Alalayan v. National Power Corporation,83 petitioners, who were franchise holders of electric plants,
challenged the validity of a law limiting their allowable net profits to no more than 12% per annum of their
investments plus two-month operating expenses. In rejecting their plea, we ruled that, in an earlier case, it
was found that 12% is a reasonable rate of return and that petitioners failed to prove that the aforesaid
rate is confiscatory in view of the presumption of constitutionality. 84
We adopted a similar line of reasoning in Carlos Superdrug Corporation 85 when we ruled that petitioners
therein failed to prove that the 20% discount is arbitrary, oppressive or confiscatory. We noted that no
evidence, such as a financial report, to establish the impact of the 20% discount on the overall profitability
of petitioners was presented in order to show that they would be operating at a loss due to the subject
regulation or that the continued implementation of the law would be unconscionably detrimental to the
business operations of petitioners. In the case at bar, petitioners proceeded with a hypothetical
computation of the alleged loss that they will suffer similar to what the petitioners in Carlos Superdrug
Corporation86 did. Petitioners went directly to this Court without first establishing the factual bases of their
claims. Hence, the present recourse must, likewise, fail. Because all laws enjoy the presumption of
constitutionality, courts will uphold a laws validity if any set of facts may be conceived to sustain it. 87

On its face, we find that there are at least two conceivable bases to sustain the subject regulations validity
absent clear and convincing proof that it is unreasonable, oppressive or confiscatory. Congress may have
legitimately concluded that business establishments have the capacity to absorb a decrease in profits or
income/gross sales due to the 20% discount without substantially affecting the reasonable rate of return on
their investments considering (1) not all customers of a business establishment are senior citizens and (2)
the level of its profit margins on goods and services offered to the general public. Concurrently, Congress
may have, likewise, legitimately concluded that the establishments, which will be required to extend the
20% discount, have the capacity to revise their pricing strategy so that whatever reduction in profits or
income/gross sales that they may sustain because of sales to senior citizens, can be recouped through
higher mark-ups or from other products not subject of discounts. As a result, the discounts resulting from
sales to senior citizens will not be confiscatory or unduly oppressive. In sum, we sustain our ruling in Carlos
Superdrug Corporation88 that the 20% senior citizen discount and tax deduction scheme are valid exercises
of police power of the State absent a clear showing that it is arbitrary, oppressive or confiscatory.
Conclusion
In closing, we note that petitioners hypothesize, consistent with our previous ratiocinations, that the
discount will force establishments to raise their prices in order to compensate for its impact on overall
profits or income/gross sales. The general public, or those not belonging to the senior citizen class, are,
thus, made to effectively shoulder the subsidy for senior citizens. This, in petitioners view, is unfair.
As already mentioned, Congress may be reasonably assumed to have foreseen this eventuality. But, more
importantly, this goes into the wisdom, efficacy and expediency of the subject law which is not proper for
judicial review. In a way, this law pursues its social equity objective in a non-traditional manner unlike past
and existing direct subsidy programs of the government for the poor and marginalized sectors of our
society. Verily, Congress must be given sufficient leeway in formulating welfare legislations given the
enormous challenges that the government faces relative to, among others, resource adequacy and
administrative capability in implementing social reform measures which aim to protect and uphold the
interests of those most vulnerable in our society. In the process, the individual, who enjoys the rights,
benefits and privileges of living in a democratic polity, must bear his share in supporting measures
intended for the common good. This is only fair. In fine, without the requisite showing of a clear and
unequivocal breach of the Constitution, the validity of the assailed law must be sustained.
Refutation of the Dissent
The main points of Justice Carpios Dissent may be summarized as follows: (1) the discussion on eminent
domain in Central Luzon Drug Corporation89 is not obiter dicta ; (2) allowable taking, in police power, is
limited to property that is destroyed or placed outside the commerce of man for public welfare; (3) the
amount of mandatory discount is private property within the ambit of Article III, Section 9 90 of the
Constitution; and (4) the permanent reduction in a private establishments total revenue, arising from the
mandatory discount, is a taking of private property for public use or benefit, hence, an exercise of the
power of eminent domain requiring the payment of just compensation. I We maintain that the discussion
on eminent domain in Central Luzon Drug Corporation91 is obiter dicta. As previously discussed, in Central
Luzon Drug Corporation,92 the BIR, pursuant to Sections 2.i and 4 of RR No. 2-94, treated the senior citizen
discount in the previous law, RA 7432, as a tax deduction instead of a tax credit despite the clear provision
in that law which stated
SECTION 4. Privileges for the Senior Citizens. The senior citizens shall be entitled to the following:
a) The grant of twenty percent (20%) discount from all establishments relative to utilization of
transportation services, hotels and similar lodging establishment, restaurants and recreation centers and
purchase of medicines anywhere in the country: Provided, That private establishments may claim the cost
as tax credit; (Emphasis supplied)
Thus, the Court ruled that the subject revenue regulation violated the law, viz:
The 20 percent discount required by the law to be given to senior citizens is a tax credit, not merely a tax
deduction from the gross income or gross sale of the establishment concerned. A tax credit is used by a
private establishment only after the tax has been computed; a tax deduction, before the tax is computed.
RA 7432 unconditionally grants a tax credit to all covered entities. Thus, the provisions of the revenue
regulation that withdraw or modify such grant are void. Basic is the rule that administrative regulations
cannot amend or revoke the law.93
As can be readily seen, the discussion on eminent domain was not necessary in order to arrive at this
conclusion. All that was needed was to point out that the revenue regulation contravened the law which it
sought to implement. And, precisely, this was done in Central Luzon Drug Corporation 94 by comparing the
wording of the previous law vis--vis the revenue regulation; employing the rules of statutory construction;
and applying the settled principle that a regulation cannot amend the law it seeks to implement. A close
reading of Central Luzon Drug Corporation95 would show that the Court went on to state that the tax credit
"can be deemed" as just compensation only to explain why the previous law provides for a tax credit
instead of a tax deduction. The Court surmised that the tax credit was a form of just compensation given
to the establishments covered by the 20% discount. However, the reason why the previous law provided
for a tax credit and not a tax deduction was not necessary to resolve the issue as to whether the revenue
regulation contravenes the law. Hence, the discussion on eminent domain is obiter dicta.
A court, in resolving cases before it, may look into the possible purposes or reasons that impelled the
enactment of a particular statute or legal provision. However, statements made relative thereto are not
always necessary in resolving the actual controversies presented before it. This was the case in Central
Luzon Drug Corporation96resulting in that unfortunate statement that the tax credit "can be deemed" as
just compensation. This, in turn, led to the erroneous conclusion, by deductive reasoning, that the 20%
discount is an exercise of the power of eminent domain. The Dissent essentially adopts this theory and
reasoning which, as will be shown below, is contrary to settled principles in police power and eminent

domain analysis. II The Dissent discusses at length the doctrine on "taking" in police power which occurs
when private property is destroyed or placed outside the commerce of man. Indeed, there is a whole class
of police power measures which justify the destruction of private property in order to preserve public
health, morals, safety or welfare. As earlier mentioned, these would include a building on the verge of
collapse or confiscated obscene materials as well as those mentioned by the Dissent with regard to
property used in violating a criminal statute or one which constitutes a nuisance. In such cases, no
compensation is required. However, it is equally true that there is another class of police power measures
which do not involve the destruction of private property but merely regulate its use. The minimum wage
law, zoning ordinances, price control laws, laws regulating the operation of motels and hotels, laws limiting
the working hours to eight, and the like would fall under this category. The examples cited by the Dissent,
likewise, fall under this category: Article 157 of the Labor Code, Sections 19 and 18 of the Social Security
Law, and Section 7 of the Pag-IBIG Fund Law. These laws merely regulate or, to use the term of the Dissent,
burden the conduct of the affairs of business establishments. In such cases, payment of just compensation
is not required because they fall within the sphere of permissible police power measures. The senior citizen
discount law falls under this latter category. III The Dissent proceeds from the theory that the permanent
reduction of profits or income/gross sales, due to the 20% discount, is a "taking" of private property for
public purpose without payment of just compensation. At the outset, it must be emphasized that
petitioners never presented any evidence to establish that they were forced to suffer enormous losses or
operate at a loss due to the effects of the assailed law. They came directly to this Court and provided a
hypothetical computation of the loss they would allegedly suffer due to the operation of the assailed law.
The central premise of the Dissents argument that the 20% discount results in a permanent reduction in
profits or income/gross sales, or forces a business establishment to operate at a loss is, thus, wholly
unsupported by competent evidence. To be sure, the Court can invalidate a law which, on its face, is
arbitrary, oppressive or confiscatory.97
But this is not the case here.
In the case at bar, evidence is indispensable before a determination of a constitutional violation can be
made because of the following reasons. First, the assailed law, by imposing the senior citizen discount,
does not take any of the properties used by a business establishment like, say, the land on which a
manufacturing plant is constructed or the equipment being used to produce goods or services. Second,
rather than taking specific properties of a business establishment, the senior citizen discount law merely
regulates the prices of the goods or services being sold to senior citizens by mandating a 20% discount.
Thus, if a product is sold at P10.00 to the general public, then it shall be sold at P8.00 ( i.e., P10.00 less
20%) to senior citizens. Note that the law does not impose at what specific price the product shall be sold,
only that a 20% discount shall be given to senior citizens based on the price set by the business
establishment. A business establishment is, thus, free to adjust the prices of the goods or services it
provides to the general public. Accordingly, it can increase the price of the above product to P20.00 but is
required to sell it at P16.00 (i.e. , P20.00 less 20%) to senior citizens. Third, because the law impacts the
prices of the goods or services of a particular establishment relative to its sales to senior citizens, its
profits or income/gross sales are affected. The extent of the impact would, however, depend on the profit
margin of the business establishment on a particular good or service. If a product costs P5.00 to produce
and is sold at P10.00, then the profit98 is P5.0099 or a profit margin100 of 50%.101
Under the assailed law, the aforesaid product would have to be sold at P8.00 to senior citizens yet the
business would still earn P3.00102 or a 30%103 profit margin. On the other hand, if the product costs P9.00 to
produce and is required to be sold at P8.00 to senior citizens, then the business would experience a loss
of P1.00.104
But note that since not all customers of a business establishment are senior citizens, the business
establishment may continue to earn P1.00 from non-senior citizens which, in turn, can offset any loss
arising from sales to senior citizens.
Fourth, when the law imposes the 20% discount in favor of senior citizens, it does not prevent the business
establishment from revising its pricing strategy.
By revising its pricing strategy, a business establishment can recoup any reduction of profits or
income/gross sales which would otherwise arise from the giving of the 20% discount. To illustrate, suppose
A has two customers: X, a senior citizen, and Y, a non-senior citizen. Prior to the law, A sells his products
at P10.00 a piece to X and Y resulting in income/gross sales of P20.00 (P10.00 + P10.00). With the passage
of the law, A must now sell his product to X at P8.00 (i.e., P10.00 less 20%) so that his income/gross sales
would be P18.00 (P8.00 + P10.00) or lower by P2.00. To prevent this from happening, A decides to increase
the price of his products to P11.11 per piece. Thus, he sells his product to X at P8.89 (i.e. , P11.11 less
20%) and to Y at P11.11. As a result, his income/gross sales would still be P20.00105 (P8.89 + P11.11). The
capacity, then, of business establishments to revise their pricing strategy makes it possible for them not to
suffer any reduction in profits or income/gross sales, or, in the alternative, mitigate the reduction of their
profits or income/gross sales even after the passage of the law. In other words, business establishments
have the capacity to adjust their prices so that they may remain profitable even under the operation of the
assailed law.
The Dissent, however, states that The explanation by the majority that private establishments can
always increase their prices to recover the mandatory discount will only encourage private establishments
to adjust their prices upwards to the prejudice of customers who do not enjoy the 20% discount. It was
likewise suggested that if a company increases its prices, despite the application of the 20% discount, the
establishment becomes more profitable than it was before the implementation of R.A. 7432. Such an
economic justification is self-defeating, for more consumers will suffer from the price increase than will
benefit from the 20% discount. Even then, such ability to increase prices cannot legally validate a violation
of the eminent domain clause.106

10

But, if it is possible that the business establishment, by adjusting its prices, will suffer no reduction in its
profits or income/gross sales (or suffer some reduction but continue to operate profitably) despite giving
the discount, what would be the basis to strike down the law? If it is possible that the business
establishment, by adjusting its prices, will not be unduly burdened, how can there be a finding that the
assailed law is an unconstitutional exercise of police power or eminent domain? That there may be a
burden placed on business establishments or the consuming public as a result of the operation of the
assailed law is not, by itself, a ground to declare it unconstitutional for this goes into the wisdom and
expediency of the law.
The cost of most, if not all, regulatory measures of the government on business establishments is
ultimately passed on to the consumers but that, by itself, does not justify the wholesale nullification of
these measures. It is a basic postulate of our democratic system of government that the Constitution is a
social contract whereby the people have surrendered their sovereign powers to the State for the common
good.107
All persons may be burdened by regulatory measures intended for the common good or to serve some
important governmental interest, such as protecting or improving the welfare of a special class of people
for which the Constitution affords preferential concern. Indubitably, the one assailing the law has the heavy
burden of proving that the regulation is unreasonable, oppressive or confiscatory, or has gone "too far" as
to amount to a "taking." Yet, here, the Dissent would have this Court nullify the law without any proof of
such nature.
Further, this Court is not the proper forum to debate the economic theories or realities that impelled
Congress to shift from the tax credit to the tax deduction scheme. It is not within our power or competence
to judge which scheme is more or less burdensome to business establishments or the consuming public
and, thereafter, to choose which scheme the State should use or pursue. The shift from the tax credit to
tax deduction scheme is a policy determination by Congress and the Court will respect it for as long as
there is no showing, as here, that the subject regulation has transgressed constitutional limitations.
Unavoidably, the lack of evidence constrains the Dissent to rely on speculative and hypothetical
argumentation when it states that the 20% discount is a significant amount and not a minimal loss (which
erroneously assumes that the discount automatically results in a loss when it is possible that the profit
margin is greater than 20% and/or the pricing strategy can be revised to prevent or mitigate any reduction
in profits or income/gross sales as illustrated above),108 and not all private establishments make a 20%
profit margin (which conversely implies that there are those who make more and, thus, would not be
greatly affected by this regulation).109
In fine, because of the possible scenarios discussed above, we cannot assume that the 20% discount
results in a permanent reduction in profits or income/gross sales, much less that business establishments
are forced to operate at a loss under the assailed law. And, even if we gratuitously assume that the 20%
discount results in some degree of reduction in profits or income/gross sales, we cannot assume that such
reduction is arbitrary, oppressive or confiscatory. To repeat, there is no actual proof to back up this claim,
and it could be that the loss suffered by a business establishment was occasioned through its fault or
negligence in not adapting to the effects of the assailed law. The law uniformly applies to all business
establishments covered thereunder. There is, therefore, no unjust discrimination as the aforesaid business
establishments are faced with the same constraints. The necessity of proof is all the more pertinent in this
case because, as similarly observed by Justice Velasco in his Concurring Opinion, the law has been in
operation for over nine years now. However, the grim picture painted by petitioners on the unconscionable
losses to be indiscriminately suffered by business establishments, which should have led to the closure of
numerous business establishments, has not come to pass. Verily, we cannot invalidate the assailed law
based on assumptions and conjectures. Without adequate proof, the presumption of constitutionality must
prevail. IV At this juncture, we note that the Dissent modified its original arguments by including a new
paragraph, to wit:
Section 9, Article III of the 1987 Constitution speaks of private property without any distinction. It does not
state that there should be profit before the taking of property is subject to just compensation. The private
property referred to for purposes of taking could be inherited, donated, purchased, mortgaged, or as in this
case, part of the gross sales of private establishments. They are all private property and any taking should
be attended by corresponding payment of just compensation. The 20% discount granted to senior citizens
belong to private establishments, whether these establishments make a profit or suffer a loss. In fact, the
20% discount applies to non-profit establishments like country, social, or golf clubs which are open to the
public and not only for exclusive membership. The issue of profit or loss to the establishments is
immaterial.110
Two things may be said of this argument. First, it contradicts the rest of the arguments of the Dissent. After
it states that the issue of profit or loss is immaterial, the Dissent proceeds to argue that the 20% discount
is not a minimal loss111 and that the 20% discount forces business establishments to operate at a loss. 112
Even the obiter in Central Luzon Drug Corporation,113 which the Dissent essentially adopts and relies on, is
premised on the permanent reduction of total revenues and the loss that business establishments will be
forced to suffer in arguing that the 20% discount constitutes a "taking" under the power of eminent
domain. Thus, when the Dissent now argues that the issue of profit or loss is immaterial, it contradicts
itself because it later argues, in order to justify that there is a "taking" under the power of eminent domain
in this case, that the 20% discount forces business establishments to suffer a significant loss or to operate
at a loss. Second, this argument suffers from the same flaw as the Dissent's original arguments. It is an
erroneous characterization of the 20% discount. According to the Dissent, the 20% discount is part of the
gross sales and, hence, private property belonging to business establishments. However, as previously
discussed, the 20% discount is not private property actually owned and/or used by the business
establishment. It should be distinguished from properties like lands or buildings actually used in the

11

operation of a business establishment which, if appropriated for public use, would amount to a "taking"
under the power of eminent domain. Instead, the 20% discount is a regulatory measure which impacts the
pricing and, hence, the profitability of business establishments. At the time the discount is imposed, no
particular property of the business establishment can be said to be "taken." That is, the State does not
acquire or take anything from the business establishment in the way that it takes a piece of private land to
build a public road. While the 20% discount may form part of the potential profits or income/gross
sales114 of the business establishment, as similarly characterized by Justice Bersamin in his Concurring
Opinion, potential profits or income/gross sales are not private property, specifically cash or money,
already belonging to the business establishment. They are a mere expectancy because they are potential
fruits of the successful conduct of the business. Prior to the sale of goods or services, a business
establishment may be subject to State regulations, such as the 20% senior citizen discount, which may
impact the level or amount of profits or income/gross sales that can be generated by such establishment.
For this reason, the validity of the discount is to be determined based on its overall effects on the
operations of the business establishment.
Again, as previously discussed, the 20% discount does not automatically result in a 20% reduction in
profits, or, to align it with the term used by the Dissent, the 20% discount does not mean that a 20%
reduction in gross sales necessarily results. Because (1) the profit margin of a product is not necessarily
less than 20%, (2) not all customers of a business establishment are senior citizens, and (3) the
establishment may revise its pricing strategy, such reduction in profits or income/gross sales may be
prevented or, in the alternative, mitigated so that the business establishment continues to operate
profitably. Thus, even if we gratuitously assume that some degree of reduction in profits or income/gross
sales occurs because of the 20% discount, it does not follow that the regulation is unreasonable,
oppressive or confiscatory because the business establishment may make the necessary adjustments to
continue to operate profitably. No evidence was presented by petitioners to show otherwise. In fact, no
evidence was presented by petitioners at all. Justice Leonen, in his Concurring and Dissenting Opinion,
characterizes "profits" (or income/gross sales) as an inchoate right. Another way to view it, as stated by
Justice Velasco in his Concurring Opinion, is that the business establishment merely has a right to profits.
The Constitution adverts to it as the right of an enterprise to a reasonable return on investment. 115
Undeniably, this right, like any other right, may be regulated under the police power of the State to
achieve important governmental objectives like protecting the interests and improving the welfare of
senior citizens. It should be noted though that potential profits or income/gross sales are relevant in police
power and eminent domain analyses because they may, in appropriate cases, serve as an indicia when a
regulation has gone "too far" as to amount to a "taking" under the power of eminent domain. When the
deprivation or reduction of profits or income/gross sales is shown to be unreasonable, oppressive or
confiscatory, then the challenged governmental regulation may be nullified for being a "taking" under the
power of eminent domain. In such a case, it is not profits or income/gross sales which are actually taken
and appropriated for public use. Rather, when the regulation causes an establishment to incur losses in an
unreasonable, oppressive or confiscatory manner, what is actually taken is capital and the right of the
business establishment to a reasonable return on investment. If the business losses are not halted because
of the continued operation of the regulation, this eventually leads to the destruction of the business and
the total loss of the capital invested therein. But, again, petitioners in this case failed to prove that the
subject regulation is unreasonable, oppressive or confiscatory.
V.
The Dissent further argues that we erroneously used price and rate of return on investment control laws to
justify the senior citizen discount law. According to the Dissent, only profits from industries imbued with
public interest may be regulated because this is a condition of their franchises. Profits of establishments
without franchises cannot be regulated permanently because there is no law regulating their profits. The
Dissent concludes that the permanent reduction of total revenues or gross sales of business
establishments without franchises is a taking of private property under the power of eminent domain. In
making this argument, it is unfortunate that the Dissent quotes only a portion of the ponencia The
subject regulation may be said to be similar to, but with substantial distinctions from, price control or rate
of return on investment control laws which are traditionally regarded as police power measures. These
laws generally regulate public utilities or industries/enterprises imbued with public interest in order to
protect consumers from exorbitant or unreasonable pricing as well as temper corporate greed by
controlling the rate of return on investment of these corporations considering that they have a monopoly
over the goods or services that they provide to the general public. The subject regulation differs therefrom
in that (1) the discount does not prevent the establishments from adjusting the level of prices of their
goods and services, and (2) the discount does not apply to all customers of a given establishment but only
to the class of senior citizens. x x x116
The above paragraph, in full, states
The subject regulation may be said to be similar to, but with substantial distinctions from, price control or
rate of return on investment control laws which are traditionally regarded as police power measures. These
laws generally regulate public utilities or industries/enterprises imbued with public interest in order to
protect consumers from exorbitant or unreasonable pricing as well as temper corporate greed by
controlling the rate of return on investment of these corporations considering that they have a monopoly
over the goods or services that they provide to the general public. The subject regulation differs therefrom
in that (1) the discount does not prevent the establishments from adjusting the level of prices of their
goods and services, and (2) the discount does not apply to all customers of a given establishment but only
to the class of senior citizens.

12

Nonetheless, to the degree material to the resolution of this case, the 20% discount may be properly
viewed as belonging to the category of price regulatory measures which affects the profitability of
establishments subjected thereto. (Emphasis supplied)
The point of this paragraph is to simply show that the State has, in the past, regulated prices and profits of
business establishments. In other words, this type of regulatory measures is traditionally recognized as
police power measures so that the senior citizen discount may be considered as a police power measure as
well. What is more, the substantial distinctions between price and rate of return on investment control
laws vis--vis the senior citizen discount law provide greater reason to uphold the validity of the senior
citizen discount law. As previously discussed, the ability to adjust prices allows the establishment subject
to the senior citizen discount to prevent or mitigate any reduction of profits or income/gross sales arising
from the giving of the discount. In contrast, establishments subject to price and rate of return on
investment control laws cannot adjust prices accordingly. Certainly, there is no intention to say that price
and rate of return on investment control laws are the justification for the senior citizen discount law. Not at
all. The justification for the senior citizen discount law is the plenary powers of Congress. The legislative
power to regulate business establishments is broad and covers a wide array of areas and subjects. It is well
within Congress legislative powers to regulate the profits or income/gross sales of industries and
enterprises, even those without franchises. For what are franchises but mere legislative enactments? There
is nothing in the Constitution that prohibits Congress from regulating the profits or income/gross sales of
industries and enterprises without franchises. On the contrary, the social justice provisions of the
Constitution enjoin the State to regulate the "acquisition, ownership, use, and disposition" of property and
its increments.117
This may cover the regulation of profits or income/gross sales of all businesses, without qualification, to
attain the objective of diffusing wealth in order to protect and enhance the right of all the people to human
dignity.118
Thus, under the social justice policy of the Constitution, business establishments may be compelled to
contribute to uplifting the plight of vulnerable or marginalized groups in our society provided that the
regulation is not arbitrary, oppressive or confiscatory, or is not in breach of some specific constitutional
limitation. When the Dissent, therefore, states that the "profits of private establishments which are nonfranchisees cannot be regulated permanently, and there is no such law regulating their profits
permanently,"119 it is assuming what it ought to prove. First, there are laws which, in effect, permanently
regulate profits or income/gross sales of establishments without franchises, and RA 9257 is one such law.
And, second, Congress can regulate such profits or income/gross sales because, as previously noted, there
is nothing in the Constitution to prevent it from doing so. Here, again, it must be emphasized that
petitioners failed to present any proof to show that the effects of the assailed law on their operations has
been unreasonable, oppressive or confiscatory. The permanent regulation of profits or income/gross sales
of business establishments, even those without franchises, is not as uncommon as the Dissent depicts it to
be. For instance, the minimum wage law allows the State to set the minimum wage of employees in a
given region or geographical area. Because of the added labor costs arising from the minimum wage, a
permanent reduction of profits or income/gross sales would result, assuming that the employer does not
increase the prices of his goods or services. To illustrate, suppose it costs a company P5.00 to produce a
product and it sells the same at P10.00 with a 50% profit margin. Later, the State increases the minimum
wage. As a result, the company incurs greater labor costs so that it now costs P7.00 to produce the same
product. The profit per product of the company would be reduced to P3.00 with a profit margin of 30%. The
net effect would be the same as in the earlier example of granting a 20% senior citizen discount. As can be
seen, the minimum wage law could, likewise, lead to a permanent reduction of profits. Does this mean that
the minimum wage law should, likewise, be declared unconstitutional on the mere plea that it results in a
permanent reduction of profits? Taking it a step further, suppose the company decides to increase the
price of its product in order to offset the effects of the increase in labor cost; does this mean that the
minimum wage law, following the reasoning of the Dissent, is unconstitutional because the consuming
public is effectively made to subsidize the wage of a group of laborers, i.e., minimum wage earners? The
same reasoning can be adopted relative to the examples cited by the Dissent which, according to it, are
valid police power regulations. Article 157 of the Labor Code, Sections 19 and 18 of the Social Security
Law, and Section 7 of the Pag-IBIG Fund Law would effectively increase the labor cost of a business
establishment. This would, in turn, be integrated as part of the cost of its goods or services. Again, if the
establishment does not increase its prices, the net effect would be a permanent reduction in its profits or
income/gross sales. Following the reasoning of the Dissent that "any form of permanent taking of private
property (including profits or income/gross sales)120 is an exercise of eminent domain that requires the
State to pay just compensation,"121 then these statutory provisions would, likewise, have to be declared
unconstitutional. It does not matter that these benefits are deemed part of the employees legislated
wages because the net effect is the same, that is, it leads to higher labor costs and a permanent reduction
in the profits or income/gross sales of the business establishments. 122
The point then is this most, if not all, regulatory measures imposed by the State on business
establishments impact, at some level, the latters prices and/or profits or income/gross sales. 123
If the Court were to sustain the Dissents theory, then a wholesale nullification of such measures would
inevitably result. The police power of the State and the social justice provisions of the Constitution would,
thus, be rendered nugatory. There is nothing sacrosanct about profits or income/gross sales. This, we made
clear in Carlos Superdrug Corporation:124
Police power as an attribute to promote the common good would be diluted considerably if on the mere
plea of petitioners that they will suffer loss of earnings and capital, the questioned provision is invalidated.
Moreover, in the absence of evidence demonstrating the alleged confiscatory effect of the provision in

13

question, there is no basis for its nullification in view of the presumption of validity which every law has in
its favor.
xxxx
The Court is not oblivious of the retail side of the pharmaceutical industry and the competitive pricing
component of the business. While the Constitution protects property rights petitioners must the realities of
business and the State, in the exercise of police power, can intervene in the operations of a business which
may result in an impairment of property rights in the process.
Moreover, the right to property has a social dimension. While Article XIII of the Constitution provides the
percept for the protection of property, various laws and jurisprudence, particularly on agrarian reform and
the regulation of contracts and public utilities, continously serve as a reminder for the promotion of public
good.
Undeniably, the success of the senior citizens program rests largely on the support imparted by petitioners
and the other private establishments concerned. This being the case, the means employed in invoking the
active participation of the private sector, in order to achieve the purpose or objective of the law, is
reasonably and directly related. Without sufficient proof that Section 4(a) of R.A. No. 9257 is arbitrary, and
that the continued implementation of the same would be unconscionably detrimental to petitioners, the
Court will refrain form quashing a legislative act.125
In conclusion, we maintain that the correct rule in determining whether the subject regulatory measure has
amounted to a "taking" under the power of eminent domain is the one laid down in Alalayan v. National
Power Corporation126 and followed in Carlos Superdurg Corporation127 consistent with long standing
principles in police power and eminent domain analysis. Thus, the deprivation or reduction of profits or
income. Gross sales must be clearly shown to be unreasonable, oppressive or confiscatory. Under the
specific circumstances of this case, such determination can only be made upon the presentation of
competent proof which petitioners failed to do. A law, which has been in operation for many years and
promotes the welfare of a group accorded special concern by the Constitution, cannot and should not be
summarily invalidated on a mere allegation that it reduces the profits or income/gross sales of business
establishments.
WHEREFORE, the Petition is hereby DISMISSED for lack of merit.
SO ORDERED.
ROMEO P. GEROCHI, KATULONG NG
BAYAN (KB) and ENVIRONMENTALIST
CONSUMERS NETWORK, INC. (ECN),
Petitioners,
-versusDEPARTMENT OF ENERGY (DOE),
ENERGY REGULATORY COMMISSION
(ERC), NATIONAL POWER
CORPORATION (NPC), POWER
SECTOR ASSETS AND LIABILITIES
MANAGEMENT GROUP (PSALM
Corp.), STRATEGIC POWER UTILITIES
GROUP (SPUG), and PANAYELECTRIC
COMPANY INC. (PECO),
Respondents.

G.R. No. 159796


Present:
PUNO, C.J.,
QUISUMBING,
YNARES-SANTIAGO,
SANDOVAL-GUTIERREZ,
CARPIO,
AUSTRIA-MARTINEZ,
CORONA,
CARPIO MORALES,
AZCUNA,
TINGA,
CHICO-NAZARIO,
GARCIA,
VELASCO, JR. and
NACHURA, JJ.
Promulgated:

July 17, 2007


x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
DECISION
NACHURA, J.:
Petitioners Romeo P. Gerochi, Katulong Ng Bayan (KB), and Environmentalist Consumers Network, Inc.
(ECN) (petitioners), come before this Court in this original action praying that Section 34 of Republic Act
(RA) 9136, otherwise known as the Electric Power Industry Reform Act of 2001 (EPIRA), imposing the
Universal Charge,[1] and Rule 18 of the Rules and Regulations (IRR) [2] which seeks to implement the said
imposition, be declared unconstitutional. Petitioners also pray that the Universal Charge imposed upon the
consumers be refunded and that a preliminary injunction and/or temporary restraining order (TRO) be
issued directing the respondents to refrain from implementing, charging, and collecting the said charge.
[3]
The assailed provision of law reads:

14

SECTION 34. Universal Charge. Within one (1) year from the effectivity of this Act, a
universal charge to be determined, fixed and approved by the ERC, shall be imposed on all
electricity end-users for the following purposes:
(a) Payment for the stranded debts[4] in excess of the amount assumed by the National
Government and stranded contract costs of NPC [5] and as well as qualified stranded
contract costs of distribution utilities resulting from the restructuring of the industry;
(b) Missionary electrification;[6]
(c) The equalization of the taxes and royalties applied to indigenous or renewable sources of
energy vis--vis imported energy fuels;
(d) An environmental charge equivalent to one-fourth of one centavo per kilowatt-hour
(P0.0025/kWh), which shall accrue to an environmental fund to be used solely for
watershed rehabilitation and management. Said fund shall be managed by NPC under
existing arrangements; and
(e) A charge to account for all forms of cross-subsidies for a period not exceeding three (3)
years.
The universal charge shall be a non-bypassable charge which shall be passed on and
collected from all end-users on a monthly basis by the distribution utilities. Collections by
the distribution utilities and the TRANSCO in any given month shall be remitted to the PSALM
Corp. on or before the fifteenth (15th) of the succeeding month, net of any amount due to
the distribution utility. Any end-user or self-generating entity not connected to a distribution
utility shall remit its corresponding universal charge directly to the TRANSCO. The PSALM
Corp., as administrator of the fund, shall create a Special Trust Fund which shall be disbursed
only for the purposes specified herein in an open and transparent manner. All amount
collected for the universal charge shall be distributed to the respective beneficiaries within a
reasonable period to be provided by the ERC.
The Facts
Congress enacted the EPIRA on June 8, 2001; on June 26, 2001, it took effect.[7]
On April 5, 2002, respondent National Power Corporation-Strategic Power Utilities Group [8] (NPC-SPUG) filed
with respondent Energy Regulatory Commission (ERC) a petition for the availment from the Universal
Charge of its share for Missionary Electrification, docketed as ERC Case No. 2002-165. [9]
On May 7, 2002, NPC filed another petition with ERC, docketed as ERC Case No. 2002-194, praying that the
proposed share from the Universal Charge for the Environmental charge of P0.0025 per kilowatt-hour
(/kWh), or a total of P119,488,847.59, be approved for withdrawal from the Special
Trust Fund (STF) managed byrespondent Power Sector Assets and
Liabilities Management Group (PSALM)[10] for the rehabilitation and management of watershed areas.[11]
On December 20, 2002, the ERC issued an Order[12] in ERC Case No. 2002-165 provisionally approving the
computed amount of P0.0168/kWh as the share of the NPC-SPUG from the Universal Charge for Missionary
Electrification and authorizing the National Transmission Corporation (TRANSCO) and Distribution Utilities
to collect the same from its end-users on a monthly basis.
On June 26, 2003, the ERC rendered its Decision [13] (for ERC Case No. 2002-165) modifying its Order of
December 20, 2002, thus:
WHEREFORE, the foregoing premises considered, the provisional authority granted to
petitioner National Power Corporation-Strategic Power Utilities Group (NPC-SPUG) in the
Order dated December 20, 2002 is hereby modified to the effect that an additional amount
of P0.0205 per kilowatt-hour should be added to the P0.0168 per kilowatt-hour provisionally
authorized by the Commission in the said Order. Accordingly, a total amount of P0.0373 per
kilowatt-hour is hereby APPROVED for withdrawal from the Special Trust Fund managed by
PSALM as its share from the Universal Charge for Missionary Electrification (UC-ME) effective
on the following billing cycles:
(a) June 26-July 25, 2003 for National Transmission Corporation (TRANSCO); and
(b) July 2003 for Distribution Utilities (Dus).

15

Relative thereto, TRANSCO and Dus are directed to collect the UC-ME in the amount
of P0.0373 per kilowatt-hour and remit the same to PSALM on or before the 15 th day of the
succeeding month.
In the meantime, NPC-SPUG is directed to submit, not later than April 30, 2004, a
detailed report to include Audited Financial Statements and physical status (percentage of
completion) of the projects using the prescribed format.
Let copies of this Order be furnished petitioner NPC-SPUG and all distribution utilities
(Dus).
SO ORDERED.
On August 13, 2003, NPC-SPUG filed a Motion for Reconsideration asking the ERC, among others, [14] to set
aside the above-mentioned Decision, which the ERC granted in its Order dated October 7, 2003, disposing:
WHEREFORE, the foregoing premises considered, the Motion for Reconsideration filed by
petitioner National Power Corporation-Small Power Utilities Group (NPC-SPUG) is hereby
GRANTED. Accordingly, the Decision dated June 26, 2003 is hereby modified accordingly.
Relative thereto, NPC-SPUG is directed to submit a quarterly report on the following:
1.
Projects for CY 2002 undertaken;
2.
Location
3.
Actual amount utilized to complete the project;
4.
Period of completion;
5.
Start of Operation; and
6.
Explanation of the reallocation of UC-ME funds, if any.
SO ORDERED.[15]
Meanwhile, on April 2, 2003, ERC decided ERC Case No. 2002-194, authorizing the NPC to draw up
to P70,000,000.00 from PSALM for its 2003 Watershed Rehabilitation Budget subject to the availability of
funds for the Environmental Fund component of the Universal Charge.[16]
On the basis of the said ERC decisions, respondent
charged petitioner Romeo P. Gerochi and all other

Panay

Electric

Company,

Inc.

(PECO)

end-users with the Universal Charge as reflected in their respective electric bills starting from the month of
July 2003.[17]
Hence, this original action.
Petitioners submit that the assailed provision of law and its IRR which sought to implement the same are
unconstitutional on the following grounds:
1)

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

2)

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

3)

The imposition of the Universal Charge on all end-users is oppressive and confiscatory
and amounts to taxation without representation as the consumers were not given a
chance to be heard and represented.[18]

Petitioners contend that the Universal Charge has the characteristics of a tax and is collected to
fund the operations of the NPC. They argue that the cases[19]invoked by the respondents clearly show the
regulatory purpose of the charges imposed therein, which is not so in the case at bench. In said cases, the
respective funds[20] were created in order to balance and stabilize the prices of oil and sugar, and to act as
buffer to counteract the changes and adjustments in prices, peso devaluation, and other variables which
cannot be adequately and timely monitored by the legislature. Thus, there was a need to delegate powers
to administrative bodies.[21] Petitioners posit that the Universal Charge is imposed not for a similar purpose.

16

On the other hand, respondent PSALM through the Office of the Government Corporate Counsel (OGCC)
contends that unlike a tax which is imposed to provide income for public purposes, such as support of the
government, administration of the law, or payment of public expenses, the assailed Universal Charge is
levied for a specific regulatory purpose, which is to ensure the viability of the country's electric power
industry. Thus, it is exacted by the State in the exercise of its inherent police power. On this premise,
PSALM submits that there is no undue delegation of legislative power to the ERC since the latter merely
exercises a limited authority or discretion as to the execution and implementation of the provisions of the
EPIRA.[22]
Respondents Department of Energy (DOE), ERC, and NPC, through the Office of the Solicitor General (OSG),
share the same view that the Universal Charge is not a tax because it is levied for a specific regulatory
purpose, which is to ensure the viability of the country's electric power industry, and is, therefore, an
exaction in the exercise of the State's police power. Respondents further contend that said Universal
Charge does not possess the essential characteristics of a tax, that its imposition would redound to the
benefit of the electric power industry and not to the public, and that its rate is uniformly levied on
electricity end-users, unlike a tax which is imposed based on the individual taxpayer's ability to pay.
Moreover, respondents deny that there is undue delegation of legislative power to the ERC since the EPIRA
sets forth sufficient determinable standards which would guide the ERC in the exercise of the powers
granted to it. Lastly, respondents argue that the imposition of the Universal Charge is not oppressive and
confiscatory since it is an exercise of the police power of the State and it complies with the requirements of
due process.[23]
On its part, respondent PECO argues that it is duty-bound to collect and remit the amount pertaining to the
Missionary Electrification and Environmental Fund components of the Universal Charge, pursuant to Sec.
34 of the EPIRA and the Decisions in ERC Case Nos. 2002-194 and 2002-165. Otherwise, PECO could be
held liable under Sec. 46 [24] of the EPIRA, which imposes fines and penalties for any violation of its
provisions or its IRR.[25]

The Issues
The ultimate issues in the case at bar are:
1)

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

2)

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

Before we discuss the issues, the Court shall first deal with an obvious procedural lapse.
Petitioners filed before us an original action particularly denominated as a Complaint assailing the
constitutionality of Sec. 34 of the EPIRA imposing the Universal Charge and Rule 18 of the EPIRA's IRR. No
doubt, petitioners have locus standi. They impugn the constitutionality of Sec. 34 of the EPIRA because
they sustained a direct injury as a result of the imposition of the Universal Charge as reflected in their
electric bills.
However, petitioners violated the doctrine of hierarchy of courts when they filed this Complaint
directly with us. Furthermore, the Complaint is bereft of any allegation of grave abuse of discretion on the
part of the ERC or any of the public respondents, in order for the Court to consider it as a petition
for certiorari or prohibition.
Article VIII, Section 5(1) and (2) of the 1987 Constitution[27] categorically provides that:
SECTION 5. The Supreme Court shall have the following powers:
1.

Exercise original jurisdiction over cases affecting ambassadors, other public ministers
and consuls, and over petitions for certiorari, prohibition, mandamus, quo warranto, and
habeas corpus.
2.
Review, revise, reverse, modify, or affirm on appeal or certiorari, as the law or the rules
of court may provide, final judgments and orders of lower courts in:
(a)

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


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

But this Court's jurisdiction to issue writs of certiorari, prohibition, mandamus, quo warranto, and habeas
corpus, while concurrent with that of the regional trial courts and the Court of Appeals, does not give
litigants unrestrained freedom of choice of forum from which to seek such relief. [28] It has long been

17

established that this Court will not entertain direct resort to it unless the redress desired cannot be
obtained in the appropriate courts, or where exceptional and compelling circumstances justify availment of
a remedy within and call for the exercise of our primary jurisdiction. [29] This circumstance alone warrants
the outright dismissal of the present action.
This procedural infirmity notwithstanding, we opt to resolve the constitutional issue raised
herein. We are aware that if the constitutionality of Sec. 34 of the EPIRA is not resolved now, the issue will
certainly resurface in the near future, resulting in a repeat of this litigation, and probably involving the
same parties. In the public interest and to avoid unnecessary delay, this Court renders its ruling now.
The instant complaint is bereft of merit.
The First Issue
To resolve the first issue, it is necessary to distinguish the States power of taxation from the police
power.
The power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its very
nature no limits, so that security against its abuse is to be found only in the responsibility of the legislature
which imposes the tax on the constituency that is to pay it. [30] It is based on the principle that taxes are the
lifeblood of the government, and their prompt and certain availability is an imperious need. [31] Thus, the
theory behind the exercise of the power to tax emanates from necessity; without taxes, government
cannot fulfill its mandate of promoting the general welfare and well-being of the people. [32]
On the other hand, police power is the power of the state to promote public welfare by restraining and
regulating the use of liberty and property. [33] It is the most pervasive, the least limitable, and the most
demanding of the three fundamental powers of the State. The justification is found in the Latin
maxims salus populi est suprema lex (the welfare of the people is the supreme law) and sic utere tuo ut
alienum non laedas (so use your property as not to injure the property of others). As an inherent attribute
of sovereignty which virtually extends to all public needs, police power grants a wide panoply of
instruments through which the State, as parens patriae, gives effect to a host of its regulatory powers.
[34]
We have held that the power to "regulate" means the power to protect, foster, promote, preserve, and
control, with due regard for the interests, first and foremost, of the public, then of the utility and of its
patrons.[35]
The conservative and pivotal distinction between these two powers rests in the purpose for which
the charge is made. If generation of revenue is the primary purpose and regulation is merely incidental,
the imposition is a tax; but if regulation is the primary purpose, the fact that revenue is incidentally raised
does not make the imposition a tax.[36]
In exacting the assailed Universal Charge through Sec. 34 of the EPIRA, the State's police power,
particularly its regulatory dimension, is invoked. Such can be deduced from Sec. 34 which enumerates the
purposes for which the Universal Charge is imposed [37] and which can be amply discerned as regulatory in
character. The EPIRA resonates such regulatory purposes, thus:
SECTION 2. Declaration of Policy. It is hereby declared the policy of the State:
(a) To ensure and accelerate the total electrification of the country;
(b) To ensure the quality, reliability, security and affordability of the supply of electric power;
(c) To ensure transparent and reasonable prices of electricity in a regime of free and fair
competition and full public accountability to achieve greater operational and economic
efficiency and enhance the competitiveness of Philippine products in the global market;
(d) To enhance the inflow of private capital and broaden the ownership base of the power
generation, transmission and distribution sectors;
(e) To ensure fair and non-discriminatory treatment of public and private sector entities in
the process of restructuring the electric power industry;
(f) To protect the public interest as it is affected by the rates and services of electric utilities
and other providers of electric power;
(g) To assure socially and environmentally compatible energy sources and infrastructure;
(h) To promote the utilization of indigenous and new and renewable energy resources in
power generation in order to reduce dependence on imported energy;
(i) To provide for an orderly and transparent privatization of the assets and liabilities of the
National Power Corporation (NPC);
(j) To establish a strong and purely independent regulatory body and system to ensure
consumer protection and enhance the competitive operation of the electricity market;
and
(k) To encourage the efficient use of energy and other modalities of demand side
management.
From the aforementioned purposes, it can be gleaned that the assailed Universal Charge is not a tax, but
an exaction in the exercise of the State's police power. Public welfare is surely promoted.

18

Moreover, it is a well-established doctrine that the taxing power may be used as an implement of police
power.[38] In Valmonte v. Energy Regulatory Board, et al.[39]and in Gaston v. Republic Planters Bank,[40] this
Court held that the Oil Price Stabilization Fund (OPSF) and the Sugar Stabilization Fund (SSF) were
exactions made in the exercise of the police power. The doctrine was reiterated in Osmea v. Orbos[41] with
respect to the OPSF. Thus, we disagree with petitioners that the instant case is different from the
aforementioned cases. With the Universal Charge, a Special Trust Fund (STF) is also created under the
administration of PSALM.[42] The STF has some notable characteristics similar to the OPSF and the SSF, viz.:
1)

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

2)

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

3)

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

The OSG is in point when it asseverates:


Evidently, the establishment and maintenance of the Special Trust Fund, under the last
paragraph of Section 34, R.A. No. 9136, is well within the pervasive and non-waivable power
and responsibility of the government to secure the physical and economic survival and wellbeing of the community, that comprehensive sovereign authority we designate as the police
power of the State.[46]
This feature of the Universal Charge further boosts the position that the same is an exaction imposed
primarily in pursuit of the State's police objectives. The STF reasonably serves and assures the attainment
and perpetuity of the purposes for which the Universal Charge is imposed, i.e., to ensure the viability of the
country's electric power industry.
The Second Issue
The principle of separation of powers ordains that each of the three branches of government has
exclusive cognizance of and is supreme in matters falling within its own constitutionally allocated sphere. A
logical corollary to the doctrine of separation of powers is the principle of non-delegation of powers, as
expressed in the Latin maxim potestas delegata non delegari potest (what has been delegated cannot be
delegated). This is based on the ethical principle that such delegated power constitutes not only a right but
a duty to be performed by the delegate through the instrumentality of his own judgment and not through
the intervening mind of another. [47]
In the face of the increasing complexity of modern life, delegation of legislative power to various
specialized administrative agencies is allowed as an exception to this principle. [48] Given the volume and
variety of interactions in today's society, it is doubtful if the legislature can promulgate laws that will deal
adequately with and respond promptly to the minutiae of everyday life. Hence, the need to delegate to
administrative bodies - the principal agencies tasked to execute laws in their specialized fields - the
authority to promulgate rules and regulations to implement a given statute and effectuate its policies. All
that is required for the valid exercise of this power of subordinate legislation is that the regulation be
germane to the objects and purposes of the law and that the regulation be not in contradiction to, but in
conformity with, the standards prescribed by the law. These requirements are denominated as the
completeness test and the sufficient standard test.
Under the first test, the law must be complete in all its terms and conditions when it leaves the legislature
such that when it reaches the delegate, the only thing he will have to do is to enforce it. The second test
mandates adequate guidelines or limitations in the law to determine the boundaries of the delegate's
authority and prevent the delegation from running riot.[49]
The Court finds that the EPIRA, read and appreciated in its entirety, in relation to Sec. 34 thereof, is
complete in all its essential terms and conditions, and that it contains sufficient standards.

19

Although Sec. 34 of the EPIRA merely provides that within one (1) year from the effectivity thereof, a
Universal Charge to be determined, fixed and approved by the ERC, shall be imposed on all electricity endusers, and therefore, does not state the specific amount to be paid as Universal Charge, the amount
nevertheless is made certain by the legislative parameters provided in the law itself. For one, Sec. 43(b)(ii)
of the EPIRA provides:
SECTION 43. Functions of the ERC. The ERC shall promote competition, encourage market
development, ensure customer choice and penalize abuse of market power in the
restructured electricity industry. In appropriate cases, the ERC is authorized to issue cease
and desist order after due notice and hearing. Towards this end, it shall be responsible for
the following key functions in the restructured industry:
xxxx
(b) Within six (6) months from the effectivity of this Act, promulgate and enforce, in
accordance with law, a National Grid Code and a Distribution Code which shall include, but
not limited to the following:
xxxx
(ii) Financial capability standards for the generating companies, the TRANSCO, distribution
utilities and suppliers: Provided, That in the formulation of the financial capability standards,
the nature and function of the entity shall be considered: Provided, further, That such
standards are set to ensure that the electric power industry participants meet the minimum
financial standards to protect the public interest. Determine, fix, and approve, after due
notice and public hearings the universal charge, to be imposed on all electricity end-users
pursuant to Section 34 hereof;

Moreover, contrary to the petitioners contention, the ERC does not enjoy a wide latitude of discretion in the
determination of the Universal Charge. Sec. 51(d) and (e) of the EPIRA[50] clearly provides:
SECTION 51. Powers. The PSALM Corp. shall, in the performance of its functions and for the
attainment of its objective, have the following powers:
xxxx
(d) To calculate the amount of the stranded debts and stranded contract costs of NPC
which shall form the basis for ERC in the determination of the universal
charge;
(e) To liquidate the NPC stranded contract costs, utilizing the proceeds from sales and other
property contributed to it, including the proceeds from the universal charge.

Thus, the law is complete and passes the first test for valid delegation of legislative power.
As to the second test, this Court had, in the past, accepted as sufficient standards the following: "interest
of law and order;"[51] "adequate and efficient instruction;"[52]"public interest;"[53] "justice and
equity;"[54] "public convenience and welfare;"[55] "simplicity, economy and efficiency;"[56] "standardization
and regulation of medical education;"[57] and "fair and equitable employment practices."[58] Provisions of the
EPIRA such as, among others, to ensure the total electrification of the country and the quality, reliability,
security and affordability of the supply of electric power [59] and watershed rehabilitation and
management[60] meet the requirements for valid delegation, as they provide the limitations on the ERCs
power to formulate the IRR. These are sufficient standards.
It may be noted that this is not the first time that the ERC's conferred powers were challenged. In Freedom
from Debt Coalition v. Energy Regulatory Commission,[61]the Court had occasion to say:
In determining the extent of powers possessed by the ERC, the provisions of the EPIRA must
not be read in separate parts. Rather, the law must be read in its entirety, because a statute
is passed as a whole, and is animated by one general purpose and intent. Its meaning
cannot to be extracted from any single part thereof but from a general consideration of the
statute as a whole. Considering the intent of Congress in enacting the EPIRA and reading the
statute in its entirety, it is plain to see that the law has expanded the jurisdiction of the
regulatory body, the ERC in this case, to enable the latter to implement the reforms sought

20

to be accomplished by the EPIRA. When the legislators decided to broaden the jurisdiction of
the ERC, they did not intend to abolish or reduce the powers already conferred upon ERC's
predecessors. To sustain the view that the ERC possesses only the powers and functions
listed under Section 43 of the EPIRA is to frustrate the objectives of the law.
In his Concurring and Dissenting Opinion[62] in the same case, then Associate Justice, now Chief Justice,
Reynato S. Puno described the immensity of police power in relation to the delegation of powers to the ERC
and its regulatory functions over electric power as a vital public utility, to wit:
Over the years, however, the range of police power was no longer limited to the
preservation of public health, safety and morals, which used to be the primary social
interests in earlier times. Police power now requires the State to "assume an affirmative
duty to eliminate the excesses and injustices that are the concomitants of an unrestrained
industrial economy." Police power is now exerted "to further the public welfare a concept as
vast as the good of society itself." Hence, "police power is but another name for the
governmental authority to further the welfare of society that is the basic end of all
government." When police power is delegated to administrative bodies with regulatory
functions, its exercise should be given a wide latitude. Police power takes on an even
broader dimension in developing countries such as ours, where the State must take a more
active role in balancing the many conflicting interests in society. The Questioned Order was
issued by the ERC, acting as an agent of the State in the exercise of police power. We should
have exceptionally good grounds to curtail its exercise. This approach is more compelling in
the field of rate-regulation of electric power rates. Electric power generation and distribution
is a traditional instrument of economic growth that affects not only a few but the entire
nation. It is an important factor in encouraging investment and promoting business. The
engines of progress may come to a screeching halt if the delivery of electric power is
impaired. Billions of pesos would be lost as a result of power outages or unreliable electric
power services. The State thru the ERC should be able to exercise its police power with great
flexibility, when the need arises.

This was reiterated in National Association of Electricity Consumers for Reforms v. Energy Regulatory
Commission[63] where the Court held that the ERC, as regulator, should have sufficient power to respond in
real time to changes wrought by multifarious factors affecting public utilities.
From the foregoing disquisitions, we therefore hold that there is no undue delegation of legislative power
to the ERC.
Petitioners failed to pursue in their Memorandum the contention in the Complaint that the
imposition of the Universal Charge on all end-users is oppressive and confiscatory, and amounts to
taxation without representation. Hence, such contention is deemed waived or abandoned per
Resolution[64] of August 3, 2004.[65]Moreover, the determination of whether or not a tax is excessive,
oppressive or confiscatory is an issue which essentially involves questions of fact, and thus, this Court is
precluded from reviewing the same.[66]
As a penultimate statement, it may be well to recall what this Court said of EPIRA:
One of the landmark pieces of legislation enacted by Congress in recent years is the EPIRA.
It established a new policy, legal structure and regulatory framework for the electric power
industry. The new thrust is to tap private capital for the expansion and improvement of the
industry as the large government debt and the highly capital-intensive character of the
industry itself have long been acknowledged as the critical constraints to the program. To
attract private investment, largely foreign, the jaded structure of the industry had to be
addressed. While the generation and transmission sectors were centralized and
monopolistic, the distribution side was fragmented with over 130 utilities, mostly small and
uneconomic. The pervasive flaws have caused a low utilization of existing generation
capacity; extremely high and uncompetitive power rates; poor quality of service to
consumers; dismal to forgettable performance of the government power sector; high system
losses; and an inability to develop a clear strategy for overcoming these shortcomings.
Thus, the EPIRA provides a framework for the restructuring of the industry, including the
privatization of the assets of the National Power Corporation (NPC), the transition to a
competitive structure, and the delineation of the roles of various government agencies and
the private entities. The law ordains the division of the industry into four (4) distinct
sectors, namely: generation, transmission, distribution and supply.

21

Corollarily, the NPC generating plants have to privatized and its transmission business spun
off and privatized thereafter.[67]
Finally, every law has in its favor the presumption of constitutionality, and to justify its nullification, there
must be a clear and unequivocal breach of the Constitution and not one that is doubtful, speculative, or
argumentative.[68] Indubitably, petitioners failed to overcome this presumption in favor of the EPIRA. We
find no clear violation of the Constitution which would warrant a pronouncement that Sec. 34 of the EPIRA
and Rule 18 of its IRR are unconstitutional and void.
WHEREFORE, the instant case is hereby DISMISSED for lack of merit.
SO ORDERED.

G.R. No. L-67649 June 28, 1988


ENGRACIO FRANCIA, petitioner,
vs.
INTERMEDIATE APPELLATE COURT and HO FERNANDEZ, respondents.

GUTIERREZ, JR., J.:


The petitioner invokes legal and equitable grounds to reverse the questioned decision of the Intermediate
Appellate Court, to set aside the auction sale of his property which took place on December 5, 1977, and
to allow him to recover a 203 square meter lot which was, sold at public auction to Ho Fernandez and
ordered titled in the latter's name.
The antecedent facts are as follows:
Engracio Francia is the registered owner of a residential lot and a two-story house built upon it situated at
Barrio San Isidro, now District of Sta. Clara, Pasay City, Metro Manila. The lot, with an area of about 328
square meters, is described and covered by Transfer Certificate of Title No. 4739 (37795) of the Registry of
Deeds of Pasay City.
On October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the Republic of
the Philippines for the sum of P4,116.00 representing the estimated amount equivalent to the assessed
value of the aforesaid portion.
Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5, 1977, his
property was sold at public auction by the City Treasurer of Pasay City pursuant to Section 73 of
Presidential Decree No. 464 known as the Real Property Tax Code in order to satisfy a tax delinquency of
P2,400.00. Ho Fernandez was the highest bidder for the property.
Francia was not present during the auction sale since he was in Iligan City at that time helping his uncle
ship bananas.
On March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-P "In re: Petition for Entry of
New Certificate of Title" filed by Ho Fernandez, seeking the cancellation of TCT No. 4739 (37795) and the
issuance in his name of a new certificate of title. Upon verification through his lawyer, Francia discovered
that a Final Bill of Sale had been issued in favor of Ho Fernandez by the City Treasurer on December 11,
1978. The auction sale and the final bill of sale were both annotated at the back of TCT No. 4739 (37795)
by the Register of Deeds.
On March 20, 1979, Francia filed a complaint to annul the auction sale. He later amended his complaint on
January 24, 1980.
On April 23, 1981, the lower court rendered a decision, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered dismissing the amended
complaint and ordering:

22

(a) The Register of Deeds of Pasay City to issue a new Transfer Certificate of
Title in favor of the defendant Ho Fernandez over the parcel of land including
the improvements thereon, subject to whatever encumbrances appearing at
the back of TCT No. 4739 (37795) and ordering the same TCT No. 4739
(37795) cancelled.
(b) The plaintiff to pay defendant Ho Fernandez the sum of P1,000.00 as
attorney's fees. (p. 30, Record on Appeal)
The Intermediate Appellate Court affirmed the decision of the lower court in toto.
Hence, this petition for review.
Francia prefaced his arguments with the following assignments of grave errors of law:
I
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE ERROR OF LAW IN NOT HOLDING
PETITIONER'S OBLIGATION TO PAY P2,400.00 FOR SUPPOSED TAX DELINQUENCY WAS SET-OFF BY THE
AMOUNT OF P4,116.00 WHICH THE GOVERNMENT IS INDEBTED TO THE FORMER.
II
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE AND SERIOUS ERROR IN NOT
HOLDING THAT PETITIONER WAS NOT PROPERLY AND DULY NOTIFIED THAT AN AUCTION SALE OF HIS
PROPERTY WAS TO TAKE PLACE ON DECEMBER 5, 1977 TO SATISFY AN ALLEGED TAX DELINQUENCY OF
P2,400.00.
III
RESPONDENT INTERMEDIATE APPELLATE COURT FURTHER COMMITTED A SERIOUS ERROR AND GRAVE
ABUSE OF DISCRETION IN NOT HOLDING THAT THE PRICE OF P2,400.00 PAID BY RESPONTDENT HO
FERNANDEZ WAS GROSSLY INADEQUATE AS TO SHOCK ONE'S CONSCIENCE AMOUNTING TO FRAUD AND A
DEPRIVATION OF PROPERTY WITHOUT DUE PROCESS OF LAW, AND CONSEQUENTLY, THE AUCTION SALE
MADE THEREOF IS VOID. (pp. 10, 17, 20-21, Rollo)
We gave due course to the petition for a more thorough inquiry into the petitioner's allegations that his
property was sold at public auction without notice to him and that the price paid for the property was
shockingly inadequate, amounting to fraud and deprivation without due process of law.
A careful review of the case, however, discloses that Mr. Francia brought the problems raised in his petition
upon himself. While we commiserate with him at the loss of his property, the law and the facts militate
against the grant of his petition. We are constrained to dismiss it.
Francia contends that his tax delinquency of P2,400.00 has been extinguished by legal compensation. He
claims that the government owed him P4,116.00 when a portion of his land was expropriated on October
15, 1977. Hence, his tax obligation had been set-off by operation of law as of October 15, 1977.
There is no legal basis for the contention. By legal compensation, obligations of persons, who in their own
right are reciprocally debtors and creditors of each other, are extinguished (Art. 1278, Civil Code). The
circumstances of the case do not satisfy the requirements provided by Article 1279, to wit:
(1) that each one of the obligors be bound principally and that he be at the same time a
principal creditor of the other;
xxx xxx xxx
(3) that the two debts be due.
xxx xxx xxx

23

This principal contention of the petitioner has no merit. We have consistently ruled that there can be no
off-setting of taxes against the claims that the taxpayer may have against the government. A person
cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater
than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the
government.
In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this Court ruled that Internal Revenue Taxes
can not be the subject of set-off or compensation. We stated that:
A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off
under the statutes of set-off, which are construed uniformly, in the light of public policy, to
exclude the remedy in an action or any indebtedness of the state or municipality to one who
is liable to the state or municipality for taxes. Neither are they a proper subject of
recoupment since they do not arise out of the contract or transaction sued on. ... (80 C.J.S.,
7374). "The general rule based on grounds of public policy is well-settled that no set-off
admissible against demands for taxes levied for general or local governmental purposes.
The reason on which the general rule is based, is that taxes are not in the nature of
contracts between the party and party but grow out of duty to, and are the positive acts of
the government to the making and enforcing of which, the personal consent of individual
taxpayers is not required. ..."
We stated that a taxpayer cannot refuse to pay his tax when called upon by the collector because he has a
claim against the governmental body not included in the tax levy.
This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331) where we stated that: "... internal
revenue taxes can not be the subject of compensation: Reason: government and taxpayer are not mutually
creditors and debtors of each other' under Article 1278 of the Civil Code and a "claim for taxes is not such
a debt, demand, contract or judgment as is allowed to be set-off."
There are other factors which compel us to rule against the petitioner. The tax was due to the city
government while the expropriation was effected by the national government. Moreover, the amount of
P4,116.00 paid by the national government for the 125 square meter portion of his lot was deposited with
the Philippine National Bank long before the sale at public auction of his remaining property. Notice of the
deposit dated September 28, 1977 was received by the petitioner on September 30, 1977. The petitioner
admitted in his testimony that he knew about the P4,116.00 deposited with the bank but he did not
withdraw it. It would have been an easy matter to withdraw P2,400.00 from the deposit so that he could
pay the tax obligation thus aborting the sale at public auction.
Petitioner had one year within which to redeem his property although, as well be shown later, he claimed
that he pocketed the notice of the auction sale without reading it.
Petitioner contends that "the auction sale in question was made without complying with the mandatory
provisions of the statute governing tax sale. No evidence, oral or otherwise, was presented that the
procedure outlined by law on sales of property for tax delinquency was followed. ... Since defendant Ho
Fernandez has the affirmative of this issue, the burden of proof therefore rests upon him to show that
plaintiff was duly and properly notified ... .(Petition for Review, Rollo p. 18; emphasis supplied)
We agree with the petitioner's claim that Ho Fernandez, the purchaser at the auction sale, has the burden
of proof to show that there was compliance with all the prescribed requisites for a tax sale.
The case of Valencia v. Jimenez (11 Phil. 492) laid down the doctrine that:
xxx xxx xxx
... [D]ue process of law to be followed in tax proceedings must be established by proof and
thegeneral rule is that the purchaser of a tax title is bound to take upon himself the burden
of showing the regularity of all proceedings leading up to the sale. (emphasis supplied)
There is no presumption of the regularity of any administrative action which results in depriving a taxpayer
of his property through a tax sale. (Camo v. Riosa Boyco, 29 Phil. 437); Denoga v. Insular Government, 19
Phil. 261). This is actually an exception to the rule that administrative proceedings are presumed to be
regular.

24

But even if the burden of proof lies with the purchaser to show that all legal prerequisites have been
complied with, the petitioner can not, however, deny that he did receive the notice for the auction sale.
The records sustain the lower court's finding that:
[T]he plaintiff claimed that it was illegal and irregular. He insisted that he was not properly
notified of the auction sale. Surprisingly, however, he admitted in his testimony that he
received the letter dated November 21, 1977 (Exhibit "I") as shown by his signature (Exhibit
"I-A") thereof. He claimed further that he was not present on December 5, 1977 the date of
the auction sale because he went to Iligan City. As long as there was substantial compliance
with the requirements of the notice, the validity of the auction sale can not be assailed ... .
We quote the following testimony of the petitioner on cross-examination, to wit:
Q. My question to you is this letter marked as Exhibit I for Ho Fernandez
notified you that the property in question shall be sold at public auction to the
highest bidder on December 5, 1977 pursuant to Sec. 74 of PD 464. Will you
tell the Court whether you received the original of this letter?
A. I just signed it because I was not able to read the same. It was just sent by
mail carrier.
Q. So you admit that you received the original of Exhibit I and you signed
upon receipt thereof but you did not read the contents of it?
A. Yes, sir, as I was in a hurry.
Q. After you received that original where did you place it?
A. I placed it in the usual place where I place my mails.
Petitioner, therefore, was notified about the auction sale. It was negligence on his part when he ignored
such notice. By his very own admission that he received the notice, his now coming to court assailing the
validity of the auction sale loses its force.
Petitioner's third assignment of grave error likewise lacks merit. As a general rule, gross inadequacy of
price is not material (De Leon v. Salvador, 36 SCRA 567; Ponce de Leon v. Rehabilitation Finance
Corporation, 36 SCRA 289; Tolentino v. Agcaoili, 91 Phil. 917 Unrep.). See also Barrozo Vda. de Gordon v.
Court of Appeals (109 SCRA 388) we held that "alleged gross inadequacy of price is not material when the
law gives the owner the right to redeem as when a sale is made at public auction, upon the theory that the
lesser the price, the easier it is for the owner to effect redemption." In Velasquez v. Coronel (5 SCRA 985),
this Court held:
... [R]espondent treasurer now claims that the prices for which the lands were sold are
unconscionable considering the wide divergence between their assessed values and the
amounts for which they had been actually sold. However, while in ordinary sales for reasons
of equity a transaction may be invalidated on the ground of inadequacy of price, or when
such inadequacy shocks one's conscience as to justify the courts to interfere, such does not
follow when the law gives to the owner the right to redeem, as when a sale is made at public
auction, upon the theory that the lesser the price the easier it is for the owner to effect the
redemption. And so it was aptly said: "When there is the right to redeem, inadequacy of
price should not be material, because the judgment debtor may reacquire the property or
also sell his right to redeem and thus recover the loss he claims to have suffered by reason
of the price obtained at the auction sale."
The reason behind the above rulings is well enunciated in the case of Hilton et. ux. v. De Long, et al. (188
Wash. 162, 61 P. 2d, 1290):
If mere inadequacy of price is held to be a valid objection to a sale for taxes, the collection of
taxes in this manner would be greatly embarrassed, if not rendered altogether
impracticable. In Black on Tax Titles (2nd Ed.) 238, the correct rule is stated as follows:
"where land is sold for taxes, the inadequacy of the price given is not a valid objection to the
sale." This rule arises from necessity, for, if a fair price for the land were essential to the

25

sale, it would be useless to offer the property. Indeed, it is notorious that the prices
habitually paid by purchasers at tax sales are grossly out of proportion to the value of the
land. (Rothchild Bros. v. Rollinger, 32 Wash. 307, 73 P. 367, 369).
In this case now before us, we can aptly use the language of McGuire, et al. v. Bean, et al. (267 P. 555):
Like most cases of this character there is here a certain element of hardship from which we
would be glad to relieve, but do so would unsettle long-established rules and lead to
uncertainty and difficulty in the collection of taxes which are the life blood of the state. We
are convinced that the present rules are just, and that they bring hardship only to those who
have invited it by their own neglect.
We are inclined to believe the petitioner's claim that the value of the lot has greatly appreciated in value.
Precisely because of the widening of Buendia Avenue in Pasay City, which necessitated the expropriation of
adjoining areas, real estate values have gone up in the area. However, the price quoted by the petitioner
for a 203 square meter lot appears quite exaggerated. At any rate, the foregoing reasons which answer the
petitioner's claims lead us to deny the petition.
And finally, even if we are inclined to give relief to the petitioner on equitable grounds, there are no strong
considerations of substantial justice in his favor. Mr. Francia failed to pay his taxes for 14 years from 1963
up to the date of the auction sale. He claims to have pocketed the notice of sale without reading it which, if
true, is still an act of inexplicable negligence. He did not withdraw from the expropriation payment
deposited with the Philippine National Bank an amount sufficient to pay for the back taxes. The petitioner
did not pay attention to another notice sent by the City Treasurer on November 3, 1978, during the period
of redemption, regarding his tax delinquency. There is furthermore no showing of bad faith or collusion in
the purchase of the property by Mr. Fernandez. The petitioner has no standing to invoke equity in his
attempt to regain the property by belatedly asking for the annulment of the sale.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition for review is DISMISSED. The decision of the
respondent court is affirmed.
SO ORDERED.

G.R. No. L-18994

June 29, 1963

MELECIO R. DOMINGO, as Commissioner of Internal Revenue, petitioner,


vs.
HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First Instance of Leyte,
and SIMEONA K. PRICE, as Administratrix of the Intestate Estate of the late Walter Scott
Price,respondents.
Office of the Solicitor General and Atty. G. H. Mantolino for petitioner.
Benedicto and Martinez for respondents.
LABRADOR, J.:
This is a petition for certiorari and mandamus against the Judge of the Court of First Instance of Leyte, Ron.
Lorenzo C. Garlitos, presiding, seeking to annul certain orders of the court and for an order in this Court
directing the respondent court below to execute the judgment in favor of the Government against the
estate of Walter Scott Price for internal revenue taxes.
It appears that in Melecio R. Domingo vs. Hon. Judge S. C. Moscoso, G.R. No. L-14674, January 30, 1960,
this Court declared as final and executory the order for the payment by the estate of the estate and
inheritance taxes, charges and penalties, amounting to P40,058.55, issued by the Court of First Instance of
Leyte in, special proceedings No. 14 entitled "In the matter of the Intestate Estate of the Late Walter Scott
Price." In order to enforce the claims against the estate the fiscal presented a petition dated June 21, 1961,
to the court below for the execution of the judgment. The petition was, however, denied by the court which
held that the execution is not justifiable as the Government is indebted to the estate under administration

26

in the amount of P262,200. The orders of the court below dated August 20, 1960 and September 28, 1960,
respectively, are as follows:
Atty. Benedicto submitted a copy of the contract between Mrs. Simeona K. Price, Administratrix of
the estate of her late husband Walter Scott Price and Director Zoilo Castrillo of the Bureau of Lands
dated September 19, 1956 and acknowledged before Notary Public Salvador V. Esguerra, legal
adviser in Malacaang to Executive Secretary De Leon dated December 14, 1956, the note of His
Excellency, Pres. Carlos P. Garcia, to Director Castrillo dated August 2, 1958, directing the latter to
pay to Mrs. Price the sum ofP368,140.00, and an extract of page 765 of Republic Act No. 2700
appropriating the sum of P262.200.00 for the payment to the Leyte Cadastral Survey, Inc.,
represented by the administratrix Simeona K. Price, as directed in the above note of the President.
Considering these facts, the Court orders that the payment of inheritance taxes in the sum of
P40,058.55 due the Collector of Internal Revenue as ordered paid by this Court on July 5, 1960 in
accordance with the order of the Supreme Court promulgated July 30, 1960 in G.R. No. L-14674, be
deducted from the amount of P262,200.00 due and payable to the Administratrix Simeona K. Price,
in this estate, the balance to be paid by the Government to her without further delay. (Order of
August 20, 1960)
The Court has nothing further to add to its order dated August 20, 1960 and it orders that the
payment of the claim of the Collector of Internal Revenue be deferred until the Government shall
have paid its accounts to the administratrix herein amounting to P262,200.00. It may not be amiss
to repeat that it is only fair for the Government, as a debtor, to its accounts to its citizens-creditors
before it can insist in the prompt payment of the latter's account to it, specially taking into
consideration that the amount due to the Government draws interests while the credit due to the
present state does not accrue any interest. (Order of September 28, 1960)
The petition to set aside the above orders of the court below and for the execution of the claim of the
Government against the estate must be denied for lack of merit. The ordinary procedure by which to settle
claims of indebtedness against the estate of a deceased person, as an inheritance tax, is for the claimant
to present a claim before the probate court so that said court may order the administrator to pay the
amount thereof. To such effect is the decision of this Court in Aldamiz vs. Judge of the Court of First
Instance of Mindoro, G.R. No. L-2360, Dec. 29, 1949, thus:
. . . a writ of execution is not the proper procedure allowed by the Rules of Court for the payment of
debts and expenses of administration. The proper procedure is for the court to order the sale of
personal estate or the sale or mortgage of real property of the deceased and all debts or expenses
of administrator and with the written notice to all the heirs legatees and devisees residing in the
Philippines, according to Rule 89, section 3, and Rule 90, section 2. And when sale or mortgage of
real estate is to be made, the regulations contained in Rule 90, section 7, should be complied
with.1wph1.t
Execution may issue only where the devisees, legatees or heirs have entered into possession of
their respective portions in the estate prior to settlement and payment of the debts and expenses
of administration and it is later ascertained that there are such debts and expenses to be paid, in
which case "the court having jurisdiction of the estate may, by order for that purpose, after hearing,
settle the amount of their several liabilities, and order how much and in what manner each person
shall contribute, and may issue execution if circumstances require" (Rule 89, section 6; see
also Rule 74, Section 4; Emphasis supplied.) And this is not the instant case.
The legal basis for such a procedure is the fact that in the testate or intestate proceedings to settle the
estate of a deceased person, the properties belonging to the estate are under the jurisdiction of the court
and such jurisdiction continues until said properties have been distributed among the heirs entitled
thereto. During the pendency of the proceedings all the estate is in custodia legis and the proper
procedure is not to allow the sheriff, in case of the court judgment, to seize the properties but to ask the
court for an order to require the administrator to pay the amount due from the estate and required to be
paid.
Another ground for denying the petition of the provincial fiscal is the fact that the court having jurisdiction
of the estate had found that the claim of the estate against the Government has been recognized and an
amount of P262,200 has already been appropriated for the purpose by a corresponding law (Rep. Act No.
2700). Under the above circumstances, both the claim of the Government for inheritance taxes and the
claim of the intestate for services rendered have already become overdue and demandable is well as fully

27

liquidated. Compensation, therefore, takes place by operation of law, in accordance with the provisions of
Articles 1279 and 1290 of the Civil Code, and both debts are extinguished to the concurrent amount, thus:
ART. 1200. When all the requisites mentioned in article 1279 are present, compensation takes effect
by operation of law, and extinguished both debts to the concurrent amount, eventhough the
creditors and debtors are not aware of the compensation.
It is clear, therefore, that the petitioner has no clear right to execute the judgment for taxes against the
estate of the deceased Walter Scott Price. Furthermore, the petition for certiorari and mandamus is not the
proper remedy for the petitioner. Appeal is the remedy.
The petition is, therefore, dismissed, without costs.

RENATO V. DIAZ and G.R. No. 193007


AURORA MA. F. TIMBOL,
Petitioners, Present:
CORONA, C.J.,
CARPIO,
VELASCO, JR.,
LEONARDO-DE CASTRO,
BRION,
- versus - PERALTA,

BERSAMIN,*
DEL CASTILLO,
ABAD,
VILLARAMA, JR.,
PEREZ,
MENDOZA, and
SERENO,** JJ.

THE SECRETARY OF FINANCE


and THE COMMISSIONER OF Promulgated:
INTERNAL REVENUE,
Respondents. July 19, 2011
x ---------------------------------------------------------------------------------------- x

May toll fees collected by tollway operators be subjected to value- added tax?
The Facts and the Case
Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this petition for declaratory
relief[1] assailing the validity of the impending imposition of value-added tax (VAT) by the Bureau of Internal
Revenue (BIR) on the collections of tollway operators.
Petitioners claim that, since the VAT would result in increased toll fees, they have an interest as
regular users of tollways in stopping the BIR action. Additionally, Diaz claims that he sponsored the
approval of Republic Act 7716 (the 1994 Expanded VAT Law or EVAT Law) and Republic Act 8424 (the 1997
National Internal Revenue Code or the NIRC) at the House of Representatives. Timbol, on the other hand,
claims that she served as Assistant Secretary of the Department of Trade and Industry and consultant of
the Toll Regulatory Board (TRB) in the past administration.
Petitioners allege that the BIR attempted during the administration of President Gloria MacapagalArroyo to impose VAT on toll fees. The imposition was deferred, however, in view of the consistent
opposition of Diaz and other sectors to such move. But, upon President Benigno C. Aquino IIIs assumption
of office in 2010, the BIR revived the idea and would impose the challenged tax on toll fees beginning
August 16, 2010 unless judicially enjoined.
Petitioners hold the view that Congress did not, when it enacted the NIRC, intend to include toll fees
within the meaning of sale of services that are subject to VAT; that a toll fee is a users tax, not a sale of
services; that to impose VAT on toll fees would amount to a tax on public service; and that, since VAT was
never factored into the formula for computing toll fees, its imposition would violate the non-impairment
clause of the constitution.

28

On August 13, 2010 the Court issued a temporary restraining order (TRO), enjoining the
implementation of the VAT. The Court required the government, represented by respondents Cesar V.
Purisima, Secretary of the Department of Finance, and Kim S. Jacinto-Henares, Commissioner of Internal
Revenue, to comment on the petition within 10 days from notice. [2] Later, the Court issued another
resolution treating the petition as one for prohibition.[3]
On August 23, 2010 the Office of the Solicitor General filed the governments comment. [4] The government
avers that the NIRC imposes VAT on all kinds of services of franchise grantees, including tollway
operations, except where the law provides otherwise; that the Court should seek the meaning and intent of
the law from the words used in the statute; and that the imposition of VAT on tollway operations has been
the subject as early as 2003 of several BIR rulings and circulars. [5]
The government also argues that petitioners have no right to invoke the non-impairment of
contracts clause since they clearly have no personal interest in existing toll operating agreements (TOAs)
between the government and tollway operators. At any rate, the non-impairment clause cannot limit the
States sovereign taxing power which is generally read into contracts.
Finally, the government contends that the non-inclusion of VAT in the parametric formula for computing toll
rates cannot exempt tollway operators from VAT. In any event, it cannot be claimed that the rights of
tollway operators to a reasonable rate of return will be impaired by the VAT since this is imposed on top of
the toll rate.Further, the imposition of VAT on toll fees would have very minimal effect on motorists using
the tollways.
In their reply[6] to the governments comment, petitioners point out that tollway operators cannot be
regarded as franchise grantees under the NIRC since they do not hold legislative franchises. Further, the
BIR intends to collect the VAT by rounding off the toll rate and putting any excess collection in an escrow
account. But this would be illegal since only the Congress can modify VAT rates and authorize its
disbursement. Finally, BIR Revenue Memorandum Circular 63-2010 (BIR RMC 63-2010), which directs toll
companies to record an accumulated input VAT of zero balance in their books as of August 16, 2010,
contravenes Section 111 of the NIRC which grants entities that first become liable to VAT a transitional
input tax credit of 2% on beginning inventory. For this reason, the VAT on toll fees cannot be implemented.
The Issues Presented
The case presents two procedural issues:
1. Whether or not the Court may treat the petition for declaratory relief as one for prohibition; and
2. Whether or not petitioners Diaz and Timbol have legal standing to file the action.
The case also presents two substantive issues:
1. Whether or not the government is unlawfully expanding VAT coverage by including tollway
operators and tollway operations in the terms franchise grantees and sale of services under Section 108 of
the Code; and
2. Whether or not the imposition of VAT on tollway operators a) amounts to a tax on tax and not a
tax on services; b) will impair the tollway operators right to a reasonable return of investment under their
TOAs; and c) is not administratively feasible and cannot be implemented.
The Courts Rulings
A. On the Procedural Issues:
On August 24, 2010 the Court issued a resolution, treating the petition as one for prohibition rather
than one for declaratory relief, the characterization that petitioners Diaz and Timbol gave their action. The
government has sought reconsideration of the Courts resolution, [7] however, arguing that petitioners
allegations clearly made out a case for declaratory relief, an action over which the Court has no original
jurisdiction. The government adds, moreover, that the petition does not meet the requirements of Rule 65
for actions for prohibition since the BIR did not exercise judicial, quasi-judicial, or ministerial functions
when it sought to impose VAT on toll fees. Besides, petitioners Diaz and Timbol has a plain, speedy, and
adequate remedy in the ordinary course of law against the BIR action in the form of an appeal to the
Secretary of Finance.
But there are precedents for treating a petition for declaratory relief as one for prohibition if the case has
far-reaching implications and raises questions that need to be resolved for the public good. [8] The Court has
also held that a petition for prohibition is a proper remedy to prohibit or nullify acts of executive officials
that amount to usurpation of legislative authority.[9]
Here, the imposition of VAT on toll fees has far-reaching implications. Its imposition would impact,
not only on the more than half a million motorists who use the tollways everyday, but more so on the
governments effort to raise revenue for funding various projects and for reducing budgetary deficits.

29

To dismiss the petition and resolve the issues later, after the challenged VAT has been imposed,
could cause more mischief both to the tax-paying public and the government. A belated declaration of
nullity of the BIR action would make any attempt to refund to the motorists what they paid an
administrative nightmare with no solution. Consequently, it is not only the right, but the duty of the Court
to take cognizance of and resolve the issues that the petition raises.
Although the petition does not strictly comply with the requirements of Rule 65, the Court has
ample power to waive such technical requirements when the legal questions to be resolved are of great
importance to the public. The same may be said of the requirement of locus standi which is a mere
procedural requisite.[10]
B. On the Substantive Issues:
One. The relevant law in this case is Section 108 of the NIRC, as amended. VAT is levied, assessed,
and collected, according to Section 108, on the gross receipts derived from the sale or exchange of
services as well as from the use or lease of properties. The third paragraph of Section 108 defines sale or
exchange of services as follows:
The phrase sale or exchange of services means the performance of all kinds
of services in the Philippines for others for a fee, remuneration or consideration,
including those performed or rendered by construction and service contractors;
stock, real estate, commercial, customs and immigration brokers; lessors of
property, whether personal or real; warehousing services; lessors or distributors
of cinematographic films; persons engaged in milling, processing, manufacturing
or repacking goods for others; proprietors, operators or keepers of hotels, motels,
resthouses, pension houses, inns, resorts; proprietors or operators of
restaurants, refreshment parlors, cafes and other eating places, including clubs
and caterers; dealers in securities; lending investors; transportation contractors
on their transport of goods or cargoes, including persons who transport goods or
cargoes for hire and other domestic common carriers by land relative to their
transport of goods or cargoes; common carriers by air and sea relative to their
transport of passengers, goods or cargoes from one place in the Philippines to
another place in the Philippines; sales of electricity by generation companies,
transmission, and distribution companies; services of franchise grantees of
electric utilities, telephone and telegraph, radio and television broadcasting and
all other franchise grantees except those under Section 119 of this Code and nonlife insurance companies (except their crop insurances), including surety, fidelity,
indemnity and bonding companies; and similar services regardless of whether or
not the performance thereof calls for the exercise or use of the physical or mental
faculties.(Underscoring supplied)
It is plain from the above that the law imposes VAT on all kinds of services rendered in
the Philippines for a fee, including those specified in the list. The enumeration of affected services is not
exclusive.[11] By qualifying services with the words all kinds, Congress has given the term services an allencompassing meaning. The listing of specific services are intended to illustrate how pervasive and broad
is the VATs reach rather than establish concrete limits to its application. Thus, every activity that can be
imagined as a form of service rendered for a fee should be deemed included unless some provision of law
especially excludes it.
Now, do tollway operators render services for a fee? Presidential Decree (P.D.) 1112 or the Toll Operation
Decree establishes the legal basis for the services that tollway operators render. Essentially, tollway
operators construct, maintain, and operate expressways, also called tollways, at the operators
expense. Tollways serve as alternatives to regular public highways that meander through populated areas
and branch out to local roads. Traffic in the regular public highways is for this reason slow-moving. In
consideration for constructing tollways at their expense, the operators are allowed to collect governmentapproved fees from motorists using the tollways until such operators could fully recover their expenses
and earn reasonable returns from their investments.
When a tollway operator takes a toll fee from a motorist, the fee is in effect for the latters use of the
tollway facilities over which the operator enjoys private proprietary rights [12] that its contract and the law
recognize. In this sense, the tollway operator is no different from the following service providers under
Section 108 who allow others to use their properties or facilities for a fee:
1. Lessors of property, whether personal or real;
2. Warehousing service operators;
3. Lessors or distributors of cinematographic films;
4. Proprietors, operators or keepers of hotels, motels, resthouses, pension houses,
inns, resorts;
5. Lending investors (for use of money);
6. Transportation contractors on their transport of goods or cargoes, including
persons who transport goods or cargoes for hire and other domestic common carriers by
land relative to their transport of goods or cargoes; and

30

7. Common carriers by air and sea relative to their transport of passengers, goods or
cargoes from one place in the Philippines to another place in the Philippines.
It does not help petitioners cause that Section 108 subjects to VAT all kinds of services rendered for
a fee regardless of whether or not the performance thereof calls for the exercise or use of the physical or
mental faculties. This means that services to be subject to VAT need not fall under the traditional concept
of services, the personal or professional kinds that require the use of human knowledge and skills.
And not only do tollway operators come under the broad term all kinds of services, they also come under
the specific class described in Section 108 as all other franchise grantees who are subject to VAT, except
those under Section 119 of this Code.
Tollway operators are franchise grantees and they do not belong to exceptions (the low-income
radio and/or television broadcasting companies with gross annual incomes of less than P10 million and gas
and water utilities) that Section 119 [13] spares from the payment of VAT. The word franchise broadly covers
government grants of a special right to do an act or series of acts of public concern. [14]
Petitioners of course contend that tollway operators cannot be considered franchise grantees under
Section 108 since they do not hold legislative franchises. But nothing in Section 108 indicates that the
franchise grantees it speaks of are those who hold legislative franchises. Petitioners give no reason, and
the Court cannot surmise any, for making a distinction between franchises granted by Congress and
franchises granted by some other government agency. The latter, properly constituted, may grant
franchises. Indeed, franchises conferred or granted by local authorities, as agents of the state, constitute
as much a legislative franchise as though the grant had been made by Congress itself. [15] The term
franchise has been broadly construed as referring, not only to authorizations that Congress directly issues
in the form of a special law, but also to those granted by administrative agencies to which the power to
grant franchises has been delegated by Congress.[16]
Tollway operators are, owing to the nature and object of their business, franchise grantees. The
construction, operation, and maintenance of toll facilities on public improvements are activities of public
consequence that necessarily require a special grant of authority from the state. Indeed, Congress granted
special franchise for the operation of tollways to the Philippine National Construction Company, the former
tollway concessionaire for the North and South Luzon Expressways. Apart from Congress, tollway
franchises may also be granted by the TRB, pursuant to the exercise of its delegated powers under P.D.
1112.[17] The franchise in this case is evidenced by a Toll Operation Certificate. [18]
Petitioners contend that the public nature of the services rendered by tollway operators excludes
such services from the term sale of services under Section 108 of the Code. But, again, nothing in Section
108 supports this contention. The reverse is true. In specifically including by way of example electric
utilities, telephone, telegraph, and broadcasting companies in its list of VAT-covered businesses, Section
108 opens other companies rendering public service for a fee to the imposition of VAT. Businesses of a
public nature such as public utilities and the collection of tolls or charges for its use or service is a
franchise.[19]
Nor can petitioners cite as binding on the Court statements made by certain lawmakers in the
course of congressional deliberations of the would-be law. As the Court said in South African Airways v.
Commissioner of Internal Revenue,[20] statements made by individual members of Congress in the
consideration of a bill do not necessarily reflect the sense of that body and are, consequently, not
controlling in the interpretation of law. The congressional will is ultimately determined by the language of
the law that the lawmakers voted on. Consequently, the meaning and intention of the law must first be
sought in the words of the statute itself, read and considered in their natural, ordinary, commonly
accepted and most obvious significations, according to good and approved usage and without resorting to
forced or subtle construction.
Two. Petitioners argue that a toll fee is a users tax and to impose VAT on toll fees is tantamount to
taxing a tax.[21] Actually, petitioners base this argument on the following discussion in Manila International
Airport Authority (MIAA) v. Court of Appeals:[22]
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.
x x x 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

31

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 for 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 users 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
users tax is more equitable a principle of taxation mandated in the 1987
Constitution.[23] (Underscoring supplied)
Petitioners assume that what the Court said above, equating terminal fees to a users tax must also
pertain to tollway fees. But the main issue in the MIAA case was whether or not Paraaque City could sell
airport lands and buildings under MIAA administration at public auction to satisfy unpaid real estate taxes.
Since local governments have no power to tax the national government, the Court held that the City could
not proceed with the auction sale. MIAA forms part of the national government although not integrated in
the department framework.[24] Thus, its airport lands and buildings are properties of public dominion
beyond the commerce of man under Article 420(1)[25] of the Civil Code and could not be sold at public
auction.
As can be seen, the discussion in the MIAA case on toll roads and toll fees was made, not to
establish a rule that tollway fees are users tax, but to make the point that airport lands and buildings are
properties of public dominion and that the collection of terminal fees for their use does not make them
private properties. Tollway fees are not taxes. Indeed, they are not assessed and collected by the BIR and
do not go to the general coffers of the government.
It would of course be another matter if Congress enacts a law imposing a users tax, collectible from
motorists, for the construction and maintenance of certain roadways. The tax in such a case goes directly
to the government for the replenishment of resources it spends for the roadways. This is not the case
here. What the government seeks to tax here are fees collected from tollways that are constructed,
maintained, and operated by private tollway operators at their own expense under the build, operate, and
transfer scheme that the government has adopted for expressways. [26] Except for a fraction given to the
government, the toll fees essentially end up as earnings of the tollway operators.
In sum, fees paid by the public to tollway operators for use of the tollways, are not taxes in any sense. A
tax is imposed under the taxing power of the government principally for the purpose of raising revenues to
fund public expenditures.[27] Toll fees, on the other hand, are collected by private tollway operators as
reimbursement for the costs and expenses incurred in the construction, maintenance and operation of the
tollways, as well as to assure them a reasonable margin of income. Although toll fees are charged for the
use of public facilities, therefore, they are not government exactions that can be properly treated as a
tax. Taxes may be imposed only by the government under its sovereign authority, toll fees may be
demanded by either the government or private individuals or entities, as an attribute of ownership. [28]
Parenthetically, VAT on tollway operations cannot be deemed a tax on tax due to the nature of VAT as an
indirect tax. In indirect taxation, a distinction is made between the liability for the tax and burden of the
tax. The seller who is liable for the VAT may shift or pass on the amount of VAT it paid on goods, properties
or services to the buyer. In such a case, what is transferred is not the sellers liability but merely the burden
of the VAT.[29]
Thus, the seller remains directly and legally liable for payment of the VAT, but the buyer bears its
burden since the amount of VAT paid by the former is added to the selling price. Once shifted, the VAT
ceases to be a tax[30] and simply becomes part of the cost that the buyer must pay in order to purchase the
good, property or service.
Consequently, VAT on tollway operations is not really a tax on the tollway user, but on the tollway
operator. Under Section 105 of the Code, [31] VAT is imposed on any person who, in the course of trade or
business, sells or renders services for a fee. In other words, the seller of services, who in this case is the
tollway operator, is the person liable for VAT. The latter merely shifts the burden of VAT to the tollway user
as part of the toll fees.
For this reason, VAT on tollway operations cannot be a tax on tax even if toll fees were deemed as a
users tax. VAT is assessed against the tollway operators gross receipts and not necessarily on the toll fees.
Although the tollway operator may shift the VAT burden to the tollway user, it will not make the latter

32

directly liable for the VAT. The shifted VAT burden simply becomes part of the toll fees that one has to pay
in order to use the tollways.[32]
Three. Petitioner Timbol has no personality to invoke the non-impairment of contract clause on behalf of
private investors in the tollway projects. She will neither be prejudiced by nor be affected by the alleged
diminution in return of investments that may result from the VAT imposition. She has no interest at all in
the profits to be earned under the TOAs. The interest in and right to recover investments solely belongs to
the private tollway investors.
Besides, her allegation that the private investors rate of recovery will be adversely affected by
imposing VAT on tollway operations is purely speculative. Equally presumptuous is her assertion that a
stipulation in the TOAs known as the Material Adverse Grantor Action will be activated if VAT is thus
imposed. The Court cannot rule on matters that are manifestly conjectural. Neither can it prohibit the State
from exercising its sovereign taxing power based on uncertain, prophetic grounds.
Four. Finally, petitioners assert that the substantiation requirements for claiming input VAT make
the VAT on tollway operations impractical and incapable of implementation. They cite the fact that, in order
to claim input VAT, the name, address and tax identification number of the tollway user must be indicated
in the VAT receipt or invoice. The manner by which the BIR intends to implement the VAT by rounding off
the toll rate and putting any excess collection in an escrow account is also illegal, while the alternative of
giving change to thousands of motorists in order to meet the exact toll rate would be a logistical
nightmare. Thus, according to them, the VAT on tollway operations is not administratively feasible. [33]
Administrative feasibility is one of the canons of a sound tax system. It simply means that the tax
system should be capable of being effectively administered and enforced with the least inconvenience to
the taxpayer. Non-observance of the canon, however, will not render a tax imposition invalid except to the
extent that specific constitutional or statutory limitations are impaired. [34] Thus, even if the imposition of
VAT on tollway operations may seem burdensome to implement, it is not necessarily invalid unless some
aspect of it is shown to violate any law or the Constitution.
Here, it remains to be seen how the taxing authority will actually implement the VAT on tollway
operations. Any declaration by the Court that the manner of its implementation is illegal or
unconstitutional would be premature. Although the transcript of the August 12, 2010 Senate hearing
provides some clue as to how the BIR intends to go about it, [35] the facts pertaining to the matter are not
sufficiently established for the Court to pass judgment on. Besides, any concern about how the VAT on
tollway operations will be enforced must first be addressed to the BIR on whom the task of implementing
tax laws primarily and exclusively rests. The Court cannot preempt the BIRs discretion on the matter,
absent any clear violation of law or the Constitution.
For the same reason, the Court cannot prematurely declare as illegal, BIR RMC 63-2010 which
directs toll companies to record an accumulated input VAT of zero balance in their books as of August 16,
2010, the date when the VAT imposition was supposed to take effect. The issuance allegedly violates
Section 111(A)[36] of the Code which grants first time VAT payers a transitional input VAT of 2% on
beginning inventory.
In this connection, the BIR explained that BIR RMC 63-2010 is actually the product of negotiations
with tollway operators who have been assessed VAT as early as 2005, but failed to charge VAT-inclusive toll
fees which by now can no longer be collected. The tollway operators agreed to waive the 2% transitional
input VAT, in exchange for cancellation of their past due VAT liabilities. Notably, the right to claim the 2%
transitional input VAT belongs to the tollway operators who have not questioned the circulars validity. They
are thus the ones who have a right to challenge the circular in a direct and proper action brought for the
purpose.
Conclusion
In fine, the Commissioner of Internal Revenue did not usurp legislative prerogative or expand the
VAT laws coverage when she sought to impose VAT on tollway operations. Section 108(A) of the Code
clearly states that services of all other franchise grantees are subject to VAT, except as may be provided
under Section 119 of the Code. Tollway operators are not among the franchise grantees subject to
franchise tax under the latter provision. Neither are their services among the VAT-exempt transactions
under Section 109 of the Code.
If the legislative intent was to exempt tollway operations from VAT, as petitioners so strongly allege,
then it would have been well for the law to clearly say so. Tax exemptions must be justified by clear
statutory grant and based on language in the law too plain to be mistaken. [37] But as the law is written, no
such exemption obtains for tollway operators. The Court is thus duty-bound to simply apply the law as it is
found.
Lastly, the grant of tax exemption is a matter of legislative policy that is within the exclusive
prerogative of Congress. The Courts role is to merely uphold this legislative policy, as reflected first and
foremost in the language of the tax statute. Thus, any unwarranted burden that may be perceived to result

33

from enforcing such policy must be properly referred to Congress. The Court has no discretion on the
matter but simply applies the law.
The VAT on franchise grantees has been in the statute books since 1994 when R.A. 7716 or the
Expanded Value-Added Tax law was passed. It is only now, however, that the executive has earnestly
pursued the VAT imposition against tollway operators. The executive exercises exclusive discretion in
matters pertaining to the implementation and execution of tax laws. Consequently, the executive is more
properly suited to deal with the immediate and practical consequences of the VAT imposition.
WHEREFORE, the Court DENIES respondents Secretary of Finance and Commissioner of Internal
Revenues motion for reconsideration of its August 24, 2010 resolution, DISMISSES the petitioners Renato
V. Diaz and Aurora Ma. F. Timbols petition for lack of merit, and SETS ASIDE the Courts temporary
restraining order dated August 13, 2010.
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

34

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
barrio ordinances 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

35

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.
Castro, C.J., Barredo, Makasiar, Antonio, Muoz Palma, Aquino and Concepcion, Jr., JJ., concur.
Teehankee, J., reserves his vote.
G.R. No. L-75697
VALENTIN TIO doing business under the name and style of OMI ENTERPRISES, petitioner,
vs.
VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE, METRO MANILA COMMISSION, CITY
MAYOR and CITY TREASURER OF MANILA, respondents.

36

Nelson Y. Ng for petitioner.


The City Legal Officer for respondents City Mayor and City Treasurer.
MELENCIO-HERRERA, J.:
This petition was filed on September 1, 1986 by petitioner on his own behalf and purportedly on behalf of
other videogram operators adversely affected. It assails the constitutionality of Presidential Decree No.
1987 entitled "An Act Creating the Videogram Regulatory Board" with broad powers to regulate and
supervise the videogram industry (hereinafter briefly referred to as the BOARD). The Decree was
promulgated on October 5, 1985 and took effect on April 10, 1986, fifteen (15) days after completion of its
publication in the Official Gazette.
On November 5, 1985, a month after the promulgation of the abovementioned decree, Presidential Decree
No. 1994 amended the National Internal Revenue Code providing, inter alia:
SEC. 134. Video Tapes. There shall be collected on each processed video-tape cassette, ready for
playback, regardless of length, an annual tax of five pesos; Provided, That locally manufactured or
imported blank video tapes shall be subject to sales tax.
On October 23, 1986, the Greater Manila Theaters Association, Integrated Movie Producers, Importers and
Distributors Association of the Philippines, and Philippine Motion Pictures Producers Association, hereinafter
collectively referred to as the Intervenors, were permitted by the Court to intervene in the case, over
petitioner's opposition, upon the allegations that intervention was necessary for the complete protection of
their rights and that their "survival and very existence is threatened by the unregulated proliferation of film
piracy." The Intervenors were thereafter allowed to file their Comment in Intervention.
The rationale behind the enactment of the DECREE, is set out in its preambular clauses as follows:
1. WHEREAS, the proliferation and unregulated circulation of videograms including, among others,
videotapes, discs, cassettes or any technical improvement or variation thereof, have greatly
prejudiced the operations of moviehouses and theaters, and have caused a sharp decline in
theatrical attendance by at least forty percent (40%) and a tremendous drop in the collection of
sales, contractor's specific, amusement and other taxes, thereby resulting in substantial losses
estimated at P450 Million annually in government revenues;
2. WHEREAS, videogram(s) establishments collectively earn around P600 Million per annum from
rentals, sales and disposition of videograms, and such earnings have not been subjected to tax,
thereby depriving the Government of approximately P180 Million in taxes each year;
3. WHEREAS, the unregulated activities of videogram establishments have also affected the
viability of the movie industry, particularly the more than 1,200 movie houses and theaters
throughout the country, and occasioned industry-wide displacement and unemployment due to the
shutdown of numerous moviehouses and theaters;
4. "WHEREAS, in order to ensure national economic recovery, it is imperative for the Government to
create an environment conducive to growth and development of all business industries, including
the movie industry which has an accumulated investment of about P3 Billion;
5. WHEREAS, proper taxation of the activities of videogram establishments will not only alleviate
the dire financial condition of the movie industry upon which more than 75,000 families and
500,000 workers depend for their livelihood, but also provide an additional source of revenue for
the Government, and at the same time rationalize the heretofore uncontrolled distribution of
videograms;
6. WHEREAS, the rampant and unregulated showing of obscene videogram features constitutes a
clear and present danger to the moral and spiritual well-being of the youth, and impairs the
mandate of the Constitution for the State to support the rearing of the youth for civic efficiency and
the development of moral character and promote their physical, intellectual, and social well-being;
7. WHEREAS, civic-minded citizens and groups have called for remedial measures to curb these
blatant malpractices which have flaunted our censorship and copyright laws;
8. WHEREAS, in the face of these grave emergencies corroding the moral values of the people and
betraying the national economic recovery program, bold emergency measures must be adopted
with dispatch; ... (Numbering of paragraphs supplied).
Petitioner's attack on the constitutionality of the DECREE rests on the following grounds:
1. Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to the local
government is a RIDER and the same is not germane to the subject matter thereof;
2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade in
violation of the due process clause of the Constitution;
3. There is no factual nor legal basis for the exercise by the President of the vast powers conferred
upon him by Amendment No. 6;
4. There is undue delegation of power and authority;
5. The Decree is an ex-post facto law; and
6. There is over regulation of the video industry as if it were a nuisance, which it is not.
We shall consider the foregoing objections in seriatim.
1. The Constitutional requirement that "every bill shall embrace only one subject which shall be expressed
in the title thereof" 1 is sufficiently complied with if the title be comprehensive enough to include the
general purpose which a statute seeks to achieve. It is not necessary that the title express each and every
end that the statute wishes to accomplish. The requirement is satisfied if all the parts of the statute are
related, and are germane to the subject matter expressed in the title, or as long as they are not
inconsistent with or foreign to the general subject and title. 2 An act having a single general subject,
indicated in the title, may contain any number of provisions, no matter how diverse they may be, so long

37

as they are not inconsistent with or foreign to the general subject, and may be considered in furtherance of
such subject by providing for the method and means of carrying out the general object." 3 The rule also is
that the constitutional requirement as to the title of a bill should not be so narrowly construed as to cripple
or impede the power of legislation. 4 It should be given practical rather than technical construction. 5
Tested by the foregoing criteria, petitioner's contention that the tax provision of the DECREE is a rider is
without merit. That section reads, inter alia:
Section 10. Tax on Sale, Lease or Disposition of Videograms. Notwithstanding any provision of
law to the contrary, the province shall collect a tax of thirty percent (30%) of the purchase price or
rental rate, as the case may be, for every sale, lease or disposition of a videogram containing a
reproduction of any motion picture or audiovisual program. Fifty percent (50%) of the proceeds of
the tax collected shall accrue to the province, and the other fifty percent (50%) shall acrrue to the
municipality where the tax is collected; PROVIDED, That in Metropolitan Manila, the tax shall be
shared equally by the City/Municipality and the Metropolitan Manila Commission.
xxx
xxx
xxx
The foregoing provision is allied and germane to, and is reasonably necessary for the accomplishment of,
the general object of the DECREE, which is the regulation of the video industry through the Videogram
Regulatory Board as expressed in its title. The tax provision is not inconsistent with, nor foreign to that
general subject and title. As a tool for regulation 6 it is simply one of the regulatory and control
mechanisms scattered throughout the DECREE. The express purpose of the DECREE to include taxation of
the video industry in order to regulate and rationalize the heretofore uncontrolled distribution of
videograms is evident from Preambles 2 and 5, supra. Those preambles explain the motives of the
lawmaker in presenting the measure. The title of the DECREE, which is the creation of the Videogram
Regulatory Board, is comprehensive enough to include the purposes expressed in its Preamble and
reasonably covers all its provisions. It is unnecessary to express all those objectives in the title or that the
latter be an index to the body of the DECREE. 7
2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and oppressive, confiscatory,
and in restraint of trade. However, it is beyond serious question that a tax does not cease to be valid
merely because it regulates, discourages, or even definitely deters the activities taxed. 8 The power to
impose taxes is one so unlimited in force and so searching in extent, that the courts scarcely venture to
declare that it is subject to any restrictions whatever, except such as rest in the discretion of the authority
which exercises it. 9 In imposing a tax, the legislature acts upon its constituents. This is, in general, a
sufficient security against erroneous and oppressive taxation. 10
The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted by the
realization that earnings of videogram establishments of around P600 million per annum have not been
subjected to tax, thereby depriving the Government of an additional source of revenue. It is an end-user
tax, imposed on retailers for every videogram they make available for public viewing. It is similar to the
30% amusement tax imposed or borne by the movie industry which the theater-owners pay to the
government, but which is passed on to the entire cost of the admission ticket, thus shifting the tax burden
on the buying or the viewing public. It is a tax that is imposed uniformly on all videogram operators.
The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for regulating
the video industry, particularly because of the rampant film piracy, the flagrant violation of intellectual
property rights, and the proliferation of pornographic video tapes. And while it was also an objective of the
DECREE to protect the movie industry, the tax remains a valid imposition.
The public purpose of a tax may legally exist even if the motive which impelled the legislature to
impose the tax was to favor one industry over another. 11
It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has
been repeatedly held that "inequities which result from a singling out of one particular class for
taxation or exemption infringe no constitutional limitation". 12 Taxation has been made the
implement of the state's police power.13
At bottom, the rate of tax is a matter better addressed to the taxing legislature.
3. Petitioner argues that there was no legal nor factual basis for the promulgation of the DECREE by the
former President under Amendment No. 6 of the 1973 Constitution providing that "whenever in the
judgment of the President ... , there exists a grave emergency or a threat or imminence thereof, or
whenever the interim Batasang Pambansa or the regular National Assembly fails or is unable to act
adequately on any matter for any reason that in his judgment requires immediate action, he may, in order
to meet the exigency, issue the necessary decrees, orders, or letters of instructions, which shall form part
of the law of the land."
In refutation, the Intervenors and the Solicitor General's Office aver that the 8th "whereas" clause
sufficiently summarizes the justification in that grave emergencies corroding the moral values of the
people and betraying the national economic recovery program necessitated bold emergency measures to
be adopted with dispatch. Whatever the reasons "in the judgment" of the then President, considering that
the issue of the validity of the exercise of legislative power under the said Amendment still pends
resolution in several other cases, we reserve resolution of the question raised at the proper time.
4. Neither can it be successfully argued that the DECREE contains an undue delegation of legislative
power. The grant in Section 11 of the DECREE of authority to the BOARD to "solicit the direct assistance of
other agencies and units of the government and deputize, for a fixed and limited period, the heads or
personnel of such agencies and units to perform enforcement functions for the Board" is not a delegation
of the power to legislate but merely a conferment of authority or discretion as to its execution,
enforcement, and implementation. "The true distinction is between the delegation of power to make the
law, which necessarily involves a discretion as to what it shall be, and conferring authority or discretion as
to its execution to be exercised under and in pursuance of the law. The first cannot be done; to the latter,

38

no valid objection can be made." 14 Besides, in the very language of the decree, the authority of the
BOARD to solicit such assistance is for a "fixed and limited period" with the deputized agencies concerned
being "subject to the direction and control of the BOARD." That the grant of such authority might be the
source of graft and corruption would not stigmatize the DECREE as unconstitutional. Should the eventuality
occur, the aggrieved parties will not be without adequate remedy in law.
5. The DECREE is not violative of the ex post facto principle. An ex post facto law is, among other
categories, one which "alters the legal rules of evidence, and authorizes conviction upon less or different
testimony than the law required at the time of the commission of the offense." It is petitioner's position
that Section 15 of the DECREE in providing that:
All videogram establishments in the Philippines are hereby given a period of forty-five (45) days
after the effectivity of this Decree within which to register with and secure a permit from the BOARD
to engage in the videogram business and to register with the BOARD all their inventories of
videograms, including videotapes, discs, cassettes or other technical improvements or variations
thereof, before they could be sold, leased, or otherwise disposed of. Thereafter any videogram
found in the possession of any person engaged in the videogram business without the required
proof of registration by the BOARD, shall be prima facie evidence of violation of the Decree,
whether the possession of such videogram be for private showing and/or public exhibition.
raises immediately a prima facie evidence of violation of the DECREE when the required proof of
registration of any videogram cannot be presented and thus partakes of the nature of an ex post facto law.
The argument is untenable. As this Court held in the recent case of Vallarta vs. Court of Appeals, et al. 15
... it is now well settled that "there is no constitutional objection to the passage of a law providing
that the presumption of innocence may be overcome by a contrary presumption founded upon the
experience of human conduct, and enacting what evidence shall be sufficient to overcome such
presumption of innocence" (People vs. Mingoa 92 Phil. 856 [1953] at 858-59, citing 1 COOLEY, A
TREATISE ON THE CONSTITUTIONAL LIMITATIONS, 639-641). And the "legislature may enact that
when certain facts have been proved that they shall be prima facie evidence of the existence of the
guilt of the accused and shift the burden of proof provided there be a rational connection between
the facts proved and the ultimate facts presumed so that the inference of the one from proof of the
others is not unreasonable and arbitrary because of lack of connection between the two in common
experience". 16
Applied to the challenged provision, there is no question that there is a rational connection between the
fact proved, which is non-registration, and the ultimate fact presumed which is violation of the DECREE,
besides the fact that the prima facie presumption of violation of the DECREE attaches only after a fortyfive-day period counted from its effectivity and is, therefore, neither retrospective in character.
6. We do not share petitioner's fears that the video industry is being over-regulated and being eased out of
existence as if it were a nuisance. Being a relatively new industry, the need for its regulation was apparent.
While the underlying objective of the DECREE is to protect the moribund movie industry, there is no
question that public welfare is at bottom of its enactment, considering "the unfair competition posed by
rampant film piracy; the erosion of the moral fiber of the viewing public brought about by the availability of
unclassified and unreviewed video tapes containing pornographic films and films with brutally violent
sequences; and losses in government revenues due to the drop in theatrical attendance, not to mention
the fact that the activities of video establishments are virtually untaxed since mere payment of Mayor's
permit and municipal license fees are required to engage in business. 17
The enactment of the Decree since April 10, 1986 has not brought about the "demise" of the video
industry. On the contrary, video establishments are seen to have proliferated in many places
notwithstanding the 30% tax imposed.
In the last analysis, what petitioner basically questions is the necessity, wisdom and expediency of the
DECREE. These considerations, however, are primarily and exclusively a matter of legislative concern.
Only congressional power or competence, not the wisdom of the action taken, may be the basis for
declaring a statute invalid. This is as it ought to be. The principle of separation of powers has in the
main wisely allocated the respective authority of each department and confined its jurisdiction to
such a sphere. There would then be intrusion not allowable under the Constitution if on a matter left
to the discretion of a coordinate branch, the judiciary would substitute its own. If there be
adherence to the rule of law, as there ought to be, the last offender should be courts of justice, to
which rightly litigants submit their controversy precisely to maintain unimpaired the supremacy of
legal norms and prescriptions. The attack on the validity of the challenged provision likewise insofar
as there may be objections, even if valid and cogent on its wisdom cannot be sustained. 18
In fine, petitioner has not overcome the presumption of validity which attaches to a challenged statute. We
find no clear violation of the Constitution which would justify us in pronouncing Presidential Decree No.
1987 as unconstitutional and void.
WHEREFORE, the instant Petition is hereby dismissed.
No costs.
SO ORDERED.

G.R. No. L-7859

December 22, 1955

WALTER LUTZ, as Judicial Administrator of the Intestate Estate of the deceased Antonio Jayme
Ledesma, plaintiff-appellant,

39

vs.
J. ANTONIO ARANETA, as the Collector of Internal Revenue, defendant-appellee.
Ernesto J. Gonzaga for appellant.
Office of the Solicitor General Ambrosio Padilla, First Assistant Solicitor General Guillermo E. Torres and
Solicitor Felicisimo R. Rosete for appellee.

REYES, J.B L., J.:


This case was initiated in the Court of First Instance of Negros Occidental to test the legality of the taxes
imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act.
Promulgated in 1940, the law in question opens (section 1) with a declaration of emergency, due to the
threat to our industry by the imminent imposition of export taxes upon sugar as provided in the TydingsMcDuffe Act, and the "eventual loss of its preferential position in the United States market"; wherefore, the
national policy was expressed "to obtain a readjustment of the benefits derived from the sugar industry by
the component elements thereof" and "to stabilize the sugar industry so as to prepare it for the eventuality
of the loss of its preferential position in the United States market and the imposition of the export taxes."
In section 2, Commonwealth Act 567 provides for an increase of the existing tax on the manufacture of
sugar, on a graduated basis, on each picul of sugar manufactured; while section 3 levies on owners or
persons in control of lands devoted to the cultivation of sugar cane and ceded to others for a
consideration, on lease or otherwise
a tax equivalent to the difference between the money value of the rental or consideration collected
and the amount representing 12 per centum of the assessed value of such land.
According to section 6 of the law
SEC. 6. All collections made under this Act shall accrue to a special fund in the Philippine Treasury,
to be known as the 'Sugar Adjustment and Stabilization Fund,' and shall be paid out only for any or
all of the following purposes or to attain any or all of the following objectives, as may be provided
by law.
First, to place the sugar industry in a position to maintain itself, despite the gradual loss of the
preferntial position of the Philippine sugar in the United States market, and ultimately to insure its
continued existence notwithstanding the loss of that market and the consequent necessity of
meeting competition in the free markets of the world;
Second, to readjust the benefits derived from the sugar industry by all of the component elements
thereof the mill, the landowner, the planter of the sugar cane, and the laborers in the factory and
in the field so that all might continue profitably to engage therein;lawphi1.net
Third, to limit the production of sugar to areas more economically suited to the production thereof;
and
Fourth, to afford labor employed in the industry a living wage and to improve their living and
working conditions: Provided, That the President of the Philippines may, until the adjourment of the
next regular session of the National Assembly, make the necessary disbursements from the fund
herein created (1) for the establishment and operation of sugar experiment station or stations and
the undertaking of researchers (a) to increase the recoveries of the centrifugal sugar factories with
the view of reducing manufacturing costs, (b) to produce and propagate higher yielding varieties of
sugar cane more adaptable to different district conditions in the Philippines, (c) to lower the costs of
raising sugar cane, (d) to improve the buying quality of denatured alcohol from molasses for motor
fuel, (e) to determine the possibility of utilizing the other by-products of the industry, (f) to
determine what crop or crops are suitable for rotation and for the utilization of excess cane lands,
and (g) on other problems the solution of which would help rehabilitate and stabilize the industry,
and (2) for the improvement of living and working conditions in sugar mills and sugar plantations,
authorizing him to organize the necessary agency or agencies to take charge of the expenditure
and allocation of said funds to carry out the purpose hereinbefore enumerated, and, likewise,

40

authorizing the disbursement from the fund herein created of the necessary amount or amounts
needed for salaries, wages, travelling expenses, equipment, and other sundry expenses of said
agency or agencies.
Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio Jayme
Ledesma, seeks to recover from the Collector of Internal Revenue the sum of P14,666.40 paid by the
estate as taxes, under section 3 of the Act, for the crop years 1948-1949 and 1949-1950; alleging that
such tax is unconstitutional and void, being levied for the aid and support of the sugar industry exclusively,
which in plaintiff's opinion is not a public purpose for which a tax may be constitutioally levied. The action
having been dismissed by the Court of First Instance, the plaintifs appealed the case directly to this Court
(Judiciary Act, section 17).
The basic defect in the plaintiff's position is his assumption that the tax provided for in Commonwealth Act
No. 567 is a pure exercise of the taxing power. Analysis of the Act, and particularly of section 6 (heretofore
quoted in full), will show that the tax is levied with a regulatory purpose, to provide means for the
rehabilitation and stabilization of the threatened sugar industry. In other words, the act is primarily an
exercise of the police power.
This Court can take judicial notice of the fact that sugar production is one of the great industries of our
nation, sugar occupying a leading position among its export products; that it gives employment to
thousands of laborers in fields and factories; that it is a great source of the state's wealth, is one of the
important sources of foreign exchange needed by our government, and is thus pivotal in the plans of a
regime committed to a policy of currency stability. Its promotion, protection and advancement, therefore
redounds greatly to the general welfare. Hence it was competent for the legislature to find that the general
welfare demanded that the sugar industry should be stabilized in turn; and in the wide field of its police
power, the lawmaking body could provide that the distribution of benefits therefrom be readjusted among
its components to enable it to resist the added strain of the increase in taxes that it had to sustain (Sligh
vs. Kirkwood, 237 U. S. 52, 59 L. Ed. 835; Johnson vs. State ex rel. Marey, 99 Fla. 1311, 128 So. 853; Maxcy
Inc. vs. Mayo, 103 Fla. 552, 139 So. 121).
As stated in Johnson vs. State ex rel. Marey, with reference to the citrus industry in Florida
The protection of a large industry constituting one of the great sources of the state's wealth and
therefore directly or indirectly affecting the welfare of so great a portion of the population of the
State is affected to such an extent by public interests as to be within the police power of the
sovereign. (128 Sp. 857).
Once it is conceded, as it must, that the protection and promotion of the sugar industry is a matter of
public concern, it follows that the Legislature may determine within reasonable bounds what is necessary
for its protection and expedient for its promotion. Here, the legislative discretion must be allowed fully
play, subject only to the test of reasonableness; and it is not contended that the means provided in section
6 of the law (above quoted) bear no relation to the objective pursued or are oppressive in character. If
objective and methods are alike constitutionally valid, no reason is seen why the state may not levy taxes
to raise funds for their prosecution and attainment. Taxation may be made the implement of the state's
police power (Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U. S. 412, 81 L. Ed. 1193; U. S. vs. Butler, 297 U.
S. 1, 80 L. Ed. 477; M'Culloch vs. Maryland, 4 Wheat. 316, 4 L. Ed. 579).
That the tax to be levied should burden the sugar producers themselves can hardly be a ground of
complaint; indeed, it appears rational that the tax be obtained precisely from those who are to be
benefited from the expenditure of the funds derived from it. At any rate, it is inherent in the power to tax
that a state be free to select the subjects of taxation, and it has been repeatedly held that "inequalities
which result from a singling out of one particular class for taxation, or exemption infringe no constitutional
limitation" (Carmichael vs. Southern Coal & Coke Co., 301 U. S. 495, 81 L. Ed. 1245, citing numerous
authorities, at p. 1251).
From the point of view we have taken it appears of no moment that the funds raised under the Sugar
Stabilization Act, now in question, should be exclusively spent in aid of the sugar industry, since it is that
very enterprise that is being protected. It may be that other industries are also in need of similar
protection; that the legislature is not required by the Constitution to adhere to a policy of "all or none." As
ruled in Minnesota ex rel. Pearson vs. Probate Court, 309 U. S. 270, 84 L. Ed. 744, "if the law presumably
hits the evil where it is most felt, it is not to be overthrown because there are other instances to which it
might have been applied;" and that "the legislative authority, exerted within its proper field, need not

41

embrace all the evils within its reach" (N. L. R. B. vs. Jones & Laughlin Steel Corp. 301 U. S. 1, 81 L. Ed.
893).
Even from the standpoint that the Act is a pure tax measure, it cannot be said that the devotion of tax
money to experimental stations to seek increase of efficiency in sugar production, utilization of byproducts and solution of allied problems, as well as to the improvements of living and working conditions in
sugar mills or plantations, without any part of such money being channeled directly to private persons,
constitutes expenditure of tax money for private purposes, (compare Everson vs. Board of Education, 91 L.
Ed. 472, 168 ALR 1392, 1400).
The decision appealed from is affirmed, with costs against appellant. So order
Separate Opinion
FERNANDO, J., concurring:
But qualifies his assent as to an ordinance intra vires not being open to question "because of
consequences that may arise from its enforcement."
Separate Opinions
FERNANDO, J., concurring:
But qualifies his assent as to an ordinance intra vires not being open to question "because of
consequences that may arise from its enforcement."
G.R. No. L-23645
October 29, 1968
BENJAMIN P. GOMEZ, petitioner-appellee,
vs.
ENRICO PALOMAR, in his capacity as Postmaster General, HON. BRIGIDO R. VALENCIA, in his
capacity as Secretary of Public Works and Communications, and DOMINGO GOPEZ, in his
capacity as Acting Postmaster of San Fernando, Pampanga, respondent-appellants.
Lorenzo P. Navarro and Narvaro Belar S. Navarro for petitioner-appellee.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Frine C. Zaballero and Solicitor
Dominador L. Quiroz for respondents-appellants.
CASTRO, J.:
This appeal puts in issue the constitutionality of Republic Act 1635, 1 as amended by Republic Act
2631,2 which provides as follows:
To help raise funds for the Philippine Tuberculosis Society, the Director of Posts shall order for the
period from August nineteen to September thirty every year the printing and issue of semi-postal
stamps of different denominations with face value showing the regular postage charge plus the
additional amount of five centavos for the said purpose, and during the said period, no mail matter
shall be accepted in the mails unless it bears such semi-postal stamps: Provided, That no such
additional charge of five centavos shall be imposed on newspapers. The additional proceeds
realized from the sale of the semi-postal stamps shall constitute a special fund and be deposited
with the National Treasury to be expended by the Philippine Tuberculosis Society in carrying out its
noble work to prevent and eradicate tuberculosis.
The respondent Postmaster General, in implementation of the law, thereafter issued four (4) administrative
orders numbered 3 (June 20, 1958), 7 (August 9, 1958), 9 (August 28, 1958), and 10 (July 15, 1960). All
these administrative orders were issued with the approval of the respondent Secretary of Public Works and
Communications.
The pertinent portions of Adm. Order 3 read as follows:
Such semi-postal stamps could not be made available during the period from August 19 to
September 30, 1957, for lack of time. However, two denominations of such stamps, one at "5 + 5"
centavos and another at "10 + 5" centavos, will soon be released for use by the public on their
mails to be posted during the same period starting with the year 1958.
xxx
xxx
xxx
During the period from August 19 to September 30 each year starting in 1958, no mail matter of
whatever class, and whether domestic or foreign, posted at any Philippine Post Office and
addressed for delivery in this country or abroad, shall be accepted for mailing unless it bears at
least one such semi-postal stamp showing the additional value of five centavos intended for the
Philippine Tuberculosis Society.
In the case of second-class mails and mails prepaid by means of mail permits or impressions of
postage meters, each piece of such mail shall bear at least one such semi-postal stamp if posted
during the period above stated starting with the year 1958, in addition to being charged the usual
postage prescribed by existing regulations. In the case of business reply envelopes and cards
mailed during said period, such stamp should be collected from the addressees at the time of
delivery. Mails entitled to franking privilege like those from the office of the President, members of
Congress, and other offices to which such privilege has been granted, shall each also bear one such
semi-postal stamp if posted during the said period.
Mails posted during the said period starting in 1958, which are found in street or post-office mail
boxes without the required semi-postal stamp, shall be returned to the sender, if known, with a

42

notation calling for the affixing of such stamp. If the sender is unknown, the mail matter shall be
treated as nonmailable and forwarded to the Dead Letter Office for proper disposition.
Adm. Order 7, amending the fifth paragraph of Adm. Order 3, reads as follows:
In the case of the following categories of mail matter and mails entitled to franking privilege which
are not exempted from the payment of the five centavos intended for the Philippine Tuberculosis
Society, such extra charge may be collected in cash, for which official receipt (General Form No. 13,
A) shall be issued, instead of affixing the semi-postal stamp in the manner hereinafter indicated:
1. Second-class mail. Aside from the postage at the second-class rate, the extra charge of five
centavos for the Philippine Tuberculosis Society shall be collected on each separately-addressed
piece of second-class mail matter, and the total sum thus collected shall be entered in the same
official receipt to be issued for the postage at the second-class rate. In making such entry, the total
number of pieces of second-class mail posted shall be stated, thus: "Total charge for TB Fund on
100 pieces . .. P5.00." The extra charge shall be entered separate from the postage in both of the
official receipt and the Record of Collections.
2. First-class and third-class mail permits. Mails to be posted without postage affixed under
permits issued by this Bureau shall each be charged the usual postage, in addition to the fivecentavo extra charge intended for said society. The total extra charge thus received shall be
entered in the same official receipt to be issued for the postage collected, as in subparagraph 1.
3. Metered mail. For each piece of mail matter impressed by postage meter under metered mail
permit issued by this Bureau, the extra charge of five centavos for said society shall be collected in
cash and an official receipt issued for the total sum thus received, in the manner indicated in
subparagraph 1.
4. Business reply cards and envelopes. Upon delivery of business reply cards and envelopes to
holders of business reply permits, the five-centavo charge intended for said society shall be
collected in cash on each reply card or envelope delivered, in addition to the required postage
which may also be paid in cash. An official receipt shall be issued for the total postage and total
extra charge received, in the manner shown in subparagraph 1.
5. Mails entitled to franking privilege. Government agencies, officials, and other persons entitled
to the franking privilege under existing laws may pay in cash such extra charge intended for said
society, instead of affixing the semi-postal stamps to their mails, provided that such mails are
presented at the post-office window, where the five-centavo extra charge for said society shall be
collected on each piece of such mail matter. In such case, an official receipt shall be issued for the
total sum thus collected, in the manner stated in subparagraph 1.
Mail under permits, metered mails and franked mails not presented at the post-office window shall
be affixed with the necessary semi-postal stamps. If found in mail boxes without such stamps, they
shall be treated in the same way as herein provided for other mails.
Adm. Order 9, amending Adm. Order 3, as amended, exempts "Government and its Agencies and
Instrumentalities Performing Governmental Functions." Adm. Order 10, amending Adm. Order 3, as
amended, exempts "copies of periodical publications received for mailing under any class of mail matter,
including newspapers and magazines admitted as second-class mail."
The FACTS. On September l5, 1963 the petitioner Benjamin P. Gomez mailed a letter at the post office in
San Fernando, Pampanga. Because this letter, addressed to a certain Agustin Aquino of 1014 Dagohoy
Street, Singalong, Manila did not bear the special anti-TB stamp required by the statute, it was returned to
the petitioner.
In view of this development, the petitioner brough suit for declaratory relief in the Court of First Instance of
Pampanga, to test the constitutionality of the statute, as well as the implementing administrative orders
issued, contending that it violates the equal protection clause of the Constitution as well as the rule of
uniformity and equality of taxation. The lower court declared the statute and the orders unconstitutional;
hence this appeal by the respondent postal authorities.
For the reasons set out in this opinion, the judgment appealed from must be reversed.
I.
Before reaching the merits, we deem it necessary to dispose of the respondents' contention that
declaratory relief is unavailing because this suit was filed after the petitioner had committed a breach of
the statute. While conceding that the mailing by the petitioner of a letter without the additional anti-TB
stamp was a violation of Republic Act 1635, as amended, the trial court nevertheless refused to dismiss
the action on the ground that under section 6 of Rule 64 of the Rules of Court, "If before the final
termination of the case a breach or violation of ... a statute ... should take place, the action may thereupon
be converted into an ordinary action."
The prime specification of an action for declaratory relief is that it must be brought "before breach or
violation" of the statute has been committed. Rule 64, section 1 so provides. Section 6 of the same rule,
which allows the court to treat an action for declaratory relief as an ordinary action, applies only if the
breach or violation occurs after the filing of the action but before the termination thereof. 3
Hence, if, as the trial court itself admitted, there had been a breach of the statute before the firing of this
action, then indeed the remedy of declaratory relief cannot be availed of, much less can the suit be
converted into an ordinary action.
Nor is there merit in the petitioner's argument that the mailing of the letter in question did not constitute a
breach of the statute because the statute appears to be addressed only to postal authorities. The statute,
it is true, in terms provides that "no mail matter shall be accepted in the mails unless it bears such semipostal stamps." It does not follow, however, that only postal authorities can be guilty of violating it by
accepting mails without the payment of the anti-TB stamp. It is obvious that they can be guilty of violating
the statute only if there are people who use the mails without paying for the additional anti-TB stamp. Just

43

as in bribery the mere offer constitutes a breach of the law, so in the matter of the anti-TB stamp the mere
attempt to use the mails without the stamp constitutes a violation of the statute. It is not required that the
mail be accepted by postal authorities. That requirement is relevant only for the purpose of fixing the
liability of postal officials.
Nevertheless, we are of the view that the petitioner's choice of remedy is correct because this suit was
filed not only with respect to the letter which he mailed on September 15, 1963, but also with regard to
any other mail that he might send in the future. Thus, in his complaint, the petitioner prayed that due
course be given to "other mails without the semi-postal stamps which he may deliver for mailing ... if any,
during the period covered by Republic Act 1635, as amended, as well as other mails hereafter to be sent
by or to other mailers which bear the required postage, without collection of additional charge of five
centavos prescribed by the same Republic Act." As one whose mail was returned, the petitioner is certainly
interested in a ruling on the validity of the statute requiring the use of additional stamps.
II.
We now consider the constitutional objections raised against the statute and the implementing orders.
1. It is said that the statute is violative of the equal protection clause of the Constitution. More specifically
the claim is made that it constitutes mail users into a class for the purpose of the tax while leaving
untaxed the rest of the population and that even among postal patrons the statute discriminatorily grants
exemption to newspapers while Administrative Order 9 of the respondent Postmaster General grants a
similar exemption to offices performing governmental functions. .
The five centavo charge levied by Republic Act 1635, as amended, is in the nature of an excise tax, laid
upon the exercise of a privilege, namely, the privilege of using the mails. As such the objections levelled
against it must be viewed in the light of applicable principles of taxation.
To begin with, it is settled that the legislature has the inherent power to select the subjects of taxation and
to grant exemptions.4 This power has aptly been described as "of wide range and flexibility." 5 Indeed, it is
said that in the field of taxation, more than in other areas, the legislature possesses the greatest freedom
in classification.6 The reason for this is that traditionally, classification has been a device for fitting tax
programs to local needs and usages in order to achieve an equitable distribution of the tax burden. 7
That legislative classifications must be reasonable is of course undenied. But what the petitioner asserts is
that statutory classification of mail users must bear some reasonable relationship to the end sought to be
attained, and that absent such relationship the selection of mail users is constitutionally impermissible.
This is altogether a different proposition. As explained in Commonwealth v. Life Assurance Co.:8
While the principle that there must be a reasonable relationship between classification made by the
legislation and its purpose is undoubtedly true in some contexts, it has no application to a measure
whose sole purpose is to raise revenue ... So long as the classification imposed is based upon some
standard capable of reasonable comprehension, be that standard based upon ability to produce
revenue or some other legitimate distinction, equal protection of the law has been afforded. See
Allied Stores of Ohio, Inc. v. Bowers, supra, 358 U.S. at 527, 79 S. Ct. at 441; Brown Forman Co. v.
Commonwealth of Kentucky, 2d U.S. 56, 573, 80 S. Ct. 578, 580 (1910).
We are not wont to invalidate legislation on equal protection grounds except by the clearest demonstration
that it sanctions invidious discrimination, which is all that the Constitution forbids. The remedy for unwise
legislation must be sought in the legislature. Now, the classification of mail users is not without any reason.
It is based on ability to pay, let alone the enjoyment of a privilege, and on administrative convinience. In
the allocation of the tax burden, Congress must have concluded that the contribution to the anti-TB fund
can be assured by those whose who can afford the use of the mails.
The classification is likewise based on considerations of administrative convenience. For it is now a settled
principle of law that "consideration of practical administrative convenience and cost in the administration
of tax laws afford adequate ground for imposing a tax on a well recognized and defined class." 9 In the case
of the anti-TB stamps, undoubtedly, the single most important and influential consideration that led the
legislature to select mail users as subjects of the tax is the relative ease and convenienceof collecting the
tax through the post offices. The small amount of five centavos does not justify the great expense and
inconvenience of collecting through the regular means of collection. On the other hand, by placing the duty
of collection on postal authorities the tax was made almost self-enforcing, with as little cost and as little
inconvenience as possible.
And then of course it is not accurate to say that the statute constituted mail users into a class. Mail users
were already a class by themselves even before the enactment of the statue and all that the legislature did
was merely to select their class. Legislation is essentially empiric and Republic Act 1635, as amended, no
more than reflects a distinction that exists in fact. As Mr. Justice Frankfurter said, "to recognize differences
that exist in fact is living law; to disregard [them] and concentrate on some abstract identities is lifeless
logic."10
Granted the power to select the subject of taxation, the State's power to grant exemption must likewise be
conceded as a necessary corollary. Tax exemptions are too common in the law; they have never been
thought of as raising issues under the equal protection clause.
It is thus erroneous for the trial court to hold that because certain mail users are exempted from the levy
the law and administrative officials have sanctioned an invidious discrimination offensive to the
Constitution. The application of the lower courts theory would require all mail users to be taxed, a
conclusion that is hardly tenable in the light of differences in status of mail users. The Constitution does
not require this kind of equality.
As the United States Supreme Court has said, the legislature may withhold the burden of the tax in order
to foster what it conceives to be a beneficent enterprise. 11 This is the case of newspapers which, under the
amendment introduced by Republic Act 2631, are exempt from the payment of the additional stamp.

44

As for the Government and its instrumentalities, their exemption rests on the State's sovereign immunity
from taxation. The State cannot be taxed without its consent and such consent, being in derogation of its
sovereignty, is to be strictly construed.12 Administrative Order 9 of the respondent Postmaster General,
which lists the various offices and instrumentalities of the Government exempt from the payment of the
anti-TB stamp, is but a restatement of this well-known principle of constitutional law.
The trial court likewise held the law invalid on the ground that it singles out tuberculosis to the exclusion of
other diseases which, it is said, are equally a menace to public health. But it is never a requirement of
equal protection that all evils of the same genus be eradicated or none at all. 13 As this Court has had
occasion to say, "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." 14
2. The petitioner further argues that the tax in question is invalid, first, because it is not levied for a public
purpose as no special benefits accrue to mail users as taxpayers, and second, because it violates the rule
of uniformity in taxation.
The eradication of a dreaded disease is a public purpose, but if by public purpose the petitioner means
benefit to a taxpayer as a return for what he pays, then it is sufficient answer to say that the only benefit
to which the taxpayer is constitutionally entitled is that derived from his enjoyment of the privileges of
living in an organized society, established and safeguarded by the devotion of taxes to public purposes.
Any other view would preclude the levying of taxes except as they are used to compensate for the burden
on those who pay them and would involve the abandonment of the most fundamental principle of
government that it exists primarily to provide for the common good. 15
Nor is the rule of uniformity and equality of taxation infringed by the imposition of a flat rate rather than a
graduated tax. A tax need not be measured by the weight of the mail or the extent of the service
rendered. We have said that considerations of administrative convenience and cost afford an adequate
ground for classification. The same considerations may induce the legislature to impose a flat tax which in
effect is a charge for the transaction, operating equally on all persons within the class regardless of the
amount involved.16 As Mr. Justice Holmes said in sustaining the validity of a stamp act which imposed a flat
rate of two cents on every $100 face value of stock transferred:
One of the stocks was worth $30.75 a share of the face value of $100, the other $172. The
inequality of the tax, so far as actual values are concerned, is manifest. But, here again equality in
this sense has to yield to practical considerations and usage. There must be a fixed and
indisputable mode of ascertaining a stamp tax. In another sense, moreover, there is equality. When
the taxes on two sales are equal, the same number of shares is sold in each case; that is to say, the
same privilege is used to the same extent. Valuation is not the only thing to be considered. As was
pointed out by the court of appeals, the familiar stamp tax of 2 cents on checks, irrespective of
income or earning capacity, and many others, illustrate the necessity and practice of sometimes
substituting count for weight ...17
According to the trial court, the money raised from the sales of the anti-TB stamps is spent for the benefit
of the Philippine Tuberculosis Society, a private organization, without appropriation by law. But as the
Solicitor General points out, the Society is not really the beneficiary but only the agency through which the
State acts in carrying out what is essentially a public function. The money is treated as a special fund and
as such need not be appropriated by law.18
3. Finally, the claim is made that the statute is so broadly drawn that to execute it the respondents had to
issue administrative orders far beyond their powers. Indeed, this is one of the grounds on which the lower
court invalidated Republic Act 1631, as amended, namely, that it constitutes an undue delegation of
legislative power.
Administrative Order 3, as amended by Administrative Orders 7 and 10, provides that for certain classes of
mail matters (such as mail permits, metered mails, business reply cards, etc.), the five-centavo charge
may be paid in cash instead of the purchase of the anti-TB stamp. It further states that mails deposited
during the period August 19 to September 30 of each year in mail boxes without the stamp should be
returned to the sender, if known, otherwise they should be treated as nonmailable.
It is true that the law does not expressly authorize the collection of five centavos except through the sale
of anti-TB stamps, but such authority may be implied in so far as it may be necessary to prevent a failure
of the undertaking. The authority given to the Postmaster General to raise funds through the mails must be
liberally construed, consistent with the principle that where the end is required the appropriate means are
given.19
The anti-TB stamp is a distinctive stamp which shows on its face not only the amount of the additional
charge but also that of the regular postage. In the case of business reply cards, for instance, it is obvious
that to require mailers to affix the anti-TB stamp on their cards would be to make them pay much more
because the cards likewise bear the amount of the regular postage.
It is likewise true that the statute does not provide for the disposition of mails which do not bear the antiTB stamp, but a declaration therein that "no mail matter shall be accepted in the mails unless it bears such
semi-postal stamp" is a declaration that such mail matter is nonmailable within the meaning of section
1952 of the Administrative Code. Administrative Order 7 of the Postmaster General is but a restatement of
the law for the guidance of postal officials and employees. As for Administrative Order 9, we have already
said that in listing the offices and entities of the Government exempt from the payment of the stamp, the
respondent Postmaster General merely observed an established principle, namely, that the Government is
exempt from taxation.
ACCORDINGLY, the judgment a quo is reversed, and the complaint is dismissed, without pronouncement as
to costs.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Angeles and Capistrano, JJ., concur.
Zaldivar, J., is on leave.

45

Separate Opinions
FERNANDO, J., concurring:
I join fully the rest of my colleagues in the decision upholding Republic Act No. 1635 as amended by
Republic Act No. 2631 and the majority opinion expounded with Justice Castro's usual vigor and lucidity
subject to one qualification. With all due recognition of its inherently persuasive character, it would seem
to me that the same result could be achieved if reliance be had on police power rather than the attribute
of taxation, as the constitutional basis for the challenged legislation.
1. For me, the state in question is an exercise of the regulatory power connected with the performance of
the public service. I refer of course to the government postal function, one of respectable and ancient
lineage. The United States Constitution of 1787 vests in the federal government acting through Congress
the power to establish post offices.1 The first act providing for the organization of government departments
in the Philippines, approved Sept. 6, 1901, provided for the Bureau of Post Offices in the Department of
Commerce and Police.2 Its creation is thus a manifestation of one of the many services in which the
government may engage for public convenience and public interest. Such being the case, it seems that
any legislation that in effect would require increase cost of postage is well within the discretionary
authority of the government.
It may not be acting in a proprietary capacity but in fixing the fees that it collects for the use of the mails,
the broad discretion that it enjoys is undeniable. In that sense, the principle announced in Esteban v.
Cabanatuan City,3 in an opinion by our Chief Justice, while not precisely controlling furnishes for me more
than ample support for the validity of the challenged legislation. Thus: "Certain exactions, imposable under
an authority other than police power, are not subject, however, to qualification as to the amount
chargeable, unless the Constitution or the pertinent laws provide otherwise. For instance, the rates of
taxes, whether national or municipal, need not be reasonable, in the absence of such constitutional or
statutory limitation. Similarly, when a municipal corporation fixes the fees for the use of its properties,
such as public markets, it does not wield the police power, or even the power of taxation. Neither does it
assert governmental authority. It exercises merely a proprietary function. And, like any private owner, it is
in the absence of the aforementioned limitation, which does not exist in the Charter of Cabanatuan City
(Republic Act No. 526) free to charge such sums as it may deem best, regardless of the reasonableness
of the amount fixed, for the prospective lessees are free to enter into the corresponding contract of lease,
if they are agreeable to the terms thereof or, otherwise, not enter into such contract."
2. It would appear likewise that an expression of one's personal view both as to
the attitude and awareness that must be displayed by inferior tribunals when the "delicate and awesome"
power of passing on the validity of a statute would not be inappropriate. "The Constitution is the supreme
law, and statutes are written and enforced in submission to its commands." 4 It is likewise common place in
constitutional law that a party adversely affected could, again to quote from Cardozo, "invoke, when
constitutional immunities are threatened, the judgment of the courts." 5
Since the power of judicial review flows logically from the judicial function of ascertaining the facts and
applying the law and since obviously the Constitution is the highest law before which statutes must bend,
then inferior tribunals can, in the discharge of their judicial functions, nullify legislative acts. As a matter of
fact, in clear cases, such is not only their power but their duty. In the language of the present Chief Justice:
"In fact, whenever the conflicting claims of the parties to a litigation cannot properly be settled without
inquiring into the validity of an act of Congress or of either House thereof, the courts have, not only
jurisdiction to pass upon said issue but, also, the duty to do so, which cannot be evaded without violating
the fundamental law and paving the way to its eventual destruction." 6
Nonetheless, the admonition of Cooley, specially addressed to inferior tribunals, must ever be kept in
mind. Thus: "It must be evident to any one that the power to declare a legislative enactment void is one
which the judge, conscious of the fallibility of the human judgment, will shrink from exercising in any case
where he can conscientiously and with due regard to duty and official oath decline the responsibility." 7
There must be a caveat however to the above Cooley pronouncement. Such should not be the case, to
paraphrase Freund, when the challenged legislation imperils freedom of the mind and of the person, for
given such an undesirable situation, "it is freedom that commands a momentum of respect." Here then,
fidelity to the great ideal of liberty enshrined in the Constitution may require the judiciary to take an
uncompromising and militant stand. As phrased by us in a recent decision, "if the liberty involved were
freedom of the mind or the person, the standard of its validity of governmental acts is much more rigorous
and exacting."8
So much for the appropriate judicial attitude. Now on the question of awareness of the controlling
constitutional doctrines.
There is nothing I can add to the enlightening discussion of the equal protection aspect as found in the
majority opinion. It may not be amiss to recall to mind, however, the language of Justice Laurel in the
leading case of People v. Vera,9 to the effect that the basic individual right of equal protection "is a
restraint on all the three grand departments of our government and on the subordinate instrumentalities
and subdivisions thereof, and on many constitutional powers, like the police power, taxation and eminent
domain."10 Nonetheless, no jurist was more careful in avoiding the dire consequences to what the
legislative body might have deemed necessary to promote the ends of public welfare if the equal
protection guaranty were made to constitute an insurmountable obstacle.
A similar sense of realism was invariably displayed by Justice Frankfurter, as is quite evident from the
various citations from his pen found in the majority opinion. For him, it would be a misreading of the equal
protection clause to ignore actual conditions and settled practices. Not for him the at times academic and
sterile approach to constitutional problems of this sort. Thus: "It would be a narrow conception of

46

jurisprudence to confine the notion of 'laws' to what is found written on the statute books, and to disregard
the gloss which life has written upon it. Settled state practice cannot supplant constitutional guaranties,
but it can establish what is state law. The Equal Protection Clause did not write an empty formalism into
the Constitution. Deeply embedded traditional ways of carrying out state policy, such as those of which
petitioner complains, are often tougher and truer law than the dead words of the written text." 11 This too,
from the same distinguished jurist: "The Constitution does not require things which are different in fact or
opinion to be treated in law as though they were the same."12
Now, as to non-delegation. It is to be admitted that the problem of non-delegation of legislative power at
times occasions difficulties. Its strict view has been announced by Justice Laurel in the aforecited case
of People v. Verain this language. Thus: "In testing whether a statute constitutes an undue delegation of
legislative power or not, it is usual to inquire whether the statute was complete in all its terms and
provisions when it left the hands of the legislature so that nothing was left to the judgment of any other
appointee or delegate of the legislature. .... In United States v. Ang Tang Ho ..., this court adhered to the
foregoing rule; it held an act of the legislature void in so far as it undertook to authorize the GovernorGeneral, in his discretion, to issue a proclamation fixing the price of rice and to make the sale of it in
violation of the proclamation a crime."13
Only recently, the present Chief Justice reaffirmed the above view in Pelaez v. Auditor General,14 specially
where the delegation deals not with an administrative function but one essentially and eminently
legislative in character. What could properly be stigmatized though to quote Justice Cardozo, is delegation
of authority that is "unconfined and vagrant, one not canalized within banks which keep it from
overflowing."15
This is not the situation as it presents itself to us. What was delegated was power not legislative in
character. Justice Laurel himself, in a later case, People v. Rosenthal,16 admitted that within certain limits,
there being a need for coping with the more intricate problems of society, the principle of "subordinate
legislation" has been accepted, not only in the United States and England, but in practically all modern
governments. This view was reiterated by him in a 1940 decision, Pangasinan Transportation Co., Inc. v.
Public Service Commission.17 Thus: "Accordingly, with the growing complexity of modern life, the
multiplication of the subjects of governmental regulation, and the increased difficulty of administering the
laws, there is a constantly growing tendency toward the delegation of greater powers by the legislature,
and toward the approval of the practice by the courts."
In the light of the above views of eminent jurists, authoritative in character, of both the equal protection
clause and the non-delegation principle, it is apparent how far the lower court departed from the path of
constitutional orthodoxy in nullifying Republic Act No. 1635 as amended. Fortunately, the matter has been
set right with the reversal of its decision, the opinion of the Court, manifesting its fealty to constitutional
law precepts, which have been reiterated time and time again and for the soundest of reasons.

G.R. No. L-10405

December 29, 1960

WENCESLAO PASCUAL, in his official capacity as Provincial Governor of Rizal, petitionerappellant,


vs.
THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET AL., respondents-appellees.
Asst. Fiscal Noli M. Cortes and Jose P. Santos for appellant.
Office of the Asst. Solicitor General Jose G. Bautista and Solicitor A. A. Torres for appellee.

CONCEPCION, J.:
Appeal, by petitioner Wenceslao Pascual, from a decision of the Court of First Instance of Rizal, dismissing
the above entitled case and dissolving the writ of preliminary injunction therein issued, without costs.
On August 31, 1954, petitioner Wenceslao Pascual, as Provincial Governor of Rizal, instituted this action for
declaratory relief, with injunction, upon the ground that Republic Act No. 920, entitled "An Act
Appropriating Funds for Public Works", approved on June 20, 1953, contained, in section 1-C (a) thereof, an
item (43[h]) of P85,000.00 "for the construction, reconstruction, repair, extension and improvement" of
Pasig feeder road terminals (Gen. Roxas Gen. Araneta Gen. Lucban Gen. Capinpin Gen. Segundo
Gen. Delgado Gen. Malvar Gen. Lim)"; that, at the time of the passage and approval of said Act,
the aforementioned feeder roads were "nothing but projected and planned subdivision roads, not yet
constructed, . . . within the Antonio Subdivision . . . situated at . . . Pasig, Rizal" (according to the tracings
attached to the petition as Annexes A and B, near Shaw Boulevard, not far away from the intersection
between the latter and Highway 54), which projected feeder roads "do not connect any government
property or any important premises to the main highway"; that the aforementioned Antonio Subdivision (as
well as the lands on which said feeder roads were to be construed) were private properties of respondent
Jose C. Zulueta, who, at the time of the passage and approval of said Act, was a member of the Senate of

47

the Philippines; that on May, 1953, respondent Zulueta, addressed a letter to the Municipal Council of
Pasig, Rizal, offering to donate said projected feeder roads to the municipality of Pasig, Rizal; that, on June
13, 1953, the offer was accepted by the council, subject to the condition "that the donor would submit a
plan of the said roads and agree to change the names of two of them"; that no deed of donation in favor of
the municipality of Pasig was, however, executed; that on July 10, 1953, respondent Zulueta wrote another
letter to said council, calling attention to the approval of Republic Act. No. 920, and the sum of P85,000.00
appropriated therein for the construction of the projected feeder roads in question; that the municipal
council of Pasig endorsed said letter of respondent Zulueta to the District Engineer of Rizal, who, up to the
present "has not made any endorsement thereon" that inasmuch as the projected feeder roads in question
were private property at the time of the passage and approval of Republic Act No. 920, the appropriation of
P85,000.00 therein made, for the construction, reconstruction, repair, extension and improvement of said
projected feeder roads, was illegal and, therefore, void ab initio"; that said appropriation of P85,000.00 was
made by Congress because its members were made to believe that the projected feeder roads in question
were "public roads and not private streets of a private subdivision"'; that, "in order to give a semblance of
legality, when there is absolutely none, to the aforementioned appropriation", respondents Zulueta
executed on December 12, 1953, while he was a member of the Senate of the Philippines, an alleged deed
of donation copy of which is annexed to the petition of the four (4) parcels of land constituting said
projected feeder roads, in favor of the Government of the Republic of the Philippines; that said alleged
deed of donation was, on the same date, accepted by the then Executive Secretary; that being subject to
an onerous condition, said donation partook of the nature of a contract; that, such, said donation violated
the provision of our fundamental law prohibiting members of Congress from being directly or indirectly
financially interested in any contract with the Government, and, hence, is unconstitutional, as well as null
and void ab initio, for the construction of the projected feeder roads in question with public funds would
greatly enhance or increase the value of the aforementioned subdivision of respondent Zulueta, "aside
from relieving him from the burden of constructing his subdivision streets or roads at his own expense";
that the construction of said projected feeder roads was then being undertaken by the Bureau of Public
Highways; and that, unless restrained by the court, the respondents would continue to execute, comply
with, follow and implement the aforementioned illegal provision of law, "to the irreparable damage,
detriment and prejudice not only to the petitioner but to the Filipino nation."
Petitioner prayed, therefore, that the contested item of Republic Act No. 920 be declared null and void;
that the alleged deed of donation of the feeder roads in question be "declared unconstitutional and,
therefor, illegal"; that a writ of injunction be issued enjoining the Secretary of Public Works and
Communications, the Director of the Bureau of Public Works and Highways and Jose C. Zulueta from
ordering or allowing the continuance of the above-mentioned feeder roads project, and from making and
securing any new and further releases on the aforementioned item of Republic Act No. 920, and the
disbursing officers of the Department of Public Works and Highways from making any further payments out
of said funds provided for in Republic Act No. 920; and that pending final hearing on the merits, a writ of
preliminary injunction be issued enjoining the aforementioned parties respondent from making and
securing any new and further releases on the aforesaid item of Republic Act No. 920 and from making any
further payments out of said illegally appropriated funds.
Respondents moved to dismiss the petition upon the ground that petitioner had "no legal capacity to sue",
and that the petition did "not state a cause of action". In support to this motion, respondent Zulueta
alleged that the Provincial Fiscal of Rizal, not its provincial governor, should represent the Province of Rizal,
pursuant to section 1683 of the Revised Administrative Code; that said respondent is " not aware of any
law which makes illegal the appropriation of public funds for the improvements of . . . private property";
and that, the constitutional provision invoked by petitioner is inapplicable to the donation in question, the
same being a pure act of liberality, not a contract. The other respondents, in turn, maintained that
petitioner could not assail the appropriation in question because "there is no actual bona fide case . . . in
which the validity of Republic Act No. 920 is necessarily involved" and petitioner "has not shown that he
has a personal and substantial interest" in said Act "and that its enforcement has caused or will cause him
a direct injury."
Acting upon said motions to dismiss, the lower court rendered the aforementioned decision, dated October
29, 1953, holding that, since public interest is involved in this case, the Provincial Governor of Rizal and
the provincial fiscal thereof who represents him therein, "have the requisite personalities" to question the
constitutionality of the disputed item of Republic Act No. 920; that "the legislature is without power
appropriate public revenues for anything but a public purpose", that the instructions and improvement of
the feeder roads in question, if such roads where private property, would not be a public purpose; that,
being subject to the following condition:

48

The within donation is hereby made upon the condition that the Government of the Republic of the
Philippines will use the parcels of land hereby donated for street purposes only and for no other
purposes whatsoever; it being expressly understood that should the Government of the Republic of
the Philippines violate the condition hereby imposed upon it, the title to the land hereby donated
shall, upon such violation, ipso facto revert to the DONOR, JOSE C. ZULUETA. (Emphasis supplied.)
which is onerous, the donation in question is a contract; that said donation or contract is "absolutely
forbidden by the Constitution" and consequently "illegal", for Article 1409 of the Civil Code of the
Philippines, declares in existence and void from the very beginning contracts "whose cause, objector
purpose is contrary to law, morals . . . or public policy"; that the legality of said donation may not be
contested, however, by petitioner herein, because his "interest are not directly affected" thereby; and that,
accordingly, the appropriation in question "should be upheld" and the case dismissed.
At the outset, it should be noted that we are concerned with a decision granting the aforementioned
motions to dismiss, which as much, are deemed to have admitted hypothetically the allegations of fact
made in the petition of appellant herein. According to said petition, respondent Zulueta is the owner of
several parcels of residential land situated in Pasig, Rizal, and known as the Antonio Subdivision, certain
portions of which had been reserved for the projected feeder roads aforementioned, which, admittedly,
were private property of said respondent when Republic Act No. 920, appropriating P85,000.00 for the
"construction, reconstruction, repair, extension and improvement" of said roads, was passed by Congress,
as well as when it was approved by the President on June 20, 1953. The petition further alleges that the
construction of said roads, to be undertaken with the aforementioned appropriation of P85,000.00, would
have the effect of relieving respondent Zulueta of the burden of constructing his subdivision streets or
roads at his own expenses, 1and would "greatly enhance or increase the value of the subdivision" of said
respondent. The lower court held that under these circumstances, the appropriation in question was
"clearly for a private, not a public purpose."
Respondents do not deny the accuracy of this conclusion, which is self-evident. 2However, respondent
Zulueta contended, in his motion to dismiss that:
A law passed by Congress and approved by the President can never be illegal because Congress is
the source of all laws . . . Aside from the fact that movant is not aware of any law which makes
illegal the appropriation of public funds for the improvement of what we, in the meantime, may
assume as private property . . . (Record on Appeal, p. 33.)
The first proposition must be rejected most emphatically, it being inconsistent with the nature of the
Government established under the Constitution of the Republic of the Philippines and the system of checks
and balances underlying our political structure. Moreover, it is refuted by the decisions of this Court
invalidating legislative enactments deemed violative of the Constitution or organic laws. 3
As regards the legal feasibility of appropriating public funds for a public purpose, the principle according to
Ruling Case Law, is this:
It is a general rule that the legislature is without power to appropriate public revenue for anything
but a public purpose. . . . It is the essential character of the direct object of the expenditure which
must determine its validity as justifying a tax, and not the magnitude of the interest to be affected
nor the degree to which the general advantage of the community, and thus the public welfare, may
be ultimately benefited by their promotion. Incidental to the public or to the state, which results
from the promotion of private interest and the prosperity of private enterprises or business, does
not justify their aid by the use public money. (25 R.L.C. pp. 398-400; Emphasis supplied.)
The rule is set forth in Corpus Juris Secundum in the following language:
In accordance with the rule that the taxing power must be exercised for public purposes only,
discussed supra sec. 14, money raised by taxation can be expended only for public purposes and
not for the advantage of private individuals. (85 C.J.S. pp. 645-646; emphasis supplied.)
Explaining the reason underlying said rule, Corpus Juris Secundum states:
Generally, under the express or implied provisions of the constitution, public funds may be used
only for public purpose. The right of the legislature to appropriate funds is correlative with its right
to tax, and, under constitutional provisions against taxation except for public purposes and

49

prohibiting the collection of a tax for one purpose and the devotion thereof to another purpose, no
appropriation of state funds can be made for other than for a public purpose.
xxx

xxx

xxx

The test of the constitutionality of a statute requiring the use of public funds is whether the statute
is designed to promote the public interest, as opposed to the furtherance of the advantage of
individuals, although each advantage to individuals might incidentally serve the public. (81 C.J.S.
pp. 1147; emphasis supplied.)
Needless to say, this Court is fully in accord with the foregoing views which, apart from being patently
sound, are a necessary corollary to our democratic system of government, which, as such, exists primarily
for the promotion of the general welfare. Besides, reflecting as they do, the established jurisprudence in
the United States, after whose constitutional system ours has been patterned, said views and
jurisprudence are, likewise, part and parcel of our own constitutional law.lawphil.net
This notwithstanding, the lower court felt constrained to uphold the appropriation in question, upon the
ground that petitioner may not contest the legality of the donation above referred to because the same
does not affect him directly. This conclusion is, presumably, based upon the following premises, namely:
(1) that, if valid, said donation cured the constitutional infirmity of the aforementioned appropriation; (2)
that the latter may not be annulled without a previous declaration of unconstitutionality of the said
donation; and (3) that the rule set forth in Article 1421 of the Civil Code is absolute, and admits of no
exception. We do not agree with these premises.
The validity of a statute depends upon the powers of Congress at the time of its passage or approval, not
upon events occurring, or acts performed, subsequently thereto, unless the latter consists of an
amendment of the organic law, removing, with retrospective operation, the constitutional limitation
infringed by said statute. Referring to the P85,000.00 appropriation for the projected feeder roads in
question, the legality thereof depended upon whether said roads were public or private property when the
bill, which, latter on, became Republic Act 920, was passed by Congress, or, when said bill was approved
by the President and the disbursement of said sum became effective, or on June 20, 1953 (see section 13
of said Act). Inasmuch as the land on which the projected feeder roads were to be constructed belonged
then to respondent Zulueta, the result is that said appropriation sought a private purpose, and hence, was
null and void. 4 The donation to the Government, over five (5) months after the approval and effectivity of
said Act, made, according to the petition, for the purpose of giving a "semblance of legality", or legalizing,
the appropriation in question, did not cure its aforementioned basic defect. Consequently, a judicial
nullification of said donation need not precede the declaration of unconstitutionality of said appropriation.
Again, Article 1421 of our Civil Code, like many other statutory enactments, is subject to exceptions. For
instance, the creditors of a party to an illegal contract may, under the conditions set forth in Article 1177 of
said Code, exercise the rights and actions of the latter, except only those which are inherent in his person,
including therefore, his right to the annulment of said contract, even though such creditors are not affected
by the same, except indirectly, in the manner indicated in said legal provision.
Again, it is well-stated that the validity of a statute may be contested only by one who will sustain a direct
injury in consequence of its enforcement. Yet, there are many decisions nullifying, at the instance of
taxpayers, laws providing for the disbursement of public funds, 5upon the theory that "the expenditure of
public funds by an officer of the State for the purpose of administering an unconstitutional act constitutes
a misapplication of such funds," which may be enjoined at the request of a taxpayer. 6Although there are
some decisions to the contrary, 7the prevailing view in the United States is stated in the American
Jurisprudence as follows:
In the determination of the degree of interest essential to give the requisite standing to attack the
constitutionality of a statute, the general rule is that not only persons individually affected, but
alsotaxpayers, have sufficient interest in preventing the illegal expenditure of moneys raised by
taxation and may therefore question the constitutionality of statutes requiring expenditure of public
moneys. (11 Am. Jur. 761; emphasis supplied.)
However, this view was not favored by the Supreme Court of the U.S. in Frothingham vs. Mellon (262 U.S.
447), insofar as federal laws are concerned, upon the ground that the relationship of a taxpayer of the U.S.
to its Federal Government is different from that of a taxpayer of a municipal corporation to its government.
Indeed, under the composite system of government existing in the U.S., the states of the Union are

50

integral part of the Federation from an international viewpoint, but, each state enjoys internally a
substantial measure of sovereignty, subject to the limitations imposed by the Federal Constitution. In fact,
the same was made by representatives of each state of the Union, not of the people of the U.S., except
insofar as the former represented the people of the respective States, and the people of each State has,
independently of that of the others, ratified said Constitution. In other words, the Federal Constitution and
the Federal statutes have become binding upon the people of the U.S. in consequence of an act of, and, in
this sense, through the respective states of the Union of which they are citizens. The peculiar nature of the
relation between said people and the Federal Government of the U.S. is reflected in the election of its
President, who is chosen directly, not by the people of the U.S., but by electors chosen by each State, in
such manner as the legislature thereof may direct (Article II, section 2, of the Federal
Constitution).lawphi1.net
The relation between the people of the Philippines and its taxpayers, on the other hand, and the Republic
of the Philippines, on the other, is not identical to that obtaining between the people and taxpayers of the
U.S. and its Federal Government. It is closer, from a domestic viewpoint, to that existing between the
people and taxpayers of each state and the government thereof, except that the authority of the Republic
of the Philippines over the people of the Philippines is more fully direct than that of the states of the Union,
insofar as the simple and unitarytype of our national government is not subject to limitations analogous to
those imposed by the Federal Constitution upon the states of the Union, and those imposed upon the
Federal Government in the interest of the Union. For this reason, the rule recognizing the right of taxpayers
to assail the constitutionality of a legislation appropriating local or state public funds which has been
upheld by the Federal Supreme Court (Crampton vs.Zabriskie, 101 U.S. 601) has greater application in
the Philippines than that adopted with respect to acts of Congress of the United States appropriating
federal funds.
Indeed, in the Province of Tayabas vs. Perez (56 Phil., 257), involving the expropriation of a land by the
Province of Tayabas, two (2) taxpayers thereof were allowed to intervene for the purpose of contesting the
price being paid to the owner thereof, as unduly exorbitant. It is true that in Custodio vs. President of the
Senate (42 Off. Gaz., 1243), a taxpayer and employee of the Government was not permitted to question
the constitutionality of an appropriation for backpay of members of Congress. However, in
Rodriguez vs. Treasurer of the Philippines and Barredo vs. Commission on Elections (84 Phil., 368; 45 Off.
Gaz., 4411), we entertained the action of taxpayers impugning the validity of certain appropriations of
public funds, and invalidated the same. Moreover, the reason that impelled this Court to take such position
in said two (2) cases the importance of the issues therein raised is present in the case at bar. Again,
like the petitioners in the Rodriguez and Barredo cases, petitioner herein is not merely a taxpayer. The
Province of Rizal, which he represents officially as its Provincial Governor, is our most populated political
subdivision, 8and, the taxpayers therein bear a substantial portion of the burden of taxation, in the
Philippines.
Hence, it is our considered opinion that the circumstances surrounding this case sufficiently justify
petitioners action in contesting the appropriation and donation in question; that this action should not have
been dismissed by the lower court; and that the writ of preliminary injunction should have been
maintained.
Wherefore, the decision appealed from is hereby reversed, and the records are remanded to the lower
court for further proceedings not inconsistent with this decision, with the costs of this instance against
respondent Jose C. Zulueta. It is so ordered.

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,

51

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
Petitioner PPI and private respondent Fertiphil are private corporations incorporated under
Philippine laws.[3] 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
thePhilippines.[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 to January
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]

52

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
decision
appealed
from
is
hereby AFFIRMED, subject to the MODIFICATION that the award of attorneys fees is
herebyDELETED.[15]
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.

53

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:

54

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
the Philippines 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 15th 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 PPI CONSTITUTES 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.

55

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

56

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 courts in:
(a) All cases in which the constitutionality or validity of any treaty,
international
or
executive
agreement,
law,
presidential
decree,
proclamation, order, instruction, ordinance, or regulation is in question.
(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 Anti-Subversion 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

57

(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

58

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 revenue-raising. 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
thePhilippines.[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

59

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) that Planters 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:

60

(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 nonobservance 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

61

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
2003 is AFFIRMED.

petition

is DENIED. The

Court

of

Appeals

Decision

SO ORDERED.

ABAKADA GURO PARTY LIST (Formerly


AASJAS)
OFFICERS
SAMSON S.
ALCANTARA and
ED
VINCENT
S.
ALBANO,
Petitioners,

- versus -

G.R. No. 168056


Present:
DAVIDE, JR., C.J.,
PUNO,
PANGANIBAN,
QUISUMBING,
YNARES-SANTIAGO,
SANDOVAL-GUTIERREZ,
CARPIO,
AUSTRIA-MARTINEZ,
CORONA,
CARPIO-MORALES,
CALLEJO, SR.,

AZCUNA,

THE HONORABLE EXECUTIVE SECRETARY


EDUARDO
ERMITA;
HONORABLE
SECRETARY OF THE DEPARTMENT OF
FINANCE
CESAR
PURISIMA;
and
HONORABLE
COMMISSIONER
OF
INTERNAL
REVENUE
GUILLERMO
PARAYNO, JR.,
Respondents.

TINGA,
CHICO-NAZARIO, and
GARCIA, JJ.

x-------------------------x
AQUILINO Q. PIMENTEL, JR., LUISA P.
EJERCITO-ESTRADA,
JINGGOY
E.
ESTRADA,
PANFILO
M.
LACSON,
ALFREDO S. LIM, JAMBY A.S. MADRIGAL,
AND SERGIO R. OSMEA III,
Petitioners,
- versus EXECUTIVE SECRETARY EDUARDO R.
ERMITA,
CESAR
V.
PURISIMA,
SECRETARY OF FINANCE, GUILLERMO L.
PARAYNO, JR., COMMISSIONER OF THE
BUREAU OF INTERNAL REVENUE,
Respondents.

62

G.R. No. 168207

dated November

28,

x-------------------------x
ASSOCIATION
OF
PILIPINAS
SHELL
DEALERS, INC. represented by its
President, ROSARIO ANTONIO; PETRON
DEALERS ASSOCIATION represented by
its
President,
RUTH
E.
BARBIBI;
ASSOCIATION OF CALTEX DEALERS OF
THE PHILIPPINES represented by its
President, MERCEDITAS A. GARCIA;
ROSARIO ANTONIO doing business
under the name and style of ANB
NORTH
SHELL
SERVICE
STATION;
LOURDES MARTINEZ doing business
under the name and style of SHELL
GATE N. DOMINGO; BETHZAIDA TAN
doing business under the name and
style of ADVANCE SHELL STATION;
REYNALDO P. MONTOYA doing business
under the name and style of NEW
LAMUAN
SHELL
SERVICE
STATION;
EFREN SOTTO doing business under the
name and style of RED FIELD SHELL
SERVICE
STATION;
DONICA
CORPORATION
represented
by
its
President, DESI TOMACRUZ; RUTH E.
MARBIBI doing business under the
name and style of R&R PETRON
STATION; PETER M. UNGSON doing
business under the name and style of
CLASSIC
STAR
GASOLINE
SERVICE
STATION; MARIAN SHEILA A. LEE doing
business under the name and style of
NTE GASOLINE & SERVICE STATION;
JULIAN CESAR P. POSADAS doing
business under the name and style of
STARCARGA ENTERPRISES; ADORACION
MAEBO doing business under the name
and style of CMA MOTORISTS CENTER;
SUSAN M. ENTRATA doing business
under the name and style of LEONAS
GASOLINE
STATION
and
SERVICE
CENTER; CARMELITA BALDONADO doing
business under the name and style of
FIRST
CHOICE
SERVICE
CENTER;
MERCEDITAS A. GARCIA doing business
under the name and style of LORPED
SERVICE CENTER; RHEAMAR A. RAMOS
doing business under the name and
style of RJRAM PTT GAS STATION; MA.
ISABEL VIOLAGO doing business under
the name and style of VIOLAGO-PTT
SERVICE CENTER; MOTORISTS HEART
CORPORATION represented by its VicePresident for Operations, JOSELITO F.
FLORDELIZA;
MOTORISTS
HARVARD
CORPORATION represented by its VicePresident for Operations, JOSELITO F.
FLORDELIZA;
MOTORISTS
HERITAGE
CORPORATION represented by its VicePresident for Operations, JOSELITO F.
FLORDELIZA; PHILIPPINE STANDARD OIL
CORPORATION represented by its VicePresident for Operations, JOSELITO F.
FLORDELIZA; ROMEO MANUEL doing
business under the name and style of
ROMMAN GASOLINE STATION; ANTHONY
ALBERT CRUZ III doing business under
the name and style of TRUE SERVICE
STATION,
Petitioners,

63

G.R. No. 168461

- versus CESAR V. PURISIMA, in his capacity as


Secretary of the Department of Finance
and GUILLERMO L. PARAYNO, JR., in his
capacity as Commissioner of Internal
Revenue,
Respondents.
x-------------------------x
FRANCIS
JOSEPH
G.
ESCUDERO,
VINCENT CRISOLOGO, EMMANUEL JOEL
J. VILLANUEVA, RODOLFO G. PLAZA,
DARLENE ANTONINO-CUSTODIO, OSCAR
G. MALAPITAN, BENJAMIN C. AGARAO,
JR. JUAN EDGARDO M. ANGARA, JUSTIN
MARC SB. CHIPECO, FLORENCIO G.
NOEL, MUJIV S. HATAMAN, RENATO B.
MAGTUBO,
JOSEPH
A.
SANTIAGO,
TEOFISTO DL. GUINGONA III, RUY ELIAS
C. LOPEZ, RODOLFO Q. AGBAYANI and
TEODORO A. CASIO,
Petitioners,

G.R. No. 168463

- versus CESAR V. PURISIMA, in his capacity as


Secretary of Finance, GUILLERMO L.
PARAYNO, JR., in his capacity as
Commissioner of Internal Revenue, and
EDUARDO R. ERMITA, in his capacity as
Executive Secretary,
Respondents.
x-------------------------x
BATAAN GOVERNOR ENRIQUE T. GARCIA,
JR.

G.R. No. 168730

Petitioner,
- versus HON. EDUARDO R. ERMITA, in his
capacity as the Executive Secretary;
HON. MARGARITO TEVES, in his capacity
as Secretary of Finance; HON. JOSE
MARIO BUNAG, in his capacity as the
OIC Commissioner of the Bureau of
Internal
Revenue;
and
HON.
ALEXANDER AREVALO, in his capacity as
the OIC Commissioner of the Bureau of
Customs,
Respondents.

Promulgated:
September 1, 2005

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

DECISION

AUSTRIA-MARTINEZ, J.:

64

The expenses of government, having for their object the interest of all, should be
borne by everyone, and the more man enjoys the advantages of society, the more he ought
to hold himself honored in contributing to those expenses.
-Anne Robert Jacques Turgot (1727-1781)
French statesman and economist

Mounting budget deficit, revenue generation, inadequate fiscal allocation for education, increased
emoluments for health workers, and wider coverage for full value-added tax benefits these are the reasons
why Republic Act No. 9337 (R.A. No. 9337) [1] was enacted. Reasons, the wisdom of which, the Court even
with its extensive constitutional power of review, cannot probe. The petitioners in these cases, however,
question not only the wisdom of the law, but also perceived constitutional infirmities in its passage.
Every law enjoys in its favor the presumption of constitutionality. Their arguments notwithstanding,
petitioners failed to justify their call for the invalidity of the law. Hence, R.A. No. 9337 is not
unconstitutional.
LEGISLATIVE HISTORY
R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill Nos. 3555 and 3705, and
Senate Bill No. 1950.
House Bill No. 3555[2] was introduced on first reading on January 7, 2005. The House Committee
on Ways and Means approved the bill, in substitution of House Bill No. 1468, which Representative (Rep.)
Eric D. Singson introduced on August 8, 2004. The President certified the bill on January 7, 2005 for
immediate enactment. On January 27, 2005, the House of Representatives approved the bill on second and
third reading.
House Bill No. 3705[3] on the other hand, substituted House Bill No. 3105 introduced by Rep.
Salacnib F. Baterina, and House Bill No. 3381 introduced by Rep. Jacinto V. Paras. Its mother bill is House
Bill No. 3555. The House Committee on Ways and Means approved the bill on February 2, 2005. The
President also certified it as urgent on February 8, 2005. The House of Representatives approved the bill on
second and third reading on February 28, 2005.
Meanwhile, the Senate Committee on Ways and Means approved Senate Bill No. 1950[4] on March
7, 2005, in substitution of Senate Bill Nos. 1337, 1838 and 1873, taking into consideration House Bill Nos.
3555 and 3705. Senator Ralph G. Recto sponsored Senate Bill No. 1337, while Senate Bill Nos. 1838 and
1873 were both sponsored by Sens. Franklin M. Drilon, Juan M. Flavier and Francis N. Pangilinan. The
President certified the bill on March 11, 2005, and was approved by the Senate on second and third
reading on April 13, 2005.
On the same date, April 13, 2005, the Senate agreed to the request of the House of Representatives
for a committee conference on the disagreeing provisions of the proposed bills.
Before long, the Conference Committee on the Disagreeing Provisions of House Bill No. 3555, House
Bill No. 3705, and Senate Bill No. 1950, after having met and discussed in full free and conference,
recommended the approval of its report, which the Senate did on May 10, 2005, and with the House of
Representatives agreeing thereto the next day, May 11, 2005.
On May 23, 2005, the enrolled copy of the consolidated House and Senate version was transmitted
to the President, who signed the same into law on May 24, 2005. Thus, came R.A. No. 9337.
July 1, 2005 is the effectivity date of R.A. No. 9337.[5] When said date came, the Court issued a
temporary restraining order, effective immediately and continuing until further orders, enjoining
respondents from enforcing and implementing the law.
Oral arguments were held on July 14, 2005. Significantly, during the hearing, the Court speaking
through Mr. Justice Artemio V. Panganiban, voiced the rationale for its issuance of the temporary
restraining order on July 1, 2005, to wit:
J. PANGANIBAN : . . . But before I go into the details of your presentation, let me just tell you
a little background. You know when the law took effect on July 1, 2005,
the Court issued a TRO at about 5 oclock in the afternoon. But before
that, there was a lot of complaints aired on television and on radio.
Some people in a gas station were complaining that the gas prices
went up by 10%. Some people were complaining that their electric bill
will go up by 10%. Other times people riding in domestic air carrier
were complaining that the prices that theyll have to pay would have to
go up by 10%. While all that was being aired, per your presentation

65

and per our own understanding of the law, thats not true. Its not true
that the e-vat law necessarily increased prices by 10% uniformly isnt
it?
ATTY. BANIQUED : No, Your Honor.
J. PANGANIBAN : It is not?
ATTY. BANIQUED : Its not, because, Your Honor, there is an Executive Order that granted the
Petroleum companies some subsidy . . . interrupted
J. PANGANIBAN : Thats correct . . .
ATTY. BANIQUED : . . . and therefore that was meant to temper the impact . . . interrupted
J. PANGANIBAN : . . . mitigating measures . . .
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : As a matter of fact a part of the mitigating measures would be the
elimination of the Excise Tax and the import duties. That is why, it is
not correct to say that the VAT as to petroleum dealers increased
prices by 10%.
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : And therefore, there is no justification for increasing the retail price by 10%
to cover the E-Vat tax. If you consider the excise tax and the import
duties, the Net Tax would probably be in the neighborhood of 7%? We
are not going into exact figures I am just trying to deliver a point that
different industries, different products, different services are hit
differently. So its not correct to say that all prices must go up by 10%.
ATTY. BANIQUED : Youre right, Your Honor.
J. PANGANIBAN : Now. For instance, Domestic Airline companies, Mr. Counsel, are at present
imposed a Sales Tax of 3%. When this E-Vat law took effect the Sales
Tax was also removed as a mitigating measure. So, therefore, there is
no justification to increase the fares by 10% at best 7%, correct?
ATTY. BANIQUED : I guess so, Your Honor, yes.
J. PANGANIBAN : There are other products that the people were complaining on that first
day, were being increased arbitrarily by 10%. And thats one reason
among many others this Court had to issue TRO because of the
confusion in the implementation. Thats why we added as an issue in
this case, even if its tangentially taken up by the pleadings of the
parties, the confusion in the implementation of the E-vat. Our people
were subjected to the mercy of that confusion of an across the board
increase of 10%, which you yourself now admit and I think even the
Government will admit is incorrect. In some cases, it should be 3%
only, in some cases it should be 6% depending on these mitigating
measures and the location and situation of each product, of each
service, of each company, isnt it?
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : Alright. So thats one reason why we had to issue a TRO pending the
clarification of all these and we wish the government will take time to
clarify all these by means of a more detailed implementing rules, in
case the law is upheld by this Court. . . .[6]
The Court also directed the parties to file their respective Memoranda.
G.R. No. 168056
Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition for
prohibition on May 27, 2005. They question the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337,

66

amending Sections 106, 107 and 108, respectively, of the National Internal Revenue Code (NIRC). Section
4 imposes a 10% VAT on sale of goods and properties, Section 5 imposes a 10% VAT on importation of
goods, and Section 6 imposes a 10% VAT on sale of services and use or lease of properties. These
questioned provisions contain a uniform proviso authorizing the President, upon recommendation of the
Secretary of Finance, to raise the VAT rate to 12%, effective January 1, 2006, after any of the following
conditions have been satisfied, to wit:
. . . That the President, upon the recommendation of the Secretary of Finance, shall,
effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after
any of the following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the
previous year exceeds two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds
one and one-half percent (1 %).
Petitioners argue that the law is unconstitutional, as it constitutes abandonment by Congress of its
exclusive authority to fix the rate of taxes under Article VI, Section 28(2) of the 1987 Philippine
Constitution.
G.R. No. 168207
On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a petition for certiorari likewise assailing
the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337.
Aside from questioning the so-called stand-by authority of the President to increase the VAT rate to
12%, on the ground that it amounts to an undue delegation of legislative power, petitioners also contend
that the increase in the VAT rate to 12% contingent on any of the two conditions being satisfied violates
the due process clause embodied in Article III, Section 1 of the Constitution, as it imposes an unfair and
additional tax burden on the people, in that: (1) the 12% increase is ambiguous because it does not state if
the rate would be returned to the original 10% if the conditions are no longer satisfied; (2) the rate is unfair
and unreasonable, as the people are unsure of the applicable VAT rate from year to year; and (3) the
increase in the VAT rate, which is supposed to be an incentive to the President to raise the VAT collection to
at least 2 4/5 of the GDP of the previous year, should only be based on fiscal adequacy.
Petitioners further claim that the inclusion of a stand-by authority granted to the President by the
Bicameral Conference Committee is a violation of the no-amendment rule upon last reading of a bill laid
down in Article VI, Section 26(2) of the Constitution.
G.R. No. 168461
Thereafter, a petition for prohibition was filed on June 29, 2005, by the Association of Pilipinas Shell
Dealers, Inc., et al., assailing the following provisions of R.A. No. 9337:
1) Section 8, amending Section 110 (A)(2) of the NIRC, requiring that the input tax on
depreciable goods shall be amortized over a 60-month period, if the acquisition,
excluding the VAT components, exceeds One Million Pesos (P1, 000,000.00);
2) Section 8, amending Section 110 (B) of the NIRC, imposing a 70% limit on the amount of
input tax to be credited against the output tax; and
3) Section 12, amending Section 114 (c) of the NIRC, authorizing the Government or any of
its political subdivisions, instrumentalities or agencies, including GOCCs, to deduct a
5% final withholding tax on gross payments of goods and services, which are subject
to 10% VAT under Sections 106 (sale of goods and properties) and 108 (sale of
services and use or lease of properties) of the NIRC.
Petitioners contend that these provisions are unconstitutional for being arbitrary, oppressive,
excessive, and confiscatory.
Petitioners argument is premised on the constitutional right of non-deprivation of life, liberty or
property without due process of law under Article III, Section 1 of the Constitution. According to petitioners,
the contested sections impose limitations on the amount of input tax that may be claimed. Petitioners also
argue that the input tax partakes the nature of a property that may not be confiscated, appropriated, or
limited without due process of law. Petitioners further contend that like any other property or property
right, the input tax credit may be transferred or disposed of, and that by limiting the same, the
government gets to tax a profit or value-added even if there is no profit or value-added.
Petitioners also believe that these provisions violate the constitutional guarantee of equal
protection of the law under Article III, Section 1 of the Constitution, as the limitation on the creditable input

67

tax if: (1) the entity has a high ratio of input tax; or (2) invests in capital equipment; or (3) has several
transactions with the government, is not based on real and substantial differences to meet a valid
classification.
Lastly, petitioners contend that the 70% limit is anything but progressive, violative of Article VI,
Section 28(1) of the Constitution, and that it is the smaller businesses with higher input tax to output tax
ratio that will suffer the consequences thereof for it wipes out whatever meager margins the petitioners
make.
G.R. No. 168463
Several members of the House of Representatives led by Rep. Francis Joseph G. Escudero filed this
petition for certiorari on June 30, 2005. They question the constitutionality of R.A. No. 9337 on the
following grounds:
1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue delegation of legislative power,
in violation of Article VI, Section 28(2) of the Constitution;
2) The Bicameral Conference Committee acted without jurisdiction in deleting the no pass
on provisions present in Senate Bill No. 1950 and House Bill No. 3705; and
3) Insertion by the Bicameral Conference Committee of Sections 27, 28, 34, 116, 117, 119,
121, 125,[7] 148, 151, 236, 237 and 288, which were present in Senate Bill No. 1950,
violates Article VI, Section 24(1) of the Constitution, which provides that all
appropriation, revenue or tariff bills shall originate exclusively in the House of
Representatives
G.R. No. 168730
On the eleventh hour, Governor Enrique T. Garcia filed a petition for certiorari and prohibition on
July 20, 2005, alleging unconstitutionality of the law on the ground that the limitation on the creditable
input tax in effect allows VAT-registered establishments to retain a portion of the taxes they collect, thus
violating the principle that tax collection and revenue should be solely allocated for public purposes and
expenditures. Petitioner Garcia further claims that allowing these establishments to pass on the tax to the
consumers is inequitable, in violation of Article VI, Section 28(1) of the Constitution.
RESPONDENTS COMMENT
The Office of the Solicitor General (OSG) filed a Comment in behalf of respondents. Preliminarily,
respondents contend that R.A. No. 9337 enjoys the presumption of constitutionality and petitioners failed
to cast doubt on its validity.
Relying on the case of Tolentino vs. Secretary of Finance, 235 SCRA
630 (1994), respondents argue that the procedural issues raised by petitioners, i.e., legality of the
bicameral proceedings, exclusive origination of revenue measures and the power of the Senate
concomitant thereto, have already been settled. With regard to the issue of undue delegation of legislative
power to the President, respondents contend that the law is complete and leaves no discretion to the
President but to increase the rate to 12% once any of the two conditions provided therein arise.
Respondents also refute petitioners argument that the increase to 12%, as well as
limitation on the creditable input tax, the 60-month amortization on the purchase or importation
goods exceeding P1,000,000.00, and the 5% final withholding tax by government agencies, is
oppressive, and confiscatory, and that it violates the constitutional principle on progressive
among others.

the 70%
of capital
arbitrary,
taxation,

Finally, respondents manifest that R.A. No. 9337 is the anchor of the governments fiscal reform
agenda. A reform in the value-added system of taxation is the core revenue measure that will tilt the
balance towards a sustainable macroeconomic environment necessary for economic growth.
ISSUES
The Court defined the issues, as follows:
PROCEDURAL ISSUE
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)
SUBSTANTIVE ISSUES

68

1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the
NIRC, violate the following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article VI, Section 28(2)
2. Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC;
and Section 12 of R.A. No. 9337, amending Section 114(C) of the NIRC, violate the following
provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article III, Section 1
RULING OF THE COURT
As a prelude, the Court deems it apt to restate the general principles and concepts of value-added
tax (VAT), as the confusion and inevitably, litigation, breeds from a fallacious notion of its nature.
The VAT is a tax on spending or consumption. It is levied on the sale, barter, exchange or lease of
goods or properties and services. [8] Being an indirect tax on expenditure, the seller of goods or services
may pass on the amount of tax paid to the buyer,[9] with the seller acting merely as a tax collector. [10] The
burden of VAT is intended to fall on the immediate buyers and ultimately, the end-consumers.
In contrast, a direct tax is a tax for which a taxpayer is directly liable on the transaction or business
it engages in, without transferring the burden to someone else. [11] Examples are individual and corporate
income taxes, transfer taxes, and residence taxes.[12]
In the Philippines, the value-added system of sales taxation has long been in existence, albeit in a
different mode. Prior to 1978, the system was a single-stage tax computed under the cost deduction
method and was payable only by the original sellers. The single-stage system was subsequently modified,
and a mixture of the cost deduction method and tax credit method was used to determine the value-added
tax payable.[13] Under the tax credit method, an entity can credit against or subtract from the VAT charged
on its sales or outputs the VAT paid on its purchases, inputs and imports. [14]
It was only in 1987, when President Corazon C. Aquino issued Executive Order No. 273, that the VAT
system was rationalized by imposing a multi-stage tax rate of 0% or 10% on all sales using the tax credit
method.[15]
E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT Law, [16] R.A. No. 8241 or the
Improved VAT Law,[17] R.A. No. 8424 or the Tax Reform Act of 1997, [18] and finally, the presently beleaguered
R.A. No. 9337, also referred to by respondents as the VAT Reform Act.
The Court will now discuss the issues in logical sequence.
PROCEDURAL ISSUE
I.
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)

A. The Bicameral Conference Committee

Petitioners Escudero, et al., and Pimentel, et al., allege that the Bicameral Conference Committee
exceeded its authority by:
1) Inserting the stand-by authority in favor of the President in Sections 4, 5, and 6 of R.A. No.
9337;
2) Deleting entirely the no pass-on provisions found in both the House and Senate bills;
3) Inserting the provision imposing a 70% limit on the amount of input tax to be credited
against the output tax; and
4) Including the amendments introduced only by Senate Bill No. 1950 regarding other kinds
of taxes in addition to the value-added tax.

69

Petitioners now beseech the Court to define the powers of the Bicameral Conference Committee.
It should be borne in mind that the power of internal regulation and discipline are intrinsic in any
legislative body for, as unerringly elucidated by Justice Story, [i]f the power did not exist, it would be
utterly impracticable to transact the business of the nation, either at all, or at least with
decency, deliberation, and order.[19] Thus, Article VI, Section 16 (3) of the Constitution provides that
each House may determine the rules of its proceedings. Pursuant to this inherent constitutional power to
promulgate and implement its own rules of procedure, the respective rules of each house of Congress
provided for the creation of a Bicameral Conference Committee.
Thus, Rule XIV, Sections 88 and 89 of the Rules of House of Representatives provides as follows:
Sec. 88. Conference Committee. In the event that the House does not agree with the
Senate on the amendment to any bill or joint resolution, the differences may be settled by
the conference committees of both chambers.
In resolving the differences with the Senate, the House panel shall, as much as
possible, adhere to and support the House Bill. If the differences with the Senate are so
substantial that they materially impair the House Bill, the panel shall report such fact to the
House for the latters appropriate action.
Sec. 89. Conference Committee Reports. . . . Each report shall contain a detailed,
sufficiently explicit statement of the changes in or amendments to the subject measure.
...
The Chairman of the House panel may be interpellated on the Conference Committee
Report prior to the voting thereon. The House shall vote on the Conference Committee
Report in the same manner and procedure as it votes on a bill on third and final reading.
Rule XII, Section 35 of the Rules of the Senate states:
Sec. 35. In the event that the Senate does not agree with the House of
Representatives on the provision of any bill or joint resolution, the differences shall be
settled by a conference committee of both Houses which shall meet within ten (10) days
after their composition. The President shall designate the members of the Senate Panel in
the conference committee with the approval of the Senate.
Each Conference Committee Report shall contain a detailed and sufficiently explicit
statement of the changes in, or amendments to the subject measure, and shall be signed by
a majority of the members of each House panel, voting separately.
A comparative presentation of the conflicting House and Senate provisions and a
reconciled version thereof with the explanatory statement of the conference committee shall
be attached to the report.
...
The creation of such conference committee was apparently in response to a problem, not addressed
by any constitutional provision, where the two houses of Congress find themselves in disagreement over
changes or amendments introduced by the other house in a legislative bill. Given that one of the most
basic powers of the legislative branch is to formulate and implement its own rules of proceedings and to
discipline its members, may the Court then delve into the details of how Congress complies with its
internal rules or how it conducts its business of passing legislation? Note that in the present petitions, the
issue is not whether provisions of the rules of both houses creating the bicameral conference committee
are unconstitutional, but whether the bicameral conference committee has strictly complied with
the rules of both houses, thereby remaining within the jurisdiction conferred upon it by
Congress.
In
the
recent
case
of Farias
vs.
The
Executive
Secretary,[20] the
Court En
Banc, unanimously reiterated and emphasized its adherence to the enrolled bill doctrine, thus, declining
therein petitioners plea for the Court to go behind the enrolled copy of the bill. Assailed in said case was
Congresss creation of two sets of bicameral conference committees, the lack of records of said committees
proceedings, the alleged violation of said committees of the rules of both houses, and the disappearance
or deletion of one of the provisions in the compromise bill submitted by the bicameral conference
committee. It was argued that such irregularities in the passage of the law nullified R.A. No. 9006, or the
Fair Election Act.

70

Striking down such argument, the Court held thus:

Under the enrolled bill doctrine, the signing of a bill by the Speaker of the House and
the Senate President and the certification of the Secretaries of both Houses of Congress that
it was passed are conclusive of its due enactment. A review of cases reveals the Courts
consistent adherence to the rule. The Court finds no reason to deviate from the
salutary rule in this case where the irregularities alleged by the petitioners
mostly involved the internal rules of Congress, e.g., creation of the 2nd or
3rd Bicameral Conference Committee by the House. This Court is not the proper
forum for the enforcement of these internal rules of Congress, whether House or
Senate. Parliamentary rules are merely procedural and with their observance the
courts have no concern. Whatever doubts there may be as to the formal validity
of Rep. Act No. 9006 must be resolved in its favor. The Court reiterates its ruling
in Arroyo vs. De Venecia, viz.:

But the cases, both here and abroad, in varying forms of


expression, all deny to the courts the power to inquire into
allegations that, in enacting a law, a House of Congress failed to
comply with its own rules, in the absence of showing that there was a
violation of a constitutional provision or the rights of private
individuals. In Osmea v. Pendatun, it was held: At any rate, courts have
declared that the rules adopted by deliberative bodies are subject to
revocation, modification or waiver at the pleasure of the body adopting
them. And it has been said that Parliamentary rules are merely
procedural, and with their observance, the courts have no concern.
They may be waived or disregarded by the legislative body.
Consequently, mere failure to conform to parliamentary usage will
not invalidate the action (taken by a deliberative body) when the
requisite number of members have agreed to a particular measure.
[21]
(Emphasis supplied)
The foregoing declaration is exactly in point with the present cases, where petitioners allege
irregularities committed by the conference committee in introducing changes or deleting provisions in the
House and Senate bills. Akin to the Farias case,[22] the present petitions also raise an issue regarding the
actions taken by the conference committee on matters regarding Congress compliance with its own
internal rules. As stated earlier, one of the most basic and inherent power of the legislature is the power to
formulate rules for its proceedings and the discipline of its members. Congress is the best judge of how it
should conduct its own business expeditiously and in the most orderly manner. It is also the sole
concern of Congress to instill discipline among the members of its conference committee if it believes that
said members violated any of its rules of proceedings. Even the expanded jurisdiction of this Court cannot
apply to questions regarding only the internal operation of Congress, thus, the Court is wont to deny a
review of the internal proceedings of a co-equal branch of government.
Moreover, as far back as 1994 or more than ten years ago, in the case of Tolentino vs. Secretary of
Finance,[23] the Court already made the pronouncement that [i]f a change is desired in the practice [of
the Bicameral Conference Committee] it must be sought in Congress since this question is not
covered by any constitutional provision but is only an internal rule of each house. [24] To date,
Congress has not seen it fit to make such changes adverted to by the Court. It seems, therefore, that
Congress finds the practices of the bicameral conference committee to be very useful for purposes of
prompt and efficient legislative action.
Nevertheless, just to put minds at ease that no blatant irregularities tainted the proceedings of the
bicameral conference committees, the Court deems it necessary to dwell on the issue. The Court observes
that there was a necessity for a conference committee because a comparison of the provisions of House
Bill Nos. 3555 and 3705 on one hand, and Senate Bill No. 1950 on the other, reveals that there were
indeed disagreements. As pointed out in the petitions, said disagreements were as follows:

House Bill No.3705

Senate Bill No. 1950

House Bill No. 3555

With regard to Stand-By Authority in favor of President

71

Provides for 12% VAT on


every sale of goods or
properties (amending Sec.
106 of NIRC); 12% VAT on
importation
of
goods
(amending Sec. 107 of
NIRC); and 12% VAT on
sale of services and use or
lease
of
properties
(amending Sec. 108 of
NIRC)

Provides for 12% VAT in


general on sales of goods or
properties and reduced rates
for sale of certain locally
manufactured
goods
and
petroleum products and raw
materials to be used in the
manufacture
thereof
(amending Sec. 106 of NIRC);
12% VAT on importation of
goods and reduced rates for
certain
imported
products
including petroleum products
(amending Sec. 107 of NIRC);
and 12% VAT on sale of
services and use or lease of
properties and a reduced rate
for certain services including
power generation (amending
Sec. 108 of NIRC)

Provides for a single rate of


10% VAT on sale of goods or
properties (amending Sec. 106
of NIRC), 10% VAT on sale of
services
including
sale
of
electricity
by
generation
companies, transmission and
distribution companies, and use
or
lease
of
properties
(amending Sec. 108 of NIRC)

With regard to the no pass-on provision


No similar provision

Provides that the input tax


credit for capital goods on
which a VAT has been paid
shall be equally distributed
over 5 years or the
depreciable life of such
capital goods; the input
tax credit for goods and
services other than capital
goods shall not exceed 5%
of the total amount of
such goods and services;
and for persons engaged
in retail trading of goods,
the allowable input tax
credit shall not exceed
11% of the total amount of
goods purchased.

Provides that the VAT imposed


on power generation and on
the sale of petroleum products
shall
be
absorbed
by
generation
companies
or
sellers, respectively, and shall
not
be
passed
on
to
consumers

Provides that the VAT imposed


on sales of electricity by
generation
companies
and
services
of
transmission
companies
and
distribution
companies, as well as those of
franchise grantees of electric
utilities shall not apply to
residential
end-users.
VAT
shall
be
absorbed
by
generation,
transmission, and distribution
companies.
With regard to 70% limit on input tax credit
No similar provision

Provides that the input tax


credit for capital goods on
which a VAT has been paid shall
be equally distributed over 5
years or the depreciable life of
such capital goods; the input
tax credit for goods and
services other than capital
goods shall not exceed 90% of
the output VAT.

With regard to amendments to be made to NIRC provisions regarding income and


excise taxes
No similar provision

72

No similar provision

Provided for amendments to


several
NIRC
provisions
regarding corporate income,
percentage,
franchise
and
excise taxes

The disagreements between the provisions in the House bills and the Senate bill were with regard
to (1) what rate of VAT is to be imposed; (2) whether only the VAT imposed on electricity generation,
transmission and distribution companies should not be passed on to consumers, as proposed in the Senate
bill, or both the VAT imposed on electricity generation, transmission and distribution companies and the
VAT imposed on sale of petroleum products should not be passed on to consumers, as proposed in the
House bill; (3) in what manner input tax credits should be limited; (4) and whether the NIRC provisions on
corporate income taxes, percentage, franchise and excise taxes should be amended.
There being differences and/or disagreements on the foregoing provisions of the House and Senate
bills, the Bicameral Conference Committee was mandated by the rules of both houses of Congress to act
on the same by settling said differences and/or disagreements. The Bicameral Conference Committee
acted on the disagreeing provisions by making the following changes:
1. With regard to the disagreement on the rate of VAT to be imposed, it would appear from the
Conference Committee Report that the Bicameral Conference Committee tried to bridge the gap in the
difference between the 10% VAT rate proposed by the Senate, and the various rates with 12% as the
highest VAT rate proposed by the House, by striking a compromise whereby the present 10% VAT rate
would be retained until certain conditions arise, i.e., the value-added tax collection as a percentage of
gross domestic product (GDP) of the previous year exceeds 2 4/5%, or National Government deficit as a
percentage of GDP of the previous year exceeds 1%, when the President, upon recommendation of the
Secretary of Finance shall raise the rate of VAT to 12% effective January 1, 2006.

2. With regard to the disagreement on whether only the VAT imposed on electricity generation,
transmission and distribution companies should not be passed on to consumers or whether both the VAT
imposed on electricity generation, transmission and distribution companies and the VAT imposed on sale of
petroleum products may be passed on to consumers, the Bicameral Conference Committee chose to settle
such disagreement by altogether deleting from its Report any no pass-on provision.

3. With regard to the disagreement on whether input tax credits should be limited or not, the
Bicameral Conference Committee decided to adopt the position of the House by putting a limitation on
the amount of input tax that may be credited against the output tax, although it crafted its own
language as to the amount of the limitation on input tax credits and the manner of computing the
same by providing thus:
(A) Creditable Input Tax. . . .
...
Provided, The input tax on goods purchased or imported in a calendar month
for use in trade or business for which deduction for depreciation is allowed
under this Code, shall be spread evenly over the month of acquisition and the
fifty-nine (59) succeeding months if the aggregate acquisition cost for such
goods, excluding the VAT component thereof, exceeds one million Pesos
(P1,000,000.00): PROVIDED, however, that if the estimated useful life of the
capital good is less than five (5) years, as used for depreciation purposes,
then the input VAT shall be spread over such shorter period: . . .
(B) Excess Output or Input Tax. If at the end of any taxable quarter the output
tax exceeds the input tax, the excess shall be paid by the VAT-registered
person. If the input tax exceeds the output tax, the excess shall be carried
over to the succeeding quarter or quarters: PROVIDED that the input tax
inclusive of input VAT carried over from the previous quarter that may be
credited in every quarter shall not exceed seventy percent (70%) of the
output VAT: PROVIDED, HOWEVER, THAT any input tax attributable to zerorated sales by a VAT-registered person may at his option be refunded or
credited against other internal revenue taxes, . . .

4. With regard to the amendments to other provisions of the NIRC on corporate income tax,
franchise, percentage and excise taxes, the conference committee decided to include such amendments
and basically adopted the provisions found in Senate Bill No. 1950, with some changes as to the rate of the
tax to be imposed.

73

Under the provisions of both the Rules of the House of Representatives and Senate Rules, the
Bicameral Conference Committee is mandated to settle the differences between the disagreeing provisions
in the House bill and the Senate bill. The term settle is synonymous to reconcile and harmonize. [25] To
reconcile or harmonize disagreeing provisions, the Bicameral Conference Committee may then (a) adopt
the specific provisions of either the House bill or Senate bill, (b) decide that neither provisions in the House
bill or the provisions in the Senate bill would
be carried into the final form of the bill, and/or (c) try to arrive at a compromise between the disagreeing
provisions.
In the present case, the changes introduced by the Bicameral Conference Committee on
disagreeing provisions were meant only to reconcile and harmonize the disagreeing provisions for it did not
inject any idea or intent that is wholly foreign to the subject embraced by the original provisions.
The so-called stand-by authority in favor of the President, whereby the rate of 10% VAT wanted by
the Senate is retained until such time that certain conditions arise when the 12% VAT wanted by the House
shall be imposed, appears to be a compromise to try to bridge the difference in the rate of VAT proposed
by the two houses of Congress. Nevertheless, such compromise is still totally within the subject of what
rate of VAT should be imposed on taxpayers.
The no pass-on provision was deleted altogether. In the transcripts of the proceedings of the
Bicameral Conference Committee held on May 10, 2005, Sen. Ralph Recto, Chairman of the Senate Panel,
explained the reason for deleting the no pass-on provision in this wise:

. . . the thinking was just to keep the VAT law or the VAT bill simple. And we were
thinking that no sector should be a beneficiary of legislative grace, neither should any sector
be discriminated on. The VAT is an indirect tax. It is a pass on-tax. And lets keep it plain
and simple. Lets not confuse the bill and put a no pass-on provision. Two-thirds of the world
have a VAT system and in this two-thirds of the globe, I have yet to see a VAT with a no passthough provision. So, the thinking of the Senate is basically simple, lets keep the VAT simple.
[26]
(Emphasis supplied)
Rep. Teodoro Locsin further made the manifestation that the no pass-on provision never really
enjoyed the support of either House.[27]
With regard to the amount of input tax to be credited against output tax, the Bicameral Conference
Committee came to a compromise on the percentage rate of the limitation or cap on such input tax credit,
but again, the change introduced by the Bicameral Conference Committee was totally within the intent of
both houses to put a cap on input tax that may be
credited against the output tax. From the inception of the subject revenue bill in the House of
Representatives, one of the major objectives was to plug a glaring loophole in the tax policy and
administration by creating vital restrictions on the claiming of input VAT tax credits . . . and [b]y
introducing limitations on the claiming of tax credit, we are capping a major leakage that has placed our
collection efforts at an apparent disadvantage.[28]
As to the amendments to NIRC provisions on taxes other than the value-added tax proposed in
Senate Bill No. 1950, since said provisions were among those referred to it, the conference committee had
to act on the same and it basically adopted the version of the Senate.
Thus, all the changes or modifications made by the Bicameral Conference Committee were
germane to subjects of the provisions referred
to it for reconciliation. Such being the case, the Court does not see any grave abuse of discretion
amounting to lack or excess of jurisdiction committed by the Bicameral Conference Committee. In the
earlier cases of Philippine Judges Association vs. Prado[29] and Tolentino vs. Secretary of Finance,[30] the
Court recognized the long-standing legislative practice of giving said conference committee ample latitude
for compromising differences between the Senate and the House. Thus, in the Tolentinocase, it was held
that:
. . . it is within the power of a conference committee to include in its report an
entirely new provision that is not found either in the House bill or in the Senate bill. If the
committee can propose an amendment consisting of one or two provisions, there is no
reason why it cannot propose several provisions, collectively considered as an amendment
in the nature of a substitute, so long as such amendment is germane to the subject of the
bills before the committee. After all, its report was not final but needed the approval of both
houses of Congress to become valid as an act of the legislative department. The charge
that in this case the Conference Committee acted as a third legislative chamber is
thus without any basis.[31] (Emphasis supplied)

74

B. R.A. No. 9337 Does Not Violate Article VI, Section 26(2) of the Constitution
on the No-Amendment Rule
Article VI, Sec. 26 (2) of the Constitution, states:
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.
Petitioners argument that the practice where a bicameral conference committee is allowed to add
or delete provisions in the House bill and the Senate bill after these had passed three readings is in effect a
circumvention of the no amendment rule (Sec. 26 (2), Art. VI of the 1987 Constitution), fails to convince
the Court to deviate from its ruling in the Tolentino case that:
Nor is there any reason for requiring that the Committees Report in these cases must
have undergone three readings in each of the two houses. If that be the case, there would
be no end to negotiation since each house may seek modification of the compromise bill. . . .
Art. VI. 26 (2) must, therefore, be construed as referring only to bills
introduced for the first time in either house of Congress, not to the conference
committee report.[32] (Emphasis supplied)
The Court reiterates here that the no-amendment rule refers only to the procedure to be
followed by each house of Congress with regard to bills initiated in each of said respective
houses, before said bill is transmitted to the other house for its concurrence or amendment.
Verily, to construe said provision in a way as to proscribe any further changes to a bill after one house has
voted on it would lead to absurdity as this would mean that the other house of Congress would be deprived
of its constitutional power to amend or introduce changes to said bill. Thus, Art. VI, Sec. 26 (2) of the
Constitution cannot be taken to mean that the introduction by the Bicameral Conference Committee of
amendments and modifications to disagreeing provisions in bills that have been acted upon by both
houses of Congress is prohibited.
C. R.A. No. 9337 Does Not Violate Article VI, Section 24 of the Constitution on
Exclusive Origination of Revenue Bills
Coming to the issue of the validity of the amendments made regarding the NIRC provisions on
corporate income taxes and percentage, excise taxes. Petitioners refer to the following provisions, to wit:

Section
27
Rates of Income Tax on Domestic Corporation

75

28(A)(1)

Tax on Resident Foreign Corporation

28(B)(1)

Inter-corporate Dividends

34(B)(1)

Inter-corporate Dividends

116

Tax on Persons Exempt from VAT

117

Percentage Tax on domestic carriers and keepers of


Garage

119

Tax on franchises

121

Tax on banks and Non-Bank Financial Intermediaries

148

Excise Tax on manufactured oils and other fuels

151

Excise Tax on mineral products

236

Registration requirements

237

Issuance of receipts or sales or commercial invoices

288

Disposition of Incremental Revenue

Petitioners claim that the amendments to these provisions of the NIRC did not at all originate from
the House. They aver that House Bill No. 3555 proposed amendments only regarding Sections 106, 107,
108, 110 and 114 of the NIRC, while House Bill No. 3705 proposed amendments only to Sections 106,
107,108, 109, 110 and 111 of the NIRC; thus, the other sections of the NIRC which the Senate amended
but which amendments were not found in the House bills are not intended to be amended by the House of
Representatives. Hence, they argue that since the proposed amendments did not originate from the
House, such amendments are a violation of Article VI, Section 24 of the Constitution.
The argument does not hold water.
Article VI, Section 24 of the Constitution reads:
Sec. 24. 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.
In the present cases, petitioners admit that it was indeed House Bill Nos. 3555 and 3705 that
initiated the move for amending provisions of the NIRC dealing mainly with the value-added tax. Upon
transmittal of said House bills to the Senate, the Senate came out with Senate Bill No. 1950 proposing
amendments not only to NIRC provisions on the value-added tax but also amendments to NIRC provisions
on other kinds of taxes. Is the introduction by the Senate of provisions not dealing directly with the valueadded tax, which is the only kind of tax being amended in the House bills, still within the purview of the
constitutional provision authorizing the Senate to propose or concur with amendments to a revenue bill
that originated from the House?
The foregoing question had been squarely answered in the Tolentino case, wherein the Court held,
thus:
. . . To begin with, it is not the law but the revenue bill which is required by the
Constitution to originate exclusively in the House of Representatives. It is important to
emphasize this, because a bill originating in the House may undergo such extensive changes
in the Senate that the result may be a rewriting of the whole. . . . At this point, what is
important to note is that, as a result of the Senate action, a distinct bill may be produced. To
insist that a revenue statute and not only the bill which initiated the legislative
process culminating in the enactment of the law must substantially be the same
as the House bill would be to deny the Senates power not only to concur with
amendmentsbut also to propose amendments. It would be to violate the coequality of
legislative power of the two houses of Congress and in fact make the House superior to the
Senate.
Given, then, the power of the Senate to propose amendments, the Senate
can propose its own version even with respect to bills which are required by the
Constitution to originate in the House.

76

...
Indeed, what the Constitution simply means is that the initiative for filing revenue,
tariff or tax bills, bills authorizing an increase of the public debt, private bills and bills of local
application must come from the House of Representatives on the theory that, elected as
they are from the districts, the members of the House can be expected to be more
sensitive to the local needs and problems. On the other hand, the senators, who
are elected at large, are expected to approach the same problems from the
national perspective. Both views are thereby made to bear on the enactment of
such laws.[33] (Emphasis supplied)
Since there is no question that the revenue bill exclusively originated in the House of
Representatives, the Senate was acting within its
constitutional power to introduce amendments to the House bill when it included provisions in Senate Bill
No. 1950 amending corporate income taxes, percentage, excise and franchise taxes. Verily, Article VI,
Section 24 of the Constitution does not contain any prohibition or limitation on the extent of the
amendments that may be introduced by the Senate to the House revenue bill.
Furthermore, the amendments introduced by the Senate to the NIRC provisions that had not been
touched in the House bills are still in furtherance of the intent of the House in initiating the subject revenue
bills. The Explanatory Note of House Bill No. 1468, the very first House bill introduced on the floor, which
was later substituted by House Bill No. 3555, stated:
One of the challenges faced by the present administration is the urgent and daunting
task of solving the countrys serious financial problems. To do this, government expenditures
must be strictly monitored and controlled and revenues must be significantly increased. This
may be easier said than done, but our fiscal authorities are still optimistic the government
will be operating on a balanced budget by the year 2009. In fact, several measures that will
result to significant expenditure savings have been identified by the administration. It is
supported with a credible package of revenue measures that include measures to
improve tax administration and control the leakages in revenues from income
taxes and the value-added tax (VAT). (Emphasis supplied)
Rep. Eric D. Singson, in his sponsorship speech for House Bill No. 3555, declared that:
In the budget message of our President in the year 2005, she reiterated that we all
acknowledged that on top of our agenda must be the restoration of the health of our fiscal
system.
In order to considerably lower the consolidated public sector deficit and eventually
achieve a balanced budget by the year 2009, we need to seize windows of
opportunities which might seem poignant in the beginning, but in the long run
prove effective and beneficial to the overall status of our economy. One such
opportunity is a review of existing tax rates, evaluating the relevance given our
present conditions.[34] (Emphasis supplied)
Notably therefore, the main purpose of the bills emanating from the House of Representatives is to
bring in sizeable revenues for the government
to supplement our countrys serious financial problems, and improve tax administration and control of the
leakages in revenues from income taxes and value-added taxes. As these house bills were transmitted to
the Senate, the latter, approaching the measures from the point of national perspective, can introduce
amendments within the purposes of those bills. It can provide for ways that would soften the impact of the
VAT measure on the consumer, i.e., by distributing the burden across all sectors instead of putting it
entirely on the shoulders of the consumers. The sponsorship speech of Sen. Ralph Recto on why the
provisions on income tax on corporation were included is worth quoting:
All in all, the proposal of the Senate Committee on Ways and Means will raise P64.3
billion in additional revenues annually even while by mitigating prices of power, services and
petroleum products.
However, not all of this will be wrung out of VAT. In fact, only P48.7 billion amount is
from the VAT on twelve goods and services. The rest of the tab P10.5 billion- will be picked
by corporations.
What we therefore prescribe is a burden sharing between corporate Philippines and
the consumer. Why should the latter bear all the pain? Why should the fiscal salvation be
only on the burden of the consumer?

77

The corporate worlds equity is in form of the increase in the corporate income tax
from 32 to 35 percent, but up to 2008 only. This will raise P10.5 billion a year. After that, the
rate will slide back, not to its old rate of 32 percent, but two notches lower, to 30 percent.
Clearly, we are telling those with the capacity to pay, corporations, to bear with this
emergency provision that will be in effect for 1,200 days, while we put our fiscal house in
order. This fiscal medicine will have an expiry date.
For their assistance, a reward of tax reduction awaits them. We intend to keep the
length of their sacrifice brief. We would like to assure them that not because there is a light
at the end of the tunnel, this government will keep on making the tunnel long.
The responsibility will not rest solely on the weary shoulders of the small man. Big
business will be there to share the burden.[35]
As the Court has said, the Senate can propose amendments and in fact, the amendments made on
provisions in the tax on income of corporations are germane to the purpose of the house bills which is to
raise revenues for the government.
Likewise, the Court finds the sections referring to other percentage and excise taxes germane to the
reforms to the VAT system, as these sections would cushion the effects of VAT on consumers. Considering
that certain goods and services which were subject to percentage tax and excise tax would no longer be
VAT-exempt, the consumer would be burdened more as they would be paying the VAT in addition to these
taxes. Thus, there is a need to amend these sections to soften the impact of VAT. Again, in his sponsorship
speech, Sen. Recto said:

However, for power plants that run on oil, we will reduce to zero the present excise
tax on bunker fuel, to lessen the effect of a VAT on this product.

VAT.

For electric utilities like Meralco, we will wipe out the franchise tax in exchange for a

And in the case of petroleum, while we will levy the VAT on oil products, so as not to
destroy the VAT chain, we will however bring down the excise tax on socially sensitive
products such as diesel, bunker, fuel and kerosene.
...
What do all these exercises point to? These are not contortions of giving to the left
hand what was taken from the right. Rather, these sprang from our concern of softening the
impact of VAT, so that the people can cushion the blow of higher prices they will have to pay
as a result of VAT.[36]
The other sections amended by the Senate pertained to matters of tax administration which are
necessary for the implementation of the changes in the VAT system.
To reiterate, the sections introduced by the Senate are germane to the subject matter and purposes
of the house bills, which is to supplement our countrys fiscal deficit, among others. Thus, the Senate acted
within its power to propose those amendments.

SUBSTANTIVE ISSUES
I.
Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC, violate the
following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article VI, Section 28(2)
A. No Undue Delegation of Legislative Power
Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et al., and Escudero, et al. contend in
common that Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of

78

the NIRC giving the President the stand-by authority to raise the VAT rate from 10% to 12% when a certain
condition is met, constitutes undue delegation of the legislative power to tax.
The assailed provisions read as follows:
SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended to read
as follows:
SEC. 106. Value-Added Tax on Sale of Goods or Properties.
(A) Rate and Base of Tax. There shall be levied, assessed and collected on
every sale, barter or exchange of goods or properties, a value-added tax
equivalent to ten percent (10%) of the gross selling price or gross value in
money of the goods or properties sold, bartered or exchanged, such tax to be
paid by the seller or transferor: provided, that the President, upon the
recommendation of the Secretary of Finance, shall, effective January
1, 2006, raise the rate of value-added tax to twelve percent (12%),
after any of the following conditions has been satisfied.
(i)

value-added tax collection as a percentage of Gross


Domestic Product (GDP) of the previous year exceeds two and
four-fifth percent (2 4/5%) or

(ii) national government deficit as a percentage of GDP of the


previous year exceeds one and one-half percent (1 %).
SEC. 5. Section 107 of the same Code, as amended, is hereby further amended to
read as follows:
SEC. 107. Value-Added Tax on Importation of Goods.
(A) In General. There shall be levied, assessed and collected on every
importation of goods a value-added tax equivalent to ten percent (10%) based
on the total value used by the Bureau of Customs in determining tariff and
customs duties, plus customs duties, excise taxes, if any, and other charges,
such tax to be paid by the importer prior to the release of such goods from
customs custody: Provided, That where the customs duties are determined on
the basis of the quantity or volume of the goods, the value-added tax shall be
based on the landed cost plus excise taxes, if any: provided, further, that
the President, upon the recommendation of the Secretary of Finance,
shall, effective January 1, 2006, raise the rate of value-added tax to
twelve percent (12%) after any of the following conditions has been
satisfied.
(i) value-added tax collection as a percentage of Gross Domestic
Product (GDP) of the previous year exceeds two and four-fifth
percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1 %).

SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to
read as follows:

SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties

(A) Rate and Base of Tax. There shall be levied, assessed and collected, a
value-added tax equivalent to ten percent (10%) of gross receipts derived
from the sale or exchange of services: provided, that the President, upon
the recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the rate of value-added tax to twelve percent
(12%), after any of the following conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic
Product (GDP) of the previous year exceeds two and four-fifth
percent (2 4/5%) or

79

(ii) national government deficit as a percentage of GDP of the


previous year exceeds one and one-half percent (1
%). (Emphasis supplied)
Petitioners allege that the grant of the stand-by authority to the President to increase the VAT rate
is a virtual abdication by Congress of its exclusive power to tax because such delegation is not within the
purview of Section 28 (2), Article VI of the Constitution, which provides:

The Congress may, by law, authorize the President to fix within specified limits, and
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.

They argue that the VAT is a tax levied on the sale, barter or exchange of goods and properties as
well as on the sale or exchange of services, which cannot be included within the purview of tariffs under
the exempted delegation as the latter refers to customs duties, tolls or tribute payable upon merchandise
to the government and usually imposed on goods or merchandise imported or exported.
Petitioners ABAKADA GURO Party List, et al., further contend that delegating to the President the
legislative power to tax is contrary to republicanism. They insist that accountability, responsibility and
transparency should dictate the actions of Congress and they should not pass to the President the decision
to impose taxes. They also argue that the law also effectively nullified the Presidents power of control,
which includes the authority to set aside and nullify the acts of her subordinates like the Secretary of
Finance, by mandating the fixing of the tax rate by the President upon the recommendation of the
Secretary of Finance.
Petitioners Pimentel, et al. aver that the President has ample powers to cause, influence or create
the conditions provided by the law to bring about either or both the conditions precedent.
On the other hand, petitioners Escudero, et al. find bizarre and revolting the situation that the
imposition of the 12% rate would be subject to the whim of the Secretary of Finance, an unelected
bureaucrat, contrary to the principle of no taxation without representation. They submit that the Secretary
of Finance is not mandated to give a favorable recommendation and he may not even give his
recommendation. Moreover, they allege that no guiding standards are provided in the law on what basis
and as to how he will make his recommendation. They claim, nonetheless, that any recommendation of the
Secretary of Finance can easily be brushed aside by the President since the former is a mere alter ego of
the latter, such that, ultimately, it is the President who decides whether to impose the increased tax rate
or not.
A brief discourse on the principle of non-delegation of powers is instructive.
The principle of separation of powers ordains that each of the three great branches of government
has exclusive cognizance of and is supreme in matters falling within its own constitutionally allocated
sphere.[37] A logical
corollary to the doctrine of separation of powers is the principle of non-delegation of powers, as expressed
in the Latin maxim: potestas delegata non delegari potestwhich means what has been delegated, cannot
be delegated.[38] This doctrine is based on the ethical principle that such as delegated power constitutes
not only a right but a duty to be performed by the delegate through the instrumentality of his own
judgment and not through the intervening mind of another.[39]
With respect to the Legislature, Section 1 of Article VI of the Constitution provides that the
Legislative power shall be vested in the Congress of the Philippineswhich shall consist of a Senate and a
House of Representatives. The powers which Congress is prohibited from delegating are those which are
strictly, or inherently and exclusively, legislative. Purely legislative power, which can never be delegated,
has been described as the authority to make a complete law complete as to the time when it shall
take effect and as to whom it shall be applicable and to determine the expediency of its
enactment.[40] Thus, the rule is that in order that a court may be justified in holding a statute
unconstitutional as a delegation of legislative power, it must appear that the power involved is purely
legislative in nature that is, one appertaining exclusively to the legislative department. It is the nature of
the power, and not the liability of its use or the manner of its exercise, which determines the validity of its
delegation.
Nonetheless, the general rule barring delegation of legislative powers is subject to the following
recognized limitations or exceptions:

80

(1) Delegation of tariff powers to the President under Section 28 (2) of Article VI of the
Constitution;
(2) Delegation of emergency powers to the President under Section 23 (2) of Article VI of the
Constitution;
(3) Delegation to the people at large;
(4) Delegation to local governments; and
(5) Delegation to administrative bodies.

In every case of permissible delegation, there must be a showing that the delegation itself is valid.
It is valid only if the law (a) is complete in itself, setting forth therein the policy to be executed, carried out,
or implemented by the delegate;[41] and (b) fixes a standard the limits of which are sufficiently determinate
and determinable to which the delegate must conform in the performance of his functions. [42] A sufficient
standard is one which defines legislative policy, marks its limits, maps out its boundaries and specifies the
public agency to apply it. It indicates the circumstances under which the legislative command is to be
effected.[43] Both tests are intended to prevent a total transference of legislative authority to the delegate,
who is not allowed to step into the shoes of the legislature and exercise a power essentially legislative. [44]
In People vs. Vera,[45] the Court, through eminent Justice Jose P. Laurel, expounded on the concept
and extent of delegation of power in this wise:
In testing whether a statute constitutes an undue delegation of legislative power or
not, it is usual to inquire whether the statute was complete in all its terms and provisions
when it left the hands of the legislature so that nothing was left to the judgment of any other
appointee or delegate of the legislature.
...
The true distinction, says Judge Ranney, is between the delegation of power
to make the law, which necessarily involves a discretion as to what it shall be, and
conferring an authority or discretion as to its execution, to be exercised under
and in pursuance of the law. The first cannot be done; to the latter no valid
objection can be made.
...
It is contended, however, that a legislative act may be made to the effect as law after
it leaves the hands of the legislature. It is true that laws may be made effective on certain
contingencies, as by proclamation of the executive or the adoption by the people of a
particular community. In Wayman vs. Southard, the Supreme Court of the United States
ruled that the legislature may delegate a power not legislative which it may itself rightfully
exercise. The power to ascertain facts is such a power which may be delegated.
There is nothing essentially legislative in ascertaining the existence of facts or
conditions as the basis of the taking into effect of a law. That is a mental process
common to all branches of the government. Notwithstanding the apparent tendency,
however, to relax the rule prohibiting delegation of legislative authority on account of the
complexity arising from social and economic forces at work in this modern industrial age, the
orthodox pronouncement of Judge Cooley in his work on Constitutional Limitations finds
restatement in Prof. Willoughby's treatise on the Constitution of the United States in the
following language speaking of declaration of legislative power to administrative
agencies: The principle which permits the legislature to provide that the
administrative agent may determine when the circumstances are such as require
the application of a law is defended upon the ground that at the time this
authority is granted, the rule of public policy, which is the essence of the
legislative act, is determined by the legislature. In other words, the legislature, as
it is its duty to do, determines that, under given circumstances, certain executive
or administrative action is to be taken, and that, under other circumstances,
different or no action at all is to be taken. What is thus left to the administrative
official is not the legislative determination of what public policy demands, but
simply the ascertainment of what the facts of the case require to be done
according to the terms of the law by which he is governed. The efficiency of an
Act as a declaration of legislative will must, of course, come from Congress, but
the ascertainment of the contingency upon which the Act shall take effect may be
left to such agencies as it may designate. The legislature, then, may provide that

81

a law shall take effect upon the happening of future specified contingencies
leaving to some other person or body the power to determine when the specified
contingency has arisen. (Emphasis supplied).[46]
In Edu vs. Ericta,[47] the Court reiterated:
What cannot be delegated is the authority under the Constitution to make laws and
to alter and repeal them; the test is the completeness of the statute in all its terms and
provisions when it leaves the hands of the legislature. To determine whether or not there is
an undue delegation of legislative power, the inquiry must be directed to the scope and
definiteness of the measure enacted. The legislative does not abdicate its functions
when it describes what job must be done, who is to do it, and what is the scope of
his authority. For a complex economy, that may be the only way in which the legislative
process can go forward. A distinction has rightfully been made between delegation
of power to make the laws which necessarily involves a discretion as to what it
shall be, which constitutionally may not be done, and delegation of authority or
discretion as to its execution to be exercised under and in pursuance of the law,
to which no valid objection can be made. The Constitution is thus not to be regarded as
denying the legislature the necessary resources of flexibility and practicability. (Emphasis
supplied).[48]
Clearly, the legislature may delegate to executive officers or bodies the power to determine certain
facts or conditions, or the happening of contingencies, on which the operation of a statute is, by its terms,
made to depend, but the legislature must prescribe sufficient standards, policies or limitations on their
authority.[49] While the power to tax cannot be delegated to executive agencies, details as to the
enforcement and administration of an exercise of such power may be left to them, including the power to
determine the existence of facts on which its operation depends.[50]
The rationale for this is that the preliminary ascertainment of facts as basis for the enactment of
legislation is not of itself a legislative function, but is simply ancillary to legislation. Thus, the duty of
correlating information and making recommendations is the kind of subsidiary activity which the
legislature may perform through its members, or which it may delegate to others to perform. Intelligent
legislation on the complicated problems of modern society is impossible in the absence of accurate
information on the part of the legislators, and any reasonable method of securing such information is
proper.[51] The Constitution as a continuously operative charter of government does not require that
Congress find for itself
every fact upon which it desires to base legislative action or that it make for itself detailed determinations
which it has declared to be prerequisite to application of legislative policy to particular facts and
circumstances impossible for Congress itself properly to investigate. [52]
In the present case, the challenged section of R.A. No. 9337 is the common proviso in Sections 4, 5
and 6 which reads as follows:
That the President, upon the recommendation of the Secretary of Finance, shall,
effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after
any of the following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic
Product (GDP) of the previous year exceeds two and four-fifth percent (2
4/5%); or
(ii) National government deficit as a percentage of GDP of the previous
year exceeds one and one-half percent (1 %).
The case before the Court is not a delegation of legislative power. It is simply a delegation of
ascertainment of facts upon which enforcement and administration of the increase rate under the law
is contingent. The legislature has made the operation of the 12% rate effective January 1, 2006,
contingent upon a specified fact or condition. It leaves the entire operation or non-operation of the 12%
rate upon factual matters outside of the control of the executive.
No discretion would be exercised by the President. Highlighting the absence of discretion is the fact
that the word shall is used in the common proviso. The use of the word shall connotes a mandatory order.
Its use in a statute denotes an imperative obligation and is inconsistent with the idea of discretion.
[53]
Where the law is clear and unambiguous, it must be taken to mean exactly what it says, and courts
have no choice but to see to it that the mandate is obeyed. [54]
Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon the
existence of any of the conditions specified by Congress. This is a duty which cannot be evaded by the

82

President. Inasmuch as the law specifically uses the word shall, the exercise of discretion by the President
does not come into play. It is a clear directive to impose the 12% VAT rate when the specified conditions
are present. The time of taking into effect of the 12% VAT rate is based on the happening of a certain
specified contingency, or upon the ascertainment of certain facts or conditions by a person or body other
than the legislature itself.
The Court finds no merit to the contention of petitioners ABAKADA GURO Party List, et al. that the
law effectively nullified the Presidents power of control over the Secretary of Finance by mandating the
fixing of the tax rate by the President upon the recommendation of the Secretary of Finance. The Court
cannot also subscribe to the position of petitioners
Pimentel, et al. that the word shall should be interpreted to mean may in view of the phrase upon the
recommendation of the Secretary of Finance. Neither does the Court find persuasive the submission of
petitioners Escudero, et al. that any recommendation by the Secretary of Finance can easily be brushed
aside by the President since the former is a mere alter ego of the latter.
When one speaks of the Secretary of Finance as the alter ego of the President, it simply means that
as head of the Department of Finance he is the assistant and agent of the Chief Executive. The multifarious
executive and administrative functions of the Chief Executive are performed by and through the executive
departments, and the acts of the secretaries of such departments, such as the Department of Finance,
performed and promulgated in the regular course of business, are, unless disapproved or reprobated by
the Chief Executive, presumptively the acts of the Chief Executive. The Secretary of Finance, as such,
occupies a political position and holds office in an advisory capacity, and, in the language of Thomas
Jefferson, "should be of the President's bosom confidence" and, in the language of Attorney-General
Cushing, is subject to the direction of the President."[55]
In the present case, in making his recommendation to the President on the existence of either of
the two conditions, the Secretary of Finance is not acting as the alter ego of the President or even her
subordinate. In such instance, he is not subject to the power of control and direction of the President. He is
acting as the agent of the legislative department, to determine and declare the event upon which its
expressed will is to take effect. [56] The Secretary of Finance becomes the means or tool by which legislative
policy is determined and implemented, considering that he possesses all the facilities to gather data and
information and has a much broader perspective to properly evaluate them. His function is to gather and
collate statistical data and other pertinent information and verify if any of the two conditions laid out by
Congress is present. His personality in such instance is in reality but a projection of that of Congress. Thus,
being the agent of Congress and not of the President, the President cannot alter or modify or nullify, or set
aside the findings of the Secretary of Finance and to substitute the judgment of the former for that of the
latter.
Congress simply granted the Secretary of Finance the authority to ascertain the existence of a fact,
namely, whether by December 31, 2005, the value-added tax collection as a percentage of Gross Domestic
Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%) or the national government
deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1%). If either of
these two instances has occurred, the Secretary of Finance, by legislative mandate, must submit such
information to the President. Then the 12% VAT rate must be imposed by the President effective January 1,
2006. There is no undue delegation of legislative power but only of the discretion as to the
execution of a law. This is constitutionally permissible.[57] Congress does not abdicate its functions
or unduly delegate power when it describes what job must be done, who must do it, and what is the scope
of his authority; in our complex economy that is frequently the only way in which the legislative process
can go forward.[58]
As to the argument of petitioners ABAKADA GURO Party List, et al. that delegating to the President
the legislative power to tax is contrary to the principle of republicanism, the same deserves scant
consideration. Congress did not delegate the power to tax but the mere implementation of the law. The
intent and will to increase the VAT rate to 12% came from Congress and the task of the President is to
simply execute the legislative policy. That Congress chose to do so in such a manner is not within the
province of the Court to inquire into, its task being to interpret the law. [59]
The insinuation by petitioners Pimentel, et al. that the President has ample powers to cause, influence or
create the conditions to bring about either or both the conditions precedent does not deserve any merit as
this argument is highly speculative. The Court does not rule on allegations which are manifestly
conjectural, as these may not exist at all. The Court deals with facts, not fancies; on realities, not
appearances. When the Court acts on appearances instead of realities, justice and law will be short-lived.
B. The 12% Increase VAT Rate Does Not Impose an Unfair and Unnecessary
Additional Tax Burden
Petitioners Pimentel, et al. argue that the 12% increase in the VAT rate imposes an unfair and
additional tax burden on the people. Petitioners also argue that the 12% increase, dependent on any of
the 2 conditions set forth in the contested provisions, is ambiguous because it does not state if the VAT

83

rate would be returned to the original 10% if the rates are no longer satisfied. Petitioners also argue
that such rate is unfair and unreasonable, as the people are unsure of the applicable VAT rate from year
to year.
Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of the two conditions set
forth therein are satisfied, the President shall increase the VAT rate to 12%. The provisions of the law are
clear. It does not provide for a return to the 10% rate nor does it empower the President to so revert if,
after the rate is increased to 12%, the VAT collection goes below the 2 4/5 of the GDP of the previous year or
that the national government deficit as a percentage of GDP of the previous year does not exceed 1%.
Therefore, no statutory construction or interpretation is needed. Neither can conditions or
limitations be introduced where none is provided for. Rewriting the law is a forbidden ground that only
Congress may tread upon.[60]
Thus, in the absence of any provision providing for a return to the 10% rate, which in this case the
Court finds none, petitioners argument is, at best, purely speculative. There is no basis for petitioners fear
of a fluctuating VAT rate because the law itself does not provide that the rate should go back to 10% if the
conditions provided in Sections 4, 5 and 6 are no longer present. The rule is that where the provision of the
law is clear and unambiguous, so that there is no occasion for the court's seeking the legislative intent, the
law must be taken as it is, devoid of judicial addition or subtraction. [61]
Petitioners also contend that the increase in the VAT rate, which was allegedly an incentive to the
President to raise the VAT collection to at least 2 4/5 of the GDP of the previous year, should be based on
fiscal adequacy.
Petitioners obviously overlooked that increase in VAT collection is not the only condition. There is
another condition, i.e., the national government deficit as a percentage of GDP of the previous year
exceeds one and one-half percent (1 %).
Respondents explained the philosophy behind these alternative conditions:
1.

VAT/GDP Ratio > 2.8%

The condition set for increasing VAT rate to 12% have economic or fiscal meaning. If
VAT/GDP is less than 2.8%, it means that government has weak or no capability of
implementing the VAT or that VAT is not effective in the function of the tax collection.
Therefore, there is no value to increase it to 12% because such action will also be
ineffectual.
2.

Natl Govt Deficit/GDP >1.5%

The condition set for increasing VAT when deficit/GDP is 1.5% or less means the fiscal
condition of government has reached a relatively sound position or is towards the direction
of a balanced budget position. Therefore, there is no need to increase the VAT rate since the
fiscal house is in a relatively healthy position. Otherwise stated, if the ratio is more than
1.5%, there is indeed a need to increase the VAT rate.[62]
That the first condition amounts to an incentive to the President to increase the VAT collection does
not render it unconstitutional so long as there is a public purpose for which the law was passed, which in
this case, is mainly to raise revenue. In fact, fiscal adequacy dictated the need for a raise in revenue.
The principle of fiscal adequacy as a characteristic of a sound tax system was originally stated by
Adam Smith in his Canons of Taxation (1776), as:
IV. Every tax ought to be so contrived as both to take out and to keep out of the pockets of
the people as little as possible over and above what it brings into the public treasury
of the state.[63]
It simply means that sources of revenues must be adequate to meet government expenditures and
their variations.[64]
The dire need for revenue cannot be ignored. Our country is in a quagmire of financial woe. During
the Bicameral Conference Committee hearing, then Finance Secretary Purisima bluntly depicted the
countrys gloomy state of economic affairs, thus:
First, let me explain the position that the Philippines finds itself in right now. We are in
a position where 90 percent of our revenue is used for debt service. So, for every peso of
revenue that we currently raise, 90 goes to debt service. Thats interest plus amortization of
our debt. So clearly, this is not a sustainable situation. Thats the first fact.

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The second fact is that our debt to GDP level is way out of line compared to other
peer countries that borrow money from that international financial markets. Our debt to GDP
is approximately equal to our GDP. Again, that shows you that this is not a sustainable
situation.
The third thing that Id like to point out is the environment that we are presently
operating in is not as benign as what it used to be the past five years.
What do I mean by that?
In the past five years, weve been lucky because we were operating in a period of
basically global growth and low interest rates. The past few months, we have seen an
inching up, in fact, a rapid increase in the interest rates in the leading economies of the
world. And, therefore, our ability to borrow at reasonable prices is going to be challenged. In
fact, ultimately, the question is our ability to access the financial markets.
When the President made her speech in July last year, the environment was not as
bad as it is now, at least based on the forecast of most financial institutions. So, we were
assuming that raising 80 billion would put us in a position where we can then convince them
to improve our ability to borrow at lower rates. But conditions have changed on us because
the interest rates have gone up. In fact, just within this room, we tried to access the market
for a billion dollars because for this year alone, the Philippines will have to borrow 4 billion
dollars. Of that amount, we have borrowed 1.5 billion. We issued last January a 25-year bond
at 9.7 percent cost. We were trying to access last week and the market was not as favorable
and up to now we have not accessed and we might pull back because the conditions are not
very good.
So given this situation, we at the Department of Finance believe that we really need
to front-end our deficit reduction. Because it is deficit that is causing the increase of the debt
and we are in what we call a debt spiral. The more debt you have, the more deficit you have
because interest and debt service eats and eats more of your revenue. We need to get out
of this debt spiral. And the only way, I think, we can get out of this debt spiral is really have
a front-end adjustment in our revenue base.[65]
The image portrayed is chilling. Congress passed the law hoping for rescue from an inevitable
catastrophe. Whether the law is indeed sufficient to answer the states economic dilemma is not for the
Court to judge. In the Farias case, the Court refused to consider the various arguments raised therein that
dwelt on the wisdom of Section 14 of R.A. No. 9006 (The Fair Election Act), pronouncing that:
. . . policy matters are not the concern of the Court. Government policy is within the
exclusive dominion of the political branches of the government. It is not for this Court to look
into the wisdom or propriety of legislative determination. Indeed, whether an enactment is
wise or unwise, whether it is based on sound economic theory, whether it is the best means
to achieve the desired results, whether, in short, the legislative discretion within its
prescribed limits should be exercised in a particular manner are matters for the judgment of
the legislature, and the serious conflict of opinions does not suffice to bring them within the
range of judicial cognizance.[66]
In the same vein, the Court in this case will not dawdle on the purpose of Congress or the executive
policy, given that it is not for the judiciary to "pass upon questions of wisdom, justice or expediency of
legislation.[67]

II.
Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and Section 12
of R.A. No. 9337, amending Section 114(C) of the NIRC, violate the following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article III, Section 1

A. Due Process and Equal Protection Clauses

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Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue that Section 8 of R.A. No. 9337,
amending Sections 110 (A)(2), 110 (B), and Section 12 of R.A. No. 9337, amending Section 114 (C) of the
NIRC are arbitrary, oppressive, excessive and confiscatory. Their argument is premised on the
constitutional right against deprivation of life, liberty of property without due process of law, as embodied
in Article III, Section 1 of the Constitution.
Petitioners also contend that these provisions violate the constitutional guarantee of equal
protection of the law.
The doctrine is 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.[68]
Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC imposes a limitation on the
amount of input tax that may be credited against the output tax. It states, in part: [ P]rovided, that the
input tax inclusive of the input VAT carried over from the previous quarter that may be credited in every
quarter shall not exceed seventy percent (70%) of the output VAT:
Input Tax is defined under Section 110(A) of the NIRC, as amended, as the value-added tax
due from or paid by a VAT-registered person on the importation of goods or local purchase of good and
services, including lease or use of property, in the course of trade or business, from a VAT-registered
person, and Output Tax is the value-added tax due on the sale or lease of taxable goods or properties or
services by any person registered or required to register under the law.
Petitioners claim that the contested sections impose limitations on the amount of input tax that
may be claimed. In effect, a portion of the input tax that has already been paid cannot now be credited
against the output tax.
Petitioners argument is not absolute. It assumes that the input tax exceeds 70% of the output tax,
and therefore, the input tax in excess of 70% remains uncredited. However, to the extent that the input tax
is less than 70% of the output tax, then 100% of such input tax is still creditable.
More importantly, the excess input tax, if any, is retained in a businesss books of accounts and
remains creditable in the succeeding quarter/s. This is explicitly allowed by Section 110(B), which provides
that if the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or
quarters. In addition, Section 112(B) allows a VAT-registered person to apply for the issuance of a tax credit
certificate or refund for any unused input taxes, to the extent that such input taxes have not been applied
against the output taxes. Such unused input tax may be used in payment of his other internal revenue
taxes.
The non-application of the unutilized input tax in a given quarter is not ad infinitum, as petitioners
exaggeratedly contend. Their analysis of the effect of the 70% limitation is incomplete and one-sided. It
ends at the net effect that there will be unapplied/unutilized inputs VAT for a given quarter. It does not
proceed further to the fact that such unapplied/unutilized input tax may be credited in the subsequent
periods as allowed by the carry-over provision of Section 110(B) or that it may later on be refunded
through a tax credit certificate under Section 112(B).
Therefore, petitioners argument must be rejected.
On the other hand, it appears that petitioner Garcia failed to comprehend the operation of the 70%
limitation on the input tax. According to petitioner, the limitation on the creditable input tax in effect allows
VAT-registered establishments to retain a portion of the taxes they collect, which violates the principle that
tax collection and revenue should be for public purposes and expenditures
As earlier stated, the input tax is the tax paid by a person, passed on to him by the seller, when he
buys goods. Output tax meanwhile is the tax due to the person when he sells goods. In computing the VAT
payable, three possible scenarios may arise:
First, if at the end of a taxable quarter the output taxes charged by the seller are equal to the input
taxes that he paid and passed on by the suppliers, then no payment is required;
Second, when the output taxes exceed the input taxes, the person shall be liable for the excess,
which has to be paid to the Bureau of Internal Revenue (BIR); [69]and
Third, if the input taxes exceed the output taxes, the excess shall be carried over to the succeeding
quarter or quarters. Should the input taxes result from zero-rated or effectively zero-rated transactions,
any excess over the output taxes shall instead be refunded to the taxpayer or credited against other
internal revenue taxes, at the taxpayers option. [70]

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Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input tax. Thus, a person can
credit his input tax only up to the extent of 70% of the output tax. In laymans term, the value-added taxes
that a person/taxpayer paid and passed on to him by a seller can only be credited up to 70% of the valueadded taxes that is due to him on a taxable transaction. There is no retention of any tax collection because
the person/taxpayer has already previously paid the input tax to a seller, and the seller will subsequently
remit such input tax to the BIR. The party directly liable for the payment of the tax is the seller. [71] What
only needs to be done is for the person/taxpayer to apply or credit these input taxes, as evidenced by
receipts, against his output taxes.
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also argue that the input tax partakes
the nature of a property that may not be confiscated, appropriated, or limited without due process of law.
The input tax is not a property or a property right within the constitutional purview of the due
process clause. A VAT-registered persons entitlement to the creditable input tax is a mere statutory
privilege.
The distinction between statutory privileges and vested rights must be borne in mind for persons
have no vested rights in statutory privileges. The state may change or take away rights, which were
created by the law of the state, although it may not take away property, which was vested by virtue of
such rights.[72]
Under the previous system of single-stage taxation, taxes paid at every level of distribution are not
recoverable from the taxes payable, although it becomes part of the cost, which is deductible from the
gross revenue. When Pres. Aquino issued E.O. No. 273 imposing a 10% multi-stage tax on all sales, it was
then that the crediting of the input tax paid on purchase or importation of goods and services by VATregistered persons against the output tax was introduced. [73] This was adopted by the Expanded VAT Law
(R.A. No. 7716),[74] and The Tax Reform Act of 1997 (R.A. No. 8424). [75] The right to credit input tax as
against the output tax is clearly a privilege created by law, a privilege that also the law can remove, or in
this case, limit.
Petitioners also contest as arbitrary, oppressive, excessive and confiscatory, Section 8 of R.A. No.
9337, amending Section 110(A) of the NIRC, which provides:
SEC. 110. Tax Credits.
(A) Creditable Input Tax.
Provided, That the input tax on goods purchased or imported in a calendar month for use in
trade or business for which deduction for depreciation is allowed under this Code, shall be
spread evenly over the month of acquisition and the fifty-nine (59) succeeding months if the
aggregate acquisition cost for such goods, excluding the VAT component thereof, exceeds
One million pesos (P1,000,000.00): Provided, however, That if the estimated useful life of
the capital goods is less than five (5) years, as used for depreciation purposes, then the
input VAT shall be spread over such a shorter period: Provided, finally, That in the case of
purchase of services, lease or use of properties, the input tax shall be creditable to the
purchaser, lessee or license upon payment of the compensation, rental, royalty or fee.
The foregoing section imposes a 60-month period within which to amortize the creditable input tax
on purchase or importation of capital goods with acquisition cost of P1 Million pesos, exclusive of the VAT
component. Such spread out only poses a delay in the crediting of the input tax. Petitioners argument is
without basis because the taxpayer is not permanently deprived of his privilege to credit the input tax.
It is worth mentioning that Congress admitted that the spread-out of the creditable input tax in this
case amounts to a 4-year interest-free loan to the government. [76] In the same breath, Congress also
justified its move by saying that the provision was designed to raise an annual revenue of 22.6 billion.
[77]
The legislature also dispelled the fear that the provision will fend off foreign investments, saying that
foreign investors have other tax incentives provided by law, and citing the case of China, where despite a
17.5% non-creditable VAT, foreign investments were not deterred. [78] Again, for whatever is the purpose of
the 60-month amortization, this involves executive economic policy and legislative wisdom in which the
Court cannot intervene.
With regard to the 5% creditable withholding tax imposed on payments made by the government
for taxable transactions, Section 12 of R.A. No. 9337, which amended Section 114 of the NIRC, reads:
SEC. 114. Return and Payment of Value-added Tax.
(C) Withholding of Value-added Tax. The Government or any of its political
subdivisions, instrumentalities or agencies, including government-owned or controlled
corporations (GOCCs) shall, before making payment on account of each purchase of goods
and services which are subject to the value-added tax imposed in Sections 106 and 108 of

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this Code, deduct and withhold a final value-added tax at the rate of five percent (5%) of the
gross payment thereof: Provided, That the payment for lease or use of properties or property
rights to nonresident owners shall be subject to ten percent (10%) withholding tax at the
time of payment. For purposes of this Section, the payor or person in control of the payment
shall be considered as the withholding agent.
The value-added tax withheld under this Section shall be remitted within ten (10)
days following the end of the month the withholding was made.
Section 114(C) merely provides a method of collection, or as stated by respondents, a more
simplified VAT withholding system. The government in this case is constituted as a withholding agent with
respect to their payments for goods and services.
Prior to its amendment, Section 114(C) provided for different rates of value-added taxes to be
withheld -- 3% on gross payments for purchases of goods; 6% on gross payments for services supplied by
contractors other than by public works contractors; 8.5% on gross payments for services supplied by public
work contractors; or 10% on payment for the lease or use of properties or property rights to nonresident
owners. Under the present Section 114(C), these different rates, except for the 10% on lease or property
rights payment to nonresidents, were deleted, and a uniform rate of 5% is applied.
The Court observes, however, that the law the used the word final. In tax usage, final, as opposed
to creditable, means full. Thus, it is provided in Section 114(C): final value-added tax at the rate of five
percent (5%).
In Revenue Regulations No. 02-98, implementing R.A. No. 8424 (The Tax Reform Act of 1997), the
concept of final withholding tax on income was explained, to wit:
SECTION 2.57. Withholding of Tax at Source
(A) Final Withholding Tax. Under the final withholding tax system the amount of
income tax withheld by the withholding agent is constituted as full and final payment of
the income tax due from the payee on the said income. The liability for payment of the tax
rests primarily on the payor as a withholding agent. Thus, in case of his failure to withhold
the tax or in case of underwithholding, the deficiency tax shall be collected from the
payor/withholding agent.
(B) Creditable Withholding Tax. Under the creditable withholding tax system, taxes
withheld on certain income payments are intended to equal or at least approximate the tax
due of the payee on said income. Taxes withheld on income payments covered by the
expanded withholding tax (referred to in Sec. 2.57.2 of these regulations) and compensation
income (referred to in Sec. 2.78 also of these regulations) are creditable in nature.
As applied to value-added tax, this means that taxable transactions with the government are
subject to a 5% rate, which constitutes as full payment of the tax payable on the transaction. This
represents the net VAT payable of the seller. The other 5% effectively accounts for the standard input VAT
(deemed input VAT), in lieu of the actual input VAT directly or attributable to the taxable transaction. [79]
The Court need not explore the rationale behind the provision. It is clear that Congress intended to
treat differently taxable transactions with the government. [80]This is supported by the fact that under the
old provision, the 5% tax withheld by the government remains creditable against the tax liability of the
seller or contractor, to wit:
SEC. 114. Return and Payment of Value-added Tax.
(C) Withholding of Creditable Value-added Tax. The Government or any of its
political subdivisions, instrumentalities or agencies, including government-owned or
controlled corporations (GOCCs) shall, before making payment on account of each purchase
of goods from sellers and services rendered by contractors which are subject to the valueadded tax imposed in Sections 106 and 108 of this Code, deduct and withhold the valueadded tax due at the rate of three percent (3%) of the gross payment for the purchase of
goods and six percent (6%) on gross receipts for services rendered by contractors on every
sale or installment payment which shall be creditable against the value-added tax
liability of the seller or contractor: Provided, however, That in the case of government
public works contractors, the withholding rate shall be eight and one-half percent (8.5%):
Provided, further, That the payment for lease or use of properties or property rights to
nonresident owners shall be subject to ten percent (10%) withholding tax at the time of
payment. For this purpose, the payor or person in control of the payment shall be considered
as the withholding agent.

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The valued-added tax withheld under this Section shall be remitted within ten (10)
days following the end of the month the withholding was made. (Emphasis supplied)

As amended, the use of the word final and the deletion of the word creditable exhibits Congresss
intention to treat transactions with the government differently. Since it has not been shown that the class
subject to the 5% final withholding tax has been unreasonably narrowed, there is no reason to invalidate
the provision. Petitioners, as petroleum dealers, are not the only ones subjected to the 5% final withholding
tax. It applies to all those who deal with the government.
Moreover, the actual input tax is not totally lost or uncreditable, as petitioners believe. Revenue
Regulations No. 14-2005 or the Consolidated Value-Added Tax Regulations 2005 issued by the BIR, provides
that should the actual input tax exceed 5% of gross payments, the excess may form part of the cost.
Equally, should the actual input tax be less than 5%, the difference is treated as income. [81]
Petitioners also argue that by imposing a limitation on the creditable input tax, the government
gets to tax a profit or value-added even if there is no profit or value-added.
Petitioners stance is purely hypothetical, argumentative, and again, one-sided. The Court will not
engage in a legal joust where premises are what ifs, arguments, theoretical and facts, uncertain. Any
disquisition by the Court on this point will only be, as Shakespeare describes life in Macbeth,[82] full of
sound and fury, signifying nothing.
Whats more, petitioners contention assumes the proposition that there is no profit or value-added.
It need not take an astute businessman to know that it is a matter of exception that a business will sell
goods or services without profit or value-added. It cannot be overstressed that a business is created
precisely for profit.
The equal protection clause under the Constitution means that no person or class of persons shall
be deprived of the same protection of laws which is enjoyed by other persons or other classes in the same
place and in like circumstances.[83]
The power of the State to make reasonable and natural classifications for the purposes of taxation
has long been established. Whether it relates to the subject of taxation, the kind of property, the rates to
be levied, or the amounts to be raised, the methods of assessment, valuation and collection, the States
power is entitled to presumption of validity. As a rule, the judiciary will not interfere with such power
absent a clear showing of unreasonableness, discrimination, or arbitrariness. [84]
Petitioners point out that the limitation on the creditable input tax if the entity has a high ratio of
input tax, or invests in capital equipment, or has several transactions with the government, is not based on
real and substantial differences to meet a valid classification.
The argument is pedantic, if not outright baseless. The law does not make any classification in the
subject of taxation, the kind of property, the rates to be levied or the amounts to be raised, the methods of
assessment, valuation and collection. Petitioners alleged distinctions are based on variables that bear
different consequences. While the implementation of the law may yield varying end results depending on
ones profit margin and value-added, the Court cannot go beyond what the legislature has laid down and
interfere with the affairs of business.
The equal protection clause does not require the universal application of the laws on all persons or
things without distinction. This might in fact sometimes result in unequal protection. What the clause
requires is equality among equals as determined according to a valid classification. By classification is
meant the grouping of persons or things similar to each other in certain particulars and different from all
others in these same particulars.[85]
Petitioners brought to the Courts attention the introduction of Senate Bill No. 2038 by Sens. S.R.
Osmea III and Ma. Ana Consuelo A.S. Madrigal on June 6, 2005, and House Bill No. 4493 by Rep. Eric D.
Singson. The proposed legislation seeks to amend the 70% limitation by increasing the same to 90%.
This, according to petitioners, supports their stance that the 70% limitation is arbitrary and
confiscatory. On this score, suffice it to say that these are still proposed legislations. Until Congress
amends the law, and absent any unequivocal basis for its unconstitutionality, the 70% limitation stays.

B. Uniformity and Equitability of Taxation

Article VI, Section 28(1) of the Constitution reads:

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The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation.
Uniformity in taxation means that all taxable articles or kinds of property of the same class shall be
taxed at the same rate. Different articles may be taxed at different amounts provided that the rate is
uniform on the same class everywhere with all people at all times. [86]
In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or 12%) on all goods
and services. Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of
the NIRC, provide for a rate of 10% (or 12%) on sale of goods and properties, importation of goods, and
sale of services and use or lease of properties. These same sections also provide for a 0% rate on certain
sales and transaction.
Neither does the law make any distinction as to the type of industry or trade that will bear the 70%
limitation on the creditable input tax, 5-year amortization of input tax paid on purchase of capital goods or
the 5% final withholding tax by the government. It must be stressed that the rule of uniform taxation does
not deprive Congress of the power to classify subjects of taxation, and only demands uniformity within the
particular class.[87]
R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The VAT rate of 0% or
10% (or 12%) does not apply to sales of goods or services with gross annual sales or receipts not
exceeding P1,500,000.00.[88] Also, basic marine and agricultural food products in their original state are still
not subject to the tax, [89] thus ensuring that prices at the grassroots level will remain accessible. As was
stated in Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan:[90]
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.
It is admitted that R.A. No. 9337 puts a premium on businesses with low profit margins, and unduly
favors those with high profit margins. Congress was not oblivious to this. Thus, to equalize the weighty
burden the law entails, the law, under Section 116, imposed a 3% percentage tax on VAT-exempt persons
under Section 109(v), i.e., transactions with gross annual sales and/or receipts not exceeding P1.5 Million.
This acts as a equalizer because in effect, bigger businesses that qualify for VAT coverage and VAT-exempt
taxpayers stand on equal-footing.
Moreover, Congress provided mitigating measures to cushion the impact of the imposition of the
tax on those previously exempt. Excise taxes on petroleum products [91] and natural gas[92] were reduced.
Percentage tax on domestic carriers was removed.[93] Power producers are now exempt from paying
franchise tax.[94]
Aside from these, Congress also increased the income tax rates of corporations, in order to
distribute the burden of taxation. Domestic, foreign, and non-resident corporations are now subject to a
35% income tax rate, from a previous 32%. [95] Intercorporate dividends of non-resident foreign corporations
are still subject to 15% final withholding tax but the tax credit allowed on the corporations domicile was
increased to 20%.[96] The Philippine Amusement and Gaming Corporation (PAGCOR) is not exempt from
income taxes anymore.[97] Even the sale by an artist of his works or services performed for the production
of such works was not spared.
All these were designed to ease, as well as spread out, the burden of taxation, which would
otherwise rest largely on the consumers. It cannot therefore be gainsaid that R.A. No. 9337 is equitable.

C.

Progressivity of Taxation

Lastly, petitioners contend that the limitation on the creditable input tax is anything but regressive.
It is the smaller business with higher input tax-output tax ratio that will suffer the consequences.
Progressive taxation is built on the principle of the taxpayers ability to pay. This principle was also
lifted from Adam Smiths Canons of Taxation, and it states:
I. The subjects of every state ought to contribute towards the support of the government, as
nearly as possible, in proportion to their respective abilities; that is, in proportion to
the revenue which they respectively enjoy under the protection of the state.

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Taxation is progressive when its rate goes up depending on the resources of the person affected. [98]
The VAT is an antithesis of progressive taxation. By its very nature, it is regressive. The principle of
progressive taxation has no relation with the VAT system inasmuch as the VAT paid by the consumer or
business for every goods bought or services enjoyed is the same regardless of income. In
other words, the VAT paid eats the same portion of an income, whether big or small. The disparity lies in
the income earned by a person or profit margin marked by a business, such that the higher the income or
profit margin, the smaller the portion of the income or profit that is eaten by VAT. A converso, the lower the
income or profit margin, the bigger the part that the VAT eats away. At the end of the day, it is really the
lower income group or businesses with low-profit margins that is always hardest hit.
Nevertheless, the Constitution does not really prohibit the imposition of indirect taxes, like the VAT.
What it simply provides is that Congress shall "evolve a progressive system of taxation." The Court stated
in the Tolentino case, thus:
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)[99]
CONCLUSION
It has been said that taxes are the lifeblood of the government. In this case, it is just an enema, a
first-aid measure to resuscitate an economy in distress. The Court is neither blind nor is it turning a deaf
ear on the plight of the masses. But it does not have the panacea for the malady that the law seeks to
remedy. As in other cases, the Court cannot strike down a law as unconstitutional simply because of its
yokes.
Let us not be overly influenced by the plea that for every wrong there is a remedy,
and that the judiciary should stand ready to afford relief. There are undoubtedly many
wrongs the judicature may not correct, for instance, those involving political questions. . . .
Let us likewise disabuse our minds from the notion that the judiciary is the repository
of remedies for all political or social ills; We should not forget that the Constitution has
judiciously allocated the powers of government to three distinct and separate
compartments; and that judicial interpretation has tended to the preservation of the
independence of the three, and a zealous regard of the prerogatives of each, knowing full
well that one is not the guardian of the others and that, for official wrong-doing, each may
be brought to account, either by impeachment, trial or by the ballot box. [100]
The words of the Court in Vera vs. Avelino[101] holds true then, as it still holds true now. All things
considered, there is no raison d'tre for the unconstitutionality of R.A. No. 9337.
WHEREFORE, Republic Act No. 9337 not being unconstitutional, the petitions in G.R. Nos. 168056,
168207, 168461, 168463, and 168730, are hereby DISMISSED.
There being no constitutional impediment to the full enforcement and implementation of R.A. No.
9337, the temporary restraining order issued by the Court on July 1, 2005 is LIFTED upon finality of herein
decision.
SO ORDERED.

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G.R. No. 181756, June 15, 2015


MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY (MCIAA), Petitioner, v. CITY OF LAPU-LAPU
AND ELENA T. PACALDO, Respondents.
DECISION
LEONARDO-DE CASTRO, J.:
This is a clear opportunity for this Court to clarify the effects of our two previous decisions, issued a decade
apart, on the power of local government units to collect real property taxes from airport authorities located
within their area, and the nature or the juridical personality of said airport authorities.
Before us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure seeking
to reverse and set aside the October 8, 2007 Decision1 of the Court of Appeals (Cebu City) in CA-G.R. SP
No. 01360 and the February 12, 2008 Resolution2 denying petitioners motion for reconsideration.
THE FACTS
Petitioner Mactan-Cebu International Airport Authority (MCIAA) was created by Congress on July 31, 1990
under Republic Act No. 69583 to undertake the economical, efficient and effective control, management
and supervision of the Mactan International Airport in the Province of Cebu and the Lahug Airport in Cebu
City x x x and such other airports as may be established in the Province of Cebu. It is represented in this
case by the Office of the Solicitor General.
Respondent City of Lapu-Lapu is a local government unit and political subdivision, created and existing
under its own charter with capacity to sue and be sued. Respondent Elena T. Pacaldo was impleaded in her
capacity as the City Treasurer of respondent City.
Upon its creation, petitioner enjoyed exemption from realty taxes under the following provision of Republic
Act No. 6958:
Section 14. Tax Exemptions. The Authority shall be exempt from realty taxes imposed by the National
Government or any of its political subdivisions, agencies and instrumentalities: Provided, That no tax
exemption herein granted shall extend to any subsidiary which may be organized by the Authority.
On September 11, 1996, however, this Court rendered a decision in Mactan-Cebu International Airport
Authority v. Marcos4 (the 1996 MCIAA case) declaring that upon the effectivity of Republic Act No. 7160
(The Local Government Code of 1991), petitioner was no longer exempt from real estate taxes. The Court
held:
Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC,
exemptions from payment of real property taxes granted to natural or juridical persons, including
government-owned or controlled corporations, except as provided in the said section, and the petitioner is,
undoubtedly, a government-owned corporation, it necessarily follows that its exemption from such tax
granted it in Section 14 of its Charter, R.A. No. 6958, has been withdrawn. x x x.
On January 7, 1997, respondent City issued to petitioner a Statement of Real Estate Tax assessing the lots
comprising the Mactan International Airport in the amount of P162,058,959.52. Petitioner complained that
there were discrepancies in said Statement of Real Estate Tax as follows:
(a) [T]he statement included lots and buildings not found in the inventory of petitioners real properties;
(b) [S]ome of the lots were covered by two separate tax declarations which resulted in double assessment;
(c) [There were] double entries pertaining to the same lots; and
(d) [T]he statement included lots utilized exclusively for governmental purposes. 5
Respondent City amended its billing and sent a new Statement of Real Estate Tax to petitioner in the
amount of P151,376,134.66. Petitioner averred that this amount covered real estate taxes on the lots
utilized solely and exclusively for public or governmental purposes such as the airfield, runway and
taxiway, and the lots on which they are situated.6chanrobleslaw
Petitioner paid respondent City the amount of four million pesos (P4,000,000.00) monthly, which was later
increased to six million pesos (P6,000,000.00) monthly. As of December 2003, petitioner had paid
respondent City a total of P275,728,313.36.7chanrobleslaw
Upon request of petitioners General Manager, the Secretary of the Department of Justice (DOJ) issued
Opinion No. 50, Series of 1998,8 and we quote the pertinent portions of said Opinion below:
You further state that among the real properties deemed transferred to MCIAA are the airfield, runway,
taxiway and the lots on which the runway and taxiway are situated, the tax declarations of which were
transferred in the name of the MCIAA. In 1997, the City of Lapu-Lapu imposed real estate taxes on these
properties invoking the provisions of the Local Government Code.

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It is your view that these properties are not subject to real property tax because they are exclusively used
for airport purposes. You said that the runway and taxiway are not only used by the commercial airlines
but also by the Philippine Air Force and other government agencies. As such and in conjunction with the
above interpretation of Section 15 of R.A. No. 6958, you believe that these properties are considered
owned by the Republic of the Philippines. Hence, this request for opinion.
The query is resolved in the affirmative. The properties used for airport purposes (i.e. airfield,
runway, taxiway and the lots on which the runway and taxiway are situated) are owned by the
Republic of the Philippines.
xxxx
Under the Law on Public Corporations, the legislature has complete control over the property which a
municipal corporation has acquired in its public or governmental capacity and which is devoted to public or
governmental use. The municipality in dealing with said property is subject to such restrictions and
limitations as the legislature may impose. On the other hand, property which a municipal corporation
acquired in its private or proprietary capacity, is held by it in the same character as a private individual.
Hence, the legislature in dealing with such property, is subject to the constitutional restrictions concerning
property (Martin, Public Corporations [1997], p. 30; see also Province of Zamboanga del [Norte] v. City of
Zamboanga [131 Phil. 446]). The same may be said of properties transferred to the MCIAA and used for
airport purposes, such as those involved herein. Since such properties are of public dominion, they are
deemed held by the MCIAA in trust for the Government and can be alienated only as may be provided by
law.
Based on the foregoing, it is our considered opinion that the properties used for airport
purposes, such as the airfield, runway and taxiway and the lots on which the runway and
taxiway are located, are owned by the State or by the Republic of the Philippines and are
merely held in trust by the MCIAA, notwithstanding that certificates of titles thereto may have
been issued in the name of the MCIAA. (Emphases added.)
Based on the above DOJ Opinion, the Department of Finance issued a 2 nd Indorsement to the City Treasurer
of Lapu-Lapu dated August 3, 1998,9 which reads:chanRoblesvirtualLawlibrary
The distinction as to which among the MCIAA properties are still considered owned by the State or by the
Republic of the Philippines, such as the resolution in the above-cited DOJ Opinion No. 50, for purposes of
real property tax exemption is hereby deemed tenable considering that the subject airfield, runway,
taxiway and the lots on which the runway and taxiway are situated appears to be the subject of real
property tax assessment and collection of the city government of Lapu-Lapu, hence, the same are
definitely located within the jurisdiction of Lapu-Lapu City.
Moreover, then Undersecretary Antonio P. Belicena of the Department of Finance, in his
1st Indorsement dated May 18, 1998, advanced that this Department (DOF) interposes no
objection to the request of Mactan Cebu International Airport Authority for exemption from
payment of real property tax on the property used for airport purposes mentioned above.
The City Assessor, therefore, is hereby instructed to transfer the assessment of the subject
airfield, runway, taxiway and the lots on which the runway and taxiway are situated, from the
Taxable Roll to the Exempt Roll of real properties.
The City Treasurer thereat should be informed on the action taken for his immediate appropriate action.
(Emphases added.)
Respondent City Treasurer Elena T. Pacaldo sent petitioner a Statement of Real Property Tax Balances up to
the year 2002 reflecting the amount of P246,395,477.20. Petitioner claimed that the statement again
included the lots utilized solely and exclusively for public purpose such as the airfield, runway, and taxiway
and the lots on which these are built. Respondent Pacaldo then issued Notices of Levy on 18 sets of real
properties of petitioner.10chanrobleslaw
Petitioner filed a petition for prohibition11 with the Regional Trial Court (RTC) of Lapu-Lapu City with prayer
for the issuance of a temporary restraining order (TRO) and/or a writ of preliminary injunction, docketed as
SCA No. 6056-L. Branch 53 of RTC Lapu-Lapu City then issued a 72-hour TRO. The petition for prohibition
sought to enjoin respondent City from issuing a warrant of levy against petitioners properties and from
selling them at public auction for delinquency in realty tax obligations. The petition likewise prayed for a
declaration that the airport terminal building, the airfield, runway, taxiway and the lots on which they are
situated are exempted from real estate taxes after due hearing. Petitioner based its claim of exemption on
DOJ Opinion No. 50.
The RTC issued an Order denying the motion for extension of the TRO. Thus, on December 10, 2003,
respondent City auctioned 27 of petitioners properties. As there was no interested bidder who participated
in the auction sale, respondent City forfeited and purchased said properties. The corresponding Certificates
of Sale of Delinquent Property were issued to respondent City. 12chanrobleslaw
Petitioner claimed before the RTC that it had discovered that respondent City did not pass any ordinance

93

authorizing the collection of real property tax, a tax for the special education fund (SEF), and a penalty
interest for its nonpayment. Petitioner argued that without the corresponding tax ordinances, respondent
City could not impose and collect real property tax, an additional tax for the SEF, and penalty interest from
petitioner.13chanrobleslaw
The RTC issued an Order14 on December 28, 2004 granting petitioners application for a writ of preliminary
injunction. The pertinent portions of the Order are quoted below:chanRoblesvirtualLawlibrary
The supervening legal issue has rendered it imperative that the matter of the consolidation of the
ownership of the auctioned properties be placed on hold. Furthermore, it is the view of the Court that great
prejudice and damage will be suffered by petitioner if it were to lose its dominion over these properties
now when the most important legal issue has still to be resolved by the Court. Besides, the respondents
and the intervenor have not sufficiently shown cause why petitioners application should not be granted.
WHEREFORE, the foregoing considered, petitioners application for a writ of preliminary injunction is
granted. Consequently, upon the approval of a bond in the amount of one million pesos (P1,000,000.00),
let a writ of preliminary injunction issue enjoining the respondents, the intervenor, their agents or persons
acting in [their] behalf, to desist from consolidating and exercising ownership over the properties of the
petitioner.chanroblesvirtuallawlibrary
However, upon motion of respondents, the RTC lifted the writ of preliminary injunction in an Order 15dated
December 5, 2005. The RTC reasoned as follows:chanRoblesvirtualLawlibrary
The respondent City, in the course of the hearing of its motion, presented to this Court a certified copy of
its Ordinance No. 44 (Omnibus Tax Ordinance of the City of Lapu-Lapu), Section 25 whereof authorized the
collection of a rate of one and one-half (1 ) [per centum] from owners, executors or administrators of any
real estate lying within the jurisdiction of the City of Lapu-Lapu, based on the assessed value as shown in
the latest revision.
Though this ordinance was enacted prior to the effectivity of Republic Act No. 7160 (Local Government
Code of 1991), to the mind of the Court this ordinance is still a valid and effective ordinance in view of Sec.
529 of RA 7160 x x x [and the] Implementing Rules and Regulations of RA 7160 x x x.
xxxx
The tax collected under Ordinance No. 44 is within the rates prescribed by RA 7160, though the 25%
penalty collected is higher than the 2% interest allowed under Sec. 255 of the said law which
provides:chanRoblesvirtualLawlibrary
In case of failure to pay the basic real property tax or any other tax levied under this Title upon the
expiration of the periods as provided in Section 250, or when due, as the case may be, shall subject the
taxpayer to the payment of interest at the rate of two percent (2%) per month on the unpaid amount or a
fraction thereof, until the delinquent tax shall have been fully paid: Provided, however, That in no case
shall the total interest on the unpaid tax or portion thereof exceed thirty-six (36)
months.chanroblesvirtuallawlibrary
This difference does not however detract from the essential enforceability and effectivity of Ordinance No.
44 pursuant to Section 529 of RA 7160 and Article 278 of the Implementing Rules and Regulations. The
outcome of this disparity is simply that respondent City can only collect an interest of 2% per month on the
unpaid tax. Consequently, respondent City [has] to recompute the petitioners tax liability.
It is also the Courts perception that respondent City can still collect the additional 1% tax on real property
without an ordinance to this effect. It may be recalled that Republic Act No. 5447 has created the Special
Education Fund which is constituted from the proceeds of the additional tax on real property imposed by
the law. Respondent City has collected this tax as mandated by this law without any ordinance for the
purpose, as there is no need for it. Even when RA 5447 was amended by PD 464 (Real Property Tax Code),
respondent City had continued to collect the tax, as it used to.
It is true that RA 7160 has repealed RA 5447, but what has been repealed are only Section 3, a(3) and b(2)
which concern the allocation of the additional tax, considering that under RA 7160, the proceeds of the
additional 1% tax on real property accrue exclusively to the Special Education Fund. Nevertheless, RA 5447
has not been totally repealed; there is only a partial repeal.
It may be observed that there is no requirement in RA 7160 that an ordinance be enacted to enable the
collection of the additional 1% tax. This is so since RA 5447 is still in force and effect, and the declared
policy of the government in enacting the law, which is to contribute to the financial support of the goals of
education as provided in the Constitution, necessitates the continued and uninterrupted collection of the
tax. Considering that this is a tax of far-reaching importance, to require the passage of an ordinance in
order that the tax may be collected would be to place the collection of the tax at the option of the local
legislature. This would run counter to the declared policy of the government when the SEF was created and
the tax imposed.
As regards the allegation of respondents that this Court has no jurisdiction to entertain the instant petition,
the Court deems it proper, at this stage of the proceedings, not to treat this issue, as it involves facts
which are yet to be established.

94

x x x [T]he Courts issuance of a writ of preliminary injunction may appear to be a futile gesture in the light
of Section 263 of RA 7160. x x x.
xxxx
It would seem from the foregoing provisions, that once the taxpayer fails to redeem within the one-year
period, ownership fully vests on the local government unit concerned. Thus, when in the present case
petitioner failed to redeem the parcels of land acquired by respondent City, the ownership thereof became
fully vested on respondent City without the latter having to perform any other acts to perfect its
ownership. Corollary thereto, ownership on the part of respondent City has become a fait accompli.
WHEREFORE, in the light of the foregoing considerations, respondents motion for reconsideration is
granted, and the order of this Court dated December 28, 2004 is hereby reconsidered. Consequently, the
writ of preliminary injunction issued by this Court is hereby lifted.chanroblesvirtuallawlibrary
Aggrieved, petitioner filed a petition for certiorari16 with the Court of Appeals (Cebu City), with urgent
prayer for the issuance of a TRO and/or writ of preliminary injunction, docketed as CA-G.R. SP No. 01360.
The Court of Appeals (Cebu City) issued a TRO 17 on January 5, 2006 and shortly thereafter, issued a writ of
preliminary injunction18 on February 17, 2006.
RULING OF THE COURT OF APPEALS
The Court of Appeals (Cebu City) promulgated the questioned Decision on October 8, 2007, holding that
petitioner is a government-owned or controlled corporation and its properties are subject to realty tax. The
dispositive portion of the questioned Decision reads:chanRoblesvirtualLawlibrary
WHEREFORE, in view of the foregoing, judgment is hereby rendered by us as follows:
a. We DECLARE the airport terminal building, the airfield, runway, taxiway and the lots on which they
are situated NOT EXEMPT from the real estate tax imposed by the respondent City of Lapu-Lapu;
b. We DECLARE the imposition and collection of the real estate tax, the additional levy for the Special
Education Fund and the penalty interest as VALID and LEGAL. However, pursuant to Section 255 of
the Local Government Code, respondent city can only collect an interest of 2% per month on the
unpaid tax which total interest shall, in no case, exceed thirty-six (36) months;
c. We DECLARE the sale in public auction of the aforesaid properties and the eventual forfeiture and
purchase of the subject property by the respondent City of Lapu-Lapu as NULL and VOID. However,
petitioner MCIAAs property is encumbered only by a limited lien possessed by the respondent City
of Lapu-Lapu in accord with Section 257 of the Local Government Code. 19
Petitioner filed a Motion for Partial Reconsideration20 of the questioned Decision covering only the portion
of said decision declaring that petitioner is a GOCC and, therefore, not exempt from the realty tax and
special education fund imposed by respondent City. Petitioner cited Manila International Airport Authority
v. Court of Appeals21 (the 2006 MIAA case) involving the City of Paraaque and the Manila International
Airport Authority. Petitioner claimed that it had been described by this Court as a government
instrumentality, and that it followed as a logical consequence that petitioner is exempt from the taxing
powers of respondent City of Lapu-Lapu.22 Petitioner alleged that the 1996 MCIAAcase had been
overturned by the Court in the 2006 MIAA case. Petitioner thus prayed that it be declared exempt from
paying the realty tax, special education fund, and interest being collected by respondent City.
On February 12, 2008, the Court of Appeals denied petitioners motion for partial reconsideration in the
questioned Resolution.
The Court of Appeals followed and applied the precedent established in the 1996 MCIAA case and refused
to apply the 2006 MIAA case. The Court of Appeals wrote in the questioned Decision: We find that our
position is in line with the coherent and cohesive interpretation of the relevant provisions of the Local
Government Code on local taxation enunciated in the [1996 MCIAA] case which to our mind is more
elegant and rational and provides intellectual clarity than the one provided by the Supreme Court in the
[2006] MIAA case.23chanrobleslaw
In the questioned Decision, the Court of Appeals held that petitioners airport terminal building, airfield,
runway, taxiway, and the lots on which they are situated are not exempt from real estate tax reasoning as
follows:chanRoblesvirtualLawlibrary
Under the Local Government Code (LGC for brevity), enacted pursuant to the constitutional mandate of
local autonomy, all natural and juridical persons, including government-owned or controlled corporations
(GOCCs), instrumentalities and agencies, are no longer exempt from local taxes even if previously granted
an exemption. The only exemptions from local taxes are those specifically provided under the Code itself,
or those enacted through subsequent legislation.
Thus, the LGC, enacted pursuant to Section 3, Article X of the Constitution, provides for the exercise by
local government units of their power to tax, the scope thereof or its limitations, and the exemptions from
local taxation.
Section 133 of the LGC prescribes the common limitations on the taxing powers of local government units.
x x x.

95

xxxx
The above-stated provision, however, qualified the exemption of the National Government, its agencies
and instrumentalities from local taxation with the phrase unless otherwise provided herein.
Section 232 of the LGC provides for the power of the local government units (LGUs for brevity) to levy real
property tax. x x x.
xxxx
Section 234 of the LGC provides for the exemptions from payment of real property taxes and withdraws
previous exemptions granted to natural and juridical persons, including government-owned and controlled
corporations, except as provided therein. x x x.
xxxx
Section 193 of the LGC is the general provision on withdrawal of tax exemption privileges. x x
x.24 (Citations omitted.)
The Court of Appeals went on to state that contrary to the ruling of the Supreme Court in the
2006 MIAA case, it finds and rules that:chanRoblesvirtualLawlibrary
a) Section 133 of the LGC is not an absolute prohibition on the power of the LGUs to tax the National
Government, its agencies and instrumentalities as the same is qualified by Sections 193, 232 and 234
which otherwise provided; and
b) Petitioner MCIAA is a GOCC.25 (Emphasis ours.)
The Court of Appeals ratiocinated in the following manner:chanRoblesvirtualLawlibrary
Pursuant to the explicit provision of Section 193 of the LGC, exemptions previously enjoyed by persons,
whether natural or juridical, like the petitioner MCIAA, are deemed withdrawn upon the effectivity of the
Code. Further, the last paragraph of Section 234 of the Code also unequivocally withdrew, upon the Codes
effectivity, exemptions from payment of real property taxes previously granted to natural or juridical
persons, including government-owned or controlled corporations, except as provided in the said section.
Petitioner MCIAA, undoubtedly a juridical person, it follows that its exemption from such tax granted under
Section 14 of R.A. 6958 has been withdrawn.
xxxx
From the [1996 MCIAA] ruling, it is acknowledged that, under Section 133 of the LGC, instrumentalities
were generally exempt from all forms of local government taxation, unless otherwise provided in the Code.
On the other hand, Section 232 otherwise provided insofar as it allowed local government units to levy
an ad valorem real property tax, irrespective of who owned the property. At the same time, the imposition
of real property taxes under Section 232 is, in turn, qualified by the phrase not hereinafter specifically
exempted. The exemptions from real property taxes are enumerated in Section 234 of the Code which
specifically states that only real properties owned by the Republic of the Philippines or any of its political
subdivisions are exempted from the payment of the tax. Clearly, instrumentalities or GOCCs do not fall
within the exceptions under Section 234 of the LGC.
Thus, as ruled in the [1996 MCIAA] case, the prohibition on taxing the national government, its agencies
and instrumentalities under Section 133 is qualified by Sections 232 and 234, and accordingly, the only
relevant exemption now applicable to these bodies is what is now provided under Section 234(a) of the
Code. It may be noted that the express withdrawal of previously granted exemptions to persons from the
payment of real property tax by the LGC does not even make any distinction as to whether the exempt
person is a governmental entity or not. As Sections 193 and 234 of the Code both state, the withdrawal
applies to all persons, including GOCCs, thus encompassing the two classes of persons recognized under
our laws, natural persons and juridical persons.
xxxx
The question of whether or not petitioner MCIAA is an instrumentality or a GOCC has already been
lengthily but soundly, cogently and lucidly answered in the [1996 MCIAA] case x x x.
xxxx
Based on the foregoing, the claim of the majority of the Supreme Court in the [2006 MIAA] case that MIAA
(and also petitioner MCIAA) is not a government-owned or controlled corporation but an instrumentality
based on Section 2(10) of the Administrative Code of 1987 appears to be unsound. In the [2006 MIAA]
case, the majority justifies MIAAs purported exemption on Section 133(o) of the Local Government Code
which places agencies and instrumentalities: as generally exempt from the taxation powers of the LGUs. It
further went on to hold that By express mandate of the Local Government Code, local governments
cannot impose any kind of tax on national government instrumentalities like the MIAA. x x x. 26 (Citations
omitted.)

96

The Court of Appeals further cited Justice Tingas dissent in the 2006 MIAA case as well as provisions from
petitioner MCIAAs charter to show that petitioner is a GOCC. 27 The Court of Appeals
wrote:chanRoblesvirtualLawlibrary
These cited provisions establish the fitness of the petitioner MCIAA to be the subject of legal relations.
Under its charter, it has the power to acquire, possess and incur obligations. It also has the power to
contract in its own name and to acquire title to movable or immovable property. More importantly, it may
likewise exercise powers of a corporation under the Corporation Code. Moreover, based on its own
allegation, it even recognized itself as a GOCC when it alleged in its petition for prohibition filed before the
lower court that it is a body corporate organized and existing under Republic Act No. 6958 x x x.
We also find to be not meritorious the assertion of petitioner MCIAA that the respondent city can no longer
challenge the tax-exempt character of the properties since it is estopped from doing so when respondent
City of Lapu-Lapu, through its former mayor, Ernest H. Weigel, Jr., had long ago conceded that petitioners
properties are exempt from real property tax.
It is not denied by the respondent city that it considered, through its former mayor, Ernest H. Weigel, Jr.,
petitioners subject properties, specifically the runway and taxiway, as exempt from taxes. However, as
astutely pointed out by the respondent city it can never be in estoppel, particularly in matters involving
taxes. It is a well-known rule that erroneous application and enforcement of the law by public officers do
not preclude subsequent correct application of the statute, and that the Government is never estopped by
mistake or error on the part of its agents.28 (Citations omitted.)
The Court of Appeals established the following:chanRoblesvirtualLawlibrary
a) [R]espondent City was able to prove and establish that it has a valid and existing ordinance for the
imposition of realty tax against petitioner MCIAA;
b) [T]he imposition and collection of additional levy of 1% Special Education Fund (SEF) is authorized by
law, Republic Act No. 5447; and
c) [T]he collection of penalty interest for delinquent taxes is not only authorized by law but is likewise
[sanctioned] by respondent Citys ordinance.29
The Court of Appeals likewise held that respondent City has a valid and existing local tax ordinance,
Ordinance No. 44, or the Omnibus Tax Ordinance of Lapu-Lapu City, which provided for the imposition of
real property tax. The relevant provision reads:chanRoblesvirtualLawlibrary
Chapter 5 Tax on Real Property Ownership
Section 25. RATE OF TAX. - A rate of one and one-half (1 ) percentum shall be collected from owners,
executors or administrators of any real estate lying within the territorial jurisdiction of the City of LapuLapu, based on the assessed value as shown in the latest revision. 30
The Court of Appeals found that even if Ordinance No. 44 was enacted prior to the effectivity of the LGC, it
remained in force and effect, citing Section 529 of the LGC and Article 278 of the LGCs Implementing
Rules and Regulations.31chanrobleslaw
As regards the Special Education Fund, the Court of Appeals held that respondent City can still collect the
additional 1% tax on real property even without an ordinance to this effect, as this is authorized by
Republic Act No. 5447, as amended by Presidential Decree No. 464 (the Real Property Tax Code), which
does not require an enabling tax ordinance. The Court of Appeals affirmed the RTCs ruling that Republic
Act No. 5447 was still in force and effect notwithstanding the passing of the LGC, as the latter only partially
repealed the former law. What Section 534 of the LGC repealed was Section 3 a(3) and b(2) of Republic Act
No. 5447, and not the entire law that created the Special Education Fund. 32 The repealed provisions
referred to allocation of taxes on Virginia type cigarettes and duties on imported leaf tobacco and the
percentage remittances to the taxing authority concerned. The Court of Appeals, citing The Commission on
Audit of the Province of Cebu v. Province of Cebu,33 held that [t]he failure to add a specific repealing
clause particularly mentioning the statute to be repealed indicates that the intent was not to repeal any
existing law on the matter, unless an irreconcilable inconsistency and repugnancy exists in the terms of
the new and the old laws.34 The Court of Appeals quoted the RTCs discussion on this issue, which we
reproduce below:chanRoblesvirtualLawlibrary
It may be observed that there is no requirement in RA 7160 that an ordinance be enacted to enable the
collection of the additional 1% tax. This is so since R.A. 5447 is still in force and effect, and the declared
policy of the government in enacting the law, which is to contribute to the financial support of the goals of
education as provided in the Constitution, necessitates the continued and uninterrupted collection of the
tax. Considering that this is a tax of far-reaching importance, to require the passage of an ordinance in
order that the tax may be collected would be to place the collection of the tax at the option of the local
legislature. This would run counter to the declared policy of the government when the SEF was created and
the tax imposed.35
Regarding the penalty interest, the Court of Appeals found that Section 30 of Ordinance No. 44 of
respondent City provided for a penalty surcharge of 25% of the tax due for a given year. Said provision
reads:chanRoblesvirtualLawlibrary
Section 30. PENALTY FOR FAILURE TO PAY TAX. Failure to pay the tax provided for under this Chapter
within the time fixed in Section 27, shall subject the taxpayer to a surcharge of twenty-five percent (25%),
without interest.36

97

The Court of Appeals however declared that after the effectivity of the Local Government Code, the
respondent City could only collect penalty surcharge up to the extent of 72%, covering a period of three
years or 36 months, for the entire delinquent property. 37 This was lower than the 25% per annum
surcharge imposed by Ordinance No. 44.38 The Court of Appeals affirmed the findings of the RTC in the
decision quoted below:chanRoblesvirtualLawlibrary
The tax collected under Ordinance No. 44 is within the rates prescribed by RA 7160, though the 25%
penalty collected is higher than the 2% allowed under Sec. 255 of the said law which
provides:ChanRoblesVirtualawlibrary
xxxx
This difference does not however detract from the essential enforceability and effectivity of Ordinance No.
44 pursuant to Section 529 of RA No. 7160 and Article 278 of the Implementing Rules and Regulations. The
outcome of this disparity is simply that respondent City can only collect an interest of 2% per month on the
unpaid tax. Consequently, respondent city will have to [recompute] the petitioners tax liability. 39
It is worthy to note that the Court of Appeals nevertheless held that even if it is clear that
respondent City has the power to impose real property taxes over petitioner, it is also evident
and categorical that, under Republic Act No. 6958, the properties of petitioner MCIAA may not
be conveyed or transferred to any person or entity except to the national government.40 The
relevant provisions of the said law are quoted below:chanRoblesvirtualLawlibrary
Section 4. Functions, Powers and Duties. The Authority shall have the following functions, powers
and duties:ChanRoblesVirtualawlibrary
xxxx
(e) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of any land, building,
airport facility, or property of whatever kind and nature, whether movable or immovable, or any interest
therein: Provided, That any asset located in the Mactan International Airport important to national security
shall not be subject to alienation or mortgage by the Authority nor to transfer to any entity other than the
National Government[.]
Section 13. Borrowing Power. The Authority may, in accordance with Section 21, Article XII of the
Constitution and other existing laws, rules and regulations on local or foreign borrowing, raise funds, either
from local or international sources, by way of loans, credit or securities, and other borrowing instruments
with the power to create pledges, mortgages and other voluntary liens or encumbrances on any of its
assets or properties, subject to the prior approval of the President of the Philippines.
All loans contracted by the Authority under this section, together with all interests and other sums payable
in respect thereof, shall constitute a charge upon all the revenues and assets of the Authority and shall
rank equally with one another, but shall have priority over any other claim or charge on the revenue and
assets of the Authority: Provided, That this provision shall not be construed as a prohibition or restriction
on the power of the Authority to create pledges, mortgages and other voluntary liens or encumbrances on
any asset or property of the Authority.
The payment of the loans or other indebtedness of the Authority may be guaranteed by the National
Government subject to the approval of the President of the Philippines.chanroblesvirtuallawlibrary
The Court of Appeals concluded that it is clear that petitioner MCIAA is denied by its charter the absolute
right to dispose of its property to any person or entity except to the national government and it is not
empowered to obtain loans or encumber its property without the approval of the President. 41 The
questioned Decision contained the following conclusion:chanRoblesvirtualLawlibrary
With the advent of RA 7160, the Local Government Code, the power to tax is no longer vested exclusively
on Congress. LGUs, through its local legislative bodies, are now given direct authority to levy taxes, fees
and other charges pursuant to Article X, Section 5 of the 1987 Constitution. And one of the most significant
provisions of the LGC is the removal of the blanket inclusion of instrumentalities and agencies of the
national government from the coverage of local taxation. The express withdrawal by the Code of
previously granted exemptions from realty taxes applied to instrumentalities and government-owned or
controlled corporations (GOCCs) such as the petitioner Mactan-Cebu International Airport Authority. Thus,
petitioner MCIAA became a taxable person in view of the withdrawal of the realty tax exemption that it
previously enjoyed under Section 14 of RA No. 6958 of its charter. As expressed and categorically held in
the Mactan case, the removal and withdrawal of tax exemptions previously enjoyed by persons, natural or
juridical, are consistent with the State policy to ensure autonomy to local governments and the objective of
the Local Government Code that they enjoy genuine and meaningful local autonomy to enable them to
attain their fullest development as self-reliant communities and make them effective partners in the
attainment of national goals.
However, in the case at bench, petitioner MCIAAs charter expressly bars the alienation or mortgage of its
property to any person or entity except to the national government. Therefore, while petitioner MCIAA is a
taxable person for purposes of real property taxation, respondent City of Lapu-Lapu is prohibited from
seizing, selling and owning these properties by and through a public auction in order to satisfy petitioner
MCIAAs tax liability.42 (Citations omitted.)

98

In the questioned Resolution that affirmed its questioned Decision, the Court of Appeals denied petitioners
motion for reconsideration based on the following grounds:chanRoblesvirtualLawlibrary
First, the MCIAA case remains the controlling law on the matter as the same is the established
precedent; not the MIAA case but the MCIAA case since the former, as keenly pointed out by
the respondent City of Lapu-Lapu, has not yet attained finality as there is still yet a pending
motion for reconsideration filed with the Supreme Court in the aforesaid case.
Second, and more importantly, the ruling of the Supreme Court in the MIAAcase cannot be
similarly invoked in the case at bench. The said case cannot be considered as the law of the
case. The law of the case doctrine has been defined as that principle under which determinations of
questions of law will generally be held to govern a case throughout all its subsequent stages where such
determination has already been made on a prior appeal to a court of last resort. It is merely a rule of
procedure and does not go to the power of the court, and will not be adhered to where its application will
result in an unjust decision. It relates entirely to questions of law, and is confined in its operation to
subsequent proceedings in the same case. According to said doctrine, whatever has been irrevocably
established constitutes the law of the case only as to the same parties in the same case and not to
different parties in an entirely different case. Besides, pending resolution of the aforesaid motion for
reconsideration in the MIAA case, the latter case has not irrevocably established anything.
Thus, after a thorough and judicious review of the allegations in petitioners motion for reconsideration,
this Court resolves to deny the same as the matters raised therein had already been exhaustively
discussed in the decision sought to be reconsidered, and that no new matters were raised which would
warrant the modification, much less reversal, thereof.43 (Emphasis added, citations omitted.)
PETITIONERS THEORY
Petitioner is before us now claiming that this Court, in the 2006 MIAA case, had expressly declared that
petitioner, while vested with corporate powers, is not considered a government-owned or controlled
corporation, but is a government instrumentality like the Manila International Airport Authority (MIAA),
Philippine Ports Authority (PPA), University of the Philippines, and Bangko Sentral ng Pilipinas (BSP).
Petitioner alleges that as a government instrumentality, all its airport lands and buildings are exempt from
real estate taxes imposed by respondent City.44chanrobleslaw
Petitioner alleges that Republic Act No. 6958 placed a limitation on petitioners administration of its assets
and properties as it provides under Section 4(e) that any asset in the international airport important to
national security cannot be alienated or mortgaged by petitioner or transferred to any entity other than
the National Government.45chanrobleslaw
Thus, petitioner claims that the Court of Appeals (Cebu City) gravely erred in disregarding the
following:chanRoblesvirtualLawlibrary
I
PETITIONER IS A GOVERNMENT INSTRUMENTALITY AS EXPRESSLY DECLARED BY THE HONORABLE COURT
IN THE MIAA CASE. AS SUCH, IT IS EXEMPT FROM PAYING REAL ESTATE TAXES IMPOSED BY RESPONDENT
CITY OF LAPU-LAPU.
II
THE PROPERTIES OF PETITIONER CONSISTING OF THE AIRPORT TERMINAL BUILDING, AIRFIELD, RUNWAY,
TAXIWAY, INCLUDING THE LOTS ON WHICH THEY ARE SITUATED, ARE EXEMPT FROM REAL PROPERTY
TAXES.
III
RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE REAL PROPERTY TAX WITHOUT ANY APPROPRIATE
ORDINANCE.
IV
RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE AN ADDITIONAL 1% TAX FOR THE SPECIAL EDUCATION
FUND IN THE ABSENCE OF ANY CORRESPONDING ORDINANCE.
V
RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE ANY INTEREST SANS ANY ORDINANCE MANDATING ITS
IMPOSITION.46
Petitioner claims the following similarities with MIAA:
1. MCIAA belongs to the same class and performs identical functions as MIAA;
2. MCIAA is a public utility like MIAA;
3. MIAA was organized to operate the international and domestic airport in Paranaque City for public
use, while MCIAA was organized to operate the international and domestic airport in Mactan for
public use.
4. Both are attached agencies of the Department of Transportation and Communications. 47
Petitioner compares its charter (Republic Act No. 6958) with that of MIAA (Executive Order No. 903).
Section 3 of Executive Order No. 903 provides:chanRoblesvirtualLawlibrary

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Sec. 3. Creation of the Manila International Airport Authority. There is hereby established a body corporate
to be known as the Manila International Airport Authority which shall be attached to the Ministry of
Transportation and Communications. The principal office of the Authority shall be located at the New
Manila International Airport. The Authority may establish such offices, branches, agencies or subsidiaries
as it may deem proper and necessary; x x x.chanroblesvirtuallawlibrary
Section 2 of Republic Act No. 6958 reads:chanRoblesvirtualLawlibrary
Section 2. Creation of the Mactan-Cebu International Airport Authority. There is hereby
established a body corporate to be known as the Mactan-Cebu International Airport Authority which shall
be attached to the Department of Transportation and Communications. The principal office of the Authority
shall be located at the MactanInternational Airport, Province of Cebu.
The Authority may have such branches, agencies or subsidiaries as it may deem proper and
necessary.chanroblesvirtuallawlibrary
As to MIAAs purposes and objectives, Section 4 of Executive Order No. 903
reads:chanRoblesvirtualLawlibrary
Sec. 4. Purposes and Objectives. The Authority shall have the following purposes and
objectives:ChanRoblesVirtualawlibrary
(a) To help encourage and promote international and domestic air traffic in the Philippines as a means of
making the Philippines a center of international trade and tourism and accelerating the development of the
means of transportation and communications in the country;
(b) To formulate and adopt for application in the Airport internationally acceptable standards of airport
accommodation and service; and
(c) To upgrade and provide safe, efficient, and reliable airport facilities for international and domestic air
travel.chanroblesvirtuallawlibrary
Petitioner claims that the above purposes and objectives are analogous to those enumerated in its charter,
specifically Section 3 of Republic Act No. 6958, which reads:chanRoblesvirtualLawlibrary
Section 3. Primary Purposes and Objectives. The Authority shall principally undertake the
economical, efficient and effective control, management and supervision of the Mactan International
Airport in the Province of Cebu and the Lahug Airport in Cebu City, hereinafter collectively referred to as
the airports, and such other airports as may be established in the Province of Cebu. In addition, it shall
have the following objectives:ChanRoblesVirtualawlibrary
(a) To encourage, promote and develop international and domestic air traffic in the central Visayas and
Mindanao regions as a means of making the regions centers of international trade and tourism, and
accelerating the development of the means of transportation and communications in the country; and
(b) To upgrade the services and facilities of the airports and to formulate internationally acceptable
standards of airport accommodation and service.chanroblesvirtuallawlibrary
The powers, functions and duties of MIAA under Section 5 of Executive Order No. 903
are:ChanRoblesVirtualawlibrary
Sec. 5. Functions, Powers and Duties. The Authority shall have the following functions, powers and
duties:chanRoblesvirtualLawlibrary
(a) To formulate, in coordination with the Bureau of Air Transportation and other appropriate
government agencies, a comprehensive and integrated policy and program for the Airport and
to implement, review and update such policy and program periodically;
(b)

To control, supervise, construct, maintain, operate and provide such facilities or services as
shall be necessary for the efficient functioning of the Airport;

(c)

To promulgate rules and regulations governing the planning, development, maintenance,


operation and improvement of the Airport, and to control and/or supervise as may be
necessary the construction of any structure or the rendition of any services within the Airport;

(d)

To sue and be sued in its corporate name;

(e)

To adopt and use a corporate seal;

(f)

To succeed by its corporate name;

(g)

To adopt its by-laws, and to amend or repeal the same from time to time;

(h)

To execute or enter into contracts of any kind or nature;

(i)

To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of any land,
building, airport facility, or property of whatever kind and nature, whether movable or
immovable, or any interest therein;

100

(j)

To exercise the power of eminent domain in the pursuit of its purposes and objectives;

(k)

To levy, and collect dues, charges, fees or assessments for the use of the Airport premises,
works, appliances, facilities or concessions or for any service provided by the Authority,
subject to the approval of the Minister of Transportation and Communications in consultation
with the Minister of Finance, and subject further to the provisions of Batas Pambansa Blg. 325
where applicable;

(l)

To invest its idle funds, as it may deem proper, in government securities and other evidences
of indebtedness of the government;

(m) To provide services, whether on its own or otherwise, within the Airport and the approaches
thereof, which shall include but shall not be limited to, the following:

(n)

(1)

Aircraft movement and allocation of parking areas of aircraft on the ground;

(2)

Loading or unloading of aircrafts;

(3)

Passenger handling and other services directed towards the care, convenience and
security of passengers, visitors and other airport users; and

(4)

Sorting, weighing, measuring, warehousing or handling of baggage and goods.

To perform such other acts and transact such other business, directly or indirectly necessary,
incidental or conducive to the attainment of the purposes and objectives of the Authority,
including the adoption of necessary measures to remedy congestion in the Airport; and

(o)

To exercise all the powers of a corporation under the Corporation Law, insofar as these powers
are not inconsistent with the provisions of this Executive Order.
Petitioner claims that MCIAA has related functions, powers and duties under Section 4 of Republic Act No.
6958, as shown in the provision quoted below:chanRoblesvirtualLawlibrary
Section 4. Functions, Powers and Duties. The Authority shall have the following functions, powers
and duties:ChanRoblesVirtualawlibrary
(a) To formulate a comprehensive and integrated development policy and program for the airports and to
implement, review and update such policy and program periodically;
(b) To control, supervise, construct, maintain, operate and provide such facilities or services as shall be
necessary for the efficient functioning of the airports;
(c) To promulgate rules and regulations governing the planning, development, maintenance, operation and
improvement of the airports, and to control and supervise the construction of any structure or the rendition
of any service within the airports;
(d) To exercise all the powers of a corporation under the Corporation Code of the Philippines, insofar as
those powers are not inconsistent with the provisions of this Act;
(e) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of any land, building,
airport facility, or property of whatever kind and nature, whether movable or immovable, or any interest
therein: Provided, That any asset located in the Mactan International Airport important to national security
shall not be subject to alienation or mortgage by the Authority nor to transfer to any entity other than the
National Government;
(f) To exercise the power of eminent domain in the pursuit of its purposes and objectives;
(g) To levy and collect dues, charges, fees or assessments for the use of airport premises, works,
appliances, facilities or concessions, or for any service provided by the Authority;
(h) To retain and appropriate dues, fees and charges collected by the Authority relative to the use of airport
premises for such measures as may be necessary to make the Authority more effective and efficient in the
discharge of its assigned tasks;
(i) To invest its idle funds, as it may deem proper, in government securities and other evidences of
indebtedness; and
(j) To provide services, whether on its own or otherwise, within the airports and the approaches thereof as
may be necessary or in connection with the maintenance and operation of the airports and their
facilities.chanroblesvirtuallawlibrary
Petitioner claims that like MIAA, it has police authority within its premises, as shown in their respective
charters quoted below:chanRoblesvirtualLawlibrary

101

EO 903, Sec. 6. Police Authority. The Authority shall have the power to exercise such police
authority as may be necessary within its premises to carry out its functions and attain its purposes and
objectives, without prejudice to the exercise of functions within the same premises by the Ministry of
National Defense through the Aviation Security Command (AVSECOM) as provided in LOI 961: Provided,
That the Authority may request the assistance of law enforcement agencies, including request for
deputization as may be required. x x x.
R.A. No. 6958, Section 5. Police Authority. The Authority shall have the power to exercise such
police authority as may be necessary within its premises or areas of operation to carry out its functions
and attain its purposes and objectives: Provided, That the Authority may request the assistance of law
enforcement agencies, including request for deputization as may be required. x x
x.chanroblesvirtuallawlibrary
Petitioner pointed out other similarities in the two charters, such as:ChanRoblesVirtualawlibrary
1. Both MCIAA and MIAA are covered by the Civil Service Law, rules and regulations (Section 15, Executive
Order No. 903; Section 12, Republic Act No. 6958);
2. Both charters contain a proviso on tax exemptions (Section 21, Executive Order No. 903; Section 14,
Republic Act No. 6958);
3. Both MCIAA and MIAA are required to submit to the President an annual report generally dealing with
their activities and operations (Section 14, Executive Order No. 903; Section 11, Republic Act No. 6958);
and
4. Both have borrowing power subject to the approval of the President (Section 16, Executive Order No.
903; Section 13, Republic Act No. 6958).48chanrobleslaw
Petitioner suggests that it is because of its similarity with MIAA that this Court, in the 2006 MIAA case,
placed it in the same class as MIAA and considered it as a government instrumentality.
Petitioner submits that since it is also a government instrumentality like MIAA, the following conclusion
arrived by the Court in the 2006 MIAA case is also applicable to petitioner:chanRoblesvirtualLawlibrary
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 governmentowned 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.49(Emphases added.)
Petitioner insists that its properties consisting of the airport terminal building, airfield, runway, taxiway and
the lots on which they are situated are not subject to real property tax because they are actually, solely
and exclusively used for public purposes.50 They are indispensable to the operation of
the Mactan International Airport and by their very nature, these properties are exempt from tax. Said
properties belong to the State and are merely held by petitioner in trust. As earlier mentioned, petitioner
claims that these properties are important to national security and cannot be alienated, mortgaged, or
transferred to any entity except the National Government.
Petitioner prays that judgment be rendered:chanRoblesvirtualLawlibrary
a)
Declaring petitioner exempt from paying real property taxes as it is a government
instrumentality;
b)

Declaring respondent City of Lapu-Lapu as bereft of any authority to levy and collect the basic
real property tax, the additional tax for the SEF and the penalty interest for its failure to pass
the corresponding tax ordinances; and

c)

Declaring, in the alternative, the airport lands and buildings of petitioner as exempt from real
property taxes as they are used solely and exclusively for public purpose. 51

102

In its Consolidated Reply filed through the OSG, petitioner claims that the 2006 MIAA ruling has overturned
the 1996 MCIAA ruling. Petitioner cites Justice Dante O. Tingas dissent in the MIAA ruling, as
follows:chanRoblesvirtualLawlibrary
[The] ineluctable conclusion is that the majority rejects the rationale and ruling in Mactan. The majority
provides for a wildly different interpretation of Section 133, 193 and 234 of the Local Government Code
than that employed by the Court in Mactan. Moreover, the parties in Mactan and in this case are similarly
situated, as can be obviously deducted from the fact that both petitioners are airport authorities operating
under similarly worded charters. And the fact that the majority cites doctrines contrapuntal to the Local
Government Code as in Basco and Maceda evinces an intent to go against the Courts jurisprudential trend
adopting the philosophy of expanded local government rule under the Local Government Code.
x x x The majority is obviously inconsistent with Mactan and there is no way these two rulings can stand
together. Following basic principles in statutory construction, Mactanwill be deemed as giving way to this
new ruling.
xxxx
There is no way the majority can be justified unless Mactan is overturned. The MCIAA and the MIAA are
similarly situated. They are both, as will be demonstrated, GOCCs, commonly engaged in the business of
operating an airport. They are the owners of airport properties they respectively maintain and hold title
over these properties in their name. These entities are both owned by the State, and denied by their
respective charters the absolute right to dispose of their properties without prior approval elsewhere. Both
of them are not empowered to obtain loans or encumber their properties without prior approval the prior
approval of the President.52 (Citations omitted.)
Petitioner likewise claims that the enactment of Ordinance No. 070-2007 is an admission on respondent
Citys part that it must have a tax measure to be able to impose a tax or special assessment. Petitioner
avers that assuming that it is a non-exempt entity or that its airport lands and buildings are not exempt, it
was only upon the effectivity of Ordinance No. 070-2007 on January 1, 2008 that respondent City could
properly impose the basic real property tax, the additional tax for the SEF, and the interest in case of
nonpayment.53chanrobleslaw
Petitioner filed its Memorandum54 on June 17, 2009.
RESPONDENTS THEORY
In their Comment,55 respondents point out that petitioner partially moved for a reconsideration of the
questioned Decision only as to the issue of whether petitioner is a GOCC or not. Thus, respondents declare
that the other portions of the questioned decision had already attained finality and ought not to be placed
in issue in this petition for certiorari. Thus, respondents discussed the other issues raised by petitioner with
reservation as to this objection.
Respondents summarized the issues and the grounds relied upon as follows:chanRoblesvirtualLawlibrary
STATEMENT OF THE ISSUES
WHETHER OR NOT PETITIONER IS A GOVERNMENT INSTRUMENTALITY EXEMPT FROM PAYING REAL
PROPERTY TAXES
WHETHER OR NOT RESPONDENT CITY CAN [IMPOSE] REALTY TAX, SPECIAL EDUCATION FUND AND PENALTY
INTEREST
WHETHER OR NOT THE AIRPORT TERMINAL BUILDING, AIRFIELD, RUNWAY, TAXIWAY INCLUDING THE LOTS
ON WHICH THEY ARE SITUATED ARE EXEMPT FROM REALTY TAXES
GROUNDS RELIED UPON
1. PETITIONER IS A GOCC HENCE NOT EXEMPT FROM REALTY TAXES
2. TERMINAL BUILDING, RUNWAY, TAXIWAY ARE NOT EXEMPT FROM REALTY TAXES
3. ESTOPPEL DOES NOT LIE AGAINST GOVERNMENT
4. CITY CAN COLLECT REALTY TAX AND INTEREST
5. CITY CAN COLLECT SEF
6. MCIAA HAS NOT SHOWN ANY IRREPARABLE INJURY WARRANTING INJUNCTIVE RELIEF
7. MCIAA HAS NOT COMPLIED WITH PROVISION OF THE LGC56
Respondents claim that the mere mention of MCIAA in the MIAA v. [Court of Appeals] case does not make
it the controlling case on the matter.57 Respondents further claim that the 1996 MCIAA case where this
Court held that petitioner is a GOCC is the controlling jurisprudence. Respondents point out that petitioner
and MIAA are two very different entities. Respondents argue that petitioner is a GOCC contrary to its
assertions, based on its Charter and on DOJ Opinion No. 50.
Respondents contend that if petitioner is not a GOCC but an instrumentality of the government, still the
following statement in the 1996 MCIAA case applies:chanRoblesvirtualLawlibrary
Besides, nothing can prevent Congress from decreeing that even instrumentalities or agencies of the
Government performing governmental functions may be subject to tax. Where it is done precisely to fulfill
a constitutional mandate and national policy, no one can doubt its wisdom. 58

103

Respondents argue that MCIAA properties such as the terminal building, taxiway and runway are not
exempt from real property taxation. As discussed in the 1996 MCIAA case, Section 234 of the LGC omitted
GOCCs such as MCIAA from entities enjoying tax exemptions. Said decision also provides that the transfer
of ownership of the land to petitioner was absolute and petitioner cannot evade payment of
taxes.59chanrobleslaw
Even if the following issues were not raised by petitioner in its motion for reconsideration of the questioned
Decision, and thus the ruling pertaining to these issues in the questioned decision had become final,
respondents still discussed its side over its objections as to the propriety of bringing these up before this
Court.
1. Estoppel does not lie against the government.
2. Respondent City can collect realty taxes and interest.
a. Based on the Local Government Code (Sections 232, 233, 255) and its IRR (Sections 241, 247).
b. The City of Lapu-Lapu passed in 1980 Ordinance No. 44, or the Omnibus Tax Ordinance, wherein the
imposition of real property tax was made. This Ordinance was in force and effect by virtue of Article
278 of the IRR of Republic Act No. 7160.60chanrobleslaw
c. Ordinance No. 070-2007, known as the Revised Lapu-Lapu City Revenue Code, imposed real
property taxes, special education fund and further provided for the payment of interest and
surcharges. Thus, the issue is pass and is moot and academic.
3. Respondent City can collect Special Education Fund.
a. The LGC does not require the enactment of an ordinance for the collection of the SEF.
b. Congress did not entirely repeal the SEF law, hence, its levy, imposition and collection need not be
covered by ordinance. Besides, the City has enacted the Revenue Code containing provisions for
the levy and collection of the SEF.61
Furthermore, respondents aver that:ChanRoblesVirtualawlibrary
1. Collection of taxes is beyond the ambit of injunction.
a. Respondents contend that the petition only questions the denial of the writ of preliminary injunction
by the RTC and the Court of Appeals. Petitioner failed to show irreparable injury.
b. Comparing the alleged damage that may be caused petitioner and the direct affront and challenge
against the power to tax, which is an attribute of sovereignty, it is but appropriate that injunctive
relief should be denied.
2. Petitioner did not comply with LGC provisions on payment under protest.
a. Petitioner should have protested the tax imposition as provided in Article 285 of the IRR of Republic
Act No. 7160. Section 252 of Republic Act No. 7160 62 requires that the taxpayers protest can only
be entertained if the tax is first paid under protest.63
Respondents submitted their Memorandum64 on June 30, 2009, wherein they allege that the
1996 MCIAA case is still good law, as shown by the following cases wherein it was quoted:
1. National Power Corporation v. Local Board of Assessment Appeals of Batangas [545 Phil. 92 (2007)];
2. Mactan-Cebu International Airport Authority v. Urgello [549 Phil. 302 (2007)];
3. Quezon City v. ABS-CBN Broadcasting Corporation [588 Phil. 785 (2008)]; and
4. The City of Iloilo v. Smart Communications, Inc. [599 Phil. 492 (2009)].
Respondents assert that the constant reference to the 1996 MCIAA case could hardly mean that the
doctrine has breathed its last and that the 1996 MCIAA case stands as precedent and is controlling on
petitioner MCIAA.65chanrobleslaw
Respondents allege that the issue for consideration is whether it is proper for petitioner to raise the issue
of whether it is not liable to pay real property taxes, special education fund (SEF), interests and/or
surcharges.66 Respondents argue that the Court of Appeals was correct in declaring petitioner liable for
realty taxes, etc., on the terminal building, taxiway, and runway. Respondent City relies on the following
grounds:chanRoblesvirtualLawlibrary
1. The case of MCIAA v. Marcos, et al., is controlling on petitioner MCIAA;
2. MCIAA is a corporation;
3. Section 133 in relation to Sections 232 and 234 of the Local Government Code of 1991 authorizes
the collection of real property taxes (etc.) from MCIAA;
4. Terminal Building, Runway & Taxiway are not of the Public Dominion and are not exempt from realty
taxes, special education fund and interest;
5. Respondent City can collect realty tax, interest/surcharge, and Special Education Fund from MCIAA;
[and]
6. Estoppel does not lie against the government.67
THIS COURTS RULING
The petition has merit. The petitioner is an instrumentality of the government; thus, its properties actually,
solely and exclusively used for public purposes, consisting of the airport terminal building, airfield, runway,
taxiway and the lots on which they are situated, are not subject to real property tax and respondent City is
not justified in collecting taxes from petitioner over said properties.
DISCUSSION

104

The Court of Appeals (Cebu City) erred in declaring that the 1996 MCIAA case still controls and that
petitioner is a GOCC. The 2006 MIAA case governs.
The Court of Appeals reliance on the 1996 MCIAA case is misplaced and its staunch refusal to apply the
2006 MIAA case is patently erroneous. The Court of Appeals, finding for respondents, refused to apply the
ruling in the 2006 MIAA case on the premise that the same had not yet reached finality, and that as far as
MCIAA is concerned, the 1996 MCIAA case is still good law.68chanrobleslaw
While it is true, as respondents allege, that the 1996 MCIAA case was cited in a long line of cases,69still, in
2006, the Court en banc decided a case that in effect reversed the 1996 Mactan ruling. The
2006 MIAA case had, since the promulgation of the questioned Decision and Resolution, reached finality
and had in fact been either affirmed or cited in numerous cases by the Court. 70 The decision became final
and executory on November 3, 2006.71 Furthermore, the 2006 MIAA case was decided by the Court en
banc while the 1996 MCIAA case was decided by a Division. Hence, the 1996 MCIAAcase should be read in
light of the subsequent and unequivocal ruling in the 2006 MIAA case.
To recall, in the 2006 MIAA case, we held that MIAAs airport lands and buildings are exempt from real
estate tax imposed by local governments; that it is not a GOCC but an instrumentality of the national
government, with its real properties being owned by the Republic of the Philippines, and these are exempt
from real estate tax. Specifically referring to petitioner, we stated as follows:chanRoblesvirtualLawlibrary
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. 72 (Emphases ours.)
In the 2006 MIAA case, the issue before the Court was whether the Airport Lands and Buildings of MIAA
are exempt from real estate tax under existing laws.73 We quote the extensive discussion of the Court that
led to its finding that MIAAs lands and buildings were exempt from real estate tax imposed by local
governments:chanRoblesvirtualLawlibrary
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
xxxx
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:chanRoblesvirtualLawlibrary
SEC. 2. General Terms Defined. - x x x
(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock
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.chanroblesvirtuallawlibrary
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. x x x
xxxx
Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.
Section 3 of the Corporation Code 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

105

Charter mandates MIAA to remit 20% of its annual gross operating income to the National Treasury. This
prevents MIAA from qualifying as a non-stock 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:chanRoblesvirtualLawlibrary
SEC. 2. General Terms Defined. - 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.chanroblesvirtuallawlibrary
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, police authority and the levying of fees and charges. 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.
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 will make its operation more financially viable.
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.74 (Emphases ours, citations omitted.)
The Court in the 2006 MIAA case went on to discuss the limitation on the taxing power of the local
governments as against the national government or its instrumentality:chanRoblesvirtualLawlibrary
A government instrumentality like MIAA falls under Section 133(o) of the Local Government Code, which
states:chanRoblesvirtualLawlibrary
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:ChanRoblesVirtualawlibrary
xxxx
(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities and
local government units. x x x.chanroblesvirtuallawlibrary
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.
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.

106

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. x x x.
xxxx
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. x x x. 75 (Emphases ours, citations
omitted.)
The Court emphasized that the airport lands and buildings of MIAA are owned by the Republic and belong
to the public domain. The Court said:chanRoblesvirtualLawlibrary
The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the State
or the Republic of the Philippines. x x x.
xxxx
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. x x x.
xxxx
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 users 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 users tax is more equitable - a principle of
taxation mandated in the 1987 Constitution.
The Airport Lands and Buildings of MIAA x x x 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.76 (Emphases supplied, citations omitted.)
The Court also held in the 2006 MIAA case that airport lands and buildings are outside the commerce of
man.
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:ChanRoblesVirtualawlibrary
xxxx
The Civil Code, Article 1271, prescribes that everything which is not outside the commerce of man may be
the object of a contract, x x x.
xxxx
The Court has also ruled that property of public dominion, being outside the commerce of man, cannot be
the subject of an auction sale.
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

107

the 600-hectare runway of the MIAA for non-payment of real estate tax.
Before MIAA can encumber the Airport Lands and Buildings, the President must first withdraw from public
use the Airport Lands and Buildings. x x x.
xxxx
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:chanRoblesvirtualLawlibrary
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;
xxxx
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.77
Thus, the Court held that MIAA is merely holding title to the Airport Lands and Buildings in trust for the
Republic. [Under] Section 48, Chapter 12, Book I of the Administrative Code [which] allows
instrumentalities like MIAA to hold title to real properties owned by the Republic. 78chanrobleslaw
The Court in the 2006 MIAA case cited Section 234(a) of the Local Government Code and held that said
provision exempts from real estate tax any [r]eal property owned by the Republic of the
Philippines.79 The Court emphasized, however, that portions of the Airport Lands and Buildings that MIAA
leases to private entities are not exempt from real estate tax. The Court further
held:chanRoblesvirtualLawlibrary
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 instrumentalities x 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 a taxable person and therefore such land area is subject to real estate tax. x x
x.80
Significantly, the Court reiterated the above ruling and applied the same reasoning in Manila International
Airport Authority v. City of Pasay,81 thus:chanRoblesvirtualLawlibrary
The only difference between the 2006 MIAA case and this case is that the 2006 MIAA case
involved airport lands and buildings located in Paraaque City while this case involved airport
lands and buildings located in Pasay City. The 2006 MIAA case and this case raised the same
threshold issue: whether the local government can impose real property tax on the airport lands,
consisting mostly of the runways, as well as the airport buildings, of MIAA. x x x.
xxxx
The definition of instrumentality under Section 2(10) of the Introductory Provisions of the Administrative
Code of 1987 uses the phrase includes x x x government-owned or controlled corporations which means

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that a government instrumentality may or may not be a government-owned or controlled corporation.


Obviously, the term government instrumentality is broader than the term government-owned or
controlled corporation. x x x.
xxxx
The fact that two terms have separate definitions means that while a government instrumentality may
include a government-owned or controlled corporation, there may be a government instrumentality
that will not qualify as a government-owned or controlled corporation.
A close scrutiny of the definition of government-owned or controlled corporation in Section 2(13) will
show that MIAA would not fall under such definition. MIAA is a government instrumentality that
does not qualify as a government-owned or controlled corporation. x x x.
xxxx
Thus, MIAA is not a government-owned or controlled corporation but a government instrumentality which
is exempt from any kind of tax from the local governments. Indeed, the exercise of the taxing power of
local government units is subject to the limitations enumerated in Section 133 of the Local Government
Code. Under Section 133(o) of the Local Government Code, local government units have no power to tax
instrumentalities of the national government like the MIAA. Hence, MIAA is not liable to pay real property
tax for the NAIA Pasay properties.
Furthermore, the airport lands and buildings of MIAA are properties of public dominion intended for public
use, and as such are exempt from real property tax under Section 234(a) of the Local Government Code.
However, under the same provision, if MIAA leases its real property to a taxable person, the specific
property leased becomes subject to real property tax. In this case, only those portions of the NAIA Pasay
properties which are leased to taxable persons like private parties are subject to real property tax by the
City of Pasay. (Emphases added, citations omitted.)
The Court not only mentioned petitioner MCIAA as similarly situated as MIAA. It also mentioned several
other government instrumentalities, among which was the Philippine Fisheries Development Authority.
Thus, applying the 2006 MIAA ruling, the Court, in Philippine Fisheries Development Authority v. Court of
Appeals,82 held:chanRoblesvirtualLawlibrary
On the basis of the parameters set in the MIAA case, the Authority should be classified as an
instrumentality of the national government. As such, it is generally exempt from payment of real property
tax, except those portions which have been leased to private entities.
In the MIAA case, petitioner Philippine Fisheries Development Authority was cited as among the
instrumentalities of the national government. x x x.
xxxx
Indeed, the Authority is not a GOCC but an instrumentality of the government. The Authority has a capital
stock but it is not divided into shares of stocks. Also, it has no stockholders or voting shares. Hence, it is
not a stock corporation. Neither [is it] a non-stock corporation because it has no members.
The Authority is actually a national government instrumentality which is defined as an 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. 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, the Authority which is tasked with the special public function to carry out the governments policy
to promote the development of the countrys fishing industry and improve the efficiency in handling,
preserving, marketing, and distribution of fish and other aquatic products, exercises the governmental
powers of eminent domain, and the power to levy fees and charges. At the same time, the Authority
exercises the general corporate powers conferred by laws upon private and government-owned or
controlled corporations.
xxxx
In light of the foregoing, the Authority should be classified as an instrumentality of the national
government which is liable to pay taxes only with respect to the portions of the property, the beneficial use
of which were vested in private entities. 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.

109

Thus, the real property tax assessments issued by the City of Iloilo should be upheld only with respect to
the portions leased to private persons. In case the Authority fails to pay the real property taxes due
thereon, said portions cannot be sold at public auction to satisfy the tax delinquency. x x x.
xxxx
In sum, the Court finds that the Authority is an instrumentality of the national government, hence, it is
liable to pay real property taxes assessed by the City of Iloilo on the IFPC only with respect to those
portions which are leased to private entities. Notwithstanding said tax delinquency on the leased portions
of the IFPC, the latter or any part thereof, being a property of public domain, cannot be sold at public
auction. This means that the City of Iloilo has to satisfy the tax delinquency through means other than the
sale at public auction of the IFPC. (Citations omitted.)
Another government instrumentality specifically mentioned in the 2006 MIAA case was the Philippine Ports
Authority (PPA). Hence, in Curata v. Philippine Ports Authority,83 the Court held that the PPA is similarly
situated as MIAA, and ruled in this wise:chanRoblesvirtualLawlibrary
This Courts disquisition in Manila International Airport Authority v. Court of Appeals ruling that MIAA is
not a government-owned and/or controlled corporation (GOCC), but an instrumentality of the National
Government and thus exempt from local taxation, and that its real properties are owned by the Republic of
the Philippines is instructive. x x x. These findings are squarely applicable to PPA, as it is similarly
situated as MIAA. First, PPA is likewise not a GOCC for not having shares of stocks or members. Second, the
docks, piers and buildings it administers are likewise owned by the Republic and, thus, outside the
commerce of man. Third, PPA is a mere trustee of these properties. Hence, like MIAA, PPA is clearly a
government instrumentality, an agency of the government vested with corporate powers to perform
efficiently its governmental functions.
Therefore, an undeniable conclusion is that the funds of PPA partake of government funds, and such may
not be garnished absent an allocation by its Board or by statutory grant. If the PPA funds cannot be
garnished and its properties, being government properties, cannot be levied via a writ of execution
pursuant to a final judgment, then the trial court likewise cannot grant discretionary execution pending
appeal, as it would run afoul of the established jurisprudence that government properties are exempt from
execution. What cannot be done directly cannot be done indirectly. (Citations omitted.)
In Government Service Insurance System v. City Treasurer and City Assessor of the City of Manila 84the
Court found that the GSIS was also a government instrumentality and not a GOCC, applying the
2006 MIAA case even though the GSIS was not among those specifically mentioned by the Court as
similarly situated as MIAA. The Court said:chanRoblesvirtualLawlibrary
GSIS an instrumentality of the National Government
Apart from the foregoing consideration, the Courts fairly recent ruling in Manila International Airport
Authority v. Court of Appeals, a case likewise involving real estate tax assessments by a Metro Manila city
on the real properties administered by MIAA, argues for the non-tax liability of GSIS for real estate taxes. x
x x.
xxxx
While perhaps not of governing sway in all fours inasmuch as what were involved in Manila
International Airport Authority, e.g., airfields and runways, are properties of the public
dominion and, hence, outside the commerce of man, the rationale underpinning the
disposition in that case is squarely applicable to GSIS, both MIAA and GSIS being similarly
situated. First, while created under CA 186 as a non-stock corporation, a status that has remained
unchanged even when it operated under PD 1146 and RA 8291, GSIS is not, in the context of the
aforequoted Sec. 193 of the LGC, a GOCC following the teaching of Manila International Airport Authority,
for, like MIAA, GSISs capital is not divided into unit shares. Also, GSIS has no members to speak of. And by
members, the reference is to those who, under Sec. 87 of the Corporation Code, make up the non-stock
corporation, and not to the compulsory members of the system who are government employees. Its
management is entrusted to a Board of Trustees whose members are appointed by the President.
Second, the subject properties under GSISs name are likewise owned by the Republic. The GSIS is but a
mere trustee of the subject properties which have either been ceded to it by the Government or acquired
for the enhancement of the system. This particular property arrangement is clearly shown by the fact that
the disposal or conveyance of said subject properties are either done by or through the authority of the
President of the Philippines. x x x. (Emphasis added, citations omitted.)
All the more do we find that petitioner MCIAA, with its many similarities to the MIAA, should be classified as
a government instrumentality, as its properties are being used for public purposes, and should be exempt
from real estate taxes. This is not to derogate in any way the delegated authority of local government units
to collect realty taxes, but to uphold the fundamental doctrines of uniformity in taxation and equal
protection of the laws, by applying all the jurisprudence that have exempted from said taxes similar
authorities, agencies, and instrumentalities, whether covered by the 2006 MIAA ruling or not.
To reiterate, petitioner MCIAA is vested with corporate powers but it is not a stock or non-stock corporation,
which is a necessary condition before an agency or instrumentality is deemed a government-owned or
controlled corporation. Like MIAA, petitioner MCIAA has capital under its charter but it is not divided into

110

shares of stock. It also has no stockholders or voting shares. Republic Act No. 6958
provides:chanRoblesvirtualLawlibrary
Section 9. Capital. The [Mactan-Cebu International Airport] Authority shall have an authorized capital
stock equal to and consisting of:ChanRoblesVirtualawlibrary
(a) The value of fixed assets (including airport facilities, runways and equipment) and such other
properties, movable and immovable, currently administered by or belonging to the airports as valued on
the date of the effectivity of this Act;
(b) The value of such real estate owned and/or administered by the airports; and
(c) Government contribution in such amount as may be deemed an appropriate initial balance. Such initial
amount, as approved by the President of the Philippines, which shall be more or less equivalent to six (6)
months working capital requirement of the Authority, is hereby authorized to be appropriated in the
General Appropriations Act of the year following its enactment into law.chanroblesvirtuallawlibrary
Thereafter, the government contribution to the capital of the Authority shall be provided for in the General
Appropriations Act.
Like in MIAA, the airport lands and buildings of MCIAA 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, and are outside the commerce of man. This, unless petitioner leases its real
property to a taxable person, the specific property leased becomes subject to real property tax; in which
case, only those portions of petitioners properties which are leased to taxable persons like private parties
are subject to real property tax by the City of Lapu-Lapu.
We hereby adopt and apply to petitioner MCIAA the findings and conclusions of the Court in the
2006 MIAA case, and we quote:chanRoblesvirtualLawlibrary
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. x x x.
xxxx
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.85 (Emphases added.)

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WHEREFORE, we hereby GRANT the petition. We REVERSE and SET


ASIDE the Decision dated October 8, 2007 and the Resolution dated February 12, 2008 of
the Court of Appeals (Cebu City) in CA-G.R. SP No. 01360. Accordingly, we DECLARE:
1. Petitioners properties that are actually, solely and exclusively used for public purpose, consisting of
the airport terminal building, airfield, runway, taxiway and the lots on which they are
situated, EXEMPT from real property tax imposed by the City of Lapu-Lapu.
2. VOID all the real property tax assessments, including the additional tax for the special education
fund and the penalty interest, as well as the final notices of real property tax delinquencies, issued
by the City of Lapu-Lapu on petitioners properties, except the assessment covering the portions
that petitioner has leased to private parties.
3. NULL and VOID the sale in public auction of 27 of petitioners properties and the eventual
forfeiture and purchase of the said properties by respondent City of Lapu-Lapu. We likewise
declare VOID the corresponding Certificates of Sale of Delinquent Property issued to respondent
City of Lapu-Lapu.
SO ORDERED.

[G.R. No. 115455. August 25, 1994.]


ARTURO M. TOLENTINO, Petitioner, v. THE SECRETARY OF FINANCE and THE COMMISSIONER OF
INTERNAL REVENUE, Respondents.
[G.R. No. 115525.]
JUAN T. DAVID, Petitioner, v. 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.]
RAUL S. ROCO and the INTEGRATED BAR OF THE PHILIPPINES, Petitioners, v. THE SECRETARY
OF THE DEPARTMENT OF FINANCE; THE COMMISSIONERS OF THE BUREAU OF INTERNAL
REVENUE AND BUREAU OF CUSTOMS, Respondents.
[G.R. No. 115544.]
PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO., INC.; KAMAHALAN PUBLISHING
CORPORATION; PHILIPPINE JOURNALISTS, INC.; JOSE L. PAVIA; and OFELIA L.
DIMALANTA, Petitioners, v. 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.]
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC., (CREBA), Petitioner, v. THE
COMMISSIONER OF INTERNAL REVENUE, Respondent.
[G.R. No. 115781.]
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., PHILIPPINE BIBLE SOCIETY, INC., and
WIGBERTO TAADA, Petitioners, v. THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE,
THE COMMISSIONER OF INTERNAL REVENUE and THE COMMISSIONER OF
CUSTOMS, Respondents.
[G.R. No. 115852.]
PHILIPPINE AIRLINES, INC., Petitioner, v. THE SECRETARY OF FINANCE, and COMMISSIONER OF
INTERNAL REVENUE, Respondents.
[G.R. No. 115873.]
COOPERATIVE UNION OF THE PHILIPPINES, Petitioners, v. 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

112

Secretary of Finance, Respondents.


[G.R. No. 115931.]
PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC., and ASSOCIATION OF PHILIPPINE
BOOKSELLERS, Petitioners, v. 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.
Arturo M. Tolentino for and in his behalf.
Donna Celeste D. Feliciano and Juan T. David for petitioners in G.R. No 115525.
Roco, Bunag, Kapunan, Migallos and Jardeleza for petitioner R.S. Roco.
Villaraza and Cruz for petitioners in G.R. No. 115544.
Carlos A. Raneses and Manuel M. Serrano for petitioner in G.R. No. 115754.
Salonga, Hernandez & Allado for Freedom from Debts Coalition, Inc. & Phil. Bible Society.
Estelito P. Mendoza for petitioner in G.R. No. 115852.
Panganiban, Benitez, Parlade, Africa & Barinaga Law Offices for petitioners in G.R. No 115873.
R. B. Rodriguez & Associates for petitioners in G.R. No. 115931.
Rene A.V. Saguisag for MABINI.
DECISION
MENDOZA, J.:
The valued-added tax (VAT) is levied on the sale, barter or exchange of goods and properties as well as on
the sale or exchange of services. It is equivalent to 10% of the gross selling price or gross value in money
of goods or properties sold, bartered or exchanged or of the gross receipts from the sale or exchange of
services. Republic Act No. 7716 seeks to widen the tax base of the existing VAT system and enhance its
administration by amending the National Internal Revenue Code.cralawnad
These are various suits for certiorari and prohibition, challenging the constitutionality of Republic Act No.
7716 on various grounds summarized in the resolution of July 6, 1994 of this Court, as follows:chanrob1es
virtual 1aw library
I. Procedural Issues:chanrob1es virtual 1aw library
A. Does Republic Act No. 7716 violate Art. VI, 24 of the Constitution?
B. Does it violate Art. VI, 26(2) of the Constitution?
C. What is the extent of the power of the Bicameral Conference Committee?
II. Substantive Issues:chanrob1es virtual 1aw library
A. Does the law violate the following provisions in the Bill of Rights (Art. III)?
1. 1
2. 4
3. 5
4. 10
B. Does the law violate the following other provisions of the Constitution?
1. Art. VI, 28(1)
2. Art. VI, 28(3)

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These questions will be dealt in the order they are stated above. As will presently be explained not all of
these questions are judicially cognizable, because not all provisions of the Constitution are self executing
and, therefore, judicially enforceable. The other departments of the government are equally charged with
the enforcement of the Constitution, especially the provisions relating to them.
I. PROCEDURAL ISSUES
The contention of petitioners is that in enacting Republic Act No. 7716, or the Expanded Valued-Added Tax
Law, Congress violated the Constitution because, although H. No. 11197 had originated in the House of
Representatives, it was not passed by the Senate but was simply consolidated with the Senate version (S.
No. 1630) in the Conference Committee to produce the bill which the President signed into law. The
following provisions of the Constitution are cited in support of the proposition that because Republic Act
No. 7716 was passed in this manner, it did not originate in the House of Representatives and it has not
thereby become a law:chanrob1es virtual 1aw library
Art. VI, 24: 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.
Id., 26(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.
It appears that on various dates between July 22, 1992 and August 31, 1993, several bills 1 were
introduced in the House of Representatives seeking to amend certain provisions of the National Internal
Revenue Code relative to the value-added tax or VAT. These bills were referred to the House Ways and
Means Committee which recommended for approval a substitute measure, H. No. 11197, entitled
AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM TO WIDEN ITS TAX BASE AND ENHANCE ITS
ADMINISTRATION, AMENDING FOR THESE PURPOSES SECTIONS 99, 100, 102, 103, 104, 105, 106, 107, 108
AND 110 OF TITLE IV, 112, 115 AND 116 OF TITLE V, AND 236, 237 AND 238 OF TITLE IX, AND REPEALING
SECTIONS 113 AND 114 OF TITLE V, ALL OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED.
The bill (H. No. 11197) was considered on second reading starting November 6, 1993 and, on November
17, 1993, it was approved by the House of Representatives after third and final reading.
It was sent to the Senate on November 23, 1993 and later referred by that body to its Committee on Ways
and Means.
On February 7, 1994, the Senate Committee submitted its report recommending approval of S. No. 1630,
entitled
AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM TO WIDEN ITS TAX BASE AND ENHANCE ITS
ADMINISTRATION, AMENDING FOR THESE PURPOSES SECTIONS 99, 100, 102, 103, 104, 105, 107, 108, AND
110 OF TITLE IV, 112 OF TITLE V, AND 236, 237, AND 238 OF TITLE IX, AND REPEALING SECTIONS 113, 114
and 116 OF TITLE V, ALL OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER
PURPOSES.
It was stated that the bill was being submitted "in substitution of Senate Bill No. 1129, taking into
consideration P. S. Res. No. 734 and H. B. No. 11197."cralaw virtua1aw library
On February 8, 1994, the Senate began consideration of the bill (S. No. 1630). It finished debates on the
bill and approved it on second reading on March 24, 1994. On the same day, it approved the bill on third
reading by the affirmative votes of 13 of its members, with one abstention.
H. No. 1197 and its Senate version (S. No. 1630) were then referred to a conference committee which,
after meeting four times (April 13, 19, 21 and 25, 1994), recommended that "House Bill No. 11197, in
consolidation with Senate Bill No. 1630, be approved in accordance with the attached copy of the bill as
reconciled and approved by the conferees."cralaw virtua1aw library
The Conference Committee bill, entitled "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," was thereafter approved by the House of Representatives on April 27, 1994
and by the Senate on May 2, 1994. The enrolled bill was then presented to the President of the Philippines
who, on May 5, 1994, signed it. It became Republic Act No. 7716. On May 12, 1994, Republic Act No. 7716
was published in two newspapers of general circulation and, on May 28, 1994, it took effect, although its

114

implementation was suspended until June 30, 1994 to allow time for the registration of business entities. It
would have been enforced on July 1, 1994 but its enforcement was stopped because the Court, by the vote
of 11 to 4 of its members, granted a temporary restraining order on June 30, 1994.
First. Petitioners contention is that Republic Act No. 7716 did not "originate exclusively" in the House of
Representatives as required by Art. VI, 24 of the Constitution, because it is in fact the result of the
consolidation of two distinct bills, H. No. 11197 and S. No. 1630. In this connection, petitioners point out
that although Art. VI, 24 was adopted from the American Federal Constitution, 2 it is notable in two
respects: the verb "shall originate" is qualified in the Philippine Constitution by the word "exclusively" and
the phrase "as on other bills" in the American version is omitted. This means, according to them, that to be
considered as having originated in the House, Republic Act No. 7716 must retain the essence of H. No.
11197.
This argument will not bear analysis. To begin with, it is not the law but the revenue bill which is
required by the Constitution to "originate exclusively" in the House of Representatives. It is important to
emphasize this, because a bill originating in the House may undergo such extensive changes in the Senate
that the result may be a rewriting of the whole. The possibility of a third version by the conference
committee will be discussed later. At this point, what is important to note is that, as a result of the Senate
action, a distinct bill may be produced. To insist that a revenue statute and not only the bill which
initiated the legislative process culminating in the enactment of the law must substantially be the same
as the House bill would be to deny the Senates power not only to "concur with amendments" but also to"
propose amendments." It would be to violate the coequality of legislative power of the two houses of
Congress and in fact make the House superior to the Senate.
The contention that the constitutional design is to limit the Senates power in respect of revenue bills in
order to compensate for the grant to the Senate of the treaty-ratifying power 3 and thereby equalize its
powers and those of the House overlooks the fact that the powers being compared are different. We are
dealing here with the legislative power. which under the Constitution is vested not in any particular
chamber but in the Congress of the Philippines, consisting of "a Senate and a House of Representatives." 4
The exercise of the treaty-ratifying power is not the exercise of legislative power. It is the exercise of a
check on the executive power. There is, therefore, no justification for comparing the legislative powers of
the House and of the Senate on the basis of the possession of such nonlegislative power by the Senate.
The possession of a similar power by the U.S. Senate 5 has never been thought of as giving it more
legislative powers than the House of Representatives.
In the United States, the validity of a provision (sec. 37) imposing an ad valorem tax based on the weight
of vessels, which the U.S. Senate had inserted in the Tariff Act of 1909, was upheld against the claim that
the provision was a revenue bill which originated in the Senate in contravention of Art. I, 7 of the U.S.
Constitution. 6 Nor is the power to amend limited to adding a provision or two in a revenue bill emanating
from the House. The U.S. Senate has gone so far as changing the whole of bills following the enacting
clause and substituting its own versions. In 1883, for example, it struck out everything after the enacting
clause of a tariff bill and wrote in its place its own measure, and the House subsequently accepted the
amendment. The U.S. Senate likewise added 847 amendments to what later became the Payne-Aldrich
Tariff Act of 1909; it dictated the schedules of the Tariff Act of 1921; it rewrote an extensive tax revision bill
in the same year and recast most of the tariff bill of 1992. 7 Given, then, the power of the Senate to
propose amendments, the Senate can propose its own version even with respect to bills which are required
by the Constitution to originate in the House.
It is insisted, however, that S. No. 1630 was passed not in substitution of H. No. 11197 but of another
Senate bill (S. No. 1129) earlier filed and that what the Senate did was merely to "take [H. No. 11197] into
consideration" in enacting S. No. 1630. There is really no difference between the Senate preserving H. No.
11197 up to the enacting clause and then writing its own version following the enacting clause (which, it
would seem, petitioners admit is an amendment by substitution), and, on the other hand, separately
presenting a bill of its own on the same subject matter. In either case the result are two bills on the same
subject.
Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff, or tax bills, bills
authorizing an increase of the public debt, private bills and bills of local application must come from the
House of Representatives on the theory that, elected as they are from the districts, the members of the
House can be expected to be more sensitive to the local needs and problems. On the other hand, the
senators, who are elected at large, are expected to approach the same problems from the national
perspective. Both views are thereby made to bear on the enactment of such laws.
Nor does the Constitution prohibit the filing in the Senate of a substitute bill in anticipation of its receipt of
the bill from the House, so long as action by the Senate as a body is withheld pending receipt of the House
bill. The Court cannot, therefore, understand the alarm expressed over the fact that on March 1, 1993,
eight months before the House passed H. No. 11197, S. No. 1129 had been filed in the Senate. After all it
does not appear that the Senate ever considered it. It was only after the Senate had received H. No. 11197
on November 23, 1993 that the process of legislation in respect of it began with the referral to the Senate
Committee on Ways and Means of H. No. 11197 and the submission by the Committee on February 7, 1994
of S. No. 1630. For that matter, if the question were simply the priority in the time of filing of bills, the fact

115

is that it was in the House that a bill (H. No. 253) to amend the VAT law was first filed on July 22, 1992.
Several other bills had been filed in the House before S. No. 1129 was filed in the Senate, and H. No. 11197
was only a substitute of those earlier bills.chanrobles law library
Second. Enough has been said to show that it was within the power of the Senate to propose S. No. 1630.
We not pass to the next argument of petitioners that S. No. 1630 did not pass three readings on separate
days as required by the Constitution 8 because the second and third readings were done on the same day,
March 24, 1994. But this was because on February 24, 1994 9 and again on March 22, 1994, 10 the
President had certified S. No. 1630 as urgent. The presidential certification dispensed with the requirement
not only of printing but also that of reading the bill on separate days. The phrase "except when the
President certifies to the necessity of its immediate enactment, etc." in Art. VI, 26(2) qualified the two
stated conditions before a bill can become a law: (i) the bill has passed three readings on separate days
and (ii) it has been printed in its final form and distributed three days before it is finally approved.
In other words, the "unless" clause must be read in relation to the "except" clause, because the two are
really coordinate clauses of the same sentence. To construe the "except" clause as simply dispensing with
the second requirement in the "unless" clause (i.e., printing and distribution three days before final
approval) would not only violate the rules of grammar. It would also negate the very premise of the
"except" clause: the necessity of securing the immediate enactment of a bill which is certified in order to
meet a public calamity or emergency. For if it is only the printing that is dispensed with by presidential
certification, the time saved would be so negligible as to be of any use in insuring immediate enactment. It
may well be doubted whether doing away with the necessity of printing and distributing copies of the bill
three days before the third reading would insure speedy enactment of a law in the face of an emergency
requiring the calling of a special election for President and Vice-President. Under the Constitution such a
law is required to be made within seven days of the convening of Congress in emergency session. 11
That upon the certification of a bill by the President the requirement of three readings on separate days
and of printing and distribution can be dispensed with is supported by the weight of legislative practice.
For example, the bill defining the certiorari jurisdiction of this Court which, in consolidation with the Senate
version, became Republic Act No. 5440, was passed on second and third readings in the House of
Representatives on the same day (May 14, 1968) after the bill had been certified by the President as
urgent. 12
There is, therefore, no merit in the contention that presidential certification dispenses only with the
requirement for the printing of the bill and its distribution three days before its passage but not with the
requirement of three readings on separate days, also.chanroblesvirtuallawlibrary
It is nonetheless urged that the certification of the bill in this case was invalid because there was no
emergency, the condition stated in the certification of a "growing budget deficit" not being an unusual
condition in this country.
It is noteworthy that no member of the Senate saw fit to controvert the reality of the factual basis of the
certification. To the contrary, by passing S. No. 1630 on second and third readings on March 24, 1994, the
Senate accepted the Presidents certification. Should such certification be now reviewed by this Court,
especially when no evidence has been shown that, because S. No. 1630 was taken up on second and third
readings on the same day, the members of the Senate were deprived of the time needed for the study of a
vital piece of legislation?
The sufficiency of the factual basis of the suspension of the writ of habeas corpus or declaration of martial
law under Art. VII, 18, or the existence of a national emergency justifying the delegation of extraordinary
powers to the President under Art. VI, 23(2), is subject to judicial review because basic rights of
individuals may be at hazard. But the factual basis of presidential certification of bills, which involves doing
away with procedural requirements designed to insure that bills are duly considered by members of
Congress, certainly should elicit a different standard of review.
Petitioners also invite attention to the fact that the President certified S. No. 1630 and not H. No. 11197.
That is because S. No. 1630 was what the Senate was considering. When the matter was before the House,
the President likewise certified H. No. 9210 then pending in the House.
Third. Finally it is contended that the bill which became Republic Act No. 7716 is the bill which the
Conference Committee prepared by consolidating H. No. 11197 and S. No. 1630. It is claimed that the
Conference Committee report included provisions not found in either the House bill or the Senate bill and
that these provisions were "surreptitiously" inserted by the Conference Committee. Much is made of the
fact that in the last two days of its session on April 21 and 25, 1994 the Committee met behind closed
doors. We are not told, however, whether the provisions were not the result of the give and take that often
mark the proceedings of conference committees.
Nor is there anything unusual or extraordinary about the fact that the Conference Committee met in
executive sessions. Often the only way to reach agreement on conflicting provisions is to meet behind
closed doors, with only the conferees present. Otherwise, no compromise is likely to be made. The Court is
not about to take the suggestion of a cabal or sinister motive attributed to the conferees on the basis

116

solely of their "secret meetings" on April 21 and 25, 1994, nor read anything into the incomplete remarks
of the members, marked in the transcript of stenographic notes by ellipses. The incomplete sentences are
probably due to the stenographers own limitations or to the incoherence that sometimes characterize
conversations. William Safire noted some such lapses in recorded talks even by recent past Presidents of
the United States.
In any event, in the United States conference committees had been customarily held in executive sessions
with only the conferees and their staffs in attendance. 13 Only in November 1975 was a new rule adopted
requiring open sessions. Even then a majority of either chambers conferees may vote in public to close
the meetings. 14
As to the possibility of an entirely new bill emergency out of a Conference Committee, it has been
explained:chanrob1es virtual 1aw library
Under congressional rules of procedure, conference committees are not expected to make any material
change in the measure at issue, either by deleting provisions to which both houses have already agreed or
by inserting new provisions. But this is a difficult provision to enforce. Note the problem when one house
amends a proposal originating in either house by striking out everything following the enacting clause and
substituting provisions which make it an entirely new bill. The versions are now altogether different,
permitting a conference committee to draft essentially a new bill . . . 15
The result is a third version, which is considered an "amendment in the nature of a substitute," the only
requirement for which being that the third version be germane to the subject of the House and Senate
bills. 16
Indeed, this Court recently held that it is within the power of a conference committee to include in its
report an entirely new provision that is not found either in the House bill or in the Senate bill. 17 If the
committee can propose an amendment consisting of one or two provisions, there is no reason why it
cannot propose several provisions, collectively considered as an "amendment in the nature of a
substitute," so long as such amendment is germane to the subject of the bills before the committee. After
all, its report was not final but needed the approval of both houses of Congress to become valid as an act
of the legislative department. The charge that in this case the Conference Committee acted as a third
legislative chamber is thus without any basis. 18
Nonetheless, it is argued that under the respective Rules of the Senate and the House of Representatives a
conference committee can only act on the differing provisions of a Senate bill and a House bill, and that
contrary to these Rules the Conference Committee inserted provisions not found in the bills submitted to it.
The following provisions are cited in support of this contention:chanrob1es virtual 1aw library
Rules of the Senate
Rule XII:chanrob1es virtual 1aw library
Sec. 26. In the event that the Senate does not agree with the House of Representatives on the provision
of any bill or joint resolution, the differences shall be settled by a conference committee of both Houses
which shall meet within ten days after their composition.
The President shall designate the members of the conference committee in accordance with subparagraph
(c), Section 3 of Rule III.
Each Conference Committee Report shall contain a detailed and sufficiently explicit statement of the
changes in or amendments to the subject measure, and shall be signed by the conferees.
The consideration of such report shall not be in order unless the report has been filed with the Secretary of
the Senate and copies thereof have been distributed to the Members.
(Emphasis added)
Rules of the House of Representatives
Rule XIV:chanrob1es virtual 1aw library
Sec. 85. Conference Committee Reports. In the event that the House does not agree with the Senate
on the amendments to any bill or joint resolution, the differences may be settled by conference
committees of both Chambers.
The consideration of conference committee reports shall always be in order, except when the journal is
being read, while the roll is being called or the House is dividing on any question. Each of the pages of
such reports shall be signed by the conferees. Each report shall contain a detailed, sufficiently explicit
statement of the changes in or amendments to the subject measure.

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The consideration of such report shall not be in order unless copies thereof are distributed to the Members:
Provided, That in the last fifteen days of each session period it shall be deemed sufficient that three copies
of the report, signed as above provided, are deposited in the office of the Secretary General.
(Emphasis added)
To be sure, nothing in the Rules limits a conference committee to a consideration of conflicting provisions.
But Rule XLIV, 112 of the Rules of the Senate is cited to the effect that "If there is no Rule applicable to a
specific case the precedents of the Legislative Department of the Philippines shall be resorted to, and as a
supplement of these, the Rules contained in Jeffersons Manual." The following is then quoted from the
Jeffersons Manual:chanrob1es virtual 1aw library
The managers of a conference must confine themselves to the differences committed to them . . . and may
not include subjects not within disagreements, even though germane to a question in issue.
Note that, according to Rule XLIX, 112, in case there is no specific rule applicable, resort must be to the
legislative practice. The Jeffersons Manual is resorted to only as supplement. It is common place in
Congress that conference committee reports include new matters which, though germane, have not been
committed to the committee. This practice was admitted by Senator Raul S. Roco, petitioner in G.R. No.
115543, during the oral argument in these cases. Whatever, then, may be provided in the Jeffersons
Manual must be considered to have been modified by the legislative practice. If a change is desired in the
practice it must be sought in Congress since this question is not covered by any constitutional provision
but is only an internal rule of each house. Thus, Art. VI, 16(3) of the Constitution provides that "Each
House may determine the rules of its proceedings. . . ."cralaw virtua1aw library
This observation applies to the other contention that the Rules of the two chambers were likewise
disregarded in the preparation of the Conference Committee Report because the Report did not contain a
"detailed and sufficiently explicit statement of changes in, or amendments to, the subject measure." The
Report used brackets and capital letters to indicate the changes. This is a standard practice in bill-drafting.
We cannot say that in using these marks and symbols the Committee violated the Rules of the Senate and
the House. Moreover, this Court is not the proper forum for the enforcement of these internal Rules. To the
contrary, as we have already ruled, "parliamentary rules are merely procedural and with their observance
the courts have no concern." 19 Our concern is with the procedural requirements of the Constitution for
the enactment of laws. As far as these requirements are concerned, we are satisfied that they have been
faithfully observed in these cases.chanrobles virtual lawlibrary
Nor is there any reason for requiring that the Committees Report in these cases must have undergone
three readings in each of the two houses. If that be the case, there would be no end to negotiation since
each house may seek modifications of the compromise bill. The nature of the bill, therefore, requires that it
be acted upon by each house on a "take it or leave it" basis, with the only alternative that if it is not
approved by both houses, another conference committee must be appointed. But then again the result
would still be a compromise measure that may not be wholly satisfying to both houses.
Art. VI, 26(2) must, therefore, be construed as referring only to bills introduced for the first time in either
house of Congress, not to the conference committee report. For if the purpose of requiring three readings
is to give members of Congress time to study bills, it cannot be gainsaid that H. No. 11197 was passed in
the House after three reading; that in the Senate it was considered on first reading and then referred to a
committee of that body; that although the Senate committee did not report out the House bill, it submitted
a version (S. No. 1630) which it had prepared by "taking into consideration" the House bill; that for its part
the Conference Committee consolidated the two bills and prepared a compromise version; that the
Conference Committee Report was thereafter approved by the House and the Senate, presumably after
appropriate study by their members. We cannot say that, as a matter of fact, the members of Congress
were not fully informed of the provisions of the bill. The allegation that the Conference Committee usurped
the legislative power of Congress is, in our view, without warrant in fact and in law.
Fourth. Whatever doubts there may be as to the formal validity of Republic Act No. 7716 must be resolved
in its favor. Our cases 20 manifest firm adherence to the rule that an enrolled copy of a bill is conclusive
not only of its provisions but also of its due enactment. Not even claims that a proposed constitutional
amendment was invalid because the requisite votes for its approval had not been obtained 21 or that
certain provisions of a statute had been "smuggled" in the printing of the bill 22 have moved or persuaded
us to look behind the proceedings of a coequal branch of the government. There is no reason now to
depart from this rule.
No claim is here made that the "enrolled bill" rule is absolute. In fact in one case 23 we "went behind" an
enrolled bill and consulted the Journal to determine whether certain provisions of a statute had been
approved by the Senate in view of the fact that the President of the Senate himself, who had signed the
enrolled bill, admitted a mistake and withdrew his signature, so that in effect there was no longer an
enrolled bill to consider.chanroblesvirtuallawlibrary:red
But where allegations that the constitutional procedures for the passage of bills have not been observed
have no more basis than another allegation that the Conference Committee "surreptitiously" inserted

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provisions into a bill which it had prepared, we should decline the invitation to go behind the enrolled copy
of the bill. To disregard the "enrolled bill" rule in such cases would be to disregard the respect due the
other two departments of our government.
Fifth. An additional attack on the formal validity of Republic Act No. 7716 is made by the Philippine Airlines,
Inc., petitioner in G.R. No. 11582, namely, that it violates Art. IV, 26(1) which provides that "Every bill
passed by Congress shall embrace only one subject which shall be expressed in the title thereof." It is
contended that neither H. No. 11197 nor S. No. 1630 provided for removal of exemption of PAL
transactions from the payment of the VAT and that this was made only in the Conference Committee bill
which became Republic Act No. 7716 without reflecting this fact in its title.
The title of Republic Act No. 7716 is:chanrob1es virtual 1aw library
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.
Among the provisions of the NIRC amended is sec. 103, which originally read:chanrob1es virtual 1aw
library
Sec. 103. Exempt transactions. The following shall be exempt from the value-added tax:chanrob1es
virtual 1aw library
...
(q) Transactions which are exempt under special laws or international agreements to which the Philippines
is a signatory.
Among the transactions exempted from the VAT were those of PAL because it was exempted under its
franchise (P.D. No. 1590) from the payment of all "other taxes . . . now or in the near future," in
consideration of the payment by it either of the corporate income tax or a franchise tax of 2%.
As a result of its amendment by Republic Act No. 7716, 103 of the NIRC now provides:chanrob1es virtual
1aw library
103. Exempt transactions. The following shall be exempt from the value-added tax:chanrob1es virtual
1aw library
...
(q) Transactions which are exempt under special laws, except those granted under Presidential Decree Nos.
66, 529, 972, 1491, 1590. . . .
The effect of the amendment is to remove the exemption granted to PAL, as far as the VAT is concerned.
The question is whether this amendment of 103 of the NIRC is fairly embraced in the title of Republic Act
No. 7716, although no mention is made therein of P.D. No. 1590 as among those which the statute
amends. We think it is, since the title states that the purpose of the statute is to expand the VAT system,
and one way of doing this is to widen its base by withdrawing some of the exemptions granted before. To
insist that P.D. No. 1590 be mentioned in the title of the law, in addition to 103 of the NIRC, in which it is
specifically referred to, would be to insist that the title of a bill should be a complete index of its content.
The constitutional requirement that every bill passed by Congress shall embrace only one subject which
shall be expressed in its title is intended to prevent surprise upon the members of Congress and to inform
the people of pending legislation so that, if they wish to, they can be heard regarding it. If, in the case at
bar, petitioner did not know before that its exemption had been withdrawn, it is not because of any defect
in the title but perhaps for the same reason other statutes, although published, pass unnoticed until some
event somehow calls attention to their existence. Indeed, the title of Republic Act No. 7716 is not any more
general than the title of PALs own franchise under P.D. No. 1590, and yet no mention is made of its tax
exemption. The title of P.D. No. 1590 is:chanrob1es virtual 1aw library
AN ACT GRANTING A NEW FRANCHISE TO PHILIPPINE AIRLINES, INC. TO ESTABLISH, OPERATE, AND
MAINTAIN AIR-TRANSPORT SERVICES IN THE PHILIPPINES AND BETWEEN THE PHILIPPINES AND OTHER
COUNTRIES.
The trend in our cases is to construe the constitutional requirement in such a manner that courts do not
unduly interfere with the enactment of necessary legislation and to consider it sufficient if the title
expresses the general subject of the statute and all its provisions are germane to the general subject thus
expressed. 24
It is further contended that amendment of petitioners franchise may only be made by special law, in view

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of sec. 24 of P.D. No. 1590 which provides:chanrob1es virtual 1aw library


This franchise, as amended, or any section or provision hereof may only be modified, amended, or
repealed expressly by a special law or decree that shall specifically modify, amend, or repeal this franchise
or any section or provision thereof.cralawnad
This provision is evidently intended to prevent the amendment of the franchise by mere implication
resulting from the enactment of a later inconsistent statute, in consideration of the fact that a franchise is
a contract which can be altered only by consent of the parties. Thus in Manila Railroad Co. v. Rafferty, 25 it
was held that an Act of the U.S. Congress, which provided for the payment of tax on certain goods and
articles imported into the Philippines, did not amend the franchise of plaintiff, which exempted it from all
taxes except those mentioned in its franchise. It was held that a special law cannot be amended by a
general law.
In contrast, in the case at bar, Republic Act No. 7716 expressly amends PALs franchise (P.D. No. 1590) by
specifically excepting from the grant of exemptions from the VAT PALs exemption under P.D. No. 1590.
This is within the power of Congress to do under Art. XII, 11 of the Constitution, which provides that the
grant of a franchise for the operation of a public utility is subject to amendment, alteration or repeal by
Congress when the common good so requires.
II. SUBSTANTIVE ISSUES
A. Claims of Press Freedom, Freedom of Thought
and Religious Freedom
The Philippine Press Institute (PPI), petitioner in G.R. No. 115544, is a nonprofit organization of newspaper
publishers established for the improvement of journalism in the Philippines. On the other hand, petitioner
in G.R. No. 115781, the Philippine Bible Society (PBS), is a nonprofit organization engaged in the printing
and distribution of bibles and other religious articles. Both petitioners claim violations of their rights under
4 and 5 of the Bill of Rights as a result of the enactment of the VAT Law.
The PPI question the law insofar as it has withdrawn the exemption previously granted to the press under
103 (f) of the NIRC. Although the exemption was subsequently restored by administrative regulation with
respect to the circulation income of newspapers, the PPI presses its claim because of the possibility that
the exemption may still be removed by mere revocation of the regulation of the Secretary of Finance. On
the other hand, the PBS goes so far as to question the Secretarys power to grant exemption for two
reasons: (1) The Secretary of Finance has no power to grant tax exemption because this is vested in
Congress and requires for its exercise the vote of a majority of all its members 26 and (2) the Secretarys
duty is to execute the law.
103 of the NIRC contains a list of transactions exempted from VAT. Among the transactions previously
granted exemption were:chanrob1es virtual 1aw library
(f) Printing, publication, importation or sale of books and any newspaper, magazine, review, or bulletin
which appears at regular intervals with fixed prices for subscription and sale and which is devoted
principally to the publication of advertisements.
Republic Act No. 7716 amended 103 by deleting par. (f) with the result that print media became subject
to the VAT with respect to all aspects of their operations. Later, however, based on a memorandum of the
Secretary of Justice, respondent Secretary of Finance issued Revenue Regulations No. 11-94, dated June
27, 1994, exempting the "circulation income of print media pursuant to 4 Article III of the 1987 Philippine
Constitution guaranteeing against abridgment of freedom of the press, among others." The exemption of
"circulation income" has left income from advertisements still subject to the VAT.
It is unnecessary to pass upon the contention that the exemption granted is beyond the authority of the
Secretary of Finance to give, in view of PPIs contention that even with the exemption of the circulation
revenue of print media there is still an unconstitutional abridgment of press freedom because of the
imposition of the VAT on the gross receipts of newspapers from advertisements and on their acquisition of
paper, ink and services for publication. Even on the assumption that no exemption has effectively been
granted to print media transactions, we find no violation of press freedom in these cases.
To be sure, we are not dealing here with a statute that on its face operates in the area of press freedom.
The PPIs claim is simply that, as applied to newspapers, the law abridges press freedom. Even with due
recognition of its high estate and its importance in a democratic society, however, the press is not immune
from general regulation by the State. It has been held:chanrob1es virtual 1aw library
The publisher of a newspaper has no immunity from the application of general laws. He has no special
privilege to invade the rights and liberties of others. He must answer for libel. He may be punished for
contempt of court. Like others, he must pay equitable and nondiscriminatory taxes on his business. .27

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The PPI does not dispute this point, either.


What it contends is that by withdrawing the exemption previously granted to print media transactions
involving printing, publication, importation or sale of newspapers, Republic Act No. 7716 has singled out
the press for discriminatory treatment and that within the class of mass media the law discriminates
against print media by giving broadcast media favored treatment. We have carefully examined this
argument, but we are unable to find a differential treatment of the press by the law, much less any
censorial motivation for its enactment. If the press is now required to pay a value-added tax on its
transactions, it is not because it is being singled out, much less targeted, for special treatment but only
because of the removal of the exemption previously granted to it by law. The withdrawal of exemption is all
that is involved in these cases. Other transactions, likewise previously granted exemption, have been
delisted as part of the scheme to expand the base and the scope of the VAT system. The law would
perhaps be open to the charge of discriminatory treatment if the only privilege withdrawn had been that
granted to the press. But that is not the case.chanrobles.com : virtual law library
The situation in the case at bar is indeed a far cry from those cited by the PPI in support of its claim that
Republic Act No. 7716 subjects the press to discriminatory taxation. In the cases cited, the discriminatory
purpose was clear either from the background of the law or from its operation. For example, in Grosjean v.
American Press Co., 28 the law imposed a license tax equivalent to 2% of the gross receipts derived from
advertisements only on newspapers which had a circulation of more than 20,000 copies per week. Because
the tax was not based on the volume of advertisement alone but was measured by the extent of its
circulation as well, the law applied only to the thirteen large newspapers in Louisiana, leaving untaxed four
papers with circulation of only slightly less than 20,000 copies a week and 120 weekly newspapers which
were in serious competition with the thirteen newspapers in question. It was well known that the thirteen
newspapers had been critical of Senator Huey Long, and the Long-dominated legislature of Louisiana
responded by taxing what Long described as the "lying newspapers" by imposing on them "a tax on lying."
The effect of the tax was to curtail both their revenue and their circulation. As the U.S. Supreme Court
noted, the tax was "a deliberate and calculated device in the guise of a tax to limit the circulation of
information to which the public is entitled in virtue of the constitutional guaranties." 29 The case is a
classic illustration of the warning that the power to tax is the power to destroy.
In the other case 30 invoked by the PPI, the press was also found to have been singled out because
everything was exempt from the "use tax" on ink and paper, except the press. Minnesota imposed a tax on
the sales of goods in that state. To protect the sales tax, it enacted a complementary tax on the privilege
of "using, storing or consuming in that state tangible personal property" by eliminating the residents
incentive to get goods from outside states where the sales tax might be lower. The Minnesota Star Tribune
was exempted from both taxes from 1967 to 1971. In 1971, however, the state legislature amended the
tax scheme by imposing the "use tax" on the cost of paper and ink used for publication. The law was held
to have singled out the press because (1) there was no reason for imposing the "use tax" since the press
was exempt from the sales tax and (2) the "use tax" was laid on an "intermediate transaction rather than
the ultimate retail sale." Minnesota had a heavy burden of justifying the differential treatment and it failed
to do so. In addition, the U.S. Supreme Court found the law to be discriminatory because the legislature, by
again amending the law so as to exempt the first $100,000 of paper and ink used, further narrowed the
coverage of the tax so that "only a handful of publishers pay any tax at all and even fewer pay any
significant amount of tax." 31 The discriminatory purpose was thus very clear.
More recently, in Arkansas Writers Project, Inc. v. Ragland, 32 it was held that a law which taxed general
interest magazines but not newspapers and religious, professional, trade and sports journals was
discriminatory because while the tax did not single out the press as a whole, it targeted a small group
within the press. What is more, by differentiating on the basis of contents (i.e., between general interest
and special interests such as religion or sports) the law became "entirely incompatible with the First
Amendments guarantee of freedom of the press."cralaw virtua1aw library
These cases come down to this: that unless justified, the differential treatment of the press creates risks of
suppression of expression. In contrast, in the cases at bar, the statute applies to a wide range of goods and
services. The argument that, by imposing the VAT only on print media whose gross sales exceeds P480,000
but not more than P750,000, the law discriminates 33 is without merit since it has not been shown that as
a result the class subject to tax has been unreasonably narrowed. The fact is that this limitation does not
apply to the press alone but to all sales. Nor is impermissible motive shown by the fact that print media
and broadcast media are treated differently. The press is taxed on its transactions involving printing and
publication, which are different from the transactions of broadcast media. There is thus a reasonable basis
for the classification.
The cases canvassed, it must be stressed, eschew any suggestion that "owners of newspapers are immune
from any forms of ordinary taxation." The license tax in the Grosjean case was declared invalid because it
was "one single in kind, with a long history of hostile misuse against the freedom of the press." 34 On the
other hand, Minneapolis Star acknowledged that "The First Amendment does not prohibit all regulation of
the press [and that] the States and the Federal Government can subject newspapers to generally
applicable economic regulations without creating constitutional problems." 35
What has been said above also disposes of the allegations of the PBS that the removal of the exemption of

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printing, publication or importation of books and religious articles, as well as their printing and publication,
likewise violates freedom of thought and of conscience. For as the U.S. Supreme Court unanimously held in
Jimmy Swaggart Ministries v. Board of Equalization, 36 the Free Exercise of Religion Clause does not
prohibit imposing a generally applicable sales and use tax on the sale of religious material by a religious
organization.
This brings us to the question whether the registration provision of the law, 37 although of general
applicability, nonetheless is invalid when applied to the press because it lays a prior restraint on its
essential freedom. The case of American Bible Society v. City of Manila 38 is cited by both the PBS and the
PPI in support of their contention that the law imposes censorship. There, this Court held that an ordinance
of the City of Manila, which imposed a license fee on those engaged in the business of general
merchandise, could not be applied to the appellants sale of bibles and other religious literature. This Court
relied on Murdock v. Pennsylvania 39 in which it was held that, as a license fee is fixed in amount and
unrelated to the receipts of the taxpayer, the license fee, when applied to a religious sect, was actually
being imposed as a condition for the exercise of the sects right under the Constitution. For that reason, it
was held, the license fee "restrains in advance those constitutional liberties of press and religion and
inevitably tends to suppress their exercise." 40
But, in this case, the fee in 107, although a fixed amount (P1,000), is not imposed for the exercise of a
privilege but only for the purpose of defraying part of the cost of registration. The registration requirement
is a central feature of the VAT system. It is designed to provide a record of tax credits because any person
who is subject to the payment of the VAT pays an input tax, even as he collects an output tax on sales
made or services rendered. The registration fee is thus a mere administrative fee, one not imposed on the
exercise of a privilege, much less a constitutional right.chanrobles virtual lawlibrary
For the foregoing reasons, we find the attack on Republic Act No. 7716 on the ground that it offends the
free speech, press and freedom of religion guarantees of the Constitution to be without merit. For the same
reasons, we find the claim of the Philippine Educational Publishers Association (PEPA) in G.R. No. 115931
that the increase in the price of books and other educational materials as a result of the VAT would violate
the constitutional mandate to the government to give priority to education, science and technology (Art. II,
sec. 17) to be untenable.
B. Claims of Regressivity, Denial of Due Process, Equal Protection,
and Impairment of Contracts
There is basis for passing upon claims that on its face the statute violates the guarantees of freedom of
speech, press and religion. The possible "chilling effect" which it may have on the essential freedom of the
mind and conscience and the need to assure that the channels of communication are open and operating
importunately demand the exercise of this Courts power of review.
There is, however, no justification for passing upon the claims that the law also violates the rule that
taxation must be progressive and that it denies petitioners right to due process and the equal protection
of the laws. The reason for this different treatment has been cogently stated by an eminent authority on
constitutional law thus:" [W]hen freedom of the mind is imperiled by law, it is freedom that commands a
moments of respect; when property is imperiled it is the lawmakers judgment that commands respect.
This dual standard may not precisely reverse the presumption of constitutionality in civil liberties cases,
but obviously it does set up a hierarchy of values within the due process clause." 41
Indeed, the absence of threat of immediate harm makes the need for judicial intervention less evident and
underscores the essential nature of petitioners attack on the law on the grounds of regressivity, denial of
due process and equal protection and impairment of contracts as a mere academic discussion of the
merits of the law. For the fact is that there have even been no notices of assessments issued to petitioners
and no determinations at the administrative levels of their claims so as to illuminate the actual operation
of the law and enable us to reach sound judgment regarding so fundamental questions as those raised in
these suits.chanrobles virtual lawlibrary
Thus, the broad argument against the VAT is that it is regressive and that it violates the requirement that
"The rule of taxation shall be uniform and equitable [and] Congress shall evolve a progressive system of
taxation." 42 Petitioners in G.R. No. 115781 quote from a paper, entitled "VAT Policy Issues: Structure,
Regressivity, Inflation and Exports" by Alan A. Tait of the International Monetary Fund, that "VAT payment
by low-income households will be a higher proportion of their incomes (and expenditures) than payments
by higher-income households. That is, the VAT will be regressive." Petitioners contend that as a result of
the uniform 10% VAT, the tax on consumption goods of those who are in the higher-income bracket, which
before were taxed at a rate higher than 10%, has been reduced, while basic commodities, which before
were taxed at rates ranging from 3% to 5%, are now taxed at a higher rate.
Just as vigorously as it is asserted that the law is regressive, the opposite claim is pressed by respondents
that in fact it distributes the tax burden to as many goods and services as possible particularly to those
which are within the reach of higher-income groups, even as the law exempts basic goods and services. It
is thus equitable. The goods and properties subject to the VAT are those used or consumed by higher-

122

income groups. These include real properties held primarily for sale to customers or held for lease in the
ordinary course of business, the right or privilege to use industrial, commercial or scientific equipment,
hotels, restaurants and similar places, tourist buses, and the like. On the other hand, small business
establishments, with annual gross sales of less than P500,000, are exempted. This, according to
respondents, removes from the coverage of the law some 30,000 business establishments. On the other
hand, an occasional paper 43 of the Center for Research and Communication cites a NEDA study that the
VAT has minimal impact on inflation and income distribution and that while additional expenditure for the
lowest income class is only P301 or 1.49% a year, that for a family earning P500,000 a year or more is
P8,340 or 2.2%.
Lacking empirical data on which to base any conclusion regarding these arguments, any discussion
whether the VAT is regressive in the sense that it will hit the "poor" and middle-income group in society
harder than it will the "rich," as the Cooperative Union of the Philippines (CUP) claims in G.R. No. 115873,
is largely an academic exercise. On the other hand, the CUPs contention that Congress withdrawal of
exemption of producers cooperatives, marketing cooperatives, and service cooperatives, while maintaining
that granted to electric cooperatives, not only goes against the constitutional policy to promote
cooperatives as instruments of social justice (Art. XII, 15) but also denies such cooperatives the equal
protection of the law is actually a policy argument. The legislature is not required to adhere to a policy of
"all or none" in choosing the subject of taxation. 44
Nor is the contention of the Chamber of Real Estate and Builders Association (CREBA), petitioner in G.R.
115754, that the VAT will reduce the mark up of its members by as much as 85% to 90% any more
concrete. It is a mere allegation. On the other hand, the claim of the Philippine Press Institute, petitioner in
G.R. No. 115544, that the VAT will drive some of its members out of circulation because their profits from
advertisements will not be enough to pay for their tax liability, while purporting to be based on the
financial statements of the newspapers in question, still falls short of the establishment of facts by
evidence so necessary for adjudicating the question whether the tax is oppressive and confiscatory.
Indeed, regressivity is not a negative standard for courts to enforce. What Congress is required by the
Constitution to do is to "evolve a progressive system of taxation." This is a directive to Congress, just like
the directive to it to give priority to the enactment of laws for the enhancement of human dignity and the
reduction of social, economic and political inequalities (Art. XIII, 1), or for the promotion of the right to
"quality education" (Art. XIV, 1). These provisions are put in the Constitution as moral incentives to
legislation, not as judicially enforceable rights.
At all events, our 1988 decision in Kapatiran 45 should have laid to rest the question now raised against
the VAT. There similar arguments made against the original VAT Law (Executive Order No. 273) were held
to be hypothetical, with no more basis than newspaper articles which this Court found to be "hearsay and
[without] evidentiary value." As Republic Act No. 7716 merely expands the base of the VAT system and its
coverage as provided in the original VAT Law, further debate on the desirability and wisdom of the law
should have shifted to Congress.
Only slightly less abstract but nonetheless hypothetical is the contention of CREBA that the imposition of
the VAT on the sales and leases of real estate by virtue of contracts entered into prior to the effectivity of
the law would violate the constitutional provision that "No law impairing the obligation of contracts shall be
passed." It is enough to say that the parties to a contract cannot, through the exercise of prophetic
discernment, fetter the exercise of the taxing power of the State. For not only are existing laws read into
contracts in order to fix obligations as between parties, but the reservation of essential attributes of
sovereign power is also read into contracts as a basic postulate of the legal order. The policy of protecting
contracts against impairment presupposes the maintenance of a government which retains adequate
authority to secure the peace and good order of society. 46
In truth, the Contract Clause has never been thought as a limitation on the exercise of the States power of
taxation save only where a tax exemption has been granted for a valid consideration. 47 Such is not the
case of PAL in G.R. No. 115852, and we do not understand it to make this claim. Rather, its position, as
discussed above, is that the removal of its tax exemption cannot be made by a general, but only by a
specific, law.chanroblesvirtual|awlibrary
The substantive issues raised in some of the cases are presented in abstract, hypothetical form because of
the lack of a concrete record. We accept that this Court does not only adjudicate private cases; that public
actions by "non-Hohfeldian" 48 or ideological plaintiffs are now cognizable provided they meet the
standing requirement of the Constitution; that under Art. VIII, 1, par. 2 the Court has a "special function"
of vindicating constitutional rights. Nonetheless the feeling cannot be escaped that we do not have before
us in these cases a fully developed factual record that alone can impart to our adjudication the impact of
actuality 49 to insure that decision-making is informed and well grounded. Needless to say, we do not have
power to render advisory opinions or even jurisdiction over petitions for declaratory judgment. In effect we
are being asked to do what the Conference Committee is precisely accused of having done in these cases
to sit as a third legislative chamber to review legislation.
We are told, however, that the power of judicial review is not so much power as it is duty imposed on this
Court by the Constitution and that we would be remiss in the performance of that duty if we decline to look

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behind the barriers set by the principle of separation of powers. Art. VIII, 1, par. 2 is cited in support of
this view:chanrob1es virtual 1aw library
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.chanroblesvirtualawlibrary
To view the judicial power of review as a duty is nothing new. Chief Justice Marshall said so in 1803, to
justify the assertion of this power in Marbury v. Madison:chanrob1es virtual 1aw library
It is emphatically the province and duty of the judicial department to say what the law is. Those who apply
the rule to particular cases must of necessity expound and interpret that rule. If two laws conflict with each
other, the courts must decide on the operation of each. 50
Justice Laurel echoed this justification in 1936 in Angara v. Electoral Commission:chanrob1es virtual 1aw
library
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. 51
This conception of the judicial power has been affirmed in several cases 52 of this Court following Angara.
It does not add anything, therefore, to invoke this "duty" to justify this Courts intervention in what is
essentially a case that at best is not ripe for adjudication. That duty must still be performed in the context
of a concrete case or controversy, as Art. VIII, 5(2) clearly defines our justification in terms of "cases,"
and nothing but "cases." That the other departments of the government may have committed a grave
abuse of discretion is not an independent ground for exercising our power. Disregard of the essential limits
imposed by the case and controversy requirement can in the long run only result in undermining our
authority as a court of law. For, as judges, what we are called upon to render is judgment according to
what may appear to be the opinion of the day.
In the preceding pages we have endeavored to discuss, within limits, the validity of Republic Act No. 7716
in its formal and substantive aspects as this has been raised in the various cases before us. To sum up, we
hold:chanrob1es virtual 1aw library
(1) That the procedural requirements of the Constitution have been complied with by Congress in the
enactment of the statute;
(2) That judicial inquiry whether the formal requirements for the enactment of statutes beyond those
prescribed by the Constitution have been observed is precluded by the principle of separation of
powers;
(3) That the law does not abridge freedom of speech, expression or the press, nor interfere with the free
exercise of religion, nor deny to any of the parties the right to an education; and
(4) That, in view of the absence of a factual foundation of record, claims that the law is regressive,
oppressive and confiscatory and that it violates vested rights protected under the Contract Clause are
prematurely raised and do not justify the grant of prospective relief by writ of prohibition.
WHEREFORE, the petitions in these cases are DISMISSED.
Bidin, Quiason and Kapunan, JJ., concur.

Separate Opinions

NARVASA, C.J., concurring:chanrob1es virtual 1aw library


I fully concur with the conclusions set forth in the scholarly opinion of my learned colleague, Mr. Justice
Vicente V. Mendoza. I write this separate opinion to express my own views relative to the procedural issues
raised by the various petitions and dealt with by some other Members of the Court in their separate
opinions.
By their very nature, it would seem, discussions of constitutional issues prove fertile ground for a not
uncommon phenomenon: debate marked by passionate partisanship amounting sometimes to impatience
with adverse views, an eagerness on the part of the proponents on each side to assume the role of, or be
perceived as, staunch defenders of constitutional principles, manifesting itself in flights of rhetoric, even
hyperbole. The peril in this, obviously, is a diminution of objectivity that quality which, on the part of

124

those charged with the duty and authority of interpreting the fundamental law, is of the essence of their
great function. For the Court, more perhaps than for any other person or group, it is necessary to maintain
that desirable objectivity. It must make certain that on this as on any other occasion, the judicial function is
meticulously performed, the facts ascertained as comprehensively and as accurately as possible, all the
issues particularly identified, all the arguments clearly understood; else, it may itself be accused, by its
own members or by others, of a lack of adherence to, or a careless observance of, its own procedures, the
signatures of its individual members on its enrolled verdicts notwithstanding.chanrobles lawlibrary : rednad
In the matter now before the Court, and whatever reservations some people may entertain about their
intellectual limitations or moral scruples, I cannot bring myself to accept the thesis which necessarily
implies that the members of our august Congress, in enacting the expanded VAT law, exposed their
ignorance, or indifference to the observance, of the rules of procedure set down by the Constitution or by
their respective chambers, or what is worse, deliberately ignored those rules for some yet undiscovered
purpose nefarious in nature, or at least some purpose other than the public weal; or that a few of their
fellows, acting as a bicameral conference committee, by devious schemes and cunning maneuvers, and in
conspiracy with officials of the Executive Department and others, succeeded in "pulling the wool over the
eyes" of all their other colleagues and foisting on them a bill containing provisions that neither chamber of
our bicameral legislature conceived or contemplated. This is the thesis that the petitioners would have this
Court approve. It is a thesis I consider bereft of any factual or logical foundation.
Other than the bare declarations of some of the petitioners, or arguments from the use and import of the
language employed in the relevant documents and records, there is no evidence before the Court
adequate to support a finding that the legislators concerned, whether of the upper or lower chamber,
acted otherwise than in good faith, in the honest discharge of their functions, in the sincere belief that the
established procedures were being regularly observed or, at least, that there occurred no serious or fatal
deviation therefrom. There is no evidence on which reasonably to rest a conclusion that any executive or
other official took part in or unduly influenced the proceedings before the bicameral conference
committee, or that the members of the latter were motivated by a desire to surreptitiously introduce
improper revisions in the bills which they were required to reconcile, or that after agreement had been
reached on the mode and manner of reconciliation of the "disagreeing provisions," had resorted to
stratagems or employed under-handed ploys to ensure their approval and adoption by either House.
Neither is there any proof that in voting on the Bicameral Conference Committee (BCC) version of the
reconciled bills, the members of the Senate and the House did so in ignorance of, or without
understanding, the contents thereof or the bills therein reconciled.
Also unacceptable is the theory that since the Constitution requires appropriation and revenue bills to
originate exclusively in the House of Representatives, it is improper if not unconstitutional for the Senate to
formulate, or even think about formulating, its own draft of this type of measure in anticipation of receipt
of one transmitted by the lower Chamber. This is specially cogent as regards much-publicized suggestions
for legislation (like the expanded VAT Law) emanating from one or more legislators, or from the Executive
Department, or the private sector, etc. which understandably could be expected to forthwith generate
much Congressional cogitation.
Exclusive origination, I submit, should have no reference to time of conception. As a practical matter,
origination should refer to the affirmative act which effectively puts the bicameral legislative procedure in
motion, i.e., the transmission by one chamber to the other of a bill for its adoption. This is the purposeful
act which sets the legislative machinery in operation to effectively lead to the enactment of a statute. until
this transmission takes place, the formulation and discussions, or the reading for three or more times of
proposed measures in either chamber, would be meaningless in the context of the activity leading towards
concrete legislation. Unless transmitted to the other chamber, a bill prepared by either house cannot
possibly become law. In other words, the first affirmative, efficacious step, the operative act as it were,
leading to actual enactment of a statute, is the transmission of a bill from one house to the other for action
by the latter. This is the origination that is spoken of in the Constitution in its Article VI, Section 24, in
reference to appropriation, revenue, or tariff bills, etc.
It may be that in the Senate, revenue or tax measures are discussed, even drafted, and this before a
similar activity takes place in the House. This is of no moment, so long as those measures or bills remain in
the Senate and are not sent over to the House. There is no origination of revenue or tax measures by the
Senate in this case. However, once the House completes the drawing up of a similar tax measure in
accordance with the prescribed procedure, even if this is done subsequent to the Senates own measure
indeed, even if this be inspired by information that a measure of the same nature or on the same subject
has been formulated in the Senate and after third reading transmits its bill to the Senate, there is
origination by (or in) the House within the contemplation of the Constitution.
So it is entirely possible, as intimated, that in expectation of the receipt of a revenue or tax bill from the
House of Representatives, the Senate commences deliberations on its own concept of such a legislative
measure. this, possibly to save time, so that when the House bill reaches it, its thoughts and views on the
matter are already formed and even reduced to writing in the form of a draft statute. This should not be
thought illegal, as interdicted by the Constitution. what the Constitution prohibits is for the Senate to begin
the legislative process first, by sending its own revenue bill to the House of Representatives for its
consideration and action. This is the initiation that is prohibited to the Senate.

125

But petitioners claim that this last was what in fact happened, that the bill that went through the
legislative mill and was finally approved as R.A. No. 7716, was the Senate version, SB 1630. This is
disputed by the respondents. They claim it was House Bill 11197 that, after being transmitted to the
Senate, was referred after first reading to its Committee on Ways and Means; was reported out by said
Committee; underwent second and third readings, was sent to the bicameral conference committee and
then, after appropriate proceedings therein culminating in extensive amendments thereof, was finally
approved by both Houses and became the Expanded VAT Law.
On whose die does the truth lie? If it is not possible to make that determination from the pleadings and
records before this Court, shall it require evidence to be presented? No, on both law and principle. The
Court will reject a case where the legal issues raised, whatever they may be, depend for their resolution on
still unsettled questions of fact. Petitioners may not, by raising what are concededly novel and weighty
constitutional questions, compel the Court to assume the role of a trier of facts. It is on the contrary their
obligation, before raising those questions to this Court, to see to it that all issues of fact are settled in
accordance with the procedures laid down by law for proof of facts. Failing this, petitioners would have only
themselves to blame for a peremptory dismissal.
Now, what is really proven about what happened to HB 11197 after it was transmitted to the Senate? It
seems to be admitted on all sides that after going through first reading, HB 1197 was referred to the
Committee on Ways and Means chaired by Senator Ernesto Herrera.
It is however surmised that after this initial step, HB 1197 was never afterwards deliberated on in the
Senate, that it was there given nothing more than a "passing glance," and that it never went through a
proper second and third reading. There is no competent proof to substantiate this claim. What is certain
that on February 7, 1994, the Senate Committee on Ways and Means submitted its Report (No. 349)
stating that HB 11197 was considered, and recommending that SB 1630 be approved "in substitution of
S.B. No. 1129, taking into consideration P.S. Res. No. 734 1 and H.B. No. 11197." This Report made known
to the Senate, and clearly indicates, that H.B. No. 11197 was indeed deliberated on by the Committee; in
truth, as Senator Herrera pointed out, the BCC later "agreed to adopt (a broader coverage of the VAT)
which is closely adhering to the Senate version . . . with some new provisions or amendments." The plain
implication is that the Senate Committee had indeed discussed HB 11197 in comparison with the
inconsistent parts of SB 1129 and afterwards proposed amendments to the former in the form of a new bill
(No. 1630) more closely akin to the Senate bill (No. 1129).
And it is a reasonable to suppose as not that later, during the second and third readings on March 24,
1994, the Senators, assembled as a body, had before them copies of HB 11197 and SB 1129, as well as of
the Committees new "SB 1630" that had been recommended for their approval, or at the very least were
otherwise perfectly aware that they were considering the particular provisions of these bills. That there
was such a deliberation in the Senate on HB 11197 in light of inconsistent portions of SB 1630, may further
be necessarily inferred from the request, made by the Senate on the same day, March 24, 1994, for the
convocation of a bicameral conference committee to reconcile "the disagreeing provisions of said bill (SB
1630) and House Bill No. 11197," a request that could not have been made had not the Senators more or
less closely examined the provisions of HB 11197 and compared them with those of the counterpart
Senate measures.
Were the proceedings before the bicameral conference committee fatally flawed? The affirmative is
suggested because the committee allegedly overlooked or ignored the fact that SB 1630 could not validly
originate in the Senate, and that HB 11197 and SB 1630 never properly passed both chambers. The
untenability of these contentions has already been demonstrated. Now, demonstration of the
indefensibility of other arguments purporting to establish the impropriety of the BCC proceedings will be
attempted.
There is the argument, for instance, that the conference committee never used HB 11197 even as "frame
of reference" because it does not appear that the suggestion therefor (made by House Panel Chairman
Exequiel Javier at the bicameral conference committees meeting on April 19, 1994, with the concurrence
of Senator Maceda) was ever resolved, the minutes being regrettably vague as to what occurred after that
suggestion was made. It is, however, as reasonable to assume that it was, as it was not, given the
vagueness of the minutes already alluded to. In fact, a reading of the BCC Report persuasively
demonstrates that HB 11197 was not only utilized as a "frame of reference" but actually discussed and
deliberated on.chanrobles.com.ph : virtual law library
Said BCC Report pertinently states: 2
"CONFERENCE COMMITTEE REPORT
The Conference Committee on the disagreeing provisions of House Bill No. 11197, entitled:chanrob1es
virtual 1aw library
AN ACT RESTRUCTURING THE VALUE ADDED TAX (VAT) SYSTEM TO WIDEN ITS TAX BASE AND ENHANCE ITS
ADMINISTRATION, AMENDING FOR THESE PURPOSES SECTIONS 99, 100, 102, 1013, 104, 105, 106, 107,

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108 AND 110 OF TITLE IV, 112, 115 AND 116 OF TITLE V, AND 236, 237, AND 238 OF TITLE IX, AND
REPEALING SECTIONS 113 SD AND 114 OF TITLE V, ALL OF THE NATIONAL INTERNAL REVENUE CODE, AS
AMENDED.
and Senate Bill No. 1630 entitled:chanrob1es virtual 1aw library
AN ACT RESTRUCTURING THE VALUE ADDED TAX (VAT) SYSTEM TO WIDEN ITS TAX BASE AND ENHANCE ITS
ADMINISTRATION, AMENDING FOR THESE PURPOSES SECTIONS 99, 100, 102, 103, 104, 106, 107, 108 AND
110 OF TITLE IV, 112, 115, 117 AND 121 OF TITLE V, AND 236, 237, AND 238 OF TITLE IX, AND REPEALING
SECTIONS 1113, 114, 116, 119 AND 120 OF TITLE V, ALL OF THE NATIONAL INTERNAL REVENUE CODE, AS
AMENDED AND FOR OTHER PURPOSES.
having met, after full and free conference, has agreed to recommend and do hereby recommend to their
respective Houses that House Bill No. 11197, in consolidation with Senate Bill No. 1630, be approved in
accordance with the attached copy of the bill as reconciled and approved by the conferees.
Approved."cralaw virtua1aw library
The Report, it will be noted, explicitly adverts to House Bill No. 11197, it being in fact mentioned ahead of
Senate Bill No. 1630; graphically shows the very close identity of the subjects of both bills (indicated in
their respective titles); and clearly says that the committee met in" full and free conference" on the
"disagreeing provisions" of both bills (obviously in an effort to reconcile them); and that reconciliation of
said "disagreeing provisions" had been effected, the BCC having agreed that "House Bill No. 11197, in
consolidation with Senate Bill No. 1630, be approved in accordance with the attached copy of the bill as
reconciled and approved by the conferees."cralaw virtua1aw library
It may be concluded, in other words, that, conformably to the procedure provided in the Constitution with
which all the Members of the bicameral conference committee cannot but be presumed to be familiar, and
no proof to the contrary having been adduced on the point, it was the original bill (HB 11197) which said
body had considered and deliberated on in detail, reconciled or harmonized with SB 1630, and used as
basis for drawing up the amended version eventually reported out and submitted to both houses of
Congress.
It is further contended that the BCC was created and convoked prematurely, that SB 1630 should first have
been sent to the House of Representatives for concurrence It is maintained, in other words, that the latter
chamber should have refused the Senate request for a bicameral conference committee to reconcile the
"disagreeing provisions" of both bills, and should have required that SB 1630 be first transmitted to it. This,
seemingly, is nit-picking given the urgency of the proposed legislation as certified by the President (to both
houses, in fact). Time was of the essence, according to the Presidents best judgment as regards which
absolutely no one in either hamber of Congress took exception, general acceptance being on the contrary
otherwise manifested and that judgment the Court will not now question. In light of that urgency, what
was so vital or indispensable about such a transmittal that its absence would invalidate all else that had
been done towards enactment of the law, completely escapes me, specially considering that the House
had immediately acceded without demur to the request for convocation of the conference committee.
What has just been said should dispose of the argument that the statement in the enrolled bill, that "This
Act which is a consolidation of House Bill No. 11197 and Senate Bill No. 11630 was finally passed by the
House of Representatives and the Senate on April 27, 1994 and May 2, 1994," necessarily signifies that
there were two (20 bills separately introduced, retaining their independent existence until they reached
the bicameral conference committee where they were consolidated, and therefore, the VAT law did not
originate exclusively in the House having originated in part in the Senate as SB 1630, which bill was not
embodied in but merely merged with HB 11197, retaining its separate identity until it was joined by the
BCC with the house measure. The more logical, and fairer, course is to construe the expression,
"consolidation of House Bill No. 11197 and Senate Bill No. 11630" in the context of accompanying and
contemporaneous statements, i.e.: (a) the declaration in the BCC Report, supra, that the committee met to
reconcile the disagreeing provisions of the two bills, "and after full and free conference" on the matter,
agreed and so recommended that "house Bill No. 11197, in consolidation with Senate Bill No. 1630, be
approved in accordance with the attached copy of the bill as reconciled and approved by the conferees;"
and (b) the avernment of Senator Herrera, in the Report of the Ways and Means Committee, supra, that
the committee had actually "considered" (discussed) HB No. 11197 and taken it "into consideration" in
recommending that its own version of the measure (SB 1630) be the one approved.
That the Senate might have drawn up its own version of the expanded VAT bill, contemporaneously with or
even before the House did, is of no moment. It bears repeating in this connection that no VAT bill ever
originated in the Senate; neither its SB 1129 or SB 1630 or any of its drafts was ever officially transmitted
to the House as an initiating bill which, as already pointed out, is what the Constitution forbids; it was HB
11197 that was first sent to the Senate, underwent first reading, was referred to Committee on Ways and
means and there discussed in relation to and in comparison with the counterpart Senate version or
versions the mere formulation of which was, as also already discussed, not prohibited to it and
afterwards considered by the Senate itself, also in connection with SB 1630, on second and third readings.
HB 1197 was in the truest sense, the originating bill.

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An issue has also arisen respecting the so-called "enrolled bill doctrine" which, it is said, whatever
sacrosanct status it might originally have enjoyed, is now in bad odor with modern scholars on account of
its imputed rigidity and unrealism; it being also submitted that the ruling in Mabanag v. Lopez Vito (78 Phil.
1) and the cases reaffirming it, is no longer good law, it being based on a provision of the Code of Civil
Procedure 3 long since stricken from the statute books.
I would myself consider the "enrolled bill" theory as laying down a presumption of so strong character as to
be well nigh absolute or conclusive, fully in accord with the familiar and fundamental philosophy of
separation of powers. The result, as far as I am concerned, is to make discussion of the enrolled bill
principle purely academic; for as already pointed out, there is no proof worthy of the name of any facts to
justify its reexamination and, possibly, disregard.
The other question is, what the nature of the power given to a bicameral conference committee of
reconciling differences between, or "disagreeing provisions" in, a bill originating from the House in relation
to amendments proposed by the Senate whether as regards some or all of its provisions? Is the mode of
reconciliation, subject to fixed procedure and guidelines? What exactly can the committee do, or not do?
Can it only clarify or revise provisions found in either Senate or House bill? Is it forbidden to propose
additional new provisions, even on matters necessarily or reasonably connected with or germane to items
in the bills being reconciled?
In answer, it is postulated that the reconciliation function is quite limited. in these cases, the conference
committee should have confined itself to reconciliation of differences or inconsistencies only by (a)
restoring provisions of HB 11197 aliminated by SB 1630, or (b) sustaining wholly or partly the Senate
amendments, or (c) as a compromise, agreeing that neither provisions nor amendments be carried into the
final form of HB 11197 for submission to both chambers of the legislature.
The trouble is, it is theorized, the committee incorporated activities or transactions which were not within
the contemplation of both bills; it made additions and deletions which did not enjoy the enlightenment of
initial committee studies; it exercised what is known as an "ex post veto power" granted to it by no law,
rule or regulation, a power that in truth is denied to it by the rules of both the Senate and the House. In
substantiation, the Senate rule is cited, similar to that of the House, providing that "differences shall be
settled by a conference committee" whose report shall contain "detailed and sufficiently explicit statement
of the changes in or amendments to the subject measure, . . . (to be) signed by the conferees;" as well as
the "Jeffersons Manual," adopted by the Senate as supplement to its own rules, directing that the
managers of the conference must confine themselves to differences submitted to them; they may not
include subjects not within the disagreements even though germane to a question in issue."cralaw
virtua1aw library
It is significant that the limiting proviso in the relevant rules has been construed and applied as directory,
not mandatory. During the oral argument, counsel for petitioners admitted that the practice for decades
has been for bicameral conference committees to include such provisions in the reconciled bill as they
believed to be germane or necessary and acceptable to both chambers, even if not within any of the
"disagreeing provision," and the reconciled bills, containing such provisions had invariably been approved
and adopted by both houses of Congress. It is a practice, they say, that should be stopped. But it is a
practice that establishes in no uncertain manner the prevailing concept in both houses of Congress of the
permissible and acceptable modes of reconciliation that their conference committees may adopt, one
whose undesirability is not all that patent if not, indeed, incapable of unquestionable demonstration. The
fact is that conference committees only take up bills which have already been freely and fully discussed in
both chambers of the legislature, but as to which there is need of reconciliation in view of "disagreeing
provisions" between them; and both chambers entrust the function of reconciling the bills to their
delegates at a conference committee with full awareness, and tacit consent, that conformably with
established practice unquestioningly observed over many years, new provisions may be included even if
not within the "disagreeing provisions" but of which, together with other changes, they will be given
detailed and sufficiently explicit information prior to voting on the conference committee version.
In any event, a fairly recent decision written for the Court by Senior Associate Justice Isagani A. Cruz,
promulgated on November 11, 1993, (G.R. No. 105371, The Philippine Judges Association, etc., Et. Al. v.
Hon. Pete Prado, etc., Et. Al.), should leave no doubt of the continuing vitality of the enrolled bill doctrine
and give an insight into the nature of the reconciling function of bicameral conference committees. In that
case, a bilateral conference committee was constituted and met to reconcile Senate Bill No. 720 and House
Bill No. 4200. It adopted a "reconciled" measure that was submitted to and approved by both chambers of
Congress and ultimately signed into law by the President, as R.A. No. 7354. A provision in this statute
(removing the franking privilege from the courts, among others) was assailed as being an invalid
amendment because it was not included in the original version of either the senate or the house bill and
hence had generated no disagreement between them which had to be reconciled. The Court
held:jgc:chanrobles.com.ph
"While it is true that a conference committee is the mechanism for compromising differences between the
Senate and the House, it is not limited in its jurisdiction to this question. Its broader function is described
thus:chanrob1es virtual 1aw library

128

A conference committee may deal generally with the subject matter or it may be limited to resolving the
precise differences between the two houses. Even where the conference committee is not by rule limited in
its jurisdiction, legislative custom severely limits the freedom with which new subject matter can be
inserted into the conference bill. But occasionally a conference committee produces unexpected results,
results beyond its mandate. These excursions occur even where the rules impose strict limitations on
conference committee jurisdiction. This is symptomatic of the authoritarian power of conference
committee (Davies, Legislative Law and Process: In A Nutshell, 1987 Ed., p. 81).
It is a matter of record that the Conference Committee Report on the bill in question was returned to and
duly approved by both the Senate and the House of Representatives. Thereafter, the bill was enrolled with
its certification by Senate President Neptali A. Gonzales and Speaker Ramon V. Mitra of the House of
Representatives as having been duly passed by both Houses of Congress. It was then presented to and
approved by President Corazon C. Aquino on April 3, 1992.
Under the doctrine of separation of powers, the Court may not inquire beyond the certification of the
approval of a bill from the presiding officers of Congress. Casco Philippine Chemical Co. v. Gimenez (7
SCRA 347) laid down the rule that the enrolled bill is conclusive upon the Judiciary (except in matters that
have to be entered in the journals like the yeas and nays on the final reading of the bill) (Mabanag v. Lopez
Vito, 78 Phil. 1). The journals are themselves also binding on the Supreme Court, as we held in the old (but
still valid) case of U.S. v. Pons (34 Phil. 729), where we explained the reason thus:chanrob1es virtual 1aw
library
To inquire into the veracity of the journals of the Philippine legislature when they are, as we have said,
clear and explicit, would be to violate both the letter and spirit of the organic laws by which the Philippine
Government was brought into existence, to invade a coordinate and independent department of the
Government, and to interfere with the legitimate powers and functions of the Legislature. 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 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." chanrobles law library : red
Withal, an analysis of the changes made by the conference committee in HB 11197 and SB 1630 by way of
reconciling their "disagreeing provision," assailed by petitioners as unauthorized or incongruous
reveals that many of the changes related to actual "disagreeing provisions," and that those that might
perhaps be considered as entirely new are nevertheless necessarily or logically connected with or germane
to particular matters in the bills being reconciled.
For instance, the change made by the bicameral conference committee (BCC) concerning amendments to
Section 99 of the National Internal Revenue Code (NIRC) the addition of "lessors of goods or properties
and importers of goods" is really reconciliation of disagreeing provisions, for while HB 11197 mentions
as among those subject to tax, "one who sells, barters, or exchanges goods or properties and any person
who leases personal properties," SB 1630 does not. The change also merely clarifies the provision by
providing that the contemplated taxpayers includes "importers." The revision as regards the amendment
to Section 100, NIRC, is also simple reconciliation, being nothing more than the adoption by the BCC of the
provision in HB 11197 governing the sale of gold to Bangko Sentral, in contrast to SB 1630 containing no
such provision. Similarly, only simple reconciliation was involved as regards approval by the BCC of a
provision declaring as not exempt, the sale of real properties primarily held for sale to customers or held
for lease in the ordinary course of trade or business, which provision is found in HB 11197 but not in SB
1630; as regards the adoption by the BCC of a provision on life insurance business, contained in SB 1630
but not found in HB 11197; as regards adoption by the BCC of the provision in SB 1630 for determent of
tax on certain goods and services for no longer than 3 years, as to which there was no counterpart
provision in SB 11197; and as regards the fixing of a period for the adoption of implementing rules, a
period being prescribed in SB 1630 and none in HB 11197.
In respect of other revisions, it would seem that questions logically arose in the course of the discussion of
specific "disagreeing provisions" to which answers were given which, because believed acceptable to both
houses of Congress, were placed in the BCC draft. For example, during consideration of radio and television
time (Sec. 100, NIRC) dealt with in both House and Senate bills, the question apparently came up, the
relevance of which is apparent on its face, relative to satellite transmission and cable television time.
Hence, a provision in the BCC bill on the matter. again, while deliberating on the definition of goods or
properties in relation to the provision subjecting sales thereof to tax, a question apparently arose, logically
relevant, about real properties intended to be sold by a person in economic difficulties, or because he
wishes to buy a car, i.e., not as part of a business, the BCC evidently resolved to clarify the matter
excluding from the tax, "real properties held primarily for sale to customers or held for lease in the
ordinary course of business." And in the course of consideration of the term, sale or exchange of services
(Sec 102, NIRC), the inquiry most probably was posed as to whether the term should be understood as
including other services: e.g., services of lessors of property whether real or personal, of warehousemen, of
keepers of resthouses, pension houses, inns, resorts, or of common carriers, etc., and presumably the BCC

129

resolved to clarify the matter by including the services just mentioned. Surely, changes of this nature are
obviously to be expected in proceedings before bicameral conference committees and may even be
considered grist for their mill, given the history of such BCCs and their general practice here and abroad.
In any case, all the changes and revisions, and deletions, made by the conference committee were all
subsequently considered by and approved by both the Senate and the House, meeting and voting
separately. It is an unacceptable theorization, to repeat, that when the BCC report and its proposed bill
were submitted to the Senate and the House, the members thereof did not bother to read, or what is
worse, having read did not understand, what was before them, or did not realize that there were new
provisions in the reconciled version unrelated to any "disagreeing provisions," or that said new provisions
or revisions were effectively concealed from them.
Moreover, it certainly was entirely within the power and prerogative of either legislative chamber to reject
the BCC bill and require the organization of a new bicameral conference committee. That this option was
not exercised by either house only proves that the BCC measure was found to be acceptable as in fact it
was approved and adopted by both chambers.
I vote to DISMISS the petitions for lack of merit.
Feliciano and Melo, JJ., concur.
CRUZ, J., dissenting:chanrob1es virtual 1aw library
It is curious and almost incredible fact that at the hearing of these cases on July 7, 1994, the lawyers who
argued for the petitioners two of them former presidents of the Senate and the third also a member of
that body all asked this Court to look into the internal operations of their Chamber and correct the
irregularities they claimed had been committed there as well as in the House of Representatives and in the
bicameral conference committee.
While a member of the legislature would normally resist such intervention and invoke the doctrine of
separation of powers to protect Congress from what he would call judicial intrusion, these counsel
practically implored the Court to examine the questioned proceedings and to this end go beyond the
journals of each House, scrutinize the minutes of the committee, and investigate all other matters relating
to the passage of the bill (or bills) that eventually became R.A. No. 7716.
In effect, the petitioners would have us disregard the time-honored inhibitions laid down by the court upon
itself in the landmark case of U.S. v. Pons (34 Phil. 725), where it refused to consider extraneous evidence
to disprove the recitals in the journals of the Philippine Legislature that it had adjourned sine die at
midnight of February 28, 1914. Although it was generally known then that the special session had actually
exceeded the deadline fixed by the Governor-General in his proclamation, the Court chose to be guided
solely by the legislative journals, holding significantly as follows:chanrob1es virtual 1aw library
. . . From their very nature and object, the records of the legislature are as important as those of the
judiciary, and to inquire into the veracity of the journals of the Philippine Legislature, when they are, as we
have said, clear and explicit, would be to violate both the letter and the spirit of the organic laws by which
the Philippine Government was brought into existence, to invade a coordinate and independent
department of the Government, and to interfere with the legitimate powers and functions of the
Legislature. But counsel in his argument says that the public knows that the Assemblys clock was stopped
on February 28, 1914, at midnight and left so until the determination of the discussion of all pending
matters. Or, in other words, the hands of the clock were stayed in order to enable the Assembly to effect
and adjournment apparently within the fixed time by the Governors proclamation for the expiration of the
special session, in direct violation of the Act of Congress of July 1, 1902. If the clock was, in fact, stopped,
as here suggested, "the resultant evil might be slight as compared with that of altering the probative force
and character of legislative records, and making the proof of legislative action depend upon uncertain oral
evidence, liable to loss by death or absence, and so imperfect on account of the treachery of
memory."cralaw virtua1aw library
. . . The journals say that the Legislature adjourned at 12 midnight on February 28, 1914. This settles the
question, and the court did not err in declining to go beyond the journals.
As one who has always respected the rationale of the separation of powers, I realize only too well the
serious implications of the relaxation of the doctrine except only for the weightiest of reasons. The
lowering of the barriers now dividing the three major branches of the government could lead to invidious
incursions by one department into the exclusive domains of the other departments to the detriment of the
proper discharge of the functions assigned to each of them by the Constitution.cralawnad
Still, while acknowledging the value of tradition and the reasons for judicial non-interference announced in
Pons, I am not disinclined to take a second look at the ruling from a more pragmatic viewpoint and to tear
down, if we must, the iron curtain it has hung, perhaps improvidently, around the proceedings of the
legislature.

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I am persuaded even now that where a specific procedure is fixed by the Constitution itself, it should not
suffice for Congress to simply say that the rules have been observed and flatly consider the matter closed.
It does not have to be as final as that. I would imagine that the judiciary, and particularly this Court, should
be able to verify that statement and determine for itself, through the exercise of its own powers, if the
Constitution has, indeed, been obeyed.
In fact, the Court has already said that the question of whether certain procedural rules have been
followed is justiciable rather than political because what is involved is the legality and not the wisdom of
the act in question. so we ruled in Sanidad v. Commission on Elections (73 SCRA 333) on the amendment
of the Constitution; in Daza v. Singson (180 SCRA 496) on the composition of the Commission on
Appointments; and in the earlier case of Taada v. Cuenco (100 SCRA 1101) on the organization of the
Senate Electoral Tribunal, among several other cases.
By the same token, the ascertainment of whether a bill underwent the obligatory three readings in both
Houses of Congress should not be considered an invasion of the territory of the legislature as this would
not involve an inquiry into its discretion in approving the measure but only the manner in which the
measure was enacted.
These views may upset the conservatives among us who are most comfortable when they allow
themselves to be petrified by precedents instead of venturing into uncharted waters. To be sure, there is
much to be said of the wisdom of the past expressed by vanished judges talking to the future. Via trita est
tuttisima. Except when there is a need to revise them because of an altered situation or an emergent idea,
precedents should tell us that, indeed, the trodden path is the safest path.
It could be that the altered situation has arrived to welcome the emergent idea. The jurisdiction of this
Court has been expanded by the Constitution, to possibly include the review the petitioners would have us
make of the congressional proceedings being questioned. Perhaps it is also time to declare that the
activities of Congress can no longer be smoke-screened in the inviolate recitals of its journals to prevent
examination of its sacrosanct records in the name of the separation of powers.
But then again, perhaps all this is not yet necessary at this time and all these observations are but wishful
musings for more activist judiciary. For I find that this is not even necessary, at least for me, to leave the
trodden path in the search for new adventures in the byways of the law. The answer we seek, as I see it, is
not far afield It seems to me that it can be found through a study of the enrolled bill alone and that we do
not have to go beyond that measure to ascertain if R.A. No. 7716 has been validly enacted.
It is settled in this jurisdiction that in case of conflict between the enrolled bill and the legislative journals,
it is the former that should prevail except only as to matters that the Constitution requires to be entered in
the journals. (Mabanag v. Lopez Vito, 78 Phil. 1). These are the yeas and nays on the final reading of a bill
or on any question at the request of at least one-fifth of the members of the House (Constitution, Art. VI,
Sec. 16 [4]), the objections of the President to a vetoed bill or item (Ibid, Sec 27 [1]), and the names of the
members voting for or against the overriding of his veto (Id. Section 27 [1]), The origin of a bill is not
specifically required by the Constitution to be entered in the journals. Hence, on this particular matter, it is
the recitals in the enrolled bill and not in the journals that must control.
Article VI, Section 24, of the Constitution provides:chanrob1es virtual 1aw library
Sec. 24. 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 enrolled bill submitted to and later approved by the President of the Philippines as R.A. No. 7716 was
signed by the President of the Senate and the speaker of the House of Representatives. It carried the
following certification over the signatures of the Secretary of the Senate and the Acting Secretary of the
House of Representatives:chanrob1es virtual 1aw library
This Act which is a consolidation of House Bill No. 11197 and Senate Bill No. 11630 was finally passed by
the House of Representative and the Senate on April 27, 1994, and May 2, 1994.
Let us turn to Webster for the meaning of certain words,
To "originate" is "to bring into being; to create something (original); to invent; begin; start." The word
"exclusively" means "excluding all others" and is derived from the word "exclusive," meaning "not shared
or divided; sole; single." Applying these meanings, I would read Section 24 as saying that the bills
mentioned therein must be brought into being, or created, or invented, or begun or started, only or singly
or by no other body than the House of Representatives.
According to the certification, R.A. No. 7716 "is a consolidation of House Bill No. 11197 and Senate Bill No.
1630." Again giving the words used their natural and ordinary sense conformably to an accepted canon of
construction, I would read the word "consolidation" as a "combination or merger" and derived from the
word "consolidate," meaning "to combine into one; merge; unite."cralaw virtua1aw library

131

The two bills were separately introduced in their respective Chambers. Both retained their independent
existence until they reached the bicameral conference committee where they were consolidated. It was
this consolidated measure that was finally passed by Congress and submitted to the President of the
Philippines for his approval.
House Bill No. 11197 originated in the House of Representatives but this was not the bill that eventually
became R.A. No. 7716. The measure that was signed into law by President Ramos was the consolidation of
that bill and another bill, viz., Senate Bill No. 1630, which was introduced in the Senate. The resultant
enrolled bill thus did not originate exclusively in the House of Representatives. The enrolled bill itself says
that part of it (and it does not matter to what extent) originated in the Senate.
It would have been different if the only participation of the Senate was in the amendment of the measure
that was originally proposed in the House of Representatives. But this was not the case. The participation
of the Senate was not in proposing or concurring with amendments that would have been incorporated in
House Bill No. 11197. Its participation was in originating its own Senate Bill No. 1630, which was not
embodied in but merged with House Bill No. 11197.
Senate Bill No. 1630 was not even an amendment by substitution, assuming this was permissible. To
"substitute" means "to take the place of; to put or use in place of another." Senate Bill No. 1630 did not,
upon its approval, replace (and thus eliminate) House Bill No. 11197. Both bills retained their separate
identities until they were joined or united into what became the enrolled bill and ultimately R.A. No. 7716.
The certification in the enrolled bill says it all. It is clear that R.A. No. 7716 did not originate exclusively in
the House of Representatives.
To go back to my earlier observations, this conclusions does not require the reversal of U.S. v. Pons and an
inquiry by this Court into the proceedings of the legislature beyond the recitals of its journals. All we need
to do is consider the certification in the enrolled bill and, without entering the precincts of Congress,
declare that by its own admission it has, indeed, not complied with the Constitution.
While this Court respects the prerogatives of the other departments, it will not hesitate to rise to its higher
duty to require from them, if they go astray, full and strict compliance with the fundamental law. Our
fidelity to it must be total. There is no loftier principle in our democracy than the supremacy of the
Constitution, to which all must submit.
I vote to invalidate R.A. No. 7716 for violation of Article VI, Sec. 24, of the Constitution.
PADILLA, J., concurring:chanrob1es virtual 1aw library
I
The original VAT law and the expanded VAT law
In Kapatiran v. Tan, 1 where the ponente was the writer of this Separate Opinion, a unanimous Supreme
Court en banc upheld the validity of the original VAT law (Executive Order No. 273, approved on 25 July
1987). It will, in my view, be pointless at this time to re-open arguments advanced in said case as to why
said VAT law was invalid, and it will be equally redundant to re-state the principles laid down by the Court
in the same case affirming the validity of the VAT law as a tax measure. And yet, the same arguments are,
in effect, marshalled against the merits and substance of the expanded VAT law (Rep. Act No. 7716,
approved on 5 May 1994). The same Supreme Court decision should therefore dispose, in the main, of such
arguments, for the expanded VAT law is predicated basically on the same principles as the original VAT law,
except that now the tax base of the VAT imposition has been expanded or broadened.
It only needs to be stated what actually should be obvious that a tax measure, like the expanded VAT
law (Republic Act No. 7716), is enacted by Congress and approved by the President in the exercise of the
States power to tax, which is an attribute of sovereignty. And while the power to tax, if exercised without
limit, is a power to destroy, and should therefore, not be allowed in such form, it has to be equally
recognized that the power to tax is an essential right of government. Without taxes, basic services to the
people can come to a halt; economic progress will be stunted, and, in the long run, the people will suffer
the pains of stagnation and retrogression.
Consequently, upon careful deliberation, I have no difficulty in reaching the conclusion that the expanded
VAT law comes within the legitimate power of the state to tax. And as I had occasion to previously
state:jgc:chanrobles.com.ph
"Constitutional Law, to begin with, is concerned with power not political convenience, wisdom, exigency, or
even necessity. Neither the Executive nor the Legislative (Commission on Appointments) can create power
where the Constitution confers none." 2
Likewise, in the first VAT case, I said:jgc:chanrobles.com.ph

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"In any event, if petitioners seriously believe that the adoption and continued application of the VAT are
prejudicial to the general welfare or the interests of the majority of the people, they should seek recourse
and relief from the political branches of the government. The Court, following the time-honored doctrine of
separation of powers, cannot substitute its judgment for that of the President (and Congress) as to the
wisdom, justice and advisability of the adoption of the VAT." 3
This Court should not, as a rule, concern itself with questions of policy, much less, economic policy. That is
better left to the two (2) political branches of government. That the expanded VAT law is unwise, unpopular
and even anti-poor, among other things said against it, are arguments and considerations within the realm
of policy-debate, which only Congress and the Executive have the authority to decisively confront,
alleviate, remedy and resolve.
II
The procedure followed in the approval of Rep. Act No. 7716.
Petitioners however posit that the present case raises a far-reaching constitutional question which the Curt
is duty-bound to decide under its expanded jurisdiction in the 1987 Constitution 4. Petitioners more
specifically question and impugn the manner by which the expanded VAT law (Rep. Act No. 7716) was
approved by Congress. They contend that it was approved in violation of the Constitution from which fact it
follows, as a consequence, that the law is null and void. Main reliance of the petitioners in their assault is
Section 24, Art. VI of the Constitution which provides:jgc:chanrobles.com.ph
"Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bill of local
application, and private bills shall originate exclusively in the House of Representatives, but the Senate
may propose or concur with amendments."cralaw virtua1aw library
While it should be admitted at the outset that there was no rigorous and strict adherence to the literal
command of the above provision, it may however be said, after careful reflection, that there was
substantial compliance with the provision.
There is no question that House Bill No. 11197 expanding the VAT law originated from the House of
Representatives. It is undeniably a House measure. On the other hand, Senate Bill No. 1129, also
expanding the VAT law, originated from the Senate. It is undeniably a Senate measure which, in point of
time, actually antedated House Bill No. 11197.
But it is of record that when House Bill No. 11197 was, after approval by the House, sent to the Senate, it
was referred to, and considered by the Senate Committee on Ways and Means (after first reading) together
with Senate Bill No. 1129, and the Committee came out with Senate Bill No. 1630 in substitution of Senate
Bill No. 1129 but after expressly taking into consideration House Bill No. 11197.
Since the Senate is, under the above-quoted constitutional provision, empowered to concur with a revenue
measure exclusively originating from the House, or to propose amendments thereto, to the extent of
proposing amendments by SUBSTITUTION to the House measure, the approval by the Senate of Senate Bill
No. 1630, after it had considered House Bill No. 11197, may be taken, in my view, as an AMENDMENT BY
SUBSTITUTION by the Senate not only of Senate Bill No. 1129 but of House Bill No. 11197 as well which, it
must be remembered, originated exclusively from the House.
But then, in recognition of the fact that House Bill No. 11197 which originated exclusively from the House
and Senate Bill No. 1630 contained conflicting provisions, both bills (House Bill No. 11197 and Senate Bill
No. 1630) were referred to the Bicameral Conference Committee for joint consideration with a view to
reconciling their conflicting provisions.
The Conference Committee came out eventually with a Conference Committee Bill which was submitted to
both chambers of Congress (the Senate and the House). The Conference Committee reported out a bill
consolidating provisions in House Bill No. 11197 and Senate Bill No. 1630. What transpired in both
chambers after the Conference Committee Report was submitted to them is not clear from the records in
this case. What is clear however is that both chambers voted separately on the bill reported out by the
Conference Committee and both chambers approved the bill of the Conference Committee.
To me then, what should really be important is that both chambers of Congress approved the bill reported
out by the Conference Committee. In may considered view, the act of both chambers of Congress in
approving the Conference Committee bill, should put an end to any inquiry by this Court as to how the bill
came out. What is more, such separate approvals CURED whatever constitutional infirmities may have
arisen in the procedures leading to such approvals. For, if such infirmities were serious enough to impugn
the very validity of the measure itself, there would have been an objection or objections from members of
both chambers to the approval. The Court has been shown no such objection on record in both
chambers.chanroblesvirtual|awlibrary
Petitioners contend that there were violations of Sec. 26 paragraph 2, Article VI of the Constitution which

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provides:jgc:chanrobles.com.ph
"Sec. 26. . . .
(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."cralaw
virtua1aw library
in that, when Senate Bill No. 1630 (the Senate counterpart of House Bill No. 11197) was approved by the
Senate, after it had been reported out by the Senate Committee on Ways and Means, the bill went through
second and third readings on the same day (not separate days) and printed copies thereof in its final form
were not distributed to the members of the Senate at least three (3) days before its passage by the
Senate. But we are told by the respondents that the reason for this "short cut" was that the President had
certified to the necessity of the bills immediate enactment to meet an emergency a certification that,
by leave of the same constitutional provision, dispensed with the second and third readings on separate
days and the printed form at least three (3) days before its passage.
We have here then a situation where the President did certify to the necessity of Senate Bill No. 1630s
immediately enactment to meet an emergency and the Senate responded accordingly. While I would be
the last to say that this Court cannot review the exercise of such power by the President in appropriate
cases ripe for judicial review, I am not prepared however to say that the President gravely abused his
discretion in the exercise of such power as to require that this Court overturn his action. We have been
shown no fact or circumstance which would impugn the judgment of the President, concurred in by the
Senate, that there was an emergency that required the immediate enactment of Senate Bill No. 1630. On
the other hand, a becoming respect for a co-equal and coordinate department of government points that
weight and credibility be given to such Presidential judgment.
The authority or power of the Conference Committee to make insertions in and deletions from the bills
referred to it, namely, House Bill No. 11197 and Senate Bill No. 1630 is likewise assailed by petitioners.
Again, what appears important here is that both chambers approved and ratified the bill as reported out by
the Conference Committee (with the reported insertions and deletions). This is perhaps attributable to the
known legislative practice of allowing a Conference Committee to make insertions in and deletions from
bills referred to it for consideration, as long as they are germane to the subject matter of the bills under
consideration. Besides, when the Conference Committee made the insertions and deletions complained of
by petitioners, was it not actually performing the task assigned to it of reconciling conflicting provisions in
House Bill No. 11197 and Senate Bill No. 1630?
This Court impliedly if not expressly recognized the fact of such legislative practice in Philippine Judges
Association, etc. v. Hon. Peters Prado, etc., 5 In said case, we stated thus:jgc:chanrobles.com.ph
"The petitioners also invoke Sec. 74 of the Rules of the House of Representatives, requiring that
amendment to any bill when the House and the Senate shall have differences thereon may be settled by a
conference committee of both chambers. They stress that Sec. 35 was never a subject of any
disagreement between both Houses and so the second paragraph could not have been validly added as an
amendment.
These arguments are unacceptable.
While it is true that a conference committee is the mechanism for compromising differences between the
Senate and the House, it is not limited in its jurisdiction to this question. Its broader function is described
thus:chanrob1es virtual 1aw library
A conference committee may deal generally with the subject matter or it may be limited to resolving the
precise differences between the two houses. Even where the conference committee is not by rule limited in
its jurisdiction, legislative custom severely limits the freedom with which new subject matter can be
inserted into the conference bill. But occasionally a conference committee produces unexpected results,
results beyond its mandate. These excursions occur even where the rules impose strict limitations on
conference committee jurisdiction. This is symptomatic of the authoritarian power of conference
committee (Davies, Legislative Law and Process: In A Nutshell, 1986 Ed., p. 81).
It is a matter of record that the Conference Committee Report on the bill in question was returned to and
duly approved by both the Senate and the House of Representatives. Thereafter, the bill was enrolled with
its certification by Senate President Neptali A. Gonzales and Speaker Ramon V. Mitra of the House of
Representatives as having been duly passed by both Houses of Congress. It was then presented to and
approved by President Corazon C. Aquino on April 3, 1992."cralaw virtua1aw library
It would seem that if corrective measures are in order to clip the powers of the Conference Committee, the
remedy should come from either or both chambers of Congress, not from this Court, under the time-

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honored doctrine of separation of powers.


Finally, as certified by the Secretary of the Senate and the Secretary General of the House of
Representatives
"This Act (Rep. Act No. 7716) is a consolidation of House Bill No. 11197 and Senate Bill No. 1630 (w)as
finally passed by the House of Representatives and the Senate on April 27, 1994 and May 2, 1994
respectively."cralaw virtua1aw library
Under the long-accepted doctrine of the "enrolled bill," the Court in deference to a co-equal and coordinate
branch of government is held to a recognition of Rep. Act No. 7716 as a law validly enacted by Congress
and, thereafter, approved by the President on 5 May 1994. Again, we quote from our recent decision in
Philippine Judges Association, supra:jgc:chanrobles.com.ph
"Under the doctrine of separation of powers, the Court may not inquire beyond the certification of the
approval of a bill from the presiding officers of Congress. Casco Philippine Chemical Co. v. Gimenez 6 laid
down the rule that the enrolled bill is conclusive upon the Judiciary (except in matters that have to be
entered in the journals like the yeas and nays on the final reading of the bill). 7 The journals are
themselves also binding on the Supreme Court, as we held in the old (but still valid) case of U.S. v. Pons, 8
where we explained the reason thus:chanrob1es virtual 1aw library
To inquire into the veracity of the journals of the Philippine legislature when they are, as we have said,
clear and explicit, would be to violate both the letter and spirit of the organic laws by which the Philippine
Government was brought into existence, to invade a coordinate and independent department of the
Government, and to interfere with the legitimate powers and functions of the Legislature.
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."cralaw virtua1aw library
III
Press Freedom and Religious Freedom and Rep. Act No. 7716
The validity of the passage of Rep. Act No. 7716 notwithstanding, certain provisions of the law have to be
examined separately and carefully.
Rep. Act. No. 7716 in imposing a value-added tax on circulation income of newspapers and similar
publications and on income derived from publishing advertisements in newspapers 9, to my mind, violates
Sec. 4, Art. III of the Constitution. Indeed, even the Executive Department has tried to cure this defect by
the issuance of BIR Regulation No. 11-94 precluding implementation of the tax in this area. It should be
clear, however, that the BIR regulation cannot amend the law (Rep. Act No. 7716). Only legislation (as
distinguished from administration regulation) can amend an existing law.chanrobles.com.ph : virtual law
library
Freedom of the press was virtually unknown in the Philippines before 1900. In fact, a prime cause of the
revolution against Spain at the turn of the 19th century was the repression of the freedom of speech and
expression and of the press. No less than our national hero, Dr. Jose P. Rizal, in "Filipinas Despues de Cien
Anos" (The Philippines a Century Hence) describing the reforms sine quibus non which the Filipinos were
insisting upon, stated: "The minister . . . who wants his reforms to be reforms, must begin by declaring the
press in the Philippines free. . ." 10
Press freedom in the Philippines has met repressions, most notable of which was the closure of almost all
forms of existing mass media upon the imposition of martial law on 21 September 1972.
Section 4, Art. III of the Constitution maybe traced to the United States Federal Constitution. The guarantee
of Freedom of Expression was planted in the Philippines by President McKinley in the Magna Carta of
Philippine Liberty, Instructions to the Second Philippine Commission on 7 April 1900.
The present constitutional provision which reads:jgc:chanrobles.com.ph
"Sec. 4 No law shall be passed abridging the freedom of speech, of expression, or of the press, or the right
of the people peaceably to assemble and petition the government for redress of grievances."cralaw
virtua1aw library
is essentially the same as that guaranteed in the U.S. Federal Constitution, for which reason, American
case law giving judicial expression as to it meaning is highly persuasive in the Philippines.

135

The plain words of the provision reveal the clear intention that no prior restraint can be imposed on the
exercise of free speech and expression if they are to remain effective and meaningful.chanrobles virtual
lawlibrary
The U.S. Supreme Court in the leading case of Grosjean v. American Press Co., Inc. 11 declared a statute
imposing a gross receipts license tax of 2% on circulation and advertising income of newspaper publishers
as constituting a prior restraint which is contrary to the guarantee of freedom of the press.
In Bantam Books, Inc. v. Sullivan, 12 the U.S. Supreme Court stated: "Any system of prior restraint of
expression comes to this Court bearing a heavy presumption against its constitutionality."cralaw virtua1aw
library
In this jurisdiction, prior restraint on the exercise of free expression can be justified only on the ground that
there is a clear and present danger of a substantive evil which the State has the right to prevent. 13
In the present case, the tax imposed on circulation and advertising income of newspaper publishers is in
the nature of a prior restraint on circulation and free expression and, absent a clear showing that the
requisite for prior restraint is present, the constitutional flaw in the law is at once apparent and should not
be allowed to proliferate.
Similarly, the imposition of the VAT on the sale and distribution of religious articles must be struck down for
being contrary to Sec. 5, Art. III of the Constitution which provides:jgc:chanrobles.com.ph
"Sec. 5. No law shall be made respecting an establishment of religion, or prohibiting the free exercise
thereof. The free exercise and enjoyment of religious profession and worship, without discrimination or
preference, shall forever be allowed. No religious test shall be required for the exercise of civil or political
rights."cralaw virtua1aw library
That such a tax on the sale and distribution of religious articles is unconstitutional, has been long settled in
American Bible Society, supra.
Insofar, therefore, as Rep. Act No. 7716 imposes a value-added tax on the exercise of the above-discussed
two (2) basic constitutional rights, Rep. Act No. 7716 should be declared unconstitutional and of no legal
force and effect.
IV
Petitions of CREBA and PAL and Rep. Act No. 7716
The Chamber of Real Estate and Builders Association, Inc. (CREBA) filed its own petition (GR No. 11574)
arguing that the provisions of Rep. Act No. 7716 imposing a 10% value-added tax on the gross selling price
or gross value in money of every sale, barter or exchange of goods or properties (Section 2) and a 10%
value-added tax on gross receipts derived from the sale or exchange of services, including the use or lease
of properties (Section 3), violate the equal protection, due process and non-impairment provisions of the
Constitution as well as the rule that taxation should be uniform, equitable and progressive.
The issue of whether or not the value-added tax is uniform, equitable and progressive has been settled in
Kapatiran.
CREBA which specifically assails the 10% value-added tax on the gross selling price of real properties, fails
to distinguish between a sale of real properties primarily held for sale to customers or held for lease in the
ordinary course of trade or business and isolated sales by individual real property owners (Sec. 103[s]).
That those engaged in the business of real estate development realize great profits is of common
knowledge and need not be discussed at length here. The qualification in the law that the 10% VAT covers
only sales of real property primarily held for sale to customers, i.e. for trade or business thus takes into
consideration a taxpayers capacity to pay. There is no showing that the consequent distinction in real
estate sales is arbitrary and in violation of the equal protection clause of the Constitution. The inherent
power to tax of the State, which is vested in the legislature, includes the power to determine whom or
what to tax, as well as how much to tax. In the absence of a clear showing that the tax violates the due
process and equal protection clauses of the Constitution, this Court, in keeping with the doctrine of
separation of powers, has to defer to the discretion and judgment of Congress on this point.
Philippine Airlines (PAL) in a separate petition (G.R. No. 115852) claims that its franchise under PD No.
1590 which makes it liable for a franchise tax of only 2% of gross revenues "in lieu of all the 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," cannot be
amended by Rep. Act No. 7716 as to make it (PAL) liable for a 10% value-added tax on revenues, because
Sec. 24 of PD No. 1590 provides that PALs franchise can only be amended, modified or repealed by a
special law specifically for that purpose.
The validity of PALS above argument can be tested by ascertaining the true intention of Congress in

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enacting Rep. Act No. 7716. Sec. 4 thereof dealing with Exempt Transactions states:jgc:chanrobles.com.ph
"Section 103. Exempt Transactions. The following shall be exempt from the value-added tax:chanrob1es
virtual 1aw library
x
x
x
(q) Transactions which are exempt under special law, except those granted under Presidential Decrees No.
66, 529, 972, 1491, 1590, . . ." (Emphasis supplied)
The repealing clause of Rep. Act No. 7716 further reads:jgc:chanrobles.com.ph
"Sec. 20. Repealing clauses. The provisions of any special law relative to the rate of franchise taxes are
hereby expressly repealed.
x
x
x
All other laws, orders, issuances, rules and regulations or parts thereof inconsistent with this Act are
hereby repealed, amended or modified accordingly" (Emphasis supplied)
There can be no dispute, in my mind, that the clear intent of Congress was to modify PALs franchise with
respect to the taxes it has to pay. To this extent, Rep. Act No. 7716 can be considered as a a special law
amending PALs franchise and its tax liability thereunder. That Rep. Act. No. 7716 imposes the value-added
taxes on other subjects does not make it a general law which cannot amend PD No. 1590.
To sum up: it is my considered view that Rep. Act No. 7716 (the expanded value-added tax) is a valid law,
viewed from both substantive and procedural standards, except only insofar as it violates Secs. 4 and 5,
Art. III of the Constitution (the guarantees of freedom of expression and the free exercise of religion). To
that extent, it is, in its present form, unconstitutional.
I, therefor, vote to DISMISS the petitions, subject to the above qualification.
REGALADO, J., dissenting:chanrob1es virtual 1aw library
It would seem like an inconceivable irony that Republic Act No. 7716 which, so respondents claim, was
conceived by the collective wisdom of a bicameral Congress and crafted with sedulous care by two
branches of government should now be embroiled in challenges to its validity for having been enacted in
disregard of mandatory prescriptions of the Constitution itself. Indeed, such impugnment by petitioners
goes beyond merely the procedural flaws in the parturition of the law. Creating and regulating as it does
definite rights to property, but with its own passage having been violative of explicit provisions of the
organic law, even without going into the intrinsic merits of the provisions of Republic Act No. 7716 its
substantive invalidity is pro facto necessarily entailed.
How it was legislated into its present statutory existence is not in serious dispute and need not detain us
except for a recital of some salient and relevant facts. The House of Representatives passed House Bill No.
11197 1 on third reading on November 17, 1993 and, the following day, it transmitted the same to the
Senate for concurrence. On its part, the Senate approved Senate Bill No. 1630 on second and third
readings on March 24, 1994. It is important to note in this regard that on March 22, 1994, said S.B. No.
1630 had been certified by President Fidel V. Ramos for immediate enactment to meet a public emergency,
that is, a growing budgetary deficit. There was no such certification for H.B. No. 11197 although it was the
initiating revenue bill.chanrobles lawlibrary : rednad
It is, therefore, not only a curious fact but, more importantly, an invalid procedure since that Presidential
certification was erroneously made for and confined to S.B. No. 1630 which was indisputably a tax bill and,
under the Constitution, could not validly originate in the Senate. Whatever is claimed in favor of S.B. No.
1630 under the blessings of that certification, such as its alleged exemption from the three separate
readings requirement, is accordingly negated and rendered inutile by the inefficacious nature of said
certification as it could lawfully have been issued only for a revenue measure originating exclusively from
the lower House. To hold otherwise would be to validate a Presidential certification of a bill initiated in the
Senate despite the Constitutional prohibition against its originating therefrom.
Equally of serious significance is the fact that S.B. No. 1630 was reported out in Committee Report No. 349
submitted to the Senate on February 7, 1994 and approved by that body "in substitution of S.B. No. 1129,"
while merely "taking into consideration O.S. No. 734 and H.B. No. 11197." 2 S.B. No. 1630, therefore, was
never filed in substitution of either P.S. No. 734 or, more emphatically, of H.B. No. 11197 as these two
legislative issuances were merely taken account of, at the most, as referential bases or materials.
This is not a play on misdirection for, in the first instance, the respondents assure us that H.B. No. 11197
was actually the sole source of and stated the whole legislative process which culminated in Republic Act
No. 7716. The participation of the Senate in enacting S.B. No. 1630 was, it is claimed, justified as it was
merely in pursuance of its power to concur in or propose amendments to H.B. No. 11197. Citing the 83-

137

year old case of Flint v. Stone Tracy Co., 3 it is blithely announced that such power to amend includes an
amendment by substitution, that is, even to the extent of substituting the entire H.B. No. 11197 by an
altogether completely new measure of Senate provenance. Ergo, so the justification goes, the Senate
acted perfectly in accordance with its amending power under Section 24, Article VI of the Constitution
since it merely proposed amendments through a bill allegedly prepared in advance.
This is a mode of argumentation which, by reason of factual inaccuracy and logical implausibility, both
astounds and confounds. For, it is of official record that S.B. No. 1630 was filed, certified and enacted in
substitution of S.B. No. 1129 which in itself was likewise in derogation of the Constitutional prohibition
against such initiation of a tax bill in the Senate. In any event, S.B. No. 1630 was neither intended as a bill
to be adopted by the Senate nor to be referred to the bicameral conference committee as a substitute for
H.B. No. 11197. These indelible facts appearing in official documents cannot be erased by any amount of
strained convolutions or incredible pretensions that S.B. No. 1630 was supposedly enacted in anticipation
of H.B. No. 11197.
On that score alone, the invocation by the Solicitor General of the hoary concept of amendment by
substitution falls flat on its face. Worse, his concomitant citation of Flint to recover from that prone position
only succeeded in turning the same postulation over, this time supinely flat on its back. As elsewhere
noted by some colleagues, which I will just refer to briefly to avoid duplication, respondents initially sought
sanctuary in that doctrine supposedly laid down in Flint, thus: "It has, in fact, been held that the
substitution of an entirely new measure for the one originally proposed can be supported as a valid
amendment." 4 (Emphasis supplied.) During the interpellation by the writer at the oral argument held in
these cases, the attention of the Solicitor General was called to the fact that the amendment in Flint
consisted only of a single item, that is, the substitution of a corporate tax for an inheritance tax proposed
in a general revenue bill; and that the text of the decision therein nowhere contained the supposed
doctrines he quoted and ascribed to the court, as those were merely summations of arguments of counsel
therein. It is indeed a source of disappointment for us, but an admission of desperation on his part, that,
instead of making a clarification or a defense of his contention, the Solicitor General merely reproduced all
over again 5 the same quotations as they appeared in his original consolidated comment, without
venturing any explanation or justification.
The aforestated dissemblance, thus unmasked, has further undesirable implications on the contentions
advanced by respondents in their defense. For, even indulging respondents ex gratia argumenti in their
pretension that S.B. No. 1630 substantiated or replaced H.B. No. 11197, aside from muddling the issue of
the true origination of the disputed law, this would further enmesh respondents in a hopeless
contradiction.chanrobles virtual lawlibrary
In a publication authorized by the Senate and from which the Solicitor General has liberally quoted, it is
reported as an accepted rule therein that" (a)n amendment by substitution when approved takes the place
of the principal bill. C.R. March 19, 1963, p. 943." 6 Stated elsewise, the principal bill is supplanted and
goes out of actuality. Applied to the present situation, and following respondents submission that H.B. No.
11197 had been substituted or replaced in its entirety, then in law it had no further existence for purpose
of the subsequent stages of legislation except, possibly, for referential data.
Now, the enrolled bill thereafter submitted to the President of the Philippines, signed by the President of
the Senate and the Speaker of the House of Representatives, carried this solemn certification over the
signatures of the respective secretaries of both chambers: "This Act which is a consolidation of House Bill
No. 11197 and Senate Bill No. 1630 was finally passed by the House of Representatives and the Senate on
April 27, 1994, and May 2, 1994." (Italics mine.) In reliance thereon, the Chief Executive signed the same
into law as Republic Act No. 7716.
The confusion to which the writer has already confessed is now compounded by that official text of the
aforequoted certification which speaks, and this cannot be a mere lapsus calami, of two independent and
existing bills (one of them being H.B. No. 11197) which were consolidated to produce the enrolled bill. In
parliamentary usage, to consolidate two bills, is to unite them into one 7 and which, in the case at bar,
necessarily assumes that H.B. No. 1 1197 never became legally inexistent. But did not the Solicitor
General, under the theory of amendment by substitution of the entire H.B. No. 11197 by S.B. No. 1630,
thereby premise the same upon the replacement, hence the total elimination from the legislative process,
of H.B. 11197?
It results, therefore, that to prove compliance with the requirement for the exclusive origination of H.B. No.
11197, two alternative but inconsistent theories had to be espoused and defended by respondents
counsel. To justify the introduction and passage of S.B. No. 1630 in the Senate, it was supposedly enacted
only as an amendment by substitution, hence on that theory H.B. No. 11197 had to be considered as
displaced and terminated from its role or existence. Yet, likewise for the same purpose but this time on the
theory of origination by consolidation, H.B. No. 11197 had to be resuscitated so it could be united or
merged with S. B. No. 1630. This latter alternative theory, unfortunately, also exacerbates the
constitutional defect for then it is an admission of a dual origination of the two tax bills, each respectively
initiated in and coming from the lower and upper chambers of Congress.
Parenthetically, it was also this writer who pointedly brought this baffling situation to the attention of the

138

Solicitor General during the aforesaid oral argument, to the extent of reading aloud the certification in full.
We had hoped thereby to be clarified on these vital issue in respondents projected memorandum, but we
have not been favored with an explanation unraveling this dilemma. Verily, by passing sub silentio on
these intriguing submissions, respondents have wreaked havoc on both logic and law just to gloss over
their non-compliance with the Constitutional mandate for exclusive origination of a revenue bill. The
procedure required therefor, we emphatically add, can be satisfied only by complete and strict compliance
since this is laid down by the Constitution itself and not by a merely statute.
This writer consequently agrees with the clearly tenable proposition of petitioners that when the Senate
passed and approved S.B. No. 1630, had it certified by the Chief Executive, and thereafter caused its
consideration by the bicameral conference committee in total substitution of H.B. No. 11197, it clearly and
deliberately violated the requirements of the Constitution not only in the origination of the bill but in the
very enactment of Republic Act No. 7716. Contrarily, the shifting sands of inconsistency in the arguments
adduced for respondents betray such lack of intellectual rectitude as to give the impression of being mere
rhetorics in defense of the indefensible.
We are told, however, that by our discoursing on the foregoing issues we are intruding into non-justiciable
areas long declared verboten by such time-honored doctrines as those on political questions, the enrolled
bill theory and the respect due to two co-equal and coordinate branches of Government, all derived from
the separation of powers inherent in republicanism. We appreciate the lectures, but we are not exactly
unaware of the teachings in U.S. v. Pons, 8 Mabanag v. Lopez Vito, 9 Casco Philippine Chemical Co., Inc. v.
Gimenez, etc., Et Al., 10 Morales v. Subido, etc., 11 and Philippine Judges Association, etc., Et. Al. v. Prado,
etc., Et Al., 12 on the one hand, and Taada, Et. Al. v. Cuenco, Et Al., 13 Sanidad, Et. Al. v. Commission on
Elections, Et Al., 14 and Daza v. Singson, Et Al., 15 on the other, to know which would be applicable to the
present controversy and which should be rejected.
But, first, a positional exordium. The writer of this opinion would be among the first to acknowledge and
enjoin not only courtesy to, but respect for, the official acts of the Executive and Legislative departments,
but only so long as the same are in accordance with or are defensible under the fundamental charter and
the statutory law. He would readily be numbered in the ranks of those who would preach a reasoned
sermon on the separation of powers, but with the qualification that the same are not contained in tripartite
compartments separated by impermeable membranes. He also ascribes to the general validity of
American constitutional doctrines as a matter of historical and legal necessity, but not to the extent of
being oblivious to political changes or unmindful of the fallacy of undue generalization arising from myopic
disregard of the factual setting of each particular case.
These ruminations have likewise been articulated and dissected by my colleagues, hence it is felt that the
only issue which must be set aright in this dissenting opinion is the so-called enrolled bill doctrine to which
we are urged to cling with reptilian tenacity. It will be preliminarily noted that the official certification
appearing right on the face of Republic Act No. 7716 would even render unnecessary any further judicial
inquiry into the proceedings which transpired in the two legislative chambers and, on a parody of
tricameralism, in the bicameral conference committee. Moreover, we have the excellent dissertations of
some of my colleagues on these matters, but respondents insist en contra that the congressional
proceedings cannot properly be inquired into by this Court. Such objection confirms a suppressive pattern
aimed at sacrificing the rule of law to the fiat of expediency.chanrobles.com : virtual law library
Respondents thus emplaced on their battlements the pronouncements of this Court in the aforecited case
of Philippine Judges Association v. Prado. 16 Their reliance thereon falls into the same error committed by
their seeking refuge in the Flint case, ante. which, as has earlier been demonstrated (aside from the
quotational misrepresentation), could not be on par with the factual situation in the present case. Flint, to
repeat, involved a mere amendment on a single legislative item, that is, substituting the proposal therein
of an inheritance tax by one on corporate tax. Now, in their submission based on Philippine Judges
Association, respondents studiously avoid mention of the fact that the questioned insertion referred
likewise to a single item, that is, the repeal of the franking privilege theretofore granted to the judiciary.
That both cases cannot be equated with those at bar, considering the multitude of items challenged and
the plethora of constitutional violations involved, is too obvious to belabor. Legal advocacy and judicial
adjudication must have a becoming sense of qualitative proportion, instead of lapsing into the discredited
and maligned practice of yielding blind adherence to precedents.
The writer unqualifiedly affirms his respect for valid official acts of the two branches of government and
eschews any unnecessary intrusion into their operational management and internal affairs. These, without
doubt, are matters traditionally protected by the republican principle of separation of powers. Where,
however, there is an overriding necessity for judicial intervention in light of the pervasive magnitude of the
problems presented and the gravity of the constitutional violations alleged, but this Court cannot perform
its constitutional duty expressed in Section 1, Article VIII of the Constitution unless it makes the
inescapable inquiry, then the confluence of such factors should compel an exception to the rule as an
ultimate recourse. The cases now before us present both the inevitable challenge and the inescapable
exigency for judicial review. For the Court to now shirk its bounden duty would not only project it as a
citadel of the timorous and the slothful, but could even undermine its raison detre as the highest and
ultimate tribunal.

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Hence, this dissenting opinion has touched on events behind and which transpired prior to the
presentation of the enrolled bill for approval into law. The details of that law which resulted from the
legislative action followed by both houses of Congress, the substantive validity of whose provisions and the
procedural validity of which legislative process are here challenged as unconstitutional, have been
graphically presented by petitioners and admirably explained in the respective opinions of my brethren.
The writer concurs in the conclusions drawn therefrom and rejects the contention that we have
unjustifiably breached the dike of the enrolled bill doctrine.
Even in the land of its source, the so-called conclusive presumption of validity originally attributed to that
doctrine has long been revisited and qualified, if not altogether rejected. On the competency of judicial
inquiry, it has been held that" (u)under the enrolled bill rule by which an enrolled bill is sole expository of
its contents and conclusive evidence of its existence and valid enactment, it is nevertheless competent for
courts to inquire as to what prerequisites are fixed by the Constitution of which journals of respective
houses of Legislature are required to furnish the evidence." 17
In fact, in Gwynn v. Hardee, etc., Et Al., 18 the Supreme Court of Florida declared:jgc:chanrobles.com.ph
"(1) While the presumption is that the enrolled bill, as signed by the legislative officers and filed with the
secretary of state, is the bill as it passed, yet this presumption is not conclusive, and when it is shown from
the legislative journals that a bill though engrossed and enrolled, and signed by the legislative officers,
contains provisions that have not passed both houses, such provisions will be held spurious and not a part
of the law. As was said by Mr. Justice Cockrell in the case of Wade v. Atlantic Lumber Co., 51 Fla. 628, text
633, 41 So. 72, 73:chanrob1es virtual 1aw library
This Court is firmly committed to the holding that when the journals speak they control, and against such
proof the enrolled bill is not conclusive."
More enlightening and apropos to the present controversy is the decision promulgated on May 13, 1980 by
the Supreme Court of Kentucky in D & W Auto Supply, Et. Al. v. Department of Revenue, Et Al., 19 pertinent
excerpts wherefrom are extensively reproduced hereunder:jgc:chanrobles.com.ph
". . . In arriving at our decision we must, perforce, reconsider the validity of a long line of decisions of this
court which created and nurtured the so-called enrolled bill doctrine.
x
x
x
" [1] Section 46 of the Kentucky Constitution sets out certain procedures that the legislature must follow
before a bill can be considered for final passage. . . .
x
x
x
". . . Under the enrolled bill doctrine as it now exists in Kentucky, a court may not look behind such a bill,
enrolled and certified by the appropriate officers, to determine if there are any defects.
x
x
x
". . . In Lafferty, passage of the law in question violated this provision, yet the bill was properly enrolled
and approved by the governor. In declining to look behind the law to determine the propriety of its
enactment, the court enunciated three reasons for adopting the enrolled bill rule. First, the court was
reluctant to scrutinize the processes of the legislature, an equal branch of government. Second, reasons of
convenience prevailed, which discouraged requiring the legislature to preserve its records and anticipated
considerable complex litigation if the court ruled otherwise. Third, the court acknowledged the poor recordkeeping abilities of the General Assembly and expressed a preference for accepting the final bill as
enrolled, rather than opening up the records of the legislature. . . .
x
x
x
"Nowhere has the rule been adopted without reason, or as a result of judicial whim. There are four
historical bases for the doctrine. (1) An enrolled bill was a record and, as such, was not subject to attack
at common law. (2) Since the legislature is one of the three branches of government, the courts, being
coequal, must indulge in every presumption that legislative acts are valid. (3) When the rule was originally
formulated, record-keeping of the legislatures was so inadequate that a balancing of equities required that
the final act, the enrolled bill, be given efficacy. (4) There were theories of convenience as expressed by
Kentucky court in Lafferty.
"The rule is not unanimous in the several states, however, and it has not been without its critics. From an
examination of cases and treaties, we can summarize the criticisms as follows: (1) Artificial presumptions,
especially conclusive ones, are not favored. (2) Such a rule frequently (as in the present case) produces
results which do not accord with facts or constitutional provisions. (3) The rule is conducive to fraud,
forgery, corruption and other wrongdoings. (4) Modern automatic and electronic record-keeping devices
now used by legislatures remove one of the original reasons for the rule. (5) The rule disregards the

140

primary obligation of the courts to seek the truth and to provide a government. In light of these
considerations, we are convinced that the time has come to re-examine the enrolled bill doctrine.
" [2] This court is not unmindful of the admonition of the doctrine of stare decisis. The maxim is "Stare
decisis et non quieta movere," which simply suggests that we stand by precedents and not disturb settled
points of law. Yet, this rule is not inflexible, nor is it of such a nature as to require perpetuation of error or
logic. As we stated in Daniels Admr v. Hoofnel, 287 Ky 834, 155 S.W. 2d 469, 471-72 (1941) (Citations
omitted):chanrob1es virtual 1aw library
The force of the rule depends upon the nature of the question to be decided and the extent of the
disturbance of rights and practices which a change in the interpretation of the law or the course of judicial
opinions may create. Cogent considerations are whether there is clear error and urgent reasons for neither
justice nor wisdom requires a court to go from one doubtful rule to another, and whether or not the evils
of the principle that has been followed will be more injurious than can possibly result from a change.
Certainly, when a theory supporting a rule of law is not grounded on facts, or upon sound logic, or is
unjust, or has been discredited by actual experience, it should be discarded, and with it the rule it
supports.
" [3] It is clear to us that the major premise of the Lafferty decision, the poor record-keeping of the
legislature, has disappeared. Modern equipment and technology are the rule in record-keeping by our
General Assembly. Tape recorders, electric typewriters, duplicating machines, recording equipment,
printing presses, computers, electronic voting machines, and the like remove all doubts and fears as to the
ability of the General Assembly to keep accurate and readily accessible records.
"It is also apparent that the convenience rule is not appropriate in todays modern and developing judicial
philosophy. The fact that the number and complexity of lawsuits may increase is not persuasive if one is
mindful that the overriding purpose of our judicial system is to discover the truth and see that justice is
done. The existence of difficulties and complexities should not deter this pursuit and we reject any doctrine
or presumption that so provides.
"Lastly, we address the premise that the equality of the various branches of government requires that we
shut our eyes to constitutional failings and other errors of our coparceners in government. We simply do
not agree. Section 26 of the Kentucky Constitution provides that any law contrary to the constitution is
void. The proper exercise of judicial authority requires us to recognize any law which is unconstitutional
and to declare it void. Without belaboring the point, we believe that under section 228 of the Kentucky
Constitution it is our obligation to support . . . the Constitution of the commonwealth. We are sworn to see
that violations of the constitution by any person, corporation, state agency or branch of government
are brought to light and corrected. To countenance an artificial rule of law that silences our voices when
confronted with violations of our constitution is not acceptable to this court.
"We believe that a more reasonable rule is the one which Professor Sutherland describes as the extrinsic
evidence rule. . . . Under this approach there is a prima facie presumption that an enrolled bill is valid, but
such presumption may be overcome by clear, satisfactorily and convincing evidence establishing that
constitutional requirements have not been met.
"We therefore overrule Lafferty v. Huffman and all other cases following the so-called enrolled bill doctrine,
to the extent that there is no longer a conclusive presumption that an enrolled bill is valid. . . ." (Emphases
mine.)
Undeniably, the value-added tax system may have its own merits to commend its continued adoption, and
the proposed widening of its base could achieve laudable governmental objectives if properly formulated
and conscientiously implemented. We would like to believe, however, that ours is not only an enlightened
democracy nurtured by a policy of transparency but one where the edicts of the fundamental law are
sacrosanct for all, barring none. While the realization of the lofty ends of this administration should indeed
be the devout wish of all, likewise barring none, it can never be justified by methods which even, if
unintended, are suggestive of Machiavellism.
Accordingly, I vote to grant the instant petitions and to invalidate Republic Act No. 7716 for having been
enacted in violation of Section 24, Article VI of the Constitution.
DAVIDE, JR., J., dissenting:chanrob1es virtual 1aw library
The legislative history of R.A. No. 7716, as highlighted in the Consolidated Memorandum for the public
respondents submitted by the Office of the Solicitor General, demonstrates beyond doubt that it was
passed in violation or deliberate disregard of mandatory provisions of the Constitution and of the rules of
both chambers of Congress relating to the enactment of bills.
I therefore vote to strike down R.A. No. 7716 as unconstitutional and as having been enacted with grave
abuse of discretion.chanroblesvirtualawlibrary

141

The Constitution provides for a bicameral Congress. Therefore, no bill can be enacted into law unless it is
approved by both chambers the Senate and the House of Representatives (hereinafter House).
Otherwise stated, each chamber may propose and approve a bill, but until it is submitted to the other
chamber and passed by the latter, it cannot be submitted to the President for its approval into law.
Paragraph 2, Section 26, Article VI of the Constitution provides:jgc:chanrobles.com.ph
"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."cralaw
virtua1aw library
The "three readings" refer to the three readings in both chambers.
There are, however, bills which must originate exclusively in the House. Section 24, Article VI of the
Constitution enumerates them:jgc:chanrobles.com.ph
"Sec. 24. 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."cralaw virtua1aw library
Websters Third New International Dictionary 1 defines originate as follows:jgc:chanrobles.com.ph
"vt 1: to cause the beginning of: give rise to: INITIATE . . . 2. to start (a person or thing) on a course or
journey . . . vi: to take or have origin: be derived: ARISE, BEGIN, START . . ."cralaw virtua1aw library
Blacks Law Dictionary 2 defines the word exclusively in this wise:jgc:chanrobles.com.ph
"Apart from all others; only; solely; substantially all or for the greater part. To the exclusion of all others;
without admission of others to participation; in a manner of exclude."cralaw virtua1aw library
In City Mayor v. The Chief of Philippine Constabulary, 3 this Court said:jgc:chanrobles.com.ph
"The term exclusive in its usual and generally accepted sense, means possessed to the exclusion of
others; appertaining to the subject alone, not including, admitting or pertaining to another or others,
undivided, sole. (15 Words and Phrases, p. 510, citing Mitchel v. Tulsa Water, Light, Heat and Power Co., 95
P. 961, 21 Okl. 243; and p. 513, citing Commonwealth v. Superintendent of House of Correction, 64 Pa.
Super. 613, 615)."cralaw virtua1aw library
Indisputably then, only the House can cause the beginning or initiate the passage of any appropriation,
revenue, or tariff bill, any bill increasing the public debt, any bill of local application, or any private bill. The
Senate can only "propose or concur with amendments." chanrobles law library
Under the Rules of the Senate, the first reading is the reading of the title of the bill and its referral to the
corresponding committee; the second reading consist of the reading of the bill in the form recommended
by the corresponding committee; and the third reading is the reading of the bill in the form it will be after
approval on second reading. 4 During the second reading, the following takes place:chanrob1es virtual
1aw library
(1) Second reading of the bill;
(2) Sponsorship by the Committee Chairman or any member designated by the corresponding committee;
(3) If a debate ensues, turns for and against the bill shall be taken alternately;
(4) The sponsor of the bill closes the debate;
(5) After the close of the debate, the period of amendments follows;
(6) Then, after the period of amendments is closed, the voting on the bill on second reading. 5
After approval on second reading, printed copies thereof in its final form shall be distributed to the
Members of the Senate at least three days prior to the third reading, except in cases of certified bills. At
the third reading, the final vote shall be taken and the yeas and nays shall be entered in the Journal. 6
Under the Rules of the House, the first reading of a bill consists of a reading of the number, title, and
author followed by the referral to the appropriate committees; 7 the second reading consists of the reading
in full of the bill with the amendments proposed by the committee, if any; 8 and the third reading is the
reading of the bill in the form as approved on second reading and takes place only after printed copies

142

thereof in its final form have been distributed to the Members at least three days before, unless the bill is
certified.9 At the second reading, the following takes place:chanrob1es virtual 1aw library
(1) Reading of the bill;
(2) Sponsorship;
(3) Debates;
(4) Period of Amendments; and
(5) Voting on Second Reading. 10
At the third reading, the votes shall be taken immediately and the yeas and nays entered in the Journal.
11
Clearly, whether in the Senate or in the House, every bill must pass the three readings on separate days,
except when the bill is certified. Amendments to the bill on third reading are constitutionally prohibited. 12
After its passage by one chamber, the bill should then be transmitted to the other chamber for its
concurrence. Section 83, Rule XIV of the Rules of the House expressly provides:jgc:chanrobles.com.ph
"Sec. 83. Transmittal to Senate. The Secretary General, without need of express order, shall transmit to
the Senate for its concurrence all the bills and joint or concurrent resolutions approved by the House or the
amendments of the House to the bills or resolutions of the Senate, as the case may be. If the measures
approved without amendments are bills or resolutions of the Senate, or if amendments of the Senate to
bills of the House are accepted, he shall forthwith notify the Senate of the action taken."cralaw virtua1aw
library
Simplified, this rule means that:chanrob1es virtual 1aw library
1. As to a bill originating in the House:chanrob1es virtual 1aw library
(a) Upon its approval of the House, the bill shall be transmitted to the Senate;
(b) The Senate may approve it with or without amendments;
(c) The Senate returns the bill to the House;
(d) The House may accept the Senate amendments; if it does not, the Secretary General shall notify the
Senate of that action. As hereinafter be shown, a request for conference shall then be in order.
2. As to bills originating in the Senate:chanrob1es virtual 1aw library
(a) Upon its approval by the Senate, the bill shall be transmitted to the House;
(b) The House may approve it with or without amendments;
(c) The House then returns it to the Senate, informing it of the action taken;
(d) The Senate may accept the House amendments; if it does not, it shall notify the House and make a
request for conference.
The transmitted bill shall then pass three readings in the other chamber on separate days. Section 84, Rule
XIV of the Rules of the House states:jgc:chanrobles.com.ph
"Sec. 84. Bills from the Senate. The bills, resolutions and communications of the Senate shall be referred
to the corresponding committee in the same manner as bills presented by Members of the House."cralaw
virtua1aw library
and Section 51, XXIII of the Rules of the Senate provides:jgc:chanrobles.com.ph
"Sec. 51. Prior to their final approval, bills and joint resolutions shall be read at least three times."cralaw
virtua1aw library
It is only when the period of disagreement is reached, i.e., amendments proposed by one chamber to a bill
originating from the other are not accepted by the latter, that a request for conference is made or is in
order. The request for conference is specifically covered by Section 26, Rule XII of the Rules of the Senate
which reads:jgc:chanrobles.com.ph
"Sec. 26. In the event that the Senate does not agree with the House of Representatives on the provision

143

of any bill or joint resolution, the differences shall be settled by a conference committee of both Houses
which shall meet within ten days after its composition."cralaw virtua1aw library
and Section 85, Rule XIV of the Rules of the House which reads:jgc:chanrobles.com.ph
"Sec. 85. Conference Committee Reports. In the event that the House does not agree with the Senate on
the amendments to any bill or joint resolution, the differences may be settled by conference committees of
both Chambers."
The foregoing provisions of the Constitution and the Rules of both chambers of Congress are mandatory.
In his Treatise On The Constitutional Limitations, 13 more particularly on enactment of bills, Cooley states:
"Where, for an instance, the legislative power is to be exercised by two houses, and by settled and wellunderstood parliamentary law these two houses are to hold separate sessions for their deliberations, and
the determination of the one upon a proposed law is to be submitted to the separate determination of the
other, the constitution, in providing for two houses, has evidently spoken in reference to this settled
custom, incorporating it as a rule of constitutional interpretation; so that it would require no prohibitory
clause to forbid the two houses from combining in one, and jointly enacting laws by the vote of a majority
of all. All those rules which are of the essentials of law-making must be observed and followed; and it is
only the customary rules of order and routine, such as in every deliberative body are always understood to
be under its control, and subject to constant change at its will, that the constitution can be understood to
have left as matters of discretion, to be established, modified, or abolished by the bodies for whose
government in non-essential matters they exist."cralaw virtua1aw library
In respect of appropriation, revenue, or tariff bills, bills increasing the public debt, bills of local application,
or private bills, the return thereof to the House after the Senate shall have "proposed or concurred with
amendments" for the former either to accept or reject the amendments would not only be in conformity
with the foregoing rules but is also implicit from Section 24 of Article VI.
With the foregoing as our guiding light, I shall now show the violations of the Constitution and of the Rules
of the Senate and of the House in the passage of R.A. No. 7716.
VIOLATIONS OF SECTION 24, ARTICLE VI
OF THE CONSTITUTION:chanrob1es virtual 1aw library
First violation. Since R.A. No. 7716 is a revenue measure, it must originate exclusively in the House
not in the Senate. As correctly asserted by petitioner Tolentino, on the face of the enrolled copy of R.A. No.
7716, it is a "CONSOLIDATION OF HOUSE BILL No. 11197 AND SENATE BILL No. 1630." In short, it is an illicit
marriage of a bill which originated in the House and a bill which originated in the Senate. Therefore, R.A.
No. 7716 did not originate exclusively in the House.
The only bill which could serve as a valid basis for R.A. No. 7716 is House Bill (HB) No. 11197. This bill,
which is the substitute bill recommended by the House Committee on Ways and Means in substitution of
House Bills Nos. 253, 771, 2450, 7033, 8086, 9030, 9210, 9397, 10012, and 10100, and covered by its
Committee Report No. 367, 14 was approved on third reading by the House on 17 November 1993. 15
Interestingly, HB No. 9210, 16 which was filed by Representative Exequiel B. Javier on 19 May 1993, was
certified by the President in his letter to Speaker Jose de Venecia, Jr. of 1 June 1993. 17 Yet, HB No. 11197,
which substituted HB No. 9210 and the others above-stated, was not. Its certification seemed to have been
entirely forgotten.chanrobles law library : red
On 18 November 1993, the Secretary-General of the House, pursuant to Section 83, Rule XIV of the Rules
of the House, transmitted to the President of the Senate HB No. 11197 and requested the concurrence of
the Senate therewith. 18
However, HB No. 11197 had passed only its first reading in the Senate by its referral to its Committee on
Ways and Means. That Committee never deliberated on HB No. 11197 as it should have. It acted only on
Senate Bill (SB) No. 1129 19 introduced by Senator Ernesto F. Herrera on 1 March 1993. It then prepared
and proposed SB No. 1630, and in its Committee Report No. 349 20 which was submitted to the Senate on
7 February 1994, 21 it recommended that SB No. 1630 be approved "in substitution of S.B. No. 1129,
taking into consideration P.S. Res. No. 734 and H.B. No. 11197." 22 It must be carefully noted that S.B. No.
1630 was proposed and submitted for approval by the Senate in SUBSTITUTION of SB No. 1129, and not HB
No. 11197. The latter, instead of being the only measure to be taken up, deliberated upon, and reported
back to the Senate for its consideration on second reading and, eventually, on third reading was, at the
most, merely given by the Committee a passing glance.
This specific unequivocal action of the Senate Committee on Ways and Means, i.e., proposing and
recommending approval of SB No. 1630 as a substitute for or in substitution of SB No. 1129 demolishes at
once the thesis of the Solicitor General that:jgc:chanrobles.com.ph

144

"Assuming that SB 1630 is distinct from HB 11197, amendment by substitution is within the purview of
Section 24, Article VI of the Constitution."cralaw virtua1aw library
because, according to him, (a) "Section 68, Rule XXIX of the Rules of the Senate authorizes an amendment
by substitution and the only condition required is that the text thereof is submitted in writing; and (b) [I]n
Flint v. Stone Tracy Co. (220 U.S. 107) the United States Supreme Court, interpreting the provision in the
United States Constitution similar to Section 24, Article VI of the Philippine Constitution, stated that the
power of the Senate to amend a revenue bill includes substitution of an entirely new measure for the one
originally proposed by the House of Representatives." 23
This thesis is utterly without merit. In the first place, it reads into the Committee Report something which it
had not contemplated, that is, to propose SB No. 1630 in substitution of HB No. 11197; or speculates that
the Committee may have committed an error in stating that it is SB No. 1129, and not HB No. 11197,
which is to be substituted by SB No. 1630. Either, of course, is unwarranted because the words of the
Report, solemnly signed by the Chairman, Vice-Chairman (who dissented), seven members, and three exofficio members,24 leave no room for doubt that although SB No. 1129, P.S. Res No. 734, and HB No.
11197 were referred to and considered by the Committee, it had prepared the attached SB No. 1630 which
it recommends for approval "in substitution of S.B. No. 11197, taking into consideration P.S. No. 734 and
H.B. No. 11197 with Senators Herrera, Angara, Romulo, Sotto, Ople and Shahani as authors." To do as
suggested would be to substitute the judgment of the Committee with another that is completely
inconsistent with it, or, simply, to capriciously ignore the facts.chanrobles.com:cralaw:red
In the second place, the Office of the Solicitor General intentionally made it appear, to mislead rather than
to persuade us, that in Flint v. Stone Tracy Co. 25 the U.S. Supreme Court ruled, as quoted by it in the
Consolidated Memorandum for Respondents, as follows: 26
"The Senate has the power to amend a revenue bill. This power to amend is not confined to the elimination
of provisions contained in the original act, but embraces as well the addition of such provisions thereto as
may render the original act satisfactory to the boy which is called upon to support it. It has, in fact, been
held that the substitution of an entirely new measure for the one originally proposed can supported as a
valid amendment.
x
x
x
It is contended in the first place that this section of the act is unconstitutional, because it is a revenue
measure, and originated in the Senate in violation of section 7 of article 1 of the Constitution, providing
that all bills for raising revenue shall originate in the House of Representatives, but the Senate may
propose or concur with the amendments, as on other bill."
The first part is not a statement of the Court, but a summary of the arguments of counsel in one of the
companion cases (No. 425, entitled, "Gay v. Baltic Mining Co."). The second part is the second paragraph of
the opinion of the Court delivered by Mr. Justice Day. The misrepresentation that the first pat is a statement
of the Court is highly contemptuous. To show such deliberate misrepresentation, it is well to quote what
actually are found in 55 L. Ed. 408, 410, to wit:jgc:chanrobles.com.ph
"Messrs. Charles A. Snow and Joseph H. Knight filed a brief for appellees in No. 425:chanrob1es virtual 1aw
library
x
x
x
The Senate has the power to amend a revenue bill. This power to amend is not confined to the elimination
of provisions contained in the original act, but embraces as well the addition of such provisions thereto as
may render the original act satisfactory to the body which is called upon to support it. It has, in fact, been
held that the substitution of an entirely new measure for the one originally proposed can be supported as a
valid amendment.
Brake v. Collison, 122 Fed. 722.
Mr. James L. Quackenbush filed a statement for appellees in No. 442.
Solicitor General Lehmann (by special leave) argued the cause for the United States on reargument.
Mr. Justice Day delivered the opinion of the court:chanrob1es virtual 1aw library
These cases involve the constitutional validity of par. 38 of the act of Congress approved August 5, 1909,
known as the corporation tax Law. 36 Stat. at L. 11, 112-117, chap. 6, U.S. Comp. Stat. Supp. 1909, pp.
659, 844-849.
It is contended in the first place that this section of the act is unconstitutional, because it is revenue
measure, and originated in the Senate in violation of 7 of article 1 of the Constitution, providing that `all
bills for raising revenue shall originate in the House of Representatives, but the Senate may propose or

145

concur with the amendments, as on other bills. The history of the act is contained in the governments
brief, and is accepted as correct, no objection being made to its accuracy.
This statement shows that the tariff bill of which the section under consideration is a part, originated in the
House of Representatives, and was there a general bill for the collection of revenue. As originally
introduced, it contained a plan of inheritance taxation. In the Senate the proposed tax was removed from
the bill, and the corporation tax, in a measure, substituted therefor. The bill having properly originated in
the House, we perceive no reason in the constitutional provision relief upon why it may not be amended in
the Senate in the manner which it was in this case. The amendment was germane to the subject-matter of
the bill, and not beyond the power of the Senate to proposed." (Emphasis supplied)
x
x
x

As shown above, the underlined portions were deliberately omitted in the quotation made by the Office of
the Solicitor General.
In the third place, a Senate amendment by substitution with an entirely new bill of a bill, which under
Section 24, Article VI of the Constitution can only originate exclusively in the House, is not authorized by
said Section 24. Flint v. Stone Tracy Co. cannot be invoked in favor of such a view. As pointed out by Mr.
Justice Florenz D. Regalado during the oral arguments of these cases and during the initial deliberations
thereon by the court, Flint involves a Senate amendment to a revenue bill which, under the United States
Constitution, should originate from the House of Representatives. The amendment consisted of the
substitution of a corporation tax in lieu of the plan of inheritance taxation contained in a general bill for the
collection of revenue as it came from the House of Representatives where the bill originated. The
constitutional provision in question is Section 7, Article I of the United States Constitution which
reads:jgc:chanrobles.com.ph
"Section 7. Bills and Resolutions. 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." chanrobles
lawlibrary : rednad
This provision, contrary to the misleading claim of the Solicitor General, is not a similar to Section 24,
Article VI of our Constitution, which for easy comparison is hereunder quoted again:jgc:chanrobles.com.ph
"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."cralaw virtua1aw library
Note that in the former the word exclusively does not appear. And, in the latter, the phrase "as on other
Bills," which is found in the former, does not appear. These are very significant in determining the authority
of the upper chamber over the bills enumerated in Section 24. Since the origination is not exclusively
vested in the House of Representatives of the United States, the Senates authority to propose or concur
with amendments is necessarily broader. That broader authority is further confirmed by the phrase "as on
other Bills," i.e., its power to propose or concur with amendments thereon is the same as in ordinary bills.
The absence of this phrase in our Constitution was clearly intended to restrict or limit the Philippine
Senates power to propose or concur with amendments. In the light of the exclusively of origination and
the absence of the phrase "as on other Bills," the Philippine Senate cannot amend by substitution with an
entirely new bill of its own any bill covered by Section 24 of Article VI which the House of Representatives
transmitted to it because such substitution would indirectly violate Section 24.
These obvious substantive differences between Section 7, Article I of the U.S. Constitution and Section 24,
Article VI of our Constitution are enough reasons why this Court should neither allow itself to be misled by
Flint v. Stone nor be awed by Rainey v. United States 27 and the opinion of Messrs. Ogg and Ray 28 which
the majority cites to support the view that the power of the U.S. Senate to amend a revenue measure is
unlimited. Rainey concerns the Tariff Act of 1909 of the United States of America and specifically involved
was it Section 37 which was an amendment introduced by the U.S. Senate. It was claimed by the
petitioners that the said section is a revenue measure which should originate in the House of
Representatives. The U.S. Supreme Court, however, adopted and approved the finding of the court a quo
that:jgc:chanrobles.com.ph
"the section in question is not void as a bill for raising revenue originating in the Senate, and not in the
House of Representatives. It appears that the section was proposed by the Senate as an amendment to a
bill for raising revenue which originated in the House. That is sufficient."cralaw virtua1aw library

146

Messrs. Ogg and Ray, who are professors emeritus of political science, based their statement not even on
a case decided by the U.S. Supreme Court but on their perception of what Section 7, Article I of the U.S.
Constitution permits. In the tenth edition (1951) of their work, they state:jgc:chanrobles.com.ph
"Any bill may make its first appearance in either house, except only that bills for raising revenue are
required by the constitution to originate in the House of Representatives. Indeed, through its right to
amend revenue bills, even to the extent of substituting new ones, the Senate may, in effect, originate
them also." 29
Their "in effect" conclusion is, of course, logically correct because the word exclusively does not appear in
said Section 7, Article I of the U.S. Constitution.
Neither can I find myself in agreement with the view of the majority that the Constitution does not prohibit
the filing in the Senate of a substitute bill in anticipation of its receipt of the bill from the House so long as
action by the Senate as a body is withheld pending receipt of the House bill, thereby stating, in effect, that
S.B. No. 1129 was such an anticipatory substitute bill, which, nevertheless, does not seem to have been
considered by the Senate except only after its receipt of H.B. No. 1179 on 23 November 1993 when the
process of legislation in respect of it began with a referral to the Senate Committee on Ways and Means.
Firstly, to say that the Constitution does not prohibit it is to render meaningless Section 24 of Article VI or
to sanction its blatant disregard through the simple expedient of filing in the Senate of a so-called
anticipatory substitute bill. Secondly, it suggests that S.B. No. 1129 was filed as an anticipatory measure to
substitute for H.B. No. 11179. This is a speculation which even the author of S.B. No. 1129 may not have
indulged in. S.B. No. 1129 was filed in the Senate by Senator Herrera on 1 March 1993. H.B. No. 11197 was
approved by the House on third reading only on 17 November 1993. Frankly, I cannot believe that Senator
Herrera was able to prohesy that the House would pass any VAT bill, much less to know its provisions. That
"it does not seem that the Senate even considered" the latter not until after its receipt of H.B. No. 11179 is
another speculation. As stated earlier, S.B. No. 1129 was filed in the Senate on 1 March 1993, while H.B.
No. 11197 was transmitted to the Senate only on 18 November 1993. There is no evidence on record to
show that both were referred to the Senate Committee on Ways and Means at the same time. Finally, in
respect of H.B. No. 11197, its legislative process did not begin with its referral to the Senates Ways and
Means Committee. It began upon its filing, as a Committee Bill of the House Committee on Ways and
Means, in the House.
Second violation. Since SB No. 1129 is a revenue measure, it could not even be validly introduced or
initiated in the Senate. It follows too, that the Senate cannot validly act thereon.
Third violation. Since SB No. 1129 could not have been validly introduced in the Senate and could not
have been validly acted on by the Senate, then it cannot be substituted by another revenue measure, SB
No. 1630, which the Senate Committee on Ways and Means introduced in substitution of SB No. 1129. The
filing or introduction in the Senate of SB No. 1630 also violated Section 24, Article VI of the Constitution.
VIOLATIONS OF SECTION 26(2), ARTICLE VI
OF THE CONSTITUTION:chanrob1es virtual 1aw library
First violation. The Senate, despite its lack of constitutional authority to consider SB No. 1630 or SB No.
1129 which the former substituted, opened deliberations on second reading of SB No. 1630 on 8 February
1994. On 24 March 1994, the Senate approved it on second reading and on third reading. 30 That approval
on the same day violated Section 26 (2), Article VI of the Constitution. The justification therefor was that
on 24 February 1994 the President certified to "the necessity of the enactment of SB No. 1630 . . . to meet
a public emergency." 31
I submit, however, that the Presidential certification is void ab initio not necessarily for the reason adduced
by petitioner Kilosbayan, Inc., but because it was addressed to the Senate for a bill which is prohibited
from originating therein. The only bill which could be properly certified on permissible constitutional
grounds even if it had already been transmitted to the Senate is HB No. 11197. As earlier observed, this
was not so certified, although HB No. 9210 (one of those consolidated into HB No. 11197) was certified on
1 June 1993. 32
Also, the certification of SB No. 1630 cannot, by any stretch of the immigration, be extended to HB No.
11197 because SB No. 1630 did not substitute HB No. 11197 but SB No. 1129.

147

Considering that the certification of SB No. 1630 is void, its approval on second and third readings in one
day violated Section 26 (2), Article VI of the Constitution.
Second violation. It further appears that on 24 June 1994, after the approval of SB No. 1630, the
Secretary of the Senate, upon directive of the Senate President, formally notified the House Speaker of the
Senates approval of thereof and its request for a bicameral conference "in view of the disagreeing
provisions of said bill and House Bill No. 11197." 33
It must be stressed again that HB No. 11197 was never submitted for or acted on second and third
readings in the Senate, and SB No. 1630 was never sent to the House for its concurrence. Elsewise stated,
both were only half-way through the legislative mill. Their submission to a conference committee was not
only anomalously premature, but violative of the constitutional rule on three readings.
The suggestion that SB No. 1630 was not required to be submitted to the House for otherwise the
procedure would be endless, is unacceptable for, firstly, it violates Section 26, Rule XII of the Rules of the
Senate and Section 85, Rule XIV of the Rules of the House, and, secondly, it is never endless. If the
chamber of origin refuses to accept the amendments of the other chamber, the request for conference
shall be made.
VIOLATIONS OF THE RULES OF BOTH CHAMBERS;
GRAVE ABUSE OF DISCRETION.
The erroneous referral to the conference committee needs further discussion. Since S.B. No. 1630 was not
a substitute bill for H.B. No. 11197 but for S.B. No. 1129, it (S.B. No. 1630) remained a bill which originated
in the Senate. Even assuming arguendo that it could be validly initiated in the Senate, it should have been
first transmitted to the House where it would undergo three readings. On the other hand, since HB No.
11197 was never acted upon by the Senate on second and third readings, no differences or inconsistencies
could as yet arise so as to warrant a request for a conference. It should be noted that under Section 83,
Rule XIV of the Rules of the House, it is only when the Senate shall have approved with amendments HB
No. 11197 and the House declines to accept the amendments after having been notified thereof that the
request for a conference may be made by the House, not by the Senate. Conversely, the Senates request
for a conference would only be proper if, following the transmittal of SB No. 1630 to the House, it was
approved by the latter with amendments but the Senate rejected the amendments.chanrobles.com :
virtual law library
Indisputably, when the request for a bicameral conference was made by the Senate, SB No. 1630 was not
yet transmitted to the House for consideration on three readings and HB No. 11197 was still in the Senate
awaiting consideration on three readings and HB no. 11197 was still in the Senate awaiting consideration
on second and third readings. Their referral to the bicameral conference committee was palpably
premature and, in so doing, both the Senate and the House acted without authority or with grave abuse of
discretion. Nothing, and absolutely nothing, could have been validly acted upon by the bicameral
conference committee.
GRAVE ABUSE OF DISCRETION COMMITTED BY
THE BICAMERAL CONFERENCE COMMITTEE.
Serious irregularities amounting to lack of jurisdiction or grave abuse of discretion were committed by the
bicameral conference committee.
First, it assumed, and took for granted that SB No. 1630 could validly originate in the Senate. This
assumption is erroneous.
Second, it assumed that HB No. 11197 and SB No. 1630 had properly passed both chambers of Congress
and were properly and regularly submitted to it. As earlier discussed, the assumption is unfounded in fact.
Third, per the bicameral conference committees proceedings of 19 April 1994, Representative Exequiel
Javier, Chairman of the panel from the House, initially suggested that HB No. 11197 should be the "frame
of reference," because it is a revenue measure, to which Senator Ernesto Maceda concurred. However,
after an incompletely recorded reaction of Senator Ernesto Herrera, Chairman of the Senate panel,
Representative Javier seemed to agree that "all amendments will be coming from the Senate." The issue of

148

what should be the "frame of reference" does not appear to have been resolved. These facts are recorded
in this wise, as quoted in the Consolidated Memorandum for Respondents: 34
"CHAIRMAN JAVIER.
First of all, what would be the basis, no, or framework para huwag naman mawala yung personality namin
dito sa bicameral, no, because the bill originates from the House because this is a revenue bill, so we
would just want to ask, we make the House Bill as the frame of reference, and then everything will just be
inserted?
HON. MACEDA.
Yes. Thats true for every revenue measure. Theres no other way. The House Bill has got to be the base. Of
course, for the record, we know that this is an administration; this is certified by the President and I was
about to put into the records as I am saying now that your problem about the impact on prices on the
people was already decided when the President and the administration sent this to us and certified it. They
have already gotten over that political implication of this bill and the economic impact on prices.
CHAIRMAN HERRERA.
Yung concern mo about the bill as the reference in this discussion is something that we can just . . .
CHAIRMAN JAVIER.
We will just . . . all the amendments will be coming from the Senate.
(BICAMERAL CONFERENCE ON MAJOR DIFFERENCES BETWEEN HB No. 11197 AND SB No. 1630 [Cte. on
Ways & Means] APRIL 19, 1994, Ii-6 and II-7; Emphasis supplied)"
These exchanges would suggest that Representative Javier had wanted HB No. 11197 to be the principal
measure on which reconciliation of the differences should be based. However, since the Senate did not act
on this Bill on second and third readings because its Committee on Ways and Means did not deliberate on
it but instead proposed SB No. 1630 in substitution of SB No. 1129, the suggestion has no factual basis.
Then, when finally he agreed that "all amendments will be coming from the Senate," he in fact withdrew
the former suggestion and agreed that SB No. 1630, which is the Senate version of the Value Added Tax
(VAT) measure, should be the "frame of reference." But then SB no. 1630 was never transmitted to the
House for the latters concurrence. Hence, it cannot serve as the "frame of reference" or as the basis for
deliberation. The posture taken by Representative Javier also indicates that SB No. 1630 should be taken
as the amendment to HB No. 11197. This, too, is unfounded because SB No. 1630 was not proposed in
substitution of HB No. 11197.
Since the SB No. 1630 did not pass three readings in the House and HB No. 11197 did not pass second and
third readings in the Senate, it logically follows that no disagreeing provisions had as yet arisen. The
bicameral conference committee erroneously assumed the contrary.
Even granting arguendo that both HB No. 11197 and SB No. 1630 had been validly approved by both
chambers of Congress and validly referred to the bicameral conference committee, the latter had very
limited authority thereon. It was created "in view of the disagreeing provisions of" the two bills. 35 Its duty
was limited to the reconciliation of disagreeing provisions or the resolution of differences or
inconsistencies. The committee recognized that limited authority in the opening paragraph of its Report 36
when it said:jgc:chanrobles.com.ph
"The Conference Committee on the disagreeing provisions of House Bill No. 11197 . . . and Senate Bill No.
1630 . . ."cralaw virtua1aw library
Under such limited authority, it could only either (a) restore, wholly or partly, the specific provisions of HB
No. 11197 amended by SB No. 1630, (b) sustain, wholly or partly, the Senates amendments, or (c) by way
of a compromise, to agree that neither provisions in HB No. 11197 amended by the Senate nor the latters
amendments thereto be carried into the final form of the former.
But as pointed out by petitioners Senator Raul Roco and Kilosbayan, Inc., the bicameral conference
committee not only struck out non-disagreeing provisions of HB No. 11197 and SB No. 1630, i.e., provisions

149

where both bills are in full agreement; it added more activities or transactions to be covered by VAT, which
were not within the contemplation of both bills.
Since both HB No. 11197 and SB No. 1630 were still half-cooked in the legislative vat, and were not ready
for referral to a conference, the bicameral conference committee clearly acted without jurisdiction or with
grave abuse of discretion when it consolidated both into one bill which became R.A. No. 7716.
APPROVAL BY BOTH CHAMBERS OF CONFERENCE COMMITTEE REPORT AND PROPOSED BILL DID NOT CURE
CONSTITUTIONAL INFIRMITIES.
I cannot agree with the suggestion that since both the Senate and the House had approved the bicameral
conference committee report and the bill proposed by it in substitution of HB No. 11197 and SB No. 1630,
whatever infirmities may have been committed by it were cured by ratification. This doctrine of ratification
may apply to minor procedural flaws or tolerable breachs of the parameters of the bicameral conference
committees limited powers but never to violations of the Constitution. Congress is not above the
Constitution. In the instant case, since SB No. 1630 was introduced in violation of Section 24, Article VI of
the Constitution, was passed in the Senate in violation of the "three readings" rule, and was not
transmitted to the House for the completion of the constitutional process of legislation, and HB No. 11197
was not likewise passed by the Senate on second a third readings, neither the Senate nor the House could
validly approve the bicameral conference committee report and the proposed bill.
In view of the foregoing, the conclusion is inevitable that for non-compliance with mandatory provisions of
the Constitution and of the Rules of the Senate and of the House on the enactment of laws, R.A. No. 7716
is unconstitutional and, therefore, null and void. A discussion then of the intrinsic validity of some of its
provisions would be unnecessary.
The majority opinion, however, invokes the enrolled bill doctrine and wants this Court to desist from
looking behind the copy of the assailed measure as certified by the Senate President and the Speaker of
the House. I respectfully submit that the invocation is misplaced. First, as to the issue of origination, the
certification in this case explicitly states that R.A. No. 7716 is a "consolidation of House Bill No. 11197 and
Senate Bill No. 1630." This is conclusive evidence that the measure did not originate exclusively in the
House. Second, the enrolled bill doctrine is of American origin, and unquestioned fealty to it may no longer
be justified in view of the expanded jurisdiction 37 of this Court under Section 1, Article VIII of our
Constitution which now expressly grants authority to this Court to:jgc:chanrobles.com.ph
"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." chanrobles virtual lawlibrary
Third, even under the regime of the 1935 Constitution which did not contain the above provision, this
Court, through Mr. Chief Justice Makalintal, in Astorga v. Villegas, 38 declared that it cannot be truly said
that Mabanag v. Lopez Vito 39 has laid to rest the question of whether the enrolled bill doctrine or the
journal entry rule should be adhered to in this jurisdiction, and stated;
"As far as Congress itself is concerned, there is nothing sacrosanct in the certification made by the
presiding officers. It is merely a mode of authentication. The lawmaking process in Congress ends when
the bill is approved by both Houses, and the certification does not add to the validity of the bill or cure any
defect already present upon its passage. In other words, it is the approval of Congress and not the
signatures of the presiding officers that is essential. Thus the (1935) Constitution says that [e]very bill
passed by the Congress shall, before it becomes law, be presented by the Congress shall, before it
becomes law, be presented to the President. In Brown v. Morris, supra, the Supreme Court of Missouri,
interpreting a similar provision in the State Constitution, said that the same makes it clear that the
indispensable step in the passage and it follows that if a bill, otherwise fully enacted as a law, is not
attested by the presiding officer, other proof that it has passed both houses will satisfy the constitutional
requirement."
Fourth, even in the United States, the enrolled bill doctrine has been substantially undercut. This is shown
in the disquisitions of Mr. Justice Reynato S. Puno in his dissenting opinion, citing Sutherland, Statutory
Construction.
Last, the pleadings of the parties have established beyond doubt that HB No. 11197 was not acted on
second and third readings in the Senate and SB No. 1630, which was approved by the Senate on second
and third readings in substitution of SB No. 1129, was never transmitted to the House for its passage.

150

Otherwise stated, they were only passed in their respective chamber of origin but not in the other. In no
way cano each become a law under paragraph 2, Section 26, Article VI of the Constitution. For the Court to
close its eyes to this fact because of the enrolled bill doctrine is to shirk its duty to hold "inviolate what is
decreed by the Constitution." 40
I vote then to GRANT these petitions and to declare R.A. No. 7716 as unconstitutional.
ROMERO, J., dissenting:chanrob1es virtual 1aw library
Few issues brought before this Court for resolution have roiled the citizenry as much as the instant case
brought by nine petitioners which challenges the constitutionality of Republic Act No. 7716 (to be referred
to herein as the "Expanded Value Added Tax" or EVAT law to distinguish it from Executive Order No. 273
which is the VAT law proper) that was enacted on May 5, 1994. A visceral issue, it has galvanized the
populace into mass action and strident protest even as the EVAT proponents have taken to podia and
media in a post facto information campaign.chanrobles virtual lawlibrary
The Court is confronted here with an atypical case. Not only is it a vatful of seething controversy but some
unlikely petitioners invoke unorthodox remedies. Three Senator-petitioners would nullify a statute that bore
the indispensable stamp of approval of their own Chamber with two of them publicly repudiating what they
had earlier endorsed. With two former colleagues, one of them an erstwhile Senate President, making
common cause with them, they would stay the implementation by the Executive Department of a law
which they themselves have initiated. They address a prayer to a co-equal Department to probe their
official acts for any procedural irregularities they have themselves committed lest the effects of these
aberrations inflict such damage or irreparable loss as would bring down the wrath of the people on their
heads.
To the extent that they perceive that a vital cog in the internal machinery of the Legislature has
malfunctioned from having operated in blatant violation of the enabling Rules they have themselves laid
down, they would now plead that this other Branch of Government step in, invoking the exercise of what is
at once a delicate and awesome power. Undoubtedly, the case at bench is as much a test for the
legislature as it is for the Judiciary.
A backward glance on the Value Added Tax (VAT) is in order at this point.
The first codification of the countrys internal revenue laws was effected with the enactment of
Commonwealth Act No. 466, commonly known as the National Internal Revenue Code which was
approved on June 15, 1939 and took effect on July 1, 1939, although the provisions on the income tax were
made retroactive to January 1, 1939.
"Since 1939 when the turnover tax was prelaced by the manufactures sales tax, the Tax Code had
provided for a single-stage value-added tax on original sales by manufacturers, procedures and importers
computed on the cost deduction method and later, on the basis of the tax credit method. The turnover
tax was re-introduced in 1985 by Presidential Decree No. 1991 (as amended by Presidential Decree No.
2006)." 1
In 1986, a tax reform package was approved by the Aquino Cabinet. It contained twenty-nine measures,
one of which proposed the adoption of the VAT, as well as the simplification of the sales tax structure and
the abolition of the turnover tax.
"Up until 1987, the system of taxing goods consisted of (a) an excise tax on certain selected articles (b)
fixed and percentage taxes on original and subsequent sales, on importations and on milled articles and
(c) mining taxes on mineral products. Services were subjected to percentage taxes based mainly on gross
receipts." 2
On July 25, 1987, President Corazon C. Aquino signed into law Executive Order No. 273 which adopted the
VAT. From the former single-stage value-added tax, it introduced the multi-stage VAT system where "the
value-added tax is imposed on the sale of and distribution process culminating in sale, to the final
consumer. Generally described, the taxpayer (the seller) determines his tax liability by computing the tax
on the gross selling price or gross receipt ("output tax") and subtracting or crediting the earlier VAT on the
purchase or importation of goods or on the sale of service ("input tax") against the tax due on his own
sale." 3

151

On January 1, 1988, implementing rules and regulations for the VAT were promulgated. President Aquino
then issued Proclamation No. 219 on February 12, 1988 urging the public and private sectors to join the
nationwide consumers education campaign for VAT.
Soon after the implementation of Executive Order No. 273, its constitutionality was assailed before this
Court in the case of Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc., Et. Al. v. Tan. 4 The
four petitioners sought to nullify the VAT law "for being unconstitutional in that its enactment is not
allegedly within the powers of the President; that the VAT is oppressive, discriminatory, regressive, and
violates the due process and equal protection clauses and other provisions of the 1987 Constitution." 5 In
dismissing the consolidated petitions, this Court stated:jgc:chanrobles.com.ph
"The Court, following the time-honored doctrine of separation of powers cannot substitute its judgment for
that of the President as to the wisdom, justice and advisability of the VAT. The Court can only look into and
determine whether or not Executive Order No. 273 was enacted and made effective as law, in the manner
required by and consistent with, the Constitution, and to make sure that it was not issued in grave abuse of
discretion amounting to lack of excess of jurisdiction; and, in this regard, the Court find no reason to
impede its application or continued implementation." 6
Although declared constitutional, the VAT law was sought to be amended from 1992 on by a series of bills
filed in both Houses of Congress. In chronological sequence, these were:chanrob1es virtual 1aw library
HB/SB No. Date Filed in Congress
HB No. 253 July 22, 1992
HB No. 771 August 10, 1992
HB No. 2450 September 9, 1992
Senate Res. No. 734 7 September 10, 1992
HB No. 7033 February 3, 1993
HB No. 1129 8 March 1, 1993
HB No. 8086 March 9, 1993
HB No. 9030 March 11, 1993
HB No. 9210 9 May 19, 1993
HB No. 9297 May 25, 1993
HB No. 10012 July 28, 1993
HB No. 11197 in substitution
of HB Nos. 253, 771,
2450, 7033, 8086, 9030,
9210, 9297, 10012 and
10100 10 November 5, 1993
We now trace the course taken by H.B. No. 11197 and S.B. No. 1129.
HB/SB No.
HB No. 11197 was approved in the
Lower House on second reading November 11, 1993

152

HB No. 11197 was approved in the


Lower House on third reading
and voted upon with 114 Yeas and Nays November 17, 1993
HB No. 11197 was transmitted to the Senate November 18, 1993
Committee on Ways and Means
submitted Com. Report No. 349
recommending for approval SB
No. 1630 in substitution of SB
No. 1129, taking into consideration
PS Res. No. 734 and HB No. 11197 11 February 7, 1994 - Certification by President Fidel V. Ramos
of Senate Bill No. 1630 for immediate
enactment to meet a public emergency March 22, 1994 - SB No. 1630 was approved by the Senate
on second and third readings and
subsequently vote upon with 13 yeas,
none against and one abstention March 24, 1994 - Transmittal by the Senate to the Lower
House of a request for a conference
in view of disagreeing provisions of
SB No. 1630 and HB No. 11197 March 24, 1994 - The Bicameral Conference Committee
conducted various meetings to reconcile
the proposals on the VAT April 13, 19, 20, 21,25cralaw:red
The House agreed on the Conference
Committee Report April 27, 1994 - The Senate agreed on the Conference
Committee Report May 2, 1994 - The President signed Republic Act
No. 7716 The Expanded
VAT Law 12 May 5, 1994 - Republic Act No. 7716 was published
in two newspapers of general
circulation May 12, 1994 - Republic Act No. 7716 became effective May 28, 1994 - Republic Act No. 7716
merely expanded the base of the VAT law even as the tax retained its multi-stage
character.chanroblesvirtual|awlibrary
At the oral hearing held on July 7, 1994, this Court delimited petitioners argument to the following culled
from their respective petitions.
PROCEDURAL ISSUES

153

Does Republic Act No. 7716 violate Article VI, Section 24, of the Constitution? 13
Does it violate Article VI, Section 26, paragraph 2, of the Constitution? 14
What is the extent of the power of the Bicameral Conference Committee?
SUBSTANTIVE ISSUES
Does the law violate the following provisions in Article III (Bill of Rights) of the Constitution:chanrob1es
virtual 1aw library
1. Section 1 15
2. Section 4 16
3. Section 5 17
4. Section 10 18
Does the law violate the following other provisions of the Constitution?
1. Article VI, Section 28, paragraph 1 19
2. Article VI, Section 28, paragraph 3 20
As a result of the unedifying experience of the past where the Court had the propensity to steer clear or
questions it perceived to be "political" in nature, the present Constitution, in contract, has explicitly
expanded judicial power to include the duty of the courts, especially the Supreme Court, "to determine
whether or not there has been a grave abuse of discretion amounting to lack of excess of jurisdiction on
the part of any branch or instrumentality of the Government." 21 I submit that under this explicit mandate,
the Court is empowered to rule upon acts of other Government entitles for the purpose of determining
whether there may have been, in fact, irregularities committed tantamount to violation of the Constitution,
which case would clearly constitute a grave abuse of discretion on their part.chanroblesvirtual|awlibrary
In the words of the sponsor of the above-quoted Article of the Constitution on the Judiciary, the former
Chief Justice Roberto R. Concepcion, "the judiciary is the final arbiter on the question of whether or not a
branch of government or any of its officials has acted without jurisdiction or in excess of jurisdiction, or so
capriciously as to constitute an abuse of discretion amounting to excess of jurisdiction or lack of
jurisdiction. This is not only a judicial power but a duty to pass judgment on matters of this nature.
This is the background of paragraph 2 of Section 1, which means that the courts cannot hereafter exhibit
its wonted reticence by claiming that such matters constitute a political question." 22
In the instant petitions, this Court is called upon, not so much to exercise its traditional power of judicial
review as to determine whether or not there has indeed been a grave abuse of discretion on the part of the
Legislature amounting to lack or excess of jurisdiction.
Where there are grounds to resolve a case without touching on its constitutionality, the Court will do so
with utmost alacrity in due deference to the doctrine of separation of powers anchored on the respect that
must be accorded to the other branches of government which are coordinate, coequal and, as far as
practicable, independent of one another.
Once it is palpable that the constitutional issue is unavoidable, then it is time to assume jurisdiction,
provided that the following requisites for a judicial inquiry are met: that there must be an actual and
appropriate case; a personal and substantial interest of the party raising the constitutional question; the
constitutional question must be raised at the earliest possible opportunity and the decision of the
constitutional question must be necessary to the determination of the case itself, the same being the lis
mota of the case. 23
Having assured ourselves that the above-cited requisites are present in the instant petitions, we proceed
to take them up.

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ARTICLE VI, SECTION 24


Some petitioners assail the constitutionality of Republic Act No. 7716 as being in violation of Article VI,
Section 24 of the Constitution which provides:jgc:chanrobles.com.ph
"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."cralaw virtua1aw library
In G.R. Nos. 115455 and 115781, petitioners argue:chanrob1es virtual 1aw library
(a) The bill which became Republic Act No. 7716 did not originate exclusively in the House of
Representatives. The Senate, after receiving H.B. No. 11197, submitted its own bill, S.B. No. 1630, and
proceeded to vote and approve the same after second the third readings.chanrobles virtualawlibrary
chanrobles.com:chanrobles.com.ph
(b) The Senate exceeded its authority to "propose or concur with amendments" when it submitted its own
bill, S.B. No. 1630, recommending its approval "in substitution of S.B. No. 1129, taking into consideration
P.S. Res. No. 734 and H.B. No. 11197."cralaw virtua1aw library
(c) H.B. No. 11197 was not deliberated upon by the Senate. Neither was it voted upon by the Senate on
second and third readings, as what was voted upon was S.B. No. 1630.
Article VI, Section 24 is taken word for word from Article VI, Section 18 of the 1935 Constitution which was,
in turn, patterned after Article 1, Section 7 (1) of the Constitution of the United States, which
states:jgc:chanrobles.com.ph
"All bills for raising revenue shall originate in the House of Representatives, but the Senate may propose of
concur with amendments as on other bills."cralaw virtua1aw library
The historical precedent for requiring revenue bills to originate the Congress is explained in the U.S. case
of Morgan v. Murray: 24
"The constitutional requirement that all bills for raising revenue shall originate in the House of
Representatives stemmed from a remedial outgrowth of the historic conflict between Parliament (i.e.,
Commons) and the Crown, whose ability to dominate the monarchially appointive and hereditary Lords was
patent. See 1 Story, Constitution, S 875 et seq., 5th Ed.; 1 Cooley, Constitutional Limitations, pp. 267, 268,
8th Ed., 1 Sutherland, Statutory Construction, S 806, 3d Ed. There was a measure of like justification for
the insertion of the provision of article 1, S 7, cl. 1, of the Federal Constitution. At that time (1787) and
thereafter until the adoption (in 1913) of the Seventeenth Amendment providing for the direct election of
senators, the members of the United Senate were elected for each state by the joint vote of both houses of
the Legislature of the respective states, and hence, were removed from the people. . . ."cralaw virtua1aw
library
The legislative authority under the 1935 Constitution being unicameral, in the form of the National
Assembly, it served no purpose to include the subject provision in the draft submitted by the 1934
Constitution Convention to the Filipino people for ratification.
In 1940, however, the Constitution was amended to establish a bicameral Congress of the Philippines
composed of a House of Representatives and a Senate.
In the wake of the creation of a new legislative machinery, new provisions were enacted regarding the lawmaking power of Congress. The National Assembly explained how the final formulation of the subject
provision came about:jgc:chanrobles.com.ph
"The concurrence of both houses would be necessary to the enactment of a law. However, all
appropriation, revenue or tariff bills, bills authorizing an increase of the public debt, bills of local
application, and private bills, should originate exclusively in the House of Representatives, although the
Senate could propose or concur with amendments.
In one of the first drafts of the amendments, it was proposed to give both houses equal powers in
lawmaking. There was, however, much opposition on the part of several members of the Assembly. In

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another draft, the following provision, more restrictive than the present provision in the amendment, was
proposed and for sometime was seriously considered:chanrob1es virtual 1aw library
All bills appropriating public funds, revenue of 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 sessions 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.
However, the special committee voted finally to report the present amending provision as it is now worded;
and in that form it was approved by the National Assembly with the approval of Resolution No. 38 and later
of Resolution No. 73." 25 (Emphasis supplied)
Thus, the present Constitution is identically worded as its 1935 precursor: "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." (Emphasis supplied)
That all revenue bills, such as Republic Act No. 7716, should "originate exclusively in the House of
Representatives" logically flows from the more representatives and broadly-based character of this
Chamber.
"It is said that the House of Representatives being the more popular branch of the legislature, being closer
to the people, and having more frequent contacts with them then the Senate, should have the privilege of
taking the initiative in the proposals of revenue and tax projects, the disposal of the peoples money, and
the contracting of public indebtedness.
These powers of initiative in the raising and spending of public funds enable the House of Representatives
not only to implement but even to determine the fiscal policies of the government. They place on its
shoulders much of the responsibility of solving the financial problems of the government, which are so
closely related to the economic life of the country, and of deciding on the proper distribution of revenues
for such uses as may best advance public interests." 26
The popular nature of the Lower House has been more pronounced with the inclusive of Presidentiallyappointed sectoral representatives, as provided in Article VI, Section 5 (2), of the Constitution, thus: "The
party-list representatives shall constitute twenty per centum of the total number of representatives
including those under the party list. For three consecutive terms after the ratification of this Constitution,
one-half of the seats allocated to party-list representatives shall be filled, as provided by law, by selection
or election from the labor, peasant, urban poor, indigenous cultural communities, women, youth, and such
other sectors as may be provided by law, except the religious sector." (Emphasis supplied)
This novel provision which was implemented in the Batasang Pambansa during the martial law regime 27
was eventually incorporated in the present Constitution in order to give those from the marginalized and
often deprive sector, an opportunity to have their voices heard in the halls of the Legislature, thus giving
substance and meaning to the concept of "people empowerment."cralaw virtua1aw library
That the Congressmen indeed have access to, and consult their constituencies has been demonstrated
often enough by the fact that even a House bill has been transmitted to the Senate for concurrence, some
Congressmen have been known to express their desire to change their earlier official position or reverse
themselves after having heard their constituents adverse reactions to their representations.
In trying to determine whether the mandate of the Constitution with regard to the initiation of revenue bills
has been preserved inviolate, we have recourse to the tried and tested method of definition of terms. The
term "originate" is defined by Websters New International Dictionary (3rd Edition, 1986) as follows: "v.i., to
come into being; begin; to start."cralaw virtua1aw library
On the other hand, the world "exclusively" is defined by the same Websters Dictionary as "in an exclusive
manner, to the exclusive of all others; only; as, it is his, exclusively." Blacks Law Dictionary has this

156

definition: "apart from all others; only; solely; substantially all or for the greater part. To the exclusion of all
others; without admission of others to participation; in a manner to exclude. Standard Oil Co. of Texas v.
State, Tex. Civ. App., 142 S.W. 2d 519, 521, 522, 523."cralaw virtua1aw library
This Court had occasion to define the term "exclusive" as follows:jgc:chanrobles.com.ph
". . . In its usual and generally accepted sense, the term means possessed to the exclusive of others;
appertaining to the subject alone; not including, admitting or pertaining to another or others; undivided,
sole." 28
When this writer, during the oral argument of July 7, 1994, asked the petitioner in G.R. No. 11455 whether
he considers the word "exclusively" to be synonymous with "solely," he replied in the affirmative. 29
A careful examination of the legislative history traced earlier in this decision shows that the original VAT
law, Executive Order No. 273, was sought to be amended by ten House bill which finally culminated in
House Bill No. 11197, as well as two Senate bills, It is to be noted that the first House Bill No. 253 was filed
on July 22, 1992, and two other House bills followed in quick succession on August 10 and September 9,
1992 before a Senate Resolution, namely, Senate Res. No. 734, was filed on September 10, 1992 and
much later, a Senate Bill proper, viz., Senate Bill No. 11129 on March 1, 1993. Undoubtedly, therefore,
these bills originated or had their start in the House and before any Senate bill amending the VAT law was
filed. In point of time and venue, the conclusion is ineluctable that Republic Act No. 7716, which is
indisputably a revenue measure, originated in the House of Representatives in the form of House Bill No.
253, the firs EVAT bill.
Additionally, the content and substance of the ten amendatory House Bills filed over the roughly one-year
period from July 1992 to August 1993 reenforce the position that these revenue bills, pertaining as they do,
to Executive Order No. 273, the prevailing VAT law, originated in the Lower House.
House Bill Nos. 253, 771, 2450, 7033, 8086, 9030, 9210, 9297, 10012 and 10100 were intended to
restructure the VAT system by exempting or imposing the tax on certain items or otherwise introducing
reforms in the mechanics of implementation. 30 Of these, House Bill No. 9210 was favored with a
Presidential certification on the need for its immediate enactment to meet a public emergency. Easily the
most comprehensive, it noted that the revenue performance of the VAT, being far from satisfactory since
the collections have always fallen short of projections, "the system is rendered inefficient, inequitable and
less comprehensive." Hence, the Bill proposed several amendments designed to widen the tax base of the
VAT and enhance its administration. 31
That House Bill No. 11197 being a revenue bill, originated from the Lower House was acknowledged, in fact
was virtually taken for granted, by the Chairman of the Committee on Ways and Means of both the House
of Representatives and the Senate. Consequently, at the April 19, 1994 meeting of the Bicameral
Conference Committee, the Members agreed to make the House Bill as the "frame of reference" or "base"
of the discussions of the Bicameral Conference Committee with the "amendments" or "insertions to
emanate from the senate." 32
As to whether the bills originated exclusively in the Lower House is altogether a different matter.
Obviously, bills amendatory of VAT did not originate solely in the House of the exclusion of all others for
there were P.S. Res. No. 734 filed in the Senate on September 10, 1992 followed by Senate Bill No. 1129
which was filed on March 1, 1993. About a year later, this was substituted by Senate Bill No. 1630 that
eventually became the EVAT law, namely, Republic Act No. 7716.chanrobles law library
Adverting to the passage of the amendatory VAT bills in the Lower House, it is to be noted that House Bill
No. 11197 which substituted all the prior bills introduced in said House complied with the required
readings, that is, the first reading consisting of the reading of the title and referral to the appropriate
Committee, approval on second reading on November 11, 1993 and on third reading on November 17,
1993 before being finally transmitted to the Senate. In the Senate, its identity was preserved and its
provisions were taken into consideration when the Senate Committee on Ways and Means submitted Com.
Report No. 349 which recommended for approval "S.B. No. 1630 in substitution of S.B. No. 1129, taking
into consideration P. S. Res. No. 734 and H.B. No. 11197." At this stage, the subject bill may be considered
to have passed first reading in the Senate with the submission of said Committee Report No. 349 by the
Senate Committee on Ways and Means to which it had been referred earlier. What remained, therefore,
was no longer House Bill No. 11197 but Senate Bill No. 1630. Thence, the Senate, instead of transmitting
the bill to the Lower House for its concurrence and amendments, if any, took a "shortcut," bypassed the

157

Lower House and instead, approved Senate Bill No. 1630 on both second and third readings on the same
day, March 24, 1994.
The first irregularity, that is, the failure to return Senate Bill No. 1630 to the Lower House for its approval is
fatal inasmuch as the other chamber of legislature was not afforded the opportunity to deliberate and
make known its views. It is no idle dictum that no less than the Constitution ordains: "The legislative power
shall be vested in the Congress of the Philippines which shall consist of a Senate and a House of
Representatives. . ." 33 (Emphasis supplied)
It is to be pointed out too, that inasmuch as Senate Bill No. 1630 which had "taken into consideration"
House Bill No. 11197 was not the Lower House for deliberation, the later Chamber had no opportunity at all
to express its views thereon or to introduce any amendment. The customary practice is, after the Senate
has considered the Lower House Bill, it returns the same to the House of origin with its amendments. In the
event that there may be any differences between the two, the same shall then be referred to a Conference
Committee composed of members from both Chambers which shall then proceed to reconcile said
differences.
In the instant case, the Senate transmitted to the Lower House on March 24, 1994, a letter informing the
latter that it had "passed S. No. 1630 entitled . . . (and) in view of the disagreeing provisions of said bill and
House Bill No. 11197, entitled . . . the Senate requests a conference . . ." This, in spite of the fact that Com.
Report No. 349 of the Senate Committee on Ways and Means had already recommended for approval on
February 7, 1994 "S.B. No. 1630 . . . taking into consideration H.B. No. 11197." Clearly, the Conference
Committee could only have acted upon Senate Bill No. 1630, for House Bill No. 11197 had already been
fused into the former.
At the oral hearing of July 7, 1994, petitioner in G.R. No. 115455 admitted, in response to this writers
query, that he had attempted to rectify some of the perceived irregularities by presenting a motion in the
Senate recall the bill from the Conference Committee so that it could revert to the period of amendment,
but he was outvoted, in fact "slaughtered." 34
In accordance with the Rules of the House of Representatives and the Senate, Republic Act No. 7716 was
duly authenticated after it was signed by the President of the Senate and the Speaker of the House of
Representatives followed by the certifications of the Secretary of the Senate and the Acting Secretary
General of the House of Representatives. 35 With the signature of President Fidel V. Ramos under the
words "Approved: 5 May 1994," it was finally promulgated.
Its legislative journey ended, Republic Act No. 7716 attained the status of an enrolled bill which is defined
as one "which has been duly introduced, finally passed by both houses, signed by the proper officers of
each, approved by the governor (or president) and filed by the secretary of state." 36
Stated differently:jgc:chanrobles.com.ph
"It is a declaration by the two houses, through their presiding officers, to the president, that a bill, thus
attested, has received in due form, the sanction of the legislative branch of the government, and that it is
delivered to him in obedience to the constitutional requirement that all bills which pass Congress shall be
presented to him. And when a bill, thus attested, receives his approval, and is deposited in the public
archives, its authentication as a bill that has passed Congress should be deemed complete and
unimpeachable. As the President has no authority to approve a bill not passed by Congress, an enrolled Act
in the custody of the Secretary of State, and having the official attestations of the Speaker of the House of
Representatives, of the President of the Senate, and of the President of the United States, carries, on its
face, a solemn assurance by the legislative and executive departments of the government, charged,
respectively, with the duty of enacting and executing the laws, that it was passed by Congress. The
respect due to coequal and independent departments requires the judicial department to act upon that
assurance, and to accept, as having passed Congress, all bills authenticated in the manner stated; leaving
the courts to determine, when the question properly arises, whether the Act, so authenticated, is in
conformity with the Constitution." 37
The enrolled bill assumes importance when there is some variance between what actually transpired in the
halls of Congress, as reflected in its journals, and as shown in the test of the law as finally enacted. But
suppose the journals of either or both Houses fail to disclose that the law was passed in accordance with
what was certified to by their respective presiding officers and the President. Or that certain constitutional
requirements regarding its passage were not observed, as in the instant case. Which shall prevail: the

158

journal or the enrolled bill?


A word on the journal.
"The Journal is the official record of the acts of legislative body. It should be a true record of the
proceedings arranged in chronological order. It should be a record of what is done rather than what is said.
The journal should be a clear, concise, unembellished statement of all proposals made and all actions
taken complying with all requirements of constitutions, statutes, charters of rules concerning what is to be
recorded and how it is to be recorded." 38
Article VI, Section 16 (4) of the Constitution ordains:jgc:chanrobles.com.ph
"Each house shall keep a Journal of its proceedings, and from time to time publish the same, excepting
such parts as may, in its judgment, affect national security; and the yeas and nays on any question shall,
at the request of one-fifth of the Members present, be entered in the Journal.
Each House shall also keep a Record of its proceedings." (Emphasis supplied)
The rationale behind the above provision and of the "journal entry rule" is as follows:jgc:chanrobles.com.ph
"It is apparent that the object of this provision is to make the legislature show what it has done, leaving
nothing whatever to implication. And, when the legislature says what it has done, with regard to the
passage of any bill, it negatives the idea that it has done anything else in regard thereto. Silence proves
nothing where one is commanded to speak . . . Our constitution commands certain things to be done in
regard to the passage of a bill, and says that no bill shall become a law unless these things are done. It
seems a travesty upon our supreme law to say that it guaranties to the people the right to have their laws
made in this manner only, and that there is no way of enforcing this right, or for the court to say that this is
law when the constitution says it is not law. There is one safe course which is in harmony with the
constitution, and that is to adhere to the rule that the legislature must show, as commanded by the
constitution, that it has done everything required by the constitution to be done in the serious and
important matter of making laws. This is the rule of evidence provided by the constitution. It is not
presumptuous in the courts, nor disrespectful to the legislature, to judge the acts of the legislature by its
own evidence." 39
Confronted with a discrepancy between the journal proceedings and the law as duly enacted, courts have
indulged in different theories. The "enrolled bill" and "journal entry" rules, being rooted deep in the
Parliamentary practices of England where there is no written constitution, and then transplanted to the
United States, it may be instructive to examine which rule prevails in the latter country through which, by
a process of legislative osmosis, we adopted them in turn.
"There seems to be three distinct and different rules as applicable to the enrolled bill recognized by the
various courts of this country. The first of these rules appears to be that the enrolled bill is the ultimate
proof and exclusive and conclusive evidence that the bill passed the legislature in accordance with the
provisions of the Constitution. Such has been the holding in California, Georgia, Kentucky, Texas,
Washington, New Mexico, Mississippi, Indiana, South Dakota, and may be some others.
The second of the rules seems to be that the enrolled bill is a verity and resort cannot be had to the
journals of the Legislature to show that the constitutional mandates were not complied with by the
Legislature, except as to those provisions of the Constitution, compliance and which is expressly required
to be shown on the journal. This rule has been adopted in South Carolina, Montana, Oklahoma, Utah, Ohio,
New Jersey, United States Supreme Court, and others.
The third of the rules seems to be that the enrolled bill raises only a prima facie presumption that the
mandatory provisions of the Constitution have been complied with and that resort may be had to the
journals to refute that presumption, and if the constitutional provision is one, compliance with which is
expressly required by the Constitution to be shown on the journals, then the mere silence of the journals to
show a compliance therewith will refute the presumption. This rule has been adopted in Illinois, Florida
Kansas, Louisiana, Tennessee, Arkansas, Idaho, Minnesota, Nebraska, Arizona, Oregon, New Jersey,
Colorado, and others." 40
In the 1980 case of D & W Auto Supply v. Department of Revenue, the Supreme Court of Kentucky which
had subscribed in the past to the first of the three theories, made the pronouncement that it had shifted its

159

stand and would henceforth adopt the third. It justified its changed stance, thus:jgc:chanrobles.com.ph
"We believe that a move reasonable rule is the one which Professor Sutherland describes as the extrinsic
evidence rule . . . Under this approach there is a prima facie presumption that an enrolled bill is valid, but
such presumption may be overcome by clear satisfactory and convincing evidence establishing that
constitutional requirements have not been met." 41
What rule, if any, has been adopted in this jurisdiction?
Advocates of the "journal entry rule" cite the 1916 decision in U.S. v. Pons 42 where this Court placed
reliance on the legislative journals to determine whether Act No. 2381 was passed on February 28, 1914
which is what appears in the Journal, or on March 1, 1914 which was closer to the truth. The confusion was
caused by the adjournment sine die at midnight of February 28, 1914 of the Philippine Commission.
A close examination of the decision reveals that the Court did not apply the "journal entry rule" vis-a-vis
the "enrolled bill rule" but the former as against what are "behind the legislative journals."cralaw virtua1aw
library
"Passing over the question of whether the printed Act (No. 2381), published by authority of law, is
conclusive evidence as to the date when it was passed, we will inquire whether the courts may go behind
the legislative journals for the purpose of determining the date of adjournment when such journals are
clear and explicit." 43
It is to be noted from the above that the Court "passed over" the probative value to be accorded to the
enrolled bill.
Opting for the journals, the Court proceeded to explain:jgc:chanrobles.com.ph
"From their very nature and object, the records of the Legislature are as important as those of the
judiciary, and to inquire into the veracity of the journals of the Philippine Legislature, when they are, as we
have said clear and explicit, would be to violate both the letter and the spirit of the organic laws by which
the Philippine Government was brought into existence, to invade a coordinate and independent
department of the Government, and to interfere with the legitimate powers and functions of the
Legislature." 44
Following the courts in the United States since the Constitution of the Philippine Government is modeled
after that of the Federal Government, the Court did not hesitate to follow the courts in said country, i.e., to
consider the journals decisive of the point at issue. Thus: "The journals say that the Legislature adjourned
at 12 midnight on February 28, 1914. This settles the question and the court did not err in declining to go
behind these journals." 45
The Court made a categorical stand for the "enrolled bill rule" for the first time in the 1947 case of
Mabanag v. Lopez Vito 46 where it held that an enrolled bill imports absolute verity and is binding on the
courts. This Court held itself bound by an authenticated resolution, despite the fact that the vote of threefourths of the Members of the Congress (as required by the Constitution to approve proposals for
constitutional amendments) was not actually obtained on account of the suspension of some members of
the House of Representatives and the Senate. In this connection, the Court invoked the "enrolled bill rule"
in this wise: "If a political question conclusively binds the judges out of respect to the political
departments, a duly certified law or resolution also binds the judges under the enrolled bill rule born of
that respect." 47
Mindful that the U.S. Supreme Court is on the side of those who favor the rule and for no other reason than
that it conforms to the expressed policy of our law making body (i.e., Sec. 313 of the old Code of Civil
Procedure, as amended by Act No. 2210), the Court said that "duly certified copies shall be conclusive
proof of the provisions of such Act and of the due enactment thereof." Without pulling the legal
underpinnings from U.S. v. Pons, it justified its position by saying that if the Court at the time looked into
the journals, "in all probability, those were the documents offered in evidence" and that "even if both the
journals and authenticated copy of the Act had been presented, the disposal of the issue by the Court on
the basis of the journals does not imply rejection of the enrolled theory; for as already stated, the due
enactment of a law may be proved in either of the two ways specified in Section 313 of Act No. 190 as
amended." 48 Three Justices voiced their dissent from the majority decision.

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Again, the Court made in position plain in the 1963 case of Casco Philippine Chemical Co., Inc. v. Gimenez
49 when a unanimous Court ruled that: "The enrolled bill is conclusive upon the courts as regards the tenor
of the measure passed by Congress and approved by the President. If there has been any mistake in the
printing of a bill before it was certified by the officers of Congress and approved by the Executive, the
remedy is by amendment of curative legislative not by judicial decree." According to Websters New 20th
Century Dictionary, 2nd ed., 1983, the word "tenor" means, among others, "the general drift of something
spoken or written; intent, purport, substance."cralaw virtua1aw library
Thus, the Court upheld the respondent Auditor Generals interpretation that Republic Act No. 2609 really
exempted from the margin fee or foreign exchange transactions "urea formaldehyde" as found in the law
and not "urea and formaldehyde" which petition insisted were the words contained in the bill and were so
intended by Congress.
In 1969, the Court similarly placed the weight of its authority behind the conclusiveness of the enrolled bill.
In denying the motion for reconsideration, the Court rule in Morales v. Subido that "the enrolled Act in the
office of the legislative secretary of the President of the Philippines shows that Section 10 is exactly as it is
in the statute as officially published in slip form by the Bureau of Printing. . . . Expressed elsewise, this is
matter worthy of the attention not of an Oliver Wendell Holmes but of a Sherlock Holmes." 50 The alleged
omission of a phrase in the final Act was made, not at any state of the legislative proceedings, but only in
the course of the engrossment of the bill, more specifically in the proofreading thereof.
But the Court did include a caveat that qualified the absoluteness of the "enrolled bill" rule
stating:jgc:chanrobles.com.ph
"By what we have essayed above we are not of course to be understood as holding that in all cases the
journals must yield to the enrolled bill. To be sure there are certain matters which the Constitution (Art. VI,
secs. 10 [4], 20 [1], and 21 [1]) expressly requires must be entered on the journal of each house. To what
extent the validity of a legislative act may be affected by a failure to have such matters entered on the
journal, is a question which we do not now decide (Cf. e.g., Wilkes Country Commrs. v. Coler, 180 U.S. 506
[1900]). All we hold is that with respect to matters not expressly required to be entered on the journal, the
enrolled bill prevails in the event of any discrepancy." 51

More recently, in the 1993 case of Philippine Judges Association v. Prado, 52 this Court, in ruling
on the unconstitutionality of Section 35 of Republic Act No. 7354 withdrawing the franking
privilege from the entire hierarchy of courts, did not so much adhere to the enrolled bill rule
alone as to both "enrolled bill and legislative journals." Through Mr. Justice Isagani A. Cruz, we
stated
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."cralaw virtua1aw library
Aware of the shifting sands on which the validity and continuing relevance of the "enrolled bill" theory
rests, I have taken pains to trace the history of its applicability in this jurisdiction, as influenced in varying
degrees by different Federal rulings.
As applied to the instant petition, the issue posed is whether or not the procedural irregularities that
attended the passage of House Bill No. 11197 and Sena te Bill No. 1630, outside of the reading and

printing requirements which were exempted by the Presidential certification, may no longer be
impugned, having been "saved" by the conclusiveness on us of the enrolled bill. I see no cogent
reason why we cannot continue to place reliance on the enrolled bill, but only with respect to
matters pertaining to the procedure followed in the enactment of bills in Congress and their
subsequent engrossment, printing errors, omission of words and phrases and similar relatively
minor matters relating more to form and factual issues which do not materially alter the essence
and substance of the law itself.chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph
Certainly, "courts cannot claim greater ability to judge procedural legitimacy, since constitutional rules on
legislative procedure are easily mastered. Procedural disputes are over facts whether or not the bill had
enough votes, or three readings, or whatever not over the meaning of the constitution. Legislators, as
eyewitnesses, are in a better position than a court to rule on the facts. The argument is also made that
legislature would be offended if courts examined legislative procedure. 53
Such a rationale, however, cannot conceivably apply to substantive changes in a bill introduced towards

161

the end of its tortuous trip through Congress, catching both legislators and the public unawares and
altering the same beyond recognition even by it sponsors.
This issue I wish to address forthwith.
EXTENT OF THE POWER OF THE BICAMERAL CONFERENCE COMMITTEE
One of the issues raised in these petitions, especially in G.R. Nos. 115781, 115543 and 115754,
respectively, is whether or not
"Congress violated Section 26, par. 2, Article VI (of the 1987 Constitution) when it approved the Bicameral
Conference Committee Report which embodied, in violation of Rule XII of the Rules of the Senate, a
radically altered tax measure containing provisions not reported out or discussed in either House and the
Senate and, worse, provisions contrary to what the House and the Senate had approved after three
separate readings. "54
and
"By adding or deleting provisions, when there was no conflicting provisions between the House and Senate
versions, the BICAM acted in excess of its jurisdiction or which such grave abuse of discretion as to amount
to loss of jurisdiction. . . . In adding to the bill and thus subjecting to VAT, real properties, media and
cooperatives despite the contrary decision of both Houses, the BICAM exceeded its jurisdiction or acted
with such abuse of discretion as to amount to loss of jurisdiction. . . ." 55
I wish to consider this issue in light of Article VIII, Sec. 1 of the Constitution which provides that" (j)udicial
power includes the duty of the courts of justice . . . to determine whether or not there has been a grave
abuse of discretion amounting to lack of excess of jurisdiction on the part of any branch or instrumentality
of the Government." We are also guided by the principle that a court may interfere with the internal
procedures of its coordinate branch only to uphold the Constitution. 56
A conference committee has been defined:jgc:chanrobles.com.ph
". . . unlike the joint committee is two committees, one appointed by each house. It is normally appointed
for a specific bill and its function is to gain accord between the two houses either by the recession of one
house from its bill or its amendments or by the further amendment of the existing legislation or by the
substitution of an entirely new bill. Obviously the conference committee is always a special committee
which considered it together with such other representatives of the house as seem expedient. (Horack,
Cases and Materials on Legislation [1940] 220. See also Zinn, Conference Procedure in Congress, 38 ABAJ
864 [1952]; Steiner, The Congressional Conference Committee [U of Ill. Press, 1951])." 57
From the foregoing definition, it is clear that a bicameral conference committee is a creature, not of the
Constitution, but of the legislative body under its power to determine rules of its proceedings under Article
VI, Sec. 16 (3) of the Constitution. Thus, it draws its life and vitality from the rules governing its creation.
The why, when, how and wherefore of its operations, in other words, the parameters within which it is to
function, or to be found in Section 26, Rule XII of the Rules of the Senate and Section 85 of the Rules of the
House of Representatives, respectively, which provide:chanrob1es virtual 1aw library
Rule XII, Rules of the Senate
"Sec. 26. In the event that the Senate does not agree with the House of Representatives on the provision
of any bill or joint resolution, the differences shall be settled by a conference committee of both Houses
which shall event meet within ten days after their composition.
The President shall designate the members of the conference committee in accordance with subparagraph
(c), Section 8 of Rule III.
Each Conference Committee Report shall contain a detailed and sufficiently explicit statement of the
changes in or amendments to the subject measure, and shall be signed by the conferees.
The consideration of such report shall not be in order unless the report has been filed with the Secretary of
the Senate and copies thereof have been distributed to the members."cralaw virtua1aw library
Rules of the House of Representatives
"Sec. 85. Conference Committee Reports. In the event that the House does not agree with the Senate on
the amendments to any bill or joint resolution, the differences may be settled by conference committee of
both Chambers.
The consideration of conference committee reports shall always be in order, except when the journal is
being read, while the roll is being called or the House is dividing on any question. Each of the pages of
such reports shall contain a detailed, sufficiently explicit statement of the changes in or amendments to

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the subject measure.


The consideration of such report shall not be in order unless copies thereof are distributed to the Members:
Provided, That in the last fifteen days of each session period it shall be deemed sufficient that three copies
of the report, signed as above provided, are deposited in the office of the Secretary General."cralaw
virtua1aw library
Under these Rules, a bicameral conference committee comes into being only when there are
disagreements and differences between the Senate and the House with regard to certain provisions of a
particular legislative act have to be reconciled.
Jeffersons Manual, which, according to Section 112, Rule XLIX of the Senate Rules, supplements it, states
that a conference committee is usually called "on the occasion of amendments between the Houses" and
"in all cases difference of opinion between the two Houses on matters pending between them." 58 It
further states:jgc:chanrobles.com.ph
"The managers of a conference must confine themselves to the differences committed to them, and may
not include subjects not within the disagreements, even though germane to a question in issue. But they
may perfect amendments committed to them if they do not in so doing go beyond the differences. . . .
Managers may not change the text to which both Houses have agreed." 59 (Emphasis supplied.)
Masons Manual of Legislative Procedures which is also considered as controlling authority for any situation
not covered by a specific legislative rule,60 states that either House may "request a conference with the
other on any matter of difference or dispute between them" and that in such a request, "the subject of the
conference should always be stated." 61
In the Philippines, as in the United States, the Conference Committee exercises such a wide range of
authority that they virtually constitute a third House in the Legislature. As admitted by the Solicitor
General, "It was the practice in past Congresses for Conference Committees to insert in bills approved by
the two Houses new provisions that were not originally contemplated by them." 62
In Legislative Procedure, Robert Luce gives a graphic description of the milieu and the circumstances which
have conspired to transform an initially innocuous mechanism designed to facilitate legislative action into
an all-powerful Frankenstein that brooks no challenge to its authority even from its own members.
"Their power lies chiefly in the fact that reports of conference committees must be accepted without
amendment or else rejected in toto. The impulse is to get done with the matters and so the motion to
accept has undue advantage, for some members are sure to prefer swallowing unpalatable provisions
rather than prolong controversy. This is the more likely if the report comes in the rush of business toward
the end of a session, when to seek further conference might result in the loss of the measure altogether. At
any time in the session there is some risk of such a result following the rejection of a conference report, for
it may not be possible to secure a second conference, or delay may give opposition to the main proposal
chance to develop more strength.
x
x
x
Entangled in a network of rule and custom, the Representative who resents and would resist this theft to
his rights, finds himself helpless. Rarely can be vote, rarely can he voice his mind, in the matter of any
fraction of the bill. Usually he cannot even record himself as protesting against some one feature while
accepting the measure as whole. Worst of all, he cannot by argument or suggested change, try to improve
what the other branch has done.
This means more than the subversion of individual rights. It means to a degree the abandonment of
whatever advantage the bicameral system may have. By so much it in effect transfers the lawmaking
power to small group of members who work out in private a decision that almost always prevails. What is
worse, these men are not chosen in a way to ensure the wisest choice. It has become the practice to name
as conferees the ranking members of the committee, so that the accident of seniority determines.
Exceptions are made, but in general it is not a question of who are most competent to serve. Chance
governs, sometimes giving way to favor, rarely to merit.
x
x
x

Speaking broadly, the system of legislating by conference committee is unscientific and therefore
defective. Usually it forfeits the benefit of scrutiny and judgment by all the wisdom available. Uncontrolled,
it is inferior to that process by which every amendment is secured independent discussion and vote. . . ."
63 (Emphasis supplied)
Not surprisingly has it been said: "Conference Committee action is the most undemocratic procedure in the
legislative process; it is an appropriate target for legislative critics." 64

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In the case at bench, petitioners insist that the Conference Committee to which Senate Bill No. 1630 and
House Bill No. 11197 were referred for the purpose of harmonizing their differences, overreached
themselves in not confining their "reconciliation" function to those areas of disagreement in the two bills
but actually making "surreptitious insertions" and deletions which amounted to a grave abuse of
discretion.
At this point, it becomes imperative to focus on the errant provisions which found their way into Republic
Act No. 7716. Below is a breakdown to facilitate understanding the grounds for petitioners
objections:chanrob1es virtual 1aw library
INSERTIONS MADE BY BICAMERAL CONFERENCE COMMITTEE (BICAM) TO SENATE BILL (SB) NO. 1630 AND
HOUSE BILL (HB) NO. 11197
1. Sec. 99 of the National Internal Revenue Code (NIRC)
(1) Under the HB, this section includes any person who, in the course of trade or business, sells, barters or
exchanges goods OR PROPERTIES and any person who LEASES PERSONAL PROPERTIES.
(2) The SB completely changed the said section and defined a number of words and phrases. Also, Section
99-A was added which included one who sells, exchanges, barters PROPERTIES and one who imports
PROPERTIES.
(3) The BICAM version makes LESSORS of goods OR PROPERTIES and importers of goods LIABLE to VAT
(subject of petition in G.R. No. 115754).
2. Section 100 (VAT on Sale of Goods)
The term "goods" or "properties" includes the following, which were not found in either the HB or the
SB:chanrob1es virtual 1aw library
In addition to radio and television time; SATELLITE TRANSMISSION AND CABLE TELEVISION TIME.
The term "Other similar properties" was deleted, which was present in the HB and the SB.
Real properties held primarily for sale to customers or held for lease in the ordinary course or business
were included, which was neither in the HB nor the SB (subject of petition in G.R. No. 115754).
3. Section 102
On what are included in the term "sale of exchange of services," as to make them subject to VAT, the
BICAM included/inserted the following (not found in either House or Senate Bills):chanrob1es virtual 1aw
library
1. Services of lessors of property, whether personal or real (subject of petition in G.R. No. 115754);
2. Warehousing services;
3. Keepers of resthouses, pension houses, inns, resorts;
4. Common carriers by land, air and sea;
5. Services of franchise grantees of telephone and telegraph;
6. Radio and television broadcasting;
7. All other franchise grantees except those under Section 117 of this Code (subject of petition in G.R. No.
115852);
8. Services of surety, fidelity, indemnity, and bonding companies;
9. Also inserted by the BICAM (on page 8 thereof) is the lease or use of or the right to use of satellite
transmission and cable television time.

164

4. Section 103 (Exempt Transactions)


The BICAM deleted subsection (f) in its entirety, despite its inclusion in both the House and Senate Bills.
Therefore, under Republic Act No. 7716, the "printing, publication, importation or sale of books and any
newspaper, magazine, review, or bulletin which appears at regular intervals with fixed prices for
subscription and sale and which is not devoted principally to the publication of advertisements" is subject
to VAT (subject of petition in G.R. No. 115931 and G.R. No. 115544).
The HB and SB did not touch Subsection (g) but it was amended by the BICAM by changing the word TEN
to FIVE. Thus, importation of vessels with tonnage of more than five thousand tons in VAT exempt.
Subsection L, which was identical in the HB and the SB that stated that medical, dental hospital and
veterinary services were exempted from the VAT was amended by the BICAM by adding the qualifying
phrase. EXCEPT THOSE RENDERED BY PROFESSIONALS, thus subjecting doctors, dentists and veterinarians
to the VAT.
Subsection U which exempts from VAT "transactions which are exempt under special laws," was amended
by the BICAM by adding the phrase: EXCEPT THOSE GRANTED UNDER PD Nos. 66, 529, 972, 1491, AND
1590, AND NON-ELECTRIC COOPERATIVES UNDER RA 6938 (subject of petition in G.R. No. 115873), not
found in either the HB or the SB, resulting in the inclusion of all cooperatives to the VAT, except nonelectric cooperatives.
The sale of real properties was included in the exempt transactions under the House Bill, but the BICAM
qualified this with the provision:jgc:chanrobles.com.ph
"(S) SALE OF REAL PROPERTIES NOT PRIMARILY HELD FOR SALE TO CUSTOMERS OR HELD FOR LEASE IN
THE ORDINARY COURSE OF TRADE OR BUSINESS OR REAL PROPERTY UTILIZED FOR LOW-COST AND
SOCIALIZED HOUSING AS DEFINED BY RA NO. 7279 OTHERWISE KNOWN AS THE URBAN DEVELOPMENT
AND HOUSING ACT OF 1992 AND OTHER RELATED LAWS." (subject of petition in G.R. No. 115754)
The BICAM also exempted the sale of properties, the receipts of which are not less than P480,000.00 or
more than P720,000.00 Under the SB, no amount was given, but in the HB it was stated that receipts from
the sale of properties not less than P350,000.00 nor more than P600,000.00 were exempt.
It did not include, as VAT exempt, the sale of transfer of securities, as defined in the Revised Securities Act
(BP 178) which was contained in both Senate and House Bills.
5. Section 104
Not included in the HB or the SB is the phrase "INCLUDING PACKAGING MATERIALS" which was inserted by
the BICAM in Section 104 (A) (1) (B), thus excluding from creditable input tax packaging materials and the
phrase "ON WHICH A VALUE-ADDED TAX HAS BEEN ACTUALLY PAID" in Section 104 (A) (2).
6. Section 107
Both House and Senate Bills provide for the payment of P500.00 VAT registration fee but this was
increased by BICAM to P1,000.00.
7. Section 112
Regarding a person whose sales or receipts are exempt under Section 103 (w), the BICAM inserted the
phrase: "THREE PERCENT UPON THE EFFECTIVITY OF THIS ACT AND FOUR PERCENT (4%) TWO YEARS
THEREAFTER." although the SB and the HB provide only "three percent of his gross quarterly sales."cralaw
virtua1aw library
8. Section 115
The BICAM adopted the HB version which subjects common carriers by land, air or water for the transport
of passengers to 3% of their gross quarterly sales, which is not found in the SB.
9. Section 117

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The BICAM amended this section by subjecting franchises on electric, gas and water utilities to a tax of two
percent (2%) on gross derived . . ., although neither the HB nor the SB has a similar provision.
10. Section 17 (d)
(a) The BICAM defers for only 2 years the VAT on services of actors and actresses, although the SB defers it
for 3 years.
(b) The BICAM uses the word "EXCLUDE" in the section on deferment of VAT collection on certain goods and
services. The HB does not contain any counterpart provision and SB only allows deferment for no longer
than 3 years.
11. Section 18 on the Tax Administration Development Fund is an entirely new provision not contained in
the House/Senate Bills. This fund is supposed to ensure effective implementation of Republic Act No. 7716.
12. Section 19
No period within which to promulgate the implementing rules and regulations is found in the HB or the SB
but BICAM provided "within 90 days" which found its way in Republic Act No. 7716.chanroblesvirtual|
awlibrary
Even a cursory perusal of the above outline will convince one that, indeed, the Bicameral Conference
Committee (henceforth to be referred to as BICAM) exceeded the power and authority granted in the Rules
of its creation. Both Senate and House Rules limit the task of the Conference Committee in almost identical
language to the settlement of differences in the provisions or amendments to any bill or joint resolution. If
it means anything at all, it is that there are provisions in subject bill, to start with, which differ and,
therefore, need reconciliation. Nowhere in the Rules is it authorized to initiate or propose completely new
matter. Although under certain rules on legislative procedure, like those in Jeffersons Manual, a conference
committee may introduce germane matters in a particular bill, such matters should be circumscribed by
the committees sole authority and function to reconcile differences.
Parenthetically, the Senate and in the House, a matter is "germane" to a particular bill if there is a common
tie between said matter and provisions which tend to promote the object and purpose of the bill it seeks to
amend. If it introduces a new subject matter not within the purview of the bill, then it is not "germane" to
the bill. 65 The test is whether or not the change represented an amendment or extension of the basic
purpose of the original, or the introduction of an entirely new and different subject matter. 66
In the BICAM, however, the germane subject matter must be within the ambit of the disagreement
between the two Houses. If the "germane" subject is not covered by the disagreement but it is reflected in
the final version of the bill as reported by the Conference Committee or, if what appears to be a "germane"
matter in the sense that it is "relevant or closely allied" 67 with the purpose of the bill, was not the subject
of a disagreement between the Senate and the House, it should be deemed an extraneous matter or even
a "rider" which should never be considered legally passed for not having undergone the three-day reading
requirement. Insertion of new matter on the part of the BICAM is, therefore, and ultra vires act which
makes the same void.
The determination of what is "germane" and what is not may appear to be a difficult task but the Congress,
having been confronted with the problem before, resolved it in accordance with the rules. In that case, the
Congress approved a Conference Committees insertion of new provisions that were not contemplated in
any of the provisions in question between the Houses simply because of the provision in Jeffersons Manual
that conferees may report matters "which are germane modifications of subjects in disagreement between
the Houses and the committee. 68 In other words, the matter was germane to the points of disagreement
between the House and the Senate.
As regards inserted amendments in the BICAM, therefore, the task of determining what is germane to a bill
is simplified, thus: If the amendments are not circumscribed by the subjects of disagreement between the
two Houses, then they are not germane to the purpose of the bill.chanrobles lawlibrary : rednad
In the instant case before us, the insertions and deletions made not merely spell an effort at settling
conflicting provisions but have materially altered the bill, thus giving rise to the instant petitions on the
part of those who were caught unawares by the legislative legerdemain that took place. Going by the

166

definition of the word "amendment" in Blacks Law Dictionary, 5th Ed., 1979, which means "to change or
modify for the better, to alter by modification, deletion, or addition," said insertions and deletions
constitute amendments. Consequently, these violated Article VI, Section 26 (2) which provides inter alia:
"Upon the last reading of a bill, no amendment thereto shall be allowed . . ." This proscription is intended
to subject all bills and their amendments to intensive deliberation by the legislators and the ample
ventilation of issues to afford the public an opportunity to express their opinions or objections issues to
afford the public an opportunity to express their opinions or objections thereon. The same rationale
underlies the three-reading requirement to the end that no surprises may be sprung on an unsuspecting
citizenry.
Provisions of the "now you see it, now you dont" variety, meaning those which were either in the House
and/or Senate versions but simply disappeared or were "bracketed out" of existence in the BICAM Report,
were eventually incorporated in Republic Act No. 7716. Worse, some goods, properties or services which
were not covered by the two versions and, therefore, were never intended to be so covered, suddenly
found their way into the same Report. No advance notice of such insertions prepared the rest of the
legislators, much less the public who could be adversely affected, so that they could be given the
opportunity to express their views thereon. Well has the final BICAM report been described, therefore, as
an instance of "taxation without representation."cralaw virtua1aw library
That the conferees or delegates in the BICAM representing the two Chambers could not possibly be
charged with bad faith or sinister motives or, at the very least, unseemly behavior, is of no moment. The
stark fact is that items not previously subjected to the VAT now fell under its coverage without interested
sectors or parties having been afforded the opportunity to be heard thereon. This is not to say that the
Conference Committee Report should have undergone the three readings required in Article VI, Section 26
(2), for this clearly refers only to bills which, after having been initially filed in either House, negotiated the
labyrinthine passage therein until its approval. The composition of the BICAM including as it usually does,
the Chairman of the appropriate Committee, the sponsor of the bill and other interested members ensures
an informed discussion, at least with respect to the disagreeing provisions. The same does not obtain as
regards completely new matter which suddenly spring on the legislative horizon.
It has been pointed out that such extraneous matters notwithstanding, all Congressmen and Senators were
given the opportunity to approve or turn down the Committee Report in toto, thus "curing" whatever
defect or irregularity it bore.
Earlier in this opinion, I explained that the source of the acknowledged power of this ad hoc committee
stems from the precise fact that, the meetings, being scheduled "take it or leave it" basis. It has not been
uncommon for legislators who, for one reason or another have been frustrated in their attempt to pass a
pet bill in their own chamber, to work for its passage in the BICAM where it may enjoy a more hospitable
reception and faster approval. In the instant case, had there been full, open and unfettered discussion on
the bills during the Committee sessions, there would not have been as much vociferous objections on this
score. Unfortunately, however, the Committee held two of the five sessions behind closed doors, sans
stenographers, record-takers and interested observes. To that extent, the proceedings were shrouded in
mystery and the publics right to information on matter of public concern as enshrined in Article III, Section
7 69 and the governments policy of transparency in transactions involving public interest in Article II,
Section 28 of the Constitution 70 are undermined.
Moreover, that which is void ab initio such as the objectionable provisions in the Conference Committee
Report, cannot be "cured" or ratified. For all intents and purposes, these never existed. Quae ab initio non
valent, ex post facto convalescere non possunt. Things that are invalid from the beginning are not made
valid by a subsequent act.chanrobles law library : red
Should this argument be unacceptable, the "enrolled bill" doctrine, in turn, is invoked to support the
proposition that the certification by the presiding officers of Congress, together with the signature of the
President, bars further judicial inquiry into the validity of the law. I reiterate my submission that the
"enrolled bill ruling" may be applicable but only with respect to questions pertaining to the procedural
enactment, engrossment, printing, the insertion or deletion of a word or phrase here and there, but would
draw a dividing line with respect to substantial substantive changes, such as those introduced by the
BICAM herein.
We have before us then the spectacle of a body created by the two Houses of Congress for the very limited
purpose of settling disagreements in provisions between bills emanating therefrom, exercising the plenary
legislative powers of the parent chambers but holding itself exempt from the mandatory constitutional

167

requirements that are the hallmarks of legislation under the aegis of a democratic political system. From
the initial filing, through the three readings which entail detailed debates and discussions in Committee
and plenary sessions, and on the transmittal to the other House in a repetition of the entire process to
ensure exhaustive deliberations all these have been skipped over. In the proverbial twinkling of an eye,
provisions that probably may not have seen the light of day had they but run their full course through the
legislative mill, sprang into existence and emerged full-blown laws.
Yet our Constitution vests the legislative power in "the Congress of the Philippines which shall consist of a
Senate and a House of Representatives. . . . "71 and not in any special, standing or super committee of its
own creation, no matter that these have been described, accurately enough, as "the eye, the ear, the
hand, and very often the brain of the house."cralaw virtua1aw library
Firstly, that usage or custom has sanctioned this abbreviated, if questionable, procedure does not warrant
its being legitimized and perpetuated any longer. Consuetudo, contra rationem introducta, potius usurpatio
quam consuetudo appellari debet. A custom against reason is rather an usurpation. In the hierarchy of
sources of legislative procedure, constitutional rules, statutory provisions and adopted rules (as for
example, the Senate and House Rules), rank highest, certainly much ahead of customs and usages.
Secondly, is this Court to assume the role of passive spectator or indulgent third party, timorous about
exercising its power or more importantly, performing its duty, of making a judicial determination on the
issue of whether there has been grave abuse of discretion by the other branches or instrumentalities of
government, where the same is properly invoked? The time is past when the court was not loathe to raise
the bogeyman of the political question to avert a head-on collision with either the Executive or Legislative
Departments. Even the separation of powers doctrine was burnished to a bright sheen as often as it was
invoked to keep the judiciary within bounds. No longer does this condition obtain. Article VII, Section 2 of
the Constitution partly quoted in this paragraph has broadened the scope of judicial inquiry. This Court can
now safely fulfill its mandate of delimiting the powers of co-equal departments like the Congress, its
officers or its committees which may have no compunctions about exercising legislative powers in full.
Thirdly, dare we close our eyes to the presumptuous assumption by a runaway committee of its
progenitors legislative powers in derogation of the rights of the people, in the process, subverting the
democratic principles we all are sworn to uphold, when a proper case is made out for our intervention? The
answers to the above queries are self-evident.
I call to mind this exhortation: "We are sworn to see that violations of the constitution by any person,
corporation, state agency or branch of government are brought to light and corrected. To countenance
an artificial rule of law that silences our voices when confronted with violations of our Constitution is not
acceptable to this Court." 72
I am not unaware that a rather recent decision of ours brushed aside an argument that a provision in
subject law regarding the withdrawal of the franking privilege from the petitioners and this Court itself, not
having been included in the original version of Senate Bill No. 720 or of House Bill No. 4200 but only in the
Conference Committee Report, was violate of Article VI, Section 26 (2) of the Constitution. Likewise, that
said Section 35, never having been a subject of disagreement between both Houses, could not have been
validly added as an amendment before the Conference Committee.
The majority opinion in said case explained:jgc:chanrobles.com.ph
"While it is true that a conference committee is the mechanism for compromising differences between the
Senate and the House, it is not limited in its jurisdiction to this question. Its broader functions is described
thus:chanrob1es virtual 1aw library
A conference committee may deal generally with the subject matter or it may be limited to resolving the
precise differences between the two houses. Even where the conference committee is not by rule limited in
its jurisdiction, legislative custom severely limits the freedom with which new subject matter can be
inserted into the conference bill. But occasionally a conference committee produces unexpected results,
results beyond its mandate. These excursions occur even where the rules impose strict limitations on
conference committee jurisdiction. This is symptomatic of the authoritarian power of conference
committee (Davies, Legislative Law and Process: In a Nutshell, 1986 Ed., p. 81)." 73 (Emphasis supplied)
At the risk of being repetitious, I wish to point out that the general rule, as quoted above, is: "Even where
the conference committee is not by rule limited in its jurisdiction, legislative custom severely limits the

168

freedom with which new subject matter can be inserted into the conference bill." What follows, that is,
"occasionally a conference committee produces unexpected results, results beyond its mandate . . ." is the
exception. Then it concludes with a declaration that: "This is symptomatic of the authoritarian power of
conference committee." Are we about to reinstall another institution that smacks of authoritarianism
which, after our past experience, has become anathema to the Filipino people?
The ruling above can hardly be cited in support of the proposition that a provision in a BICAM report which
was not the subject of differences between the House and Senate versions of a bill cannot be nullified. It
submit that such is not authorized in our Basic Law. Moreover, this decision concerns merely one provision
whereas the BICAM Report that culminated in the EVAT law has a wider scope as it, in fact, expanded the
base of the original VAT law by imposing the tax on several items which were not so covered prior to the
EVAT.
One other flaw in most BICAM Reports, not excluding this one under scrutiny, is that, hastily drawn up, it
often fails to conform to the Senate and House Rules requiring no less than a "detailed" and "sufficiently"
explicit statement of the changes in or amendments to the subject measure." The Report of the
committee, as may be gleaned from the preceding pages, was no more than the final version of the bill as
"passed" by the BICAM. The amendments or subjects of dissension, as well as the reconciliation made by
the committee, are not even pointed out, much less explained therein.
It may be argued that legislative rules of procedure may properly be suspended, modified, revoked or
waived at will by the legislators themselves. 74 This principle, however, does not come into play in
interpreting what the record of the proceedings shows was, or was not, done. It is rather designed to test
the validity of legislative action where the record shows a final action in violation or disregard of legislative
rules. 75 Utilizing the Senate and the House Rules as both guidelines and yardstick, the BICAM here
obviously did not adhere to the rule on what the Report should contain.
Given all these irregularities that have apparently been engrafted into the BICAM system, and which have
been tolerated, if not accorded outright acceptance by everyone involved in or conversant with, the
institution, it may be asked: Why not leave well enough alone?
That these practices have remained unchallenged in the past does not justify our closing our eyes and
turning a deaf ear to them. Writ large is the spectacle of a mechanism ensconced in the very heart of the
peoples legislative halls, that now stands indicted with the charge of arrogating legislative powers unto
itself through the use of dubious "shortcuts." Here, for the people to judge, is the "mother of all
shortcuts."cralaw virtua1aw library
In the petitions at bench, we are confronted with the enactment of a tax law which was designed to
broaden the tax base. It is rote learning for any law student that as an attribute of sovereignty, the power
to tax is "the strongest of all the powers of government." 76 Admittedly, "for all its plenitude, the power to
tax is not unconfined. There are restrictions." 77 Were there none, then the off-quoted 1803 dictum of
Chief Justice Marshall that "the power to tax involves the power to destroy" 78 would be a truism. Happily,
we can concur with, and the people can find comfort in, the reassuring words of Mr. Justice Holmes: "The
power to tax is not the power to destroy while this Court sits." 79
Manakanaka, mayroong dumudulog dito sa Kataastaasang Hukuman na may kamangha-manghang
hinaing. Angkop na halimbawa ay ang mga petisyong iniharap ngayon sa amin.
Ang ilan sa kanila ay mga Senador na nais mapawalang bisa ang isang batas ukol sa buwis na ipinasa
mismo nila. Diumano ito ay hindi tumalima sa mga itinatadhana sa Saligang Batas. Bukod sa rito, tutol sila
sa mga bagong talata na isiningit ng "Bicameral Conference Committee" na nagdagdag ng mga bagong
bagay bagay at serbisyo na papatawan ng buwis. Ayon sa kanila, ginampanan ng komiteng iyan ang
gawain na nauukol sa buong Kongreso. Kung kayat and nararapat na mangyari ay ihatol ng kataastaasang
Hukuman na malabis na pagsasamantala sa sariling pagpapasiya ang ginawa ng Kongreso.
Bagamat bantulot kaming makialam sa isang Kapantay na sangay ng Pamahalaan, hindi naman nararapat
na kami ay tumangging gampanan ang tungkulin na iniatas sa amin ng Saligang Batas. Lalut-lalo nang
ang batas na kinauukulan ay maaaring makapinsala sa nakararami sa sambayanan.
Sa ganang akin, itong batas na inihaharap sa amin ngayon, at totoong labag sa Saligang Batas,
samakatuwid ay walang bisa. Ngunit ito ay nauukol lamang sa mga katiwalian na may kinalaman sa
paraan ng pagpapasabatas nito. Hindi namin patakaran ang makialam o humadlang sa itinakdang gawain

169

ng Saligang Batas sa Pangulo at sa Kongreso. Ang dalawang sangay na iyan ng Pamahalaan ang higit na
maalam ukol sa kung ang anumang panukalang batas ay nararapat, kanais-nais o magagampanan; kung
kayat hindi kami nararapat na maghatol o magpapasiya sa mga bagay na iyan. Ang makapapataw ng
angkop na lunas sa larangan na iyan ay ang mismong mga kinatawan ng sambayanan sa Kongreso.
Faced with this challenge of protecting the rights of the people by striking down a law that I submit is
unconstitutional and in the process, checking the wonted excesses of the Bicameral Conference
Committee system, I see in this case a suitable vehicle to discharge the Courts Constitutional mandate
and duty of declaring that there has indeed been a grave abuse of discretion amounting to lack of excess
of jurisdiction on the part of the Legislature.
Republic Act No. 7716, being unconstitutional and void, I find no necessity to rule on the substantive issues
as dealt with in the majority opinion as they have been rendered moot and academic. These issues pertain
to the intrinsic merits of the law. It is axiomatic that the wisdom, desirability and advisability of enacting
certain laws lie, not within the province of the Judiciary but that of the political departments, the Executive
and the Legislative. The relief sought by petitioners from what they perceive to be the harsh and onerous
effect of the EVAT on the people is within their reach. For Congress, of which Senator-petitioners are a part,
can furnish the solution by either repealing or amending the subject law.
For the foregoing reasons, I VOTE to GRANT the petition.
BELLOSILLO, J., dissenting:chanrob1es virtual 1aw library
With a consensus already reached after due deliberations, silence perhaps should be the better part of
discretion, except to vote. The different views and opinions expressed are so persuasive and convincing;
they are more than enough to sway the pendulum for or against the subject petitions. The penetrating and
scholarly dissertations of my brethren should dispense with further arguments which may only confound
and confuse even the most learned of men.
But there is a crucial point, a constitutional issue which, I submit, has been belittled, treated lightly, if not
almost considered insignificant and purposeless. It is elementary, as much as it is fundamental. I am
referring to the word "exclusively" appearing in Sec. 24, Art. VI, of our 1987 Constitution. This is
regrettable, to say the least, as it involves a constitutional mandate which, wittingly or unwittingly, has
been cast aside as trivial and meaningless.
A comparison of the particular provision on the enactment of revenue bills in the U.S. Constitution with its
counterpart in the Philippine Constitution will help explain my position.chanroblesvirtuallawlibrary
Under the U.S. Constitution," [a]ll bills for raising revenue shall originate in the House of Representatives;
but the Senate may propose on concur with amendments as on other bills" (Sec. 7, par. [1], Art. I). In
contrast, our 1987 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" (Sec. 24, Art. VI, Emphasis
supplied).
As may be gleaned from the pertinent provision of our Constitution, all revenue bills are required to
originate "exclusively" in the House of Representatives. On the other hand, the U.S. Constitution does not
use the word "exclusively;" it merely says," [a]ll bills for raising revenue shall originate in the House of
Representatives."cralaw virtua1aw library
Since the term "exclusively" has already been adequately defined in the various opinions, as to which
there seems to be no dispute, I shall no longer offer my own definition.
Verily, the provision in our Constitution requiring that all revenue bills shall originate exclusively from the
Lower House is mandatory. The word "exclusively" is an "exclusive word," which is indicative of an intent
that the provisions is mandatory. 1 Hence, all American authorities expounding on the meaning and
application of Sec. 7, par. (1), Art. I, of the U.S. Constitution cannot be used in the interpretation of Sec. 24,
Art. VI, of our 1987 Constitution which has a distinct feature of "exclusiveness" all its own. Thus, when our
Constitution absolutely requires as it is mandatory that a particular bill should exclusively emanate
from the Lower House, there is no alternative to the requirement that the bill to become valid law must
originate exclusively from that House.

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In the interpretation of constitutions, questions frequently arise as to whether particular sections are
mandatory or directory. The courts usually hesitate to declare that a constitutional provision is directory
merely in view of the tendency of the legislature to disregard provisions which are not said to be
mandatory. Accordingly, it is the general rule to regard constitutional provisions as mandatory, and not to
leave any discretion to the will of the legislature to obey or disregard them. This presumption as to
mandatory quality is usually followed unless it is unmistakably manifest that the provisions are intended to
be merely directory. So strong is the inclination in favor of giving obligatory force to the terms of the
organic law that it has even been said that neither by the courts nor by any other department of the
government may any provision of the Constitution be regarded as merely directory, but that each and
everyone of its provisions should be treated as imperative and mandatory, without reference to the rules
and distinguishing between the directory and the mandatory statutes. 2
The framers of our 1987 Constitution could not have been the term "exclusively" if they only meant to
replicate and adopt in toto the U.S. version. By inserting "exclusively" in Sec. 24, Art. VI, of our
Constitution, their message is clear: they wanted it different, strong, stringent. There must be a compelling
reason for the inclusion of the word "exclusively," which cannot be an act of retrogression but progression,
an improvement on its precursor. Thus, "exclusively" must be given its true meaning, its purpose observed
and virtue recognized, for it could not have been conceived to be of minor consequence. That construction
is to be sought which gives effect to the whole of the statue its every word. Ut magis valeat quam
pereat.
Consequently, any reference to American authorities, decisions and opinions, however wisely and
delicately put, can only mislead in the interpretation of our own Constitution. to refer to them in defending
the constitutionality of R.A. 7716, subject of the present petitions, is to argue on a false premise, i.e., that
Sec. 24, Art. VI, of our 1987 Constitution is, or means exactly, the same as Sec. 7, par. (1), Art. I, of the U.S.
Constitution, which is not correct. Hence, only a wrong conclusion can be drawn from a wrong premise.
For example, it is argued that in the United States, from where our own legislative is patterned, the Senate
can practically substitute its own tax measure for that of the Lower House. Thus, according to the Majority,
citing an American case, "the validity of Sec. 37 which the Senate had inserted in the Tariff Act of 1909 by
imposing an ad valorem tax based on the weight of vessels, was upheld against the claim that the revenue
bill originated in the Senate in contravention of Art. I, Sec. 7, of the U.S. Constitution." 3 In an effort to be
more convincing, the Majority even quotes the footnote in Introduction to American Government by F.A.
Ogg and P.O. Ray which reads
Thus in 1883 the upper house struck out everything after the enacting clause of a tariff bill and wrote its
own measure, which the House eventually felt obliged to accept. It likewise added 847 amendments to the
Payne-Aldrich tariff act of 1909, dictated the schedules of the emergency tariff act of 1921, rewrote an
extension tax revision bill in the same year, and recast most of the permanent tariff bill of 1922 4
which in fact suggests, very clearly, that the subject revenue bill actually originated from the Lower House
and was only amended, perhaps considerably, by the Senate after it was passed by the former and
transmitted to the latter.
In the cases cited, where the statutes passed by the U.S. Congress were upheld, the revenue bills did not
actually originate from the Senate but, in fact, from the Lower House. Thus, the Supreme Court of the
United States, speaking through Chief Justice White in Rainey v. United States 5 upheld the revenue bill
passed by Congress and adopted the ruling of the lower court that
. . . the secretion in question is not void as a bill for raising revenue originating in the Senate and not in the
House of Representatives. It appears that the section was proposed by the Senate as an amendment to a
bill for raising revenue which originated in the House. That is sufficient.
Flint v. Stone Tracy Co., 6 on which the Solicitor General heavily leans in his Consolidated Comment as well
as in his Memorandum, does not support the thesis of the Majority since the subject bill therein actually
originated from the Lower House and not from the Senate, and the amendment merely covered a certain
provision in the House bill.
In fine, in the cases cited which were lifted from American authorities, it appears that the revenue bills in
question actually originated from the House of Representatives and were amended by the Senate only
after they were transmitted to it. Perhaps, if the factual circumstances in those cases were exactly the
same as the ones at bench, then the subject revenue or tariff bill may be upheld in this jurisdiction on the

171

principle of substantial compliance, as they were in the United States, except possibly in instances where
the House bill undergoes what it now referred to as "amendment by substitution," for that would be in
derogation of our Constitution which vests solely in the House of Representatives the power to initiate
revenue bills. A Senate amendment by substitution simply means that the bill in question did not in effect
originate from the lower chamber but from the upper chamber and now disguises itself as a mere
amendment of the House version.
It is also theorized that in the U.S., amendment by substitution is recognized. That may be true. But the
process may be validity effective only under the U.S. Constitution. The cases before us present a totally
different factual backdrop. Several months before the Lower House could even pass HB No. 11197, P.S.
Res. No. 734 and SB No. 1129 had already been filed in the Senate subsequently approved SB No. 1630 "in
substitution of SB No. 1129, taking into consideration P.S. Res. No. 734 and HB No. 11197," and not HB No.
11197 itself "as amended." Here, the Senate could not have proposed or concurred with amendments
because there was nothing to concur with or amend except it own bill. It must be stressed that the process
of concurring or amending presupposes that there exists a bill upon which concurrence may be based or
amendments introduced. The Senate should have reported out HB No. 11197, as amended, even if it the
amendment it took into consideration SB No. 1630. It should not have submitted to the Bicameral
Conference Committee SB No. 1630 which, admittedly, did not originate exclusively from the Lower House.
But even assuming that in our jurisdiction a revenue bill of the Lower House may be amended by
substitution by the Senate although I am not prepared to accept it in view of Sec. 24, Art. VI, of our
Constitution still R.A. 7716 could not have been the result of amendment by substitution since the
Senate had no House bill to speak of that it could when the Senate started deliberating on its own version.
Be that as it may, I cannot rest easy on the proposition that a constitutional mandate calling for the
exclusive power and prerogative of the House of Representatives may just be discarded and ignored by the
Senate. Since the Constitution is for the observance of all the judiciary as well as the other departments
of government and the judges are sworn to support its provisions, the courts are not at liberty to
overlook or disregard its commands. And it is not fair and just to impute to them undue interference if they
look into the validity of legislative enactments to determine whether the fundamental law has been
faithfully observed in the process. It is their duty to give effect to the existing Constitution and to obey all
constitutional provisions irrespective of their opinion as to the wisdom of such provisions.
The rule is fixed that the duty in a proper case to declare a law unconstitutional cannot be declined and
must be performed in accordance with the deliberate judgment of the tribunal before which the validity of
the enactment is directly drawn into question. When it is clear that a statute transgresses the authority
vested in the legislature by the Constitution, it is the duty of the courts to declare the act unconstitutional
because they cannot shirk from it without violating their oaths of office. This duty of the courts to maintain
the Constitution as the fundamental law of the state is imperative and unceasing; and, as Chief Justice
Marshal said, whenever a statute is in violation of the fundamental law, the courts must so adjudge and
thereby give effect to the Constitution. Any other course would lead to the destruction of the Constitution.
Since the question as to the constitutionality of a statute is a judicial matter, the courts will not decline the
exercise of jurisdiction upon the suggestion that action might be taken by political agencies in disregard of
the judgment of the judicial tribunals. 7
It is my submission that the power and authority to originate revenue bills under our Constitution is vested
exclusively in the House of Representatives. Its members being more numerous than those of the Senate,
elected more frequently, and more directly represent the people, are therefore considered better aware of
the economic life of their individual constituencies. It is just proper that revenue bills originate exclusively
from them.chanroblesvirtuallawlibrary:red
In this regard, we do not have to devote much time delving into American decisions and opinions and
invoke them in the interpretation of our own Constitution which is different from the American version,
particularly on the enactment of revenue bills. We have our own Constitution couched in a language our
own legislators thought best. Insofar as revenue bills are concerned, our Constitution is not American; it is
distinctively Filipino. And no amplitude of legerdemain can detract from our constitutional requirement that
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, although the
Senate may propose or concur with amendments.
In this milieu, I am left no option but to vote to grant the petitions and strike down R.A. 7716 as
unconstitutional.

172

PUNO, J., dissenting:chanrob1es virtual 1aw library


Petitioners plead that we affirm the self-evident proposition that they who make law should not break the
law. There are many evils whose elimination can be trusted to time. The evil of lawlessness in lawmaking
cannot. It must be slain on slight for it subverts the sovereignty of the people.
First, a fast snapshot of the facts. On November 17, 1993, the House of Representatives passed on third
reading House Bill (H.B.) No. 11197 entitled "An Act Restructuring the Value Added Tax (VAT) System to
Widen its Tax Base and Enhance its Administration, Amending for These Purposes Sections 99, 100, 102 to
108 and 110 Title V and 236, 237 and 238 of Title V, all of the National Internal Revenue Code as
Amended." The vote was 114 Yeas and 12 Nays. The next day, November 18, 1993, H.B. No. 11197 was
transmitted to the Senate for its concurrence by the Hon. Camilo L. Sabio, Secretary General of the House
of Representatives.
On February 7, 1994, the Senate Committee on Ways and Means submitted Senate Bill (S.B.) No. 1630,
recommending its approval "in substitution of Senate Bill No. 1129 taking into consideration P.S. Res. No.
734 and House Bill No. 11197." On March 24, 1994, S.B. No. 1630 was approved on second and third
readings. On the same day, the Senate, thru Secretary Edgardo E. Tumangan, requested the House for a
conference "in view of the disagreeing provisions of S.B. No. 1630 and H.B. No. 11197." It designated the
following as members of its Committee: Senators Ernesto F. Herrera, Leticia R. Shahani, Alberto S. Romulo,
John H. Osmea, Ernesto M. Maceda, Blas F. Ople, Francisco S. Tatad, Rodolfo G. Biazon, and Wigberto S.
Taada. On the part of the House, the members of the Committee were: Congressmen Exequiel B. Javier,
James L. Chiongbian, Renato V. Diaz, Arnulfo P. Fuentebella, Mariano M. Tajon, Gregorio Andolong, Thelma
Almario, and Catalino Figueroa. After five (5) meetings, 1 the Bicameral Conference Committee submitted
its Report to the Senate and the House stating:jgc:chanrobles.com.ph
"CONFERENCE COMMITTEE REPORT
The Conference Committee on the disagreeing provisions of House Bill No. 11197, entitled:chanrob1es
virtual 1aw library
AN ACT RESTRUCTURING THE VALUE ADDED TAX (VAT) SYSTEM TO WIDEN ITS TAX BASE AND ENHANCE ITS
ADMINISTRATION, AMENDING FOR THESE PURPOSES SECTIONS 99, 100, 102, 103, 104, 105, 106, 107, 108
AND 110 OF TITLE IV, 112, 115 AND 116 OF TITLE V, AND 236, 237, AND 238 OF TITLE IX, AND REPEALING
SECTIONS 113 AND 114 OF TITLE V, ALL OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED
and Senate Bill No. 1630 entitled:chanrob1es virtual 1aw library
AN ACT RESTRUCTURING THE VALUE ADDED TAX (VAT) SYSTEM TO WIDEN ITS TAX BASE AND ENHANCE ITS
ADMINISTRATION, AMENDING FOR THESE PURPOSES SECTIONS 99, 100, 102, 103, 104, 106, 107, 108 AND
110 OF TITLE IV, 112, 115, 117 AND 121 OF TITLE V, AND 236, 237 AND 238 OF TITLE IX, AND REPEALING
SECTIONS 113, 114, 116, 119 AND 120 OF TITLE V, ALL OF THE NATIONAL INTERNAL REVENUE CODE, AS
AMENDED AND FOR OTHER PURPOSES
having met, after full and free conference, has agreed to recommended and do hereby recommend to their
respective Houses that House Bill No. 11197, in consolidation with Senate Bill No. 11197, in consolidation
with Senate Bill No. 1630, be approved in accordance with the attached copy of the bill as reconciled and
approved by the conferees.chanrobles virtual lawlibrary
Approved."cralaw virtua1aw library
The Report was approved by the House on April 27, 1994. The Senate approved it on May 2, 1994. On May
5, 1994, the President signed the bill into law as R.A. No. 7716.
There is no question that the Bicameral Conference Committee did more than reconcile differences
between House Bill No. 11197 and Senate Bill No. 1630. In several instances, it either added new
provisions or deleted provisions already approved in House Bill No. 11197 and Senate Bill No. 1630. These
insertions/deletions numbering twenty four (24) are specified in detail by petitioner Tolentino as follows: 2
"SOME SALIENT POINTS ON THE

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(AMENDMENTS TO THE VAT LAW [EO 273])


SHOWING ADDITIONS/INSERTIONS MADE BY BICAMERAL CONFERENCE COMMITTEE TO SB 1630 7 HB
11197
I On Sec. 99 of the NIRC
H.B. 11197 amends this section by including, as liable to VAT, any person who in the course of trade of
business, sells, barters, or exchanges goods and PROPERTIES and any person who LEASES PERSONAL
PROPERTIES.
Senate Bill 1630 deleted Sec. 99 to give way for a new Section 99 DEFINITION OF TERMS where
eleven (11) terms were defined. A new Section, Section 99-A was incorporated which included as subject to
VAT, one who sells, exchanges, barters PROPERTIES and one who imports PROPERTIES.
The BCC version (R.A. 7716) makes LESSORS of goods OR PROPERTIES and importers of goods LIABLE to
VAT.
II On Section 100 (VAT on sale of goods)
A. The H.B., S.B., and the BCC (R.A. 7716) all included sale of PROPERTIES as subject to VAT.
The term GOODS or PROPERTIES includes the following:chanrob1es virtual 1aw library
HB (pls. refer SB (pls. refer BCC (RA 7716
to Sec. 2) to Sec. 1(4) (Sec. 2)
1. Right or the privilege to use 1. The same 1. The same
patent, copyright, design, or
model, plan, secret formula
or process, goodwill trademark, tradebrand or other
like property or right.
2. Right or the privilege to use 2. The same 2. The same
in the Philippines of any
industrial, commercial, or
scientific equipment.
3. Right or the privilege to use 3. The same 3. The same
motion picture films, films,
tapes anddiscs.
4. Radio and Television time 4. The same 4. In addition to radio and
television time the
following were included:chanrob1es virtual 1aw library
SATELLITE

174

TRANSMISSION and
CABLE TELEVISION
TIME
5. Other Similar 5. The same 5.Other properties
similar properties
was deleted
6. 6. 6. Real properties held
primarily for sale to
customers or held for
lease in the ordinary
course or business.
B. The HB and the BCC Bills has each provision which included THE SALE OF GOLD TO BANGKO SENTRAL
NG PILIPINAS as falling under the term Export Sales, hence subject to 0% VAT. The Senate Bill does not
contain such provision (See Section 102-A thereof).
III On Section 102
This section was amended to include as subject to a 10% VAT the gross receipts derived from THE SALE OR
EXCHANGE OF SERVICES, INCLUDING THE USE OR LEASE OF PROPERTIES.
The SB, HB, and BCC have the same provisions on this.
However, on what are included in the term SALE OR EXCHANGE OF SERVICES, the BCC included/inserted
the following (not found in either the House or Senate Bills):chanrob1es virtual 1aw library
1. Services of lessors of property WHETHER PERSONAL OR REAL; (See BCC Report/Bill p. 7)
2. WAREHOUSING SERVICES (Ibid.,)
3. Keepers of RESTHOUSES, PENSION HOUSES, INNS, RESORTS (Ibid.,)
4. Common carries by LAND, AIR AND SEA (Ibid.,)
5. SERVICES OF FRANCHISE GRANTEES OF TELEPHONE AND TELEGRAPH;
6. RADIO AND TELEVISION BROADCASTING
7. ALL OTHER FRANCHISE GRANTEES EXCEPT THOSE UNDER SECTION 117 OF THIS CODE
8. SERVICES OF SURETY, FIDELITY, INDEMNITY, AND BONDING COMPANIES.
9. Also inserted by the BCC (on page B thereof) is the LEASE OR USE OF OR THE RIGHT TO USE OF
SATELLITE TRANSMISSION AND CABLE TELEVISION TIME
IV. On Section 103 (Exempt Transactions)
The BCC deleted subsection (f) in its entirety, despite its retention in both the House and Senate Bills, thus
under RA 7716, the printing, publication, importation or sale of books and any newspaper, magazine,
review, or bulletin which appears at regular intervals with fixed prices for subscription and sale and which
is not devoted principally to the publication of advertisements is subject to VAT.

175

Subsection (g) was amended by the BCC (both Senate and House Bills did not) by changing the word TEN
to FIVE, thus: "Importation of passenger and/or cargo vessel of more than five thousand ton to ocean
going, including engine and spare parts of said vessel to be used by the importer himself as operator
thereof." In short, importation of vessels with tonnage of more than 5 thousand is VAT exempt.
Subsection L, was amended by the BCC by adding the qualifying phrase: EXCEPT THOSE RENDERED BY
PROFESSIONALS.
Subsection U which exempts from VAT "Transactions which are exempt under special laws", was amended
by BCC by adding the phrase: EXCEPT THOSE GRANTED UNDER PD Nos. 66, 529, 972, 1491, and 1590, and
NON-ELECTRIC COOPERATIVES under RA 6938. This is the reason why cooperatives are now subject to VAT.
While the SALE OF REAL PROPERTIES was included in the exempt transactions under the House Bill, the
BCC made a qualification by stating:chanrob1es virtual 1aw library
(S) SALE OF REAL PROPERTIES NOT PRIMARILY HELD FOR SALE TO CUSTOMERS OR HELD FOR LEASE IN
THE ORDINARY COURSE OF TRADE OR BUSINESS OR REAL PROPERTY UTILIZED FOR LOW-COST AND
SOCIALIZED HOUSING AS DEFINED BY R.A. NO. 7279 OTHERWISE KNOWN AS THE URBAN DEVELOPMENT
AND HOUSING ACT OF 1992 AND OTHER RELATED LAWS.
Under the Senate Bill, the sale of real property utilized for low cost and socialized housing as defined by RA
7279, is one of the exempt transactions.
Under the House Bill, also exempt from VAT, is the SALE OF PROPERTIES OTHER THAN THE TRANSACTIONS
MENTIONED IN THE FOREGOING PARAGRAPHS WITH A GROSS ANNUAL SALES AND/OR RECEIPTS OF WHICH
DOES NOT EXCEED THE AMOUNT PRESCRIBED IN THE REGULATIONS TO BE PROMULGATED BY THE
SECRETARY OF FINANCE WHICH SHALL NOT BE LESS THAN P350,000.00 OR HIGHER THAN P600,000.00 . . .
Under the Senate Bill, the amount is P240,000.00. The BCC agreed at the amount of not less than
P480,000.00 or more than P720,000.00 SUBJECT TO TAX UNDER SEC. 112 OF THIS CODE.
The BCC did not include, as VAT exempt, the sale or transfer of securities as defined in the Revised
Securities Act (BP 178) which was contained in both Senate and House Bills.
V On Section 104
The phrase INCLUDING PACKAGING MATERIALS was included by the BCC on Section 104 (A) (1) (B), and the
phrase ON WHICH A VALUE-ADDED TAX HAS BEEN ACTUALLY on Section 104 (A) (2).
These phrases are not contained in either House and Senate Bills.
VI On Section 107
Both House and Senate Bills provide for the payment of P500.00 VAT registration fee. The BCC provides for
P1,000.00 VAT fee.
VII On Section 112
While both the Senate and House Bills provide that a person whose sales or receipts and are exempt under
Section 103[w] of the Code, and who are not VAT registered shall pay a tax equivalent to THREE (3)
PERCENT of his gross quarterly sales or receipts, the BCC inserted the phrase: THREE PERCENT UPON THE
EFFECTIVITY OF THIS ACT AND FOUR PERCENT (4%) TWO YEARS THEREAFTER.
VIII On Section 115
Sec. 17 of SB 1630 Sec. 12 of House Bill 11197 amends this Section by clarifying that common carriers by
land, air or water FOR THE TRANSPORT OF PASSENGERS are subject to Percentage Tax equivalent to 3% of
their quarterly gross sales.
The BCC adopted this and the House Bills provision that the GROSS RECEIPTS OF COMMON CARRIERS
DERIVED FROM THEIR INCOMING AND OUTGOING FREIGHT SHALL NOT BE SUBJECTED TO THE LOCAL
TAXES IMPOSED UNDER RA 7160. The Senate Bill has no similar provision.

176

IX On Section 117
This Section has not been touched by either Senate and House Bills. But the BCC amended it by subjecting
franchises on ELECTRIC, GAS and WATER UTILITIES A TAX OF TWO PERCENT (2%) ON GROSS RECEIPTS
DERIVED . . .
X On Section 121
The BCC adopted the Senate Bills amendment to this section by subjecting to 5% premium tax on life
insurance business.
The House Bill does not contain this provision.
XI Others
A) The House Bill does not contain any provision on the deferment of VAT collection on Certain Goods and
Services as does the Senate Bill (Section 19, SB 1630). But although the Senate Bill authorizes the
deferment on certain goods and services for no longer than 3 years, there is no specific provision that
authorizes the President to EXCLUDE from VAT any of these. The BCC uses the word EXCLUDE.
B) Moreover, the Senate Bill defers the VAT on services of actors and actresses etc. for 3 years but the BCC
defers it for only 2 years.
C) Section 18 of the BCC Bill (RA 7716) is an entirely new provision not contained in the House/Senate Bills.
D) The period within which to promulgate the implementing rules and regulations is within 60 days under
SB 1630; No specific period under the House Bill, within 90 days under RA 7716 (BCC).
E) The House Bill provides for a general repealing clause i.e., all inconsistent laws etc. are repealed.
Section 16 of the Senate Bill expressly repeals Sections 113, 114, 116, 119 and 120 of the code. The same
Senate Bill however contains a general repealing clause in Sec. 21 thereof.
RA 7716 (BCCs Bill) expressly repeals Sections 113, 114 and 116 of the NIRC; Article 39 (c) (d) and (e) of
EO 226 and provides the repeal of Sec. 119 and 120 of the NIRC upon the expiration of two (2) years
unless otherwise excluded by the President."cralaw virtua1aw library
The charge that the Bicameral Conference Committee added new provisions in the bill of the two
chambers is hardly disputed by respondents. Instead, respondents justify them. According to respondents:
(1) the Bicameral Conference Committee has an ex post veto power or a veto after the fact of approval of
the bill by both Houses; (2) the bill prepared by the Bicameral Conferences Committee, with its additions
and deletions, was anyway approved by both Houses; (3) it was the practice in past Congresses for
conference committees to insert in bills approved by the two Houses new provisions that were not
originally contemplated by them; and (4) the enrolled bill doctrine precludes inquiry into the regularity of
the proceedings that led to the enactment of R.A. 7716.
With due respect, I reject these contentions which will cave in on closer examination.
First. There is absolutely no legal warrant for the bold submission that a Bicameral Conference Committee
possesses the power to add/delete provisions in bills already approved on third reading by both Houses or
an ex post veto power. To support this postulate that can enfeeble Congress itself, respondents cite no
constitutional provision, no law, not even any rule or regulation. 3 Worse, there stance is categorically
repudiated by the rules of both the Senate and the House of Representatives which define with precision
the parameters of power of a Bicameral Conference Committee.chanrobles virtual lawlibrary
Thus, Section 209, Rule XII of the Rules of the Senate provides:jgc:chanrobles.com.ph
"In the event that the Senate does not agree with the House of Representatives on the provisions of any
bill or joint resolution, the differences shall be settled by a conference committee of both Houses which
shall meet within ten days after their composition.
Each Conference Committee Report shall contain a detailed and sufficiently explicit statement of the
changes in or amendments to the subject measure, and shall be signed by the conferees." (Emphasis

177

supplied)
The counterpart rule of the House of Representatives is cast in near identical language. Section 85 of the
Rules of the House of Representatives pertinently provides:jgc:chanrobles.com.ph
"In the event that the House does not agree with the Senate on the amendments to any bill or joint
resolution, the differences may be settled by a conference committee of both chambers.
. . . Each report shall contain a detailed, sufficiently explicit statement of the changes in or amendments to
the subject measure." (Emphasis supplied)
The Jeffersons Manual has been adopted 4 as a supplement to our parliamentary rules and practices.
Section 456 of Jeffersons Manual similarly confines the powers of a conference committee, viz: 5
"The managers of a conference must confine themselves to the differences committed to them . . . and
may not include subjects not within the disagreements, even though germane to a question in
issue."cralaw virtua1aw library
This rules of antiquity has been honed and honored in practice by the Congress of the United States. Thus,
it is chronicled by Floyd Biddick, Parliamentarian Emeritus of the United States Senate, viz: 6
"Committees of conferences are appointed for the sole purpose of compromising and adjusting the
differing and conflicting opinions of the two Houses and the committees of conference alone can grant
compromises and modify propositions of either Houses within the limits of the disagreement. Conferees
are limited to the consideration of differences between the two Houses.
Conferees shall not insert in their report matters not committed to them by either House, nor shall they
strike from the bill matters agreed to by both Houses. No matter on which there is nothing in either the
Senate or House passed versions of a bill may be included in the conference report and actions to the
contrary would subject the report to a point of order." (Emphasis ours)
In fine, there is neither a sound nor a syllable in the Rules of the Senate and the House of Representative
to support the thesis of the respondents that a bicameral conference committee is clothed with an ex post
veto power.
But the thesis that a Bicameral Conference Committee can wield ex post veto power does not only
contravene the rules of both the Senate and the House. It wages war against our settled ideals of
representative democracy. For the inevitable, catastrophic effect of the thesis is to install a Bicameral
Conference Committee as the Third Chamber of our Congress, similarly vested with the power to make
laws but with the dissimilarity that its laws are not the subject of a free and full discussion of both Houses
of Congress. With such a vagrant power, a Bicameral Conference Committee acting as a Third Chamber
will be a constitutional monstrosity.
It needs no omniscience to perceive that our Constitution did not provide for a Congress composed of three
chambers. On the contrary, section 1, Article VI of the Constitution provides in clear and certain language:
"The legislative power shall be vested in the Congress of the Philippines which shall consist of a Senate
and a House of Representatives . . ." Note that in vesting legislative power exclusively to the Senate and
the House, the Constitution used the word "shall." Its command for a Congress of two houses is mandatory.
It is not mandatory sometimes.
In vesting legislative power to the Senate, the Constitution means the Senate." . . composed of twenty-four
Senators . . . elected at large by the qualified voters of the Philippines. . ." 7 Similarly, when the
Constitution vested the legislative power to the House, it means the House." . . composed of not more than
two hundred and fifty members . . . who shall be elected from legislative districts . . . and those who . . .
shall be elected through a party-list system of registered national, regional, and sectoral parties or
organizations." 8 The Constitution thus, did not vest on a Bicameral Conference Committee with an ad hoc
membership the power to legislate for it exclusively vested legislative power to the Senate and the House
as co-equal bodies. To be sure, the Constitution does not mention the Bicameral Conference Committee
with an ad hoc membership the power to legislate for it exclusively vested legislative power to the Senate
and the House as co-equal bodies. To be sure, the Constitution does not mention the Bicameral Conference
Committees of Congress. No constitutional status in accorded to them. They are not even statutory
creations. They owe their existence from the internal rules of the two Houses of Congress. Yet, respondents

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peddle the disconcerting idea that they should be recognized as a Third Chamber of Congress and with ex
post veto power at that.
The thesis that a Bicameral Conference Committee can exercise law making power with ex post veto
power is freighted with mischief. Law making is a power that can be used for good or for ill, hence, our
Constitution carefully laid out a plan and a procedure for its exercise. Firstly, it vouchsafed that the power
to make laws should be exercised by no other body except the Senate and the House. It ought to be
indubitable that what is contemplated is the Senate acting as a full Senate and the House acting as a full
House. It is only when the Senate and the House act as whole bodies that they truly represent the people.
And it is only when they represent the people that they can legitimately pass laws. Laws that are not
enacted by the peoples rightful representatives subvert the peoples sovereignty. Bicameral Conference
Committees, with their ad hoc character and limited membership, cannot pass laws for they do not
represent the people. The Constitution does not allow the tyranny of the majority. Yet, the respondents will
impose the worst kind of tyranny the tyranny of the minority over the majority. Secondly, the
Constitution delineated in deft strokes the steps to be followed in making laws. The overriding purpose of
these procedural rules is to assure that only bills that successfully survive the searching scrutiny of the
power committees of Congress and the full and unfettered deliberations of both Houses can become laws.
For this reason, a bill has to undergo three (3) mandatory separate readings in each House. In the case at
bench, the additions and deletions made by the Bicameral Conference Committee did not enjoy the
enlightened studies of appropriate committees. It is meet to note that the complexities of modern day
legislations have made our committee system a significant part of the legislative process. Thomas Reed
called the committee system as "the eye, the ear, the hand, and very often the brain of the house."
President Woodrow Wilson of the United States once referred to the government of the United States as "a
government by the Chairman of the Standing Committees of Congress. . ." 9 Neither did these additions
and deletions of the Bicameral Conference Committee pass through the coils of collective deliberation of
the members of the two Houses acting separately. Due to this shortcircuiting of the constitutional
procedure of making laws, confusion shrouds the enactment of R.A. no. 7716. Who inserted the additions
and deletions remains a mystery. Why then were inserted is a riddle. To use a Churchillian phrase,
lawmaking should not be a riddle wrapped in an enigma. It cannot be, for Article II, section 28 of the
Constitution mandates the States to adopt and implement a "policy of full public disclosure of all its
transactions involving public interest." The Constitution could not have contemplated a Congress of
invisible and unaccountable John and Mary Does. A law whose rationale is a riddle and whose authorship is
obscure cannot bind the people.

All these notwithstanding, respondents resort to the legal cosmetology that these additions and
deletions should govern the people as laws because the Bicameral Conference Committee Report
was anyway submitted to and approved by the Senate and the House of Representatives. The
submission may have some merit with respect to provisions agreed upon by the Committee in
the process of reconciling conflicts between S.B. No. 1630 and H.B. No. 11197. In these
instances, the conflicting provisions had been previously screened by the proper committees,
deliberated upon by both Houses a
approved by them. It is, however, a different matter with respect to additions and deletions
which were entirely new and which were made not to reconcile inconsistencies between S.B. No.
1630 and H.B. No. 11197. The members of the Bicameral Conference Committee did not have
any authority to add new provisions or delete provisions already approved by both Houses as it
was not necessary to discharge their limited task of reconciling differences in bills. At that late
stage of law making, the Conference Committee cannot add/delete provisions which can become
laws without undergoing the study and deliberation of both chambers given to bills on 1st, 2nd,
and 3rd readings. Even the Senate and the house cannot enact a law which will not undergo
these mandatory three (3) readings required by the Constitution. If the Senate and the House
cannot enact such a law, neither can the lesser Bicameral Conference
Committee.chanroblesvirtual|awlibrary
Moreover, the so-called choice given to the members of both Houses to either approve or
disapprove the said additions and deletions is more of an optical illusion. These additions and
deletions are not submitted separately for approval. They are tucked to the entire bill. The vote is
on the bill as a package, i.e., together with the insertions and deletions. And the vote is either
"aye" or "nay," without any further debate and deliberation. Quite often, legislators vote "yes"
because they approve of the bill as a whole although they may object to its amendments by the
Conference Committee. This lack of real choice is well observed by Robert Luce: 10
"Their power lies chiefly in the fact that reports of conference committees must be accepted without

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amendment or else rejected in toto. The impulse is to get done with the matter and so the motion to
accept has undue advantage, for some motion to accept has undue advantage, for some members are
sure to prefer swallowing unpalatable provisions rather than prolong controversy. This is the more likely if
the report comes in the rush of business toward the end of the session, when to seek further conference
might result in the loss of the measure altogether. At any time in the session there is some risk of such a
result following the rejection of a conference report, for it may not be possible to secure a second
conference, or delay may give opposition to the main proposal chance to develop more strength."cralaw
virtua1aw library
In a similar vein, Prof. Jack Davies commented that "conference reports are returned to assembly and
Senate on a take-it or leave-it-basis, and the bodies are generally placed in the position that to leave-it is a
practical impossibility." 11 Thus, he concludes that "conference committee action is the most undemocratic
procedure in the legislative process." 12
The respondents also contend that the additions and deletions made by the Bicameral Conference
Committee were in accord with legislative customs and usages. The argument does not persuade for it
misappreciates the value of customs and usages in the hierarchy of sources of legislative rules of
procedure. To be sure, every legislative assembly has the inherent right to promulgate its own internal
rules. In our jurisdiction, Article VI, section 16(3) of the Constitution provides that "Each House may
determine the rules of its proceedings . . ." But it is hornbook law that the sources of Rules of Procedure are
many and hierarchical in character. Mason laid them down as follows: 13
". . .
1. Rules of Procedure are derived from several sources. The principal sources are as follows:chanrob1es
virtual 1aw library
a. Constitutional rules.
b. Statutory rules or charter provisions.
c. Adopted rules.
d. Judicial decisions.
e. Adopted parliamentary authority.
f. Parliamentary law.
g. Customs and usages.
2. The rules from the different sources take precedence in the order listed above except that judicial
decisions, since they are interpretations of rules from one of the other sources, take the same precedence
as the source interpreted. Thus, for example, an interpretation of a constitutional provision takes
precedence over a statute.
3. Whenever there is conflict between rules from these sources the rule from source listed earlier prevails
over the rule from the source listed, later. Thus, where the Constitution requires three readings of bills, this
provision controls over any provision of statue, adopted rules, adopted manual, or of parliamentary law,
and a rule of parliamentary law controls over a local usage but must give way to any rule from a higher
source of authority." (Emphasis ours)
As discussed above, the unauthorized additions and deletions made by the Bicameral Conference
Committee violated the procedure fixed by the Constitution in the making of laws. It is reasonless for
respondents therefore to justify these insertions as sanctioned by customs and usages.
Finally, respondents seek sanctuary in the conclusiveness of an enrolled bill to bar any judicial inquiry on
whether Congress observed our constitutional procedure in the passage of R.A. No. 7716. The enrolled bill
theory is a historical relic that should not continuously rule us from the fossilized past. It should be
immediately emphasized that the enrolled bill theory originated in England where there is no written
constitution and where Parliament is supreme. 14 In this jurisdiction, we have a written constitution and
the legislature is a body of limited powers. Likewise, it must be pointed out that starting from the decade
of the 40s, even American courts have veered away from the rigidity and unrealism of the conclusiveness
of an enrolled bill. Prof. Sutherland observed: 15
". . . .
Where the failure of constitutional compliance in the enactment of statutes is not discoverable from the
face of the act itself but may be demonstrated by recourse to the legislative journals, debates, committee
reports or papers of the governor, courts have used several conflicting theories with which to dispose of
the issue. They have held: (1) that the enrolled bill is conclusive and like the sheriffs return cannot be

180

attacked; (2) that the enrolled bill is prima facie correct and only in case the legislative journal shows
affirmative contradiction of the constitutional requirement will the bill be held invalid, (3) that although the
enrolled bill is prima facie correct, evidence from the journals, or other extrinsic sources is admissible to
strike the bill down; (4) that the legislative journal is conclusive and the enrolled bill is valid only if it
accords with the recital in the journal and the constitutional procedure."cralaw virtua1aw library
Various jurisdictions have adopted these alternative approaches in view of strong dissent and
dissatisfaction against the philosophical underpinnings of the conclusiveness of an enrolled bill. Prof.
Sutherland further observed:jgc:chanrobles.com.ph
". . . Numerous reasons have been given for this rule. Traditionally, an enrolled bill was a record and as
such was not subject of attack at common law. Likewise, the rule of conclusiveness was similar to the
common law rule of the inviolability of the sheriffs return. Indeed, they have the same origin, that is, the
sheriff was an officer of the king and likewise the parliamentary act was a regal act and no official might
dispute the kings word. Transposed to our democratic system of government, courts held that as the
legislature was an official branch of government the court must indulge every presumption that the
legislative act was valid. The doctrine of separation of powers was advanced as a strong reason why the
court should treat the acts of a co-ordinate branch of government with the same respect as it treats the
action of its own officers; indeed, it was thought that it was entitled to even greater respect, else the court
might be in the position of reviewing the work of a supposedly equal branch of government. When these
arguments failed, as they frequently did, the doctrine of convenience was advanced, that is, that it was not
only an undue burden upon the legislature to preserve its records to meet the attack of persons not
affected by the procedure of enactment, but also that it unnecessarily complicated litigation and confused
the trial of substantive issues.
Although many of these arguments are persuasive and are indeed the basis for the rule in many states
today, they are not invulnerable to attack. The rule most relied on the sheriffs return or sworn official
rule did not in civil litigation deprive the injured party of an action, for always he could sue the sheriff
upon his official bond. Likewise, although collateral attack was not permitted, direct attack permitted
raising the issue of fraud, and at a later date attack in equity was also available; and that the evidence of
the sheriff was not of unusual weight was demonstrated by the fact that in an action against the sheriff no
presumption of its authenticity prevailed.
The argument that the enrolled bill is a record and therefore unimpeachable is likewise misleading, for the
correction of records is a matter of established judicial procedure. Apparently, the justification is either the
historical one that the kings word could not be questioned or the separation of powers principle that one
branch of the government must treat as valid the acts of another.
Persuasive as these arguments are, the tendency today is to avoid reaching results by artificial
presumptions and thus it would seem desirable to insist that the enrolled bill stand or fall on the basis of
the relevant evidence which may be submitted for or against it." (Emphasis ours)
Thus, as far back as the 1940s, Prof. Sutherland confirmed that." . . the tendency seems to be toward the
abandonment of the conclusive presumption rule and the adoption of the third rule leaving only a prima
facie presumption of validity which may be attacked by any authoritative source of information." 16
I am not unaware that this Court has subscribed to the conclusiveness of an enrolled bill as enunciated in
the 1947 lead case of Mabanag v. Lopez Vito, and reiterated in subsequent cases. 17
With due respect, I submit that these rulings are no longer good law. Part of the ratiocination in Mabanag
states:jgc:chanrobles.com.ph
". . .
If for no other reason than that it conforms to the expressed policy of our law making body, we choose to
follow the rule. Section 313 of the old Code of Civil Procedure, as amended by Act No. 2210, provides:
Official documents may be proved as follows: . . . (2) the proceedings of the Philippine Commission, or of
any legislative body that may be provided for in the Philippine Islands, or of Congress, by the journals of
those bodies or of either house thereof, or by published statutes or resolutions or by published statutes or
resolutions, or by copies certified by the clerk or secretary, or printed by their order; Provided, That in the
case of Acts of the Philippine Commission or the Philippine Legislature, when there is an existence of a
copy signed by the presiding officers and secretaries of said bodies, it shall be conclusive proof of the
provisions of such Acts and of the due enactment thereof."cralaw virtua1aw library
Suffice to state that section 313 of the Old Code of Civil Procedure as amended by Act No. 2210 is no
longer in our statute books. It has long been repealed by the Rules of Court. Mabanag also relied on
jurisprudence and authorities in the United States which are under severe criticisms by modern scholars.
Hence, even in the United States the conclusiveness of an enrolled bill has been junked by most of the
States. It is also true that as late as last year, in the case of Philippine Judges Association v. Prado, op. cit.,
this Court still relied on the conclusiveness of an enrolled bill as it refused to invalidate a provision of law
on the ground that it was merely inserted by the bicameral conference committee of both Houses. Prado,

181

however, is distinguishable. In Prado, the alleged insertion of the second paragraph of section 35 of R.A.
No. 7354 repealing the franking privilege of the judiciary does not appear to be an uncontested fact. In the
case at bench, the numerous additions/deletions made by the Bicameral Conference Committee as
detailed by petitioners Tolentino and Salonga are not disputed by the respondents. In Prado, the Court was
not also confronted with the argument that it can no longer rely on the conclusiveness of an enrolled bill in
light of the new provision in the Constitution defining judicial power. More specifically, section 1 of Article
VIII now provides:jgc:chanrobles.com.ph
"Section 1. The judicial power shall be vested in one Supreme Court and in such lower courts as may be
established by law.
Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which
are legally 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)
Former Chief Justice Roberto R. Concepcion, the sponsor of this provision in the Constitutional Commission
explained the sense and the reach of judicial power as follows: 18
". . .
. . . In other words, the judiciary is the final arbiter on the question of whether or not a branch of
government or any of its officials has acted without jurisdiction or in excess of jurisdiction, or so
capriciously as to constitute an abuse of discretion amounting to excess of jurisdiction. This is not only a
judicial power but a duty to pass judgment on matters of this nature.
This is the background of paragraph 2 of Section 1, which means that the courts cannot hereafter evade
the duty to settle matters of this nature, by claiming that such matters constitute political question."
(Emphasis ours)
The Constitution cannot be any clearer. What it granted to this Court is not a mere power which it can
decline to exercise. Precisely to deter this disinclination, the Constitution imposed it as a duty of this Court
to strike down any act of a branch or instrumentality of government or any of its officials done with grave
abuse of discretion amounting to lack of excess of jurisdiction. Rightly or wrongly, the Constitution has
elongated the checking powers of this Court against the other branches of government despite their more
democratic character, the President and the legislators being elected by the people.
It is, however, theorized that this provision is nothing new. 19 I beg to disagree for the view misses the
significant changes made in our constitutional canvass to cure the legal deficiencies we discovered during
martial law. One of the areas radically changed by the framers of the 1987 Constitution is the imbalance of
power between and among the three great branches of our government the Executive, the Legislative
and the Judiciary. To upgrade the powers of the Judiciary, the Constitutional Commission strengthened
some more the independence of courts. Thus, it further protected the security of tenure of the members of
the Judiciary by providing "No law shall be passed reorganizing the Judiciary when it undermines the
security to tenure of its Members." 20 It also guaranteed fiscal autonomy to the Judiciary. 21
More, it depoliticalized appointments in the judiciary by creating the Judicial and Bar Council which was
tasked with screening the list of prospective appointees to the judiciary. 22 The power of confirming
appointments to the judiciary was also taken away from Congress. 23 The President was likewise given a
specific time to fill up vacancies in the judiciary ninety (90) days from the occurrence of the vacancy in
case of the Supreme Court 24 and ninety (90) days from the submission of the list of recommendees by
the Judicial and Bar Council in case of vacancies in the lower courts. 25 To further insulate appointments in
the judiciary from the virus of politics, the Supreme Court was given the power to "appoint all officials and
employees of the Judiciary in accordance with the Civil Service Law." 26 And to made the separation of the
judiciary from the other branches of government more watertight, it prohibited members of the judiciary to
be." . . designated to any agency performing quasi judicial or administrative functions." 27 While the
Constitution strengthened the sinews of the Supreme Court, it reduced the powers of the two other
branches of government, especially the Executive. Notable of the powers of the President clipped by the
Constitution is his power to suspend the writ of habeas corpus and to proclaim martial law. The exercise of
this power is now subject to revocation by Congress. Likewise, the sufficiency of the factual basis for the
exercise of said power may be reviewed by this Court in an appropriate proceeding filed by any citizen. 28
The provision defining judicial power as including the "duty of the courts of justice . . . 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" constitutes the capstone of the efforts of this
Court vis-a-vis the other branches of government. This provision was dictated by our stronger and more
independent judiciary is needed to abort abuses in government. As sharply stressed by petitioner Salonga,
this provision is distinctly Filipino and its interpretation should not be depreciated by undue reliance on
inapplicable foreign jurisprudence. It is thus crystal clear that unlike other Supreme Courts, this Court has
been mandated by our new Constitution to be a more active agent in annulling acts of grave abuse of
discretion committed by a branch of government or any of its officials. This new role, however, will be

182

compel the Court, appropriately defined by Prof. A. Bickel as the least dangerous branch of government, to
assume imperial powers and run roughshod over the principle of separation of power for that is judicial
tyranny by any language. But while respecting the essentials of the principle of separation of power, the
Court is not to be restricted by its non-essentials. Applied to the case at bench, by voiding R.A. No. 7716 on
the ground that its enactment violated the procedure imposed by the Constitution in lawmaking, the Court
is not by any means wrecking the wall separating the powers between the legislature and the judiciary. For
in so doing, the Court is not engaging in lawmaking which is the essence of legislative power. But the
Courts interposition of the enrolled bill. A resort to this fiction will result in the enactment of laws not
properly deliberated upon the passed by Congress. Certainly, the enrolled bill theory was not conceived to
cover up violations of the constitutional procedure in law making, a procedure intended to assure the
passage of good laws. The conclusiveness of the enrolled bill can, therefore, be disregarded for it is not
necessary to preserve the principle of separation of powers.
In sum, I submit that in imposing to this Court the duty to annul acts of government committed with grave
abuse of discretion, the new Constitution transformed this Court from passivity to activism. This
transformation, dictated by our distinct experience as a nation, is not merely evolutionary but
revolutionary. Under the 1935 and 1973 Constitutions, this Court approached constitutional violations by
initially determining what it cannot do; under the 1987 Constitution, there is a shift in stress this Court is
mandated to approach constitutional violations not by fining out what it should not do but what it must do.
The Court must discharge this solemn duty by not resuscitating a past that petrifies the present.
I vote to declare R.A. No. 7716 unconstitutional.
VITUG, J., concuring:chanrob1es virtual 1aw library
Lest we be lost by a quagmire of trifles, the real threshold and prejudicial issue, to mind, is whether or not
this Court is ready to assume and to take upon itself with an overriding authority the awesome
responsibility of overseeing the entire bureaucracy. Far from it, ours is merely to construe and to apply the
law regardless of its wisdom and salutariness, and to strike it down only when it clearly disregards
constitutional proscriptions. It is what the fundamental law mandates, and it is what the Court must
do.chanrobles virtual lawlibrary
I cannot yet concede to the novel theory, so challengingly provocative as it might be, that under the 1987
Constitution the Court may now at good liberty intrude, in the guise of the peoples imprimatur, into every
affair of government. What significance can still then remain, I ask, of the time honored and widely
acclaimed principle of separation of powers, if at every turn the Court allows itself to pass upon, at will, the
disposition of a co-equal, independent and coordinate branch in our system of government. I dread to think
of the so varied uncertainties that such an undue interference can lead to. The respect for long standing
doctrines in our jurisprudence, nourished through time, is one of maturity not timidity, of stability rather
than quiescence.
It has never occurred to me, and neither do I believe it has been intended, that judicial tyranny is
envisioned, let alone institutionalized, by our people in the 1987 Constitution. The test of tyranny is not
solely on how it is wielded but on how, in the first place, it can be capable of being exercised. it is time that
any such perception of judicial omnipotence is corrected.
Against all that has been said, I see, in actuality in these cases at bench, neither a constitutional
infringement of substance, judging from precedents already laid down by this Court in previous cases, nor
a justiciability even now of the issues raised, more than an attempt to sadly highlight the perceived
shortcomings in the procedural enactment of laws, a matter which is internal to Congress and an area that
is best left to its own basic concern. The fact of the matter is that the legislative enactment, in its final
form, has received the ultimate approval of both houses of Congress. the finest rhetoric, indeed
fashionable in the early part of this closing century, would still be a poor substitute for tangibility. I join,
nonetheless, some of my colleagues in respectfully inviting the kind attention of the honorable members of
our Congress in the suggested circumspect observance of their own rules.
A final remark. I should like to make it clear that this opinion does not necessarily foreclose the right,
peculiar to any taxpayer adversely affected, to pursue at the proper time, in appropriate proceedings, and
in proper fora, the specific remedies prescribed therefor by the National Internal Revenue Code, Republic
Act 1125, and other laws, as well as rules of procedure, such as may be pertinent. Some petitions filed with
this Court are, in essence, although styled differently, in the nature of declaratory relief over which this
Court is bereft of original jurisdiction.
All considered, I, therefore, join my colleagues who are voting for the dismissal of the petitions.
Endnotes:
1. H. Nos. 253, 771, 2450, 7033, 8086, 9030, 9210, 9297, 10012 and 10100. (Respondents Consolidated
Memorandum, Annexes 3-12).
2. U.S. CONST., Art. I, sec. 7, cl. 1: "All bills for raising revenue shall originate in the House of

183

Representatives, but the Senate may propose or concur with amendments, as on other bills."cralaw
virtua1aw library
3. Art. VII, sec. 21.
4. Art. VI, sec. 1.
5. U.S. CONST., Art. II, sec. 2, cl. 2.
6. Rainey v. United States, 232 U.S. 309, 58 L. Ed. 117 (1914).
7. F.A. OGG AND P.O. RAY, INTRODUCTION TO AMERICAN GOVERNMENT 309, n. 2 (1945).
8. Although the 1935 Constitution did not expressly require that bills must pass three readings in each
House, this was clearly implied from its Art. VI, sec. 21(2) so that the two Houses by their rules prescribed
three readings for the passage of bills. Later the requirement was expressly provided in the 1973
Constitution from which Art. VI, sec. 26(2) was taken. Art. VIII, sec. 19(2) of the 1973 document
provided:chanrob1es virtual 1aw library
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.
9. Respondents Consolidated Reply, Annex 14.
10. Memorandum of Petitioner Arturo M. Tolentino, Supplement C.
11. Art. VII, sec. 10 provides: "The Congress shall, at ten oclock in the morning of the third day after the
vacancy in the offices of the President and Vice-President occurs, convene in accordance with its rules
without need of a call and within seven days enact a law calling for a special election to elect a President
and a Vice-President to be held not earlier than forty-five days nor later than sixty days from the time of
such call. The bill calling such special election shall be deemed certified under paragraph 2, Section 26,
Article VI of this Constitution and shall become law upon its approval on third reading by the Congress.
Appropriations for the special election shall be charged against any current appropriations and shall be
exempt from the requirements of paragraph 4, Section 25, Article VI of this Constitution. The convening of
the Congress cannot be suspended nor the special election postponed. No special election shall be called if
the vacancy occurs within eighteen months before the date of the next presidential election."cralaw
virtua1aw library
12. JOURNAL OF THE HOUSE OF REPRESENTATIVES, SIXTH CONGRESS, FOURTH SESSION 398-399 (1968).
13. Zinn, Conference Procedure in Congress, 38 ABAJ 864-865 (1952).
14. CONG. QUARTERLY 65 (1983); M. JEWELL, THE LEGISLATIVE PROCESS IN THE UNITED STATES 169
(1986); LEES AND SHAW, COMMITTEES IN LEGISLATURES 163 (1979).
15. W. KEEFE AND M. OGUL, THE AMERICAN LEGISLATIVE PROCESS 149 (1985).
16. W. OLESZEK, CONGRESSIONAL PROCEDURES AND POLICY PROCESS 214 (1984).
17. Philippine Judges Association v. Prado, G.R. No. 105371, Nov. 11, 1993.
18. The charge is an old one. In the United States, the same change, including claims that important
provisions were being "surreptitiously added" in the committee, was made in the 1940s. But no
satisfactory alternative to the conference committee has been devised. And today, given the bicameral
nature of the U.S. Congress, the charge is no longer heard. Compare the following from a 1945 comment:
"As a devise for oiling the machinery of legislation, committees of conference are, under American
conditions, useful, if not indispensable. Nevertheless, they have shortcomings. Without exception, they
work behind closed doors, hold no hearings, and give their proceedings no publicity. Doubtless it would be
difficult for them to make headway if they did otherwise. Nevertheless, in view of the power which they
wield, strong objection can be, and is, raised. For, while the committees are supposed to deal only with
actual differences between the houses and to stay well within the bounds set by the extreme positions
which the houses have taken, they often work into measures, as reported, provisions of their own devising,
even going so far as to rewrite whole sections with the sole purpose of incorporating the views which the
majority members happen to hold. . . . In practice, this often results in the adoption of important
provisions, more or less surreptitiously added, without consideration by either house in other words,
legislation nominally by Congress but actually by conference committee. Any remedy found will probably
take the form of reducing the need for using conference committees at all; and the principal suggestion to
that end is that bills and resolutions be referred, not, as now, to separate committees of the two houses,

184

but to joint committees, which not only would hold single sets of hearings, but might deliberate and report
back bills to the two houses in such agreed form that further significant differences would not be likely to
develop. Arrangements of this nature yield excellent results in the legislature of Massachusetts. But there
are obstacles to adoption of the plan for Congress, not the least of them being a natural aversion of House
members to joint committees in which senators seem likely to dominate; and, as indicated below, the
outlook for the reform is problematical." F.A. OGG AND P.O. RAY, supra note 7 at 310-311.
19. Osmea v. Pendatun, 109 Phil. 863, 871 (1960).
20. E.g., Mabanag v. Lopez Vito, 78 Phil. 1 (1947); Casco (Phil.) Inc. v. Gimenez, 7 SCRA 347 (1963);
Morales v. Subido, 27 SCRA 131 (1969).
21. Mabanag v. Lopez Vito, supra note 20.
22. Morales v. Subido, supra note 20.
23. Astorga v. Villegas, 56 SCRA 714 (1974).
24. See, e.g., Alalayan v. National Power Copr., 24 SCRA 172 (1968); Cordero v. Cabatuando, 6 SCRA 418
(1962); Sumulong v. COMELEC, 73 Phil. 288 (1941).
25. 40 Phil. 224 (1919).
26. Art. VI, sec. 28(4) provides: "No law granting any tax exemption shall be passed without the
concurrence of a majority of all the Members of the Congress."cralaw virtua1aw library
27. Associated Press v. NLRB, 301 U.S. 103, 132, 81 L.Ed. 953, 961 (1937).
28. 297 U.S. 233, 80 L.Ed. 660 (1936).
29. 297 U.S. at 250, 80 L.Ed. at 669.
30. Minneapolis Star v. Minnesota Commissioner of Revenue, 460 U.S. 575, 75 L. Ed. 2d 295 (1983).
31. 460 U.S. at 591, 75 L. Ed. 2d at 308-9 (1983).
32. 481 U.S. 221, 95 L. Ed. 2d 209 (1987).
33. Sec. 103(t) of the NIRC exempts from the VAT "Sale or lease of goods or properties or the performance
of services other than the transactions mentioned in the preceeding paragraphs, the gross annual sales
and/or receipts [of which] do no exceed the amount prescribed in regulations to be promulgated by the
President upon the recommendation by the Secretary of Finance which shall not be less than Four hundred
eighty thousand pesos (P480,000.00) or more than Seven hundred twenty thousand pesos (P720,000.00)
subject to tax under Section 112 of this Code."cralaw virtua1aw library
34. 297 U.S. at 250, 89 L.Ed. at 668.
35. 460 U.S. at 581, 75 L. Ed. 2d at 302.
36. 493 U.S. 378, 107 L. Ed. 2d 796 (1990).
37. Sec. 107 of the NIRC provides: "Any person subject to a value-added tax under Sections 100 and 102 of
this Code shall register with the appropriate Revenue District Officer and pay an annual registration fee in
the amount of One thousand pesos (P1,000.00) for every separate or distinct establishment or place of
business and every year thereafter on or before the last day of January. Any person just commencing a
business subject to the value-added tax must pay the fee before engaging therein. . . ."cralaw virtua1aw
library
38. 101 Phil. 386 (1957).
39. 319 U.S. 105, 113, 87 L.Ed. 1292 (1943).
40. 319 U.S. at 114, 87 L.Ed. 1292 at 1298. For the same reason, in People v. Korins, 385 N.Y.S. 2d 474
(1976) a decision of the city court of Utica, Oneida County held that to apply an ordinance requiring a
business license to be obtained before a person could sell newspapers in the streets would be to impose a
prior restraint on press freedom because "a newspaper is not in the same category as pineapple or a soap
powder or a pair of shoes" whose sale may be conditioned on the possession of a business license.
41. P.A. FREUND, ON UNDERSTANDING THE SUPREME COURT 11 (1950), quoted in Ermita, Malate Hotel and
Motel Operators Assn v. City Mayor, 21 SCRA 449, 459 (1967).

185

42. Art. VI, sec. 28(1). Related to this argument is the claim that Republic Act No. 7716 likewise infringes
the Due Process and Equal Protection Clauses of the Bill of Rights, Art. III, sec. 1(1).
43. Neri, "In Support of the Expanded Value-Added Tax," (CRC Economic Policy Papers No. 5, 1994) pp. 3-4.
44. Cf. Lutz v. Araneta, 98 Phil. 148, 153 (1955).
45. Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas Inc. v. Tan, 163 SCRA 371.
46. Cf. Philippine American Life Ins. Co. v. Auditor General, 22 SCRA 135 (1968).
47. See E.M. FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 560-561 (2d Ed., 1977).
48. The term is Professor Jaffes (JUDICIAL CONTROL OF ADMINISTRATIVE ACTION (1965)) adopted by
Justice Harlan in his dissent in Flast v. Cohen, 392 U.S. 83, 119-120, 20 L. Ed. 2d 947, 973 (1968) to
distinguish between the personal and proprietary interest of traditional plaintiffs and the public interest of
a citizen suing in a public action. The term was mentioned by some members of this Court in the Lotto
case (Kilosbayan, Inc. v. Guingona, G.R. No. 113375, May 5, 1994).
49. Compare Justice Laurel: "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 sterile conclusions unrelated to actualities." Angara v. Electoral
Commission, 63 Phil. 139, 158 (1936).
50. 1 Cranch 137, 2 L.Ed. 60 (1803) (emphasis added).
51. Supra note 49 (emphasis added).
52. People v. Vera, 65 Phil. 56, 94 (1937); Taada v. Cuenco, 103 Phil. 1051, 1061-2 (1957); Macias v.
COMELEC, 3 SCRA 1, 7-8 (1961).
NARVASA, C.J., concurring:chanrob1es virtual 1aw library
1. Resolution "Urging the Senate Committee on Ways and Means to Study the Proposal to Exempt Local
Movie Producers from the Payment of the Value-Added Tax as an Incentive to the Production of Quality and
Wholesome Filipino Movies Whenever they Feature an All-Filipino Cast of Actors and Actresses."cralaw
virtua1aw library
2. Emphasis supplied.
3. Giving "conclusive" character to copies of Acts of the Philippine Commission which have been signed by
its presiding officers and secretaries.
PADILLA, J., concurring:chanrob1es virtual 1aw library
1. G.R. No. 81311, 30 June 1988, 163 SCRA 371.
2. Bautista v. Salonga, G.R. No. 86439, 13 April 1989, 172 SCRA 160.
3. Kapatiran, supra at 385.
4. Sec. 1, Art. VIII.
5. G.R. No. 103371, 11 November 1993.
6. 7 SCRA 347.
7. Mabanag v. Lopez Vito, 78 Phil. 1.
8. 34 Phil. 729.
9. Executive Order No. 273, in Sec. 103 (f), had exempted this kind of income from the VAT. Rep. Act No.
7716 removed the exemption.
10. United States v. Bustos, 37 Phil. 731.
11. 297 U.S. 233.
12. 372 U.S. 58.

186

13. American Bible Society v. City of Manila, 101 Phil. 386.


REGALADO, J., dissenting:chanrob1es virtual 1aw library
1. In substitution of H.B. Nos. 253, 771, 2450, 7033, 8086, 9030, 9210, 9297, 10012 and 10100 which were
filed over the period from July 22, 1992 to August 3, 1993.
2. P.S. Res. No. 734 had earlier been filed in the Senate on September 10, 1992, while S.B. No. 1129 was
filed on March 1, 1993.
3. 220 U.S. 107, 55 L.Ed. 389 (1911).
4. Consolidated Comment 36-37.
5. Consolidated Memorandum for Respondents, 56-57.
6. Orquiola, H.M., Annotated Rules of the Senate and Procedure, Precedents and Practices of the Senate of
the Republic of the Philippines since 1946, 1991 Ed., 108.
7. Blacks Law Dictionary, 4th Ed. (1951), 381, citing Fairview v. Durham, 45 Iowa 56.
8. 34 Phil. 729 (1916).
9. 78 Phil. 1 (1947).
10. L-17931, February 28, 1963, 7 SCRA 347.
11. L-29658, February 27, 1969, 27 SCRA 131.
12. G.R. No. 105371, November 11, 1993, 227 SCRA 703.
13. 103 Phil. 1051 (1957).
14. L-46640, October 12, 1976, 73 SCRA 333.
15. G.R. No. 86344, December 21, 1989, 180 SCRA 496.
16. Consolidated Memorandum for Respondents, 79-82.
17. Brailsford v. Walker, 31 S.E. 2d 385, 387, 388, 205 S.C. 228.
18. 110 So. 343, 346.
19. 602 South Western Reporter, 2d Series, 402-425, jointly deciding Carrollton Wholesale Tobaccos, Inc.
Et. Al. v. Department of Revenue, Et Al., and Bluegrass Provisions Co., Inc., Et. Al. v. Department of
Revenue, Et. Al.
DAVIDE, JR., J., dissenting:chanrob1es virtual 1aw library
1. 1971 ed., 1592.
2. Sixth Edition (1990), 565, citing Standard Oil Co. of Texas v. State, Tex. Civ. App., 142 S. W. 2d 519, 521,
522, 523.
3. SCRA 665, 673 [1967].
4. Sections 52 and 53, Rule XXIII.
5. Section 57, Rule XXV.
6. Section 26(2), Article VI, Constitution; paragraph (7), Section 57, Rule XXV.
7. Section 69, Rule XIV.
8. Section 77, Id.
9. Section 82, Rule XIV.
10. Sections 77-81, Id.
11. Section 82, Id., in relation to Section 26(2), Article VI, Constitution.

187

12. Section 26(2), Article VI, Constitution.


13. Volume I, Eight Edition, Chapter VI, 267. See Miller v. Mardo, 2 SCRA 539 [1961]; Everlasting Pictures,
Inc. v. Fuentes, 3 SCRA 539 [1961].
14. Consolidated Memorandum for Respondents, Annexes "2" to "12," inclusive.
15. Consolidated Memorandum for Respondents, 18.
16. Id., Annex "9."cralaw virtua1aw library
17. Id., Annex "1."cralaw virtua1aw library
18. Id., 18.
19. Id., Annex "15." Entitled "An Act Restructuring the Value-Added Tax (VAT) System By Expanding Its Tax
Base, Amending Sections 103, 113, 114 of the National Internal Revenue Code, as Amended."cralaw
virtua1aw library
20. Id., Annex "17."cralaw virtua1aw library
21. Id., 20.
22. Emphasis supplied.
23. Consolidated Memorandum for Respondents, 55-56.
24. Consolidated Memorandum for Respondents, Annex "17." Two signed with reservations and four signed
subject to amendments.
25. And companion cases, 220 U.S. 107, 55 L.Ed. 389 [1911].
26. Page 56.
27. 232 U.S. 309, 58 L ed. 117 [1914].
28. Introduction to American Government, 309, n. 2 [1945].
29. At 317.
30. Consolidated Memorandum for Respondents, 20-21.
31. Id., Annex "14."cralaw virtua1aw library
32. Id., Annex "1."cralaw virtua1aw library
33. Consolidated Memorandum for Respondents, Annex "18."cralaw virtua1aw library
34. Page 22.
35. Consolidated Memorandum for Respondents, Annex "18."cralaw virtua1aw library
36. Id., Annex "19."cralaw virtua1aw library
37. ISAGANI A. CRUZ, Philippine Political Law, 1991 ed., 226; Daza v. Singson, 180 SCRA 496 [1989];
Coseteng v. Mitra, 187 SCRA 377 [1990]; Gonzales v. Macaraig, 191 SCRA 452 [1990]; Llamas v. Orbos, 202
SCRA 844 [1991]; Bengzon v. Senate Blue Ribbon Committee, 203 SCRA 767 [1991]; Oposa v. Factoran,
224 SCRA 792 [1993].
38. 56 SCRA 714, 719, 723 [1974].
39. 78 Phil. 1 [1947].
40. Mutuc v. COMELEC, 36 SCRA 228 [1970].
ROMERO, J., dissenting:chanrob1es virtual 1aw library
1. Vitug, Jose C., COMPENDIUM OF TAX LAW AND JURISPRUDENCE, Third Revised Edition, 1993 at 201.
2. Ibid.

188

3. Ibid.
4. L-81311, June 30, 1988, 163 SCRA 371 with Justice Teodoro R. Padilla as ponente.
5. Ibid at 378.
6. Ibid at 385.
7. Senate Resolution No. 734 filed on September 10, 1992 was entitled "Resolution Urging the House
Committee on Ways and Means to Study the Proposal to Exempt Local Movie Producers from the Payment
of the Value-Added Tax as an Incentive to the Production of Quality and Wholesome Filipino Movies,
Whenever They Feature an All-Filipino Cast of Actors and Actresses."cralaw virtua1aw library
8. SB No. 1129 sought to include under the VAT Law such items as lease of real properties, excluding
agricultural lands and residential properties with monthly rentals of less than P10,000.00; hotels;
restaurants, eating places, caterers; services by persons in the exercise of their professions; actors,
actresses, talents, singers and professional athletes; and lawyers, accountants, doctors and other
professionals registered with the Philippine Regulatory Commission.
9. On June 1, 1993, President Fidel V. ramos certified for immediate enactment House Bill No. 9120 entitled
"An Act Amending Title IV and Sections 237 and 238 of the National Internal Revenue Code, as amended,
to meet a public emergency."cralaw virtua1aw library
10. House Bill No. 11197 is entitled "An Act Restructuring the Value-Added Tax (VAT) System to Widen its
Tax Base and Enhance Its Administration, Amending for these Purposes Sections 99, 100, 102, 103, 104,
105, 106, 107, 108 and 110 of Title IV, 112, 115, and 116 of Title V, and 236, 237, and 238 of Title IX and
Repealing Sections 113 and 114 of Title V, all of the National Internal Revenue Code, as Amended."cralaw
virtua1aw library
11. Senate Bill No. 1630 is entitled "An Act Restructuring The Value-added Tax (VAT) System to Widen its
Tax Base and Enhance its Administration, Amending for these Purposes Sections 99, 100, 102, 103, 104,
105, 107, 108 and 110 of Title IV, 112 of Title V, and 236, 237 and 238 of Title IX, and Repealing Sections
113, 114 and 116 of Title V, all of the National Internal Revenue Code, as Amended, and for other
Purposes."cralaw virtua1aw library
12. Republic Act No. 7716 is entitled "An Act Restructuring The Value-Added Tax (VAT) System, Widening Its
Tax Base and Its Administration, And For These Purposes Amending And Repealing The Relevant Provisions
Of The National Internal Revenue Code, as amended, and for other purposes."cralaw virtua1aw library
13. Article VI, Section 24: "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."cralaw virtua1aw library
14. Article VI, Section 26, paragraph 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."cralaw virtua1aw library
15. Article III, Section 1: "No person shall be deprived of life, liberty, or property without due process of
law, nor shall any person be denied the equal protection of the laws."cralaw virtua1aw library
16. Article III, Section 4: "No law shall be passed abridging the freedom of speech, of expression or of the
press, or the right of the people peaceably to assemble and petition the government for redress of
grievances."cralaw virtua1aw library
17. Article III, Section 5: "No law shall be made respecting an establishment of religion, or prohibiting the
free exercise and enjoyment of religious profession and worship, without discrimination or preference, shall
forever be allowed. No religious test shall be required for the exercise of civil or political rights."cralaw
virtua1aw library
18. Article III, Section 10: "No law impairing the obligation of contracts shall be passed."cralaw virtua1aw
library
19. Article VI, Section 28, paragraph 1: "The rule of taxation shall be uniform and equitable. The Congress
shall evolve a progressive system of taxation."cralaw virtua1aw library
20. Article VI, Section 28, paragraph 3: "Charitable institutions, churches and parsonages or convents
appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually,

189

directly, and exclusively used for religious, charitable, or educational purposes shall be exempt from
taxation."cralaw virtua1aw library
21. Constitution, Article VIII, Section 1.
22. Volume One, CONCOM RECORD, p. 436.
23. Luz Farms v. The Hon. Secretary of the Department of Agrarian Reform, G.R. No. 86889, December 4,
1990, 192 SCRA 51; Dumlao Et. Al. v. Commission on Elections, G.R. No. 72245, January 22, 1980, 95 SCRA
392; People v. Vera, 65 Phil. 56 (1937).
24. 328 P. 2d 644 (1958).
25. Aruego, Jose M., PHILIPPINE POLITICAL LAW, KNOW YOUR CONSTITUTION, University Publishing Co.,
1950, pp. 65-66.
26. Sinco, Vicente G., PHILIPPINE POLITICAL LAW, Eleventh Edition, p. 196.
27. Remarks of Commissioner Eulogio Lerum: "At a time when we did not have a lawmaking body after
martial law was declared, there were tripartite conferences called by the President for the purpose of
acting as a recommendatory body regarding settlement of labor and management disputes. During the
said conferences, labor had shown that it was act with maturity. As a result, in 1976, a amendment was
introduced in the Constitution providing for sectoral representation. In the Constitution that was approved,
the number of sectors was not indicated. However, in the Election Code of 1978, it provided for three
sectors; namely, industrial labor, agricultural labor and the youth. The agricultural labor was given four
seats; two for Luzon, one for the Visayas and one for Mindanao. The same is true with the industrial labor
sector. As far as the youth are concerned, they were also given four seats: two for Luzon, one for Mindanao
and one for the Visayas and one for Mindanao. The same is true with the industrial labor sector. As far as
the youth are concerned, they were also given four seats: two for Luzon, one for Mindanao and one for the
Visayas, with the condition that there will be an additional two at large. And so, the youth had six
representatives plus four from the agricultural labor sector and four from the industrial labor sector we
had 14 seats.
In 1981, the Constitution was again amended. In the course of the amendment, the labor representatives
in the Batasang Pambansa proposed that sectoral representation be included as a permanent addition to
the lawmaking body.
Again, in that Constitution which was approved in 1981, the number and the name of the labor
representatives in the Batasang Pambansa proposed that sectoral representation be included as a
permanent addition to the lawmaking body.
Again, in that Constitution which was approved in 1981, the number and the name of the sectors were not
indicated. However, in the Election Code that was approved before the 1984 election, there was really a
definition of who will constitute the sectors and how they will be appointed. Let me quote from that law
that passed in 1984. Under Section 27 of Batas Pambansa Blg. 881, the scope of the sectors has been
defined as follows:chanrob1es virtual 1aw library
The agricultural labor sector covers all persons who personally and physically till the land as their principal
occupation. It Includes agricultural tenants and lessees, rural workers and farm employees, ownercultivators, settlers and small fishermen.
The industrial labor sector includes all nonagricultural workers and employees.
The youth sector embraces persons not more than twenty-five years to age." (Volume Two, CONCOM
RECORD, p. 564).
28. City Mayor, Et. Al. v. The Chief, Philippine Constabulary and Col. Nicanor Garcia, L-20346, October 31,
1967, 21 SCRA 673.
29. Transcript of the Stenographic Notes (TSN) on the Hearing Had on Thursday, July 7, 1994, pp. 18-19:
JUSTICE FLERIDA RUTH P. ROMERO:chanrob1es virtual 1aw library
Q Mr. Counsel, may I interrupt at this stage?
When you say that according to the Constitution such Revenue Bills should originate exclusively from the
House. In this instance, did it not originally originate exclusively from the House?
The word used was not "solely" ; if there were Bills later also introduced, let us say in the Senate, but the
House Bill came ahead.
So, are you using the two (2) words originate "exclusively" and "solely" synonymously?

190

SENATOR TOLENTINO:chanrob1es virtual 1aw library


A The verb "originate" remains the same, Your Honor, but the word "exclusively", as I said, means "solely.."
..
30. H.B. 771 exempting the sale of copra from VAT coverage; H.B. 2450- exempting the lessors of
distributors of cinematographic films from paying the VAT; H.B. 7033 amending Sec. 103 of the National
Internal Revenue Code, as amended by EO 273; H.B. 8086 exempting packaging materials of export
products from the VAT; H.B. 9030 amending Sec. 120 of the NIRC, as renumbered by EO 273; H.B. 9210
amending Title IV and Sections 237 and 238 of the NIRC; H.B. 9297 restructuring the VAT system by
expanding its tax base, and amending Sections 99, 100 (A), 102 (A), 103, 113, 114, 115 and 116 of the
NIRC; H.B. 10012 reducing the rate of VAT imposed on sale and importation of goods, and sale of
services; H.B. 10100- amending certain provisions of the NIRC on VAT.
31. Explanatory Note of House Bill No. 9210.
32. Excerpts from the April 19, 1994 meeting of the Bicameral Conference Committee: "CHAIRMAN Javier.
First of all, what would be the basis, no, or framework para huwag naman mawala yung personality namin
dito sa bicameral, no, because the bill originates from the House because this is a revenue bill, so would
just to ask, we make the House Bill as the frame of reference, and then everything will just be inserted?
"HON. MACEDA. Yes, Thats true for every revenue measure. Theres no other way. The House Bill has got
to be the base. Of course, for the record, we know that this is an administration bill; this is certified by the
president and I was about to put into the records as I am saying now that your problem about the impact
on prices on the people was already decided when the President and the administration sent this to us and
certified it. They have already gotten over that political implication of this bill and the economic impact on
prices.
"CHAIRMAN HERRERA. Yung concern mo about the bill as the reference in this discussion is something that
we can just..
"CHAIRMAN JAVIER. We will just.. all the amendments will be coming from the Senate."cralaw virtua1aw
library
33. Article VI, Section 1.
34. Transcript of the Stenographic Notes (TSN) on the Hearing Had on Thursday, July 7, 1994, pp. 4546:jgc:chanrobles.com.ph
"Justice Romero: Q: Mr. Counsel, is it not a fact that in the Bicameral Conference Committee, you presented
a Motion to return the Bill as it was to the Lower House with also your proposal that this be referred to a
Referendum for the entire nation to vote upon, then Senator Wigberto Taada amended your Motion and
convinced you to drop that portion about referral to a Referendum and you agreed. So, that Motion of
yours to return to the House was the one voted upon by the Bicameral Conference Committee and it lost.
What can you say to that?
"Senator Tolentino: A: No, no, if Your Honor please. My Motion was voted upon by the Senate itself because
I presented that said Motion in order to recall the Bill from the Bicameral Conference Committee so that
the Senate could go back to the period of amendment and see if we could amend the House Bill itself, but
that was defeated. So, it became academic. Thus, what we did we proceeded with the procedure already
being followed by the Senate. I thought, as a matter of fact, that was the one way of correcting this
procedural error, but I was only one (1), or two (2), or three (3) of us only, then we were defeated in the
voting, if Your Honor please.
Justice Romero: Q: You mean your were outvoted?
Senator Tolentino: A: Yes, Your Honor; we were actually slaughtered in the voting, so to speak, if Your Honor
please."cralaw virtua1aw library
35. The certification states: "This Act which is consolidation of House Bill No. 11197 and Senate Bill No.
1630 was finally passed by the House of Representatives and the Senate on April 7, 1994 and May 2, 1994,
respectively."cralaw virtua1aw library
36. BLACKS LAW DICTIONARY, 5th Ed. (1979).
37. Field v. Clark, 143 U.S. 649, 36 L ed. 294.
38. Mason, Paul, MASONs MANUAL OF LEGISLATIVE PROCEDURE, 1953.
39. Cohn v. Kinsley, 49 P. 985 (1897).

191

40. Smith v. Thompson, 258 N.W. 190.


41. 602 S.W. 2d 420 (1980).
42. 34 Phil. 729 (1916).
43. Ibid at 733.
44. Ibid at 733-734.
45. Ibid at 735.
46. 78 Phil. 1 (1947).
47. Ibid at 3.
48. Ibid at 18.
49. 117 Phil. 363 (1963).
50. 136 Phil. 405, 409 (1969).
51. Ibid at 412.
52. G.R. No. 105371, November 11, 1993, 227 SCRA 703.
53. Davies, Jack, LEGISLATIVE LAW AND PROCESS, 2nd ed., 1986.
54. Petition in G.R. No. 115781, p. 18.
55. Petition in G.R. No. 115543, pp. 2-3.
56. Davies, Jack, supra at 90.
57. Sutherland, J.G., STATUTES AND STATUTORY CONSTRUCTION, Vol. 1, 4th ed., p.p. 293-294.
58. Page 261.
59. Page 268.
60. Davies, supra, at 65.
61. Sec. 764, p. 541.
62. Consolidated Memorandum for Respondents, p. 71.
63. Pages 404-405 and 407.
64. Davies, supra, at 81.
65. See: 18 Words and Phrases, 482 citing Kennedy v. Truss, Del. Super., 13 A. 2nd 431, 435, 1 Terry 424
(1940).
66. United States Gypsum Co. v. State, Dept. of Revenue, 110 N.W. 2d 698, 71 363 Mich. 548 (1961).
67. BLACKs DICTIONARY, 6th ed., p. 687 citing State ex. rel. Riley v. District Court of Second Judicial Dist.
in and for Silver Bow Country, 103 Mont. 576, 64 P. 2d 115, 119 (1937).
68. CONGRESSIONAL RECORD, May 3, 1951, p. 885 cited in Orquiola, Annotated Rules of the Senate, 1991
ed., pp. 40-41.
69. Article III, Section 7. "The right of the people of information on matters of public concern shall be
recognized. Access to official records, and to documents, and the papers pertaining to official acts,
transactions, or decisions, as well as to government research data used as basis for policy development,
shall be afforded the citizen, subject to such limitations as may be provided by law."cralaw virtua1aw
library
70. Article II, Section 28. "Subject to reasonable conditions prescribed by law, the State adopts and
implements a policy of full public disclosure of all its transactions involving public interest."cralaw
virtua1aw library

192

71. Article VI, Section 1.


72. D & W Auto Supply v. Department of Revenue, supra.
73. The Philippine Judges Association v. Hon. Pete Prado, G.R. No. 105371, November 11, 1993, 227 SCRA
703, 709.
74. In Osmea, Jr. V. Pendatun (109 Phil. 863 [1960]), the Court held that parliamentary rules are merely
procedural and they made be waived or disregarded by the legislative body. Hence, mere failure to
conform to parliamentary usage will not invalidate the action taken by a deliberative body when the
requisite number of members have agreed to a particular measure.
75. State v. Essling, 128 N.W. 2d 307, 316 (1964).
76. Sarasola v. Trinidad, 40 Phil. 252, 262 (1919).
77. Sison, Jr. v. Ancheta, L-59431, July 25, 1984, 130 SCRA 654, 660.
78. McCullock v. Maryland, 4 Wheaton 316.
79. Quoted in Graves. v. New York, 306 U.S. 466, 490.
BELLOSILLO, J., dissenting:chanrob1es virtual 1aw library
1. See McGee v. Republic, 94 Phil. 821 (1954).
2. See Taada v. Cuenco, 103 Phil. 1051 (1957).
3. See Majority Opinion, p. 15, citing Rainey v. United States, 232 U.S., 309, 58 Law Ed. 617.
4. Id., citing F.A. Ogg and P.O. Ray, Introduction to American Government, 302, n. 2 (1945).
5. See Note 3.
6. 22 U.S. 107.
7. Am. Jur., pp. 712-13, 713-715.
PUNO, J., dissenting:chanrob1es virtual 1aw library
1. April 13, 19, 20, 21, and 25, 1994.
2. See also Annex "A", Memorandum of Petitioner Kilosbayan in G.R. No. 115781; also the Petition in G.R.
No. 115543, pp. 2-3.
3. See p. 66 of the Consolidated Memorandum for Respondents where they refer to certain statements
from Canlan, Weightson and Beam but without citing their specific book or article.
4. See Rule 49 of the Rules of the Senate.
5. See p. 22 Memorandum of Petitioners in G.R. No. 115781 citing Jeffersons Manual and Rules of the
House of Representatives, by Lewis Deschler, Parliamentarian, U.S. Government Printing Office, 1967, p.
264.
6. Ibid, citing Riddick, Senate Procedure: Precedents and Practices, US Senate, 1981, US Government
Printing Office, pp. 383-384.
7. Section 2, Article VI.
8. Section 5(1), Article VI.
9. Sutherland, Statutory Construction, 3rd ed., Vol. I, p. 151.
10. Legislative Procedure, 1922 ed., Riverside Press, p. 404.
11. Legislative Law and Process in a Nut Shell, West Publishing Co., 1986 ed., p. 81.
12. Ibid.
13. Manual of Legislative Procedure for Legislative and other Governmental Bodies, McGraw Hill Co., Inc.,

193

1953 ed., pp. 32-33.


14. 82 CJS 136.
15. Statutory Construction, 3rd ed., Vol. I., p. 223.
16. Op. cit., pp. 224-225 citing Barndall Refining v. Welsh, 64 S.D. 647, 269 N.W. 853, 859 [1936]. Jones,
Constitutional Provisions Regulating the Mechanics of Enactment in Iowa (1935), 21 Iowa Law Rev. 79,
Charlton, Constitutional Regulation of Legislative Procedure (1936), 21 Iowa Law Rev. 538; Note (1936) 21
Iowa Law Rev. 573.
17. See Mabanag v. Lopez Vito, 78 Phil. Rep. 1 [1947]; Casco Phil. Chemical Co. v. Gimenez, L-17931,
February 28, 1963; Morales v. Subido No. L-29658, February 27, 1969 27 SCRA 131; Phil. Judges
Association v. Prado, G.R. No. 105371, November 11, 1993.
18. Record, Constitutional Commission, Vol. I, p. 436; see also, Bernas, The Constitution of the Republic of
the Philippines. A Commentary, 1988 ed., p. 255.
19. Citing Marbury v. Madison, 1 Cranch 137 L. ed [1803].
20. Article VIII, section 2.
21. Article VIII, section 3.
22. Article VIII, section 8.
23. Article VIII, section 9.
24. Article VIII, section 4(1).
25. Article VIII, section 9.
26. Article VIII, section 6.
27. Article VIII, section 12.
28. Article VIII, section 18.

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.

194

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.

195

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

196

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

197

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

198

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))

199

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 momentwas 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

200

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 yeasand 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.

201

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,

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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 copiesthereof 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,

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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.

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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 specialuse 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).

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(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

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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 GoTauco 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:

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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)

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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

209

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

210

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.

BRITISH AMERICAN TOBACCO, G.R. No. 163583


Petitioner,
Present:
Puno, C.J.,
Quisumbing,
Ynares-Santiago,
Carpio,
- versus - Austria-Martinez,

JOSE ISIDRO N. CAMACHO,


in his capacity as Secretary of
the Department of Finance and
GUILLERMO L. PARAYNO, JR.,
in his capacity as Commissioner of
the Bureau of Internal Revenue,
Respondents.
PHILIP MORRIS PHILIPPINES
MANUFACTURING, INC.,
FORTUNE TOBACCO, CORP., Promulgated:
MIGHTY CORPORATION, and
JT INTERNATIONAL, S.A.,
Respondents-in-Intervention. August 20, 2008

Corona,
Carpio Morales,
Azcuna,
Tinga,
Chico-Nazario,
Velasco, Jr.,
Nachura,
Reyes,
Leonardo-De Castro, and
Brion, JJ.

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

DECISION

YNARES-SANTIAGO, J.:
This petition for review assails the validity of: (1) Section 145 of the National Internal Revenue Code (NIRC),
as recodified by Republic Act (RA) 8424; (2) RA 9334, which further amended Section 145 of the NIRC
on January 1, 2005; (3) Revenue Regulations Nos. 1-97, 9-2003, and 22-2003; and (4) Revenue
Memorandum Order No. 6-2003. Petitioner argues that the said provisions are violative of the equal
protection and uniformity clauses of the Constitution.

211

RA 8240, entitled An Act Amending Sections 138, 139, 140, and 142 of the NIRC, as Amended and For
Other Purposes, took effect on January 1, 1997. In the same year, Congress passed RA 8424 or The Tax
Reform Act of 1997, re-codifying the NIRC. Section 142 was renumbered as Section 145 of the NIRC.
Paragraph (c) of Section 145 provides for four tiers of tax rates based on the net retail price per
pack of cigarettes. To determine the applicable tax rates of existing cigarette brands, a survey of the net
retail prices per pack of cigarettes was conducted as of October 1, 1996, the results of which were
embodied in Annex D of the NIRC as the duly registered, existing or active brands of cigarettes.
Paragraph (c) of Section 145, [1] states
SEC. 145. Cigars and cigarettes.
xxxx
(c) Cigarettes packed by machine. There shall be levied, assessed and collected on
cigarettes packed by machine a tax at the rates prescribed below:
(1) If the net retail price (excluding the excise tax and the value-added tax) is
above Ten pesos (P10.00) per pack, the tax shall be Thirteen pesos and fortyfour centavos (P13.44) per pack;
(2) If the net retail price (excluding the excise tax and the value-added tax)
exceeds Six pesos and fifty centavos (P6.50) but does not exceed Ten pesos
(10.00) per pack, the tax shall be Eight pesos and ninety-six centavos (P8.96)
per pack;
(3) If the net retail price (excluding the excise tax and the value-added tax) is
Five pesos (P5.00) but does not exceed Six pesos and fifty centavos (P6.50)
per pack, the tax shall be Five pesos and sixty centavos (P5.60) per pack;
(4) If the net retail price (excluding the excise tax and the value-added
tax) is below Five pesos (P5.00) per pack, the tax shall be One peso and
twelve centavos (P1.12) per pack.
Variants of existing brands of cigarettes which are introduced in the domestic market
after the effectivity of this Act shall be taxed under the highest classification of any variant
of that brand.
xxxx
New brands shall be classified according to their current net retail price.

For the above purpose, net retail price shall mean the price at which the cigarette
is sold on retail in 20 major supermarkets in Metro Manila (for brands of cigarettes marketed
nationally), excluding the amount intended to cover the applicable excise tax and the valueadded tax. For brands which are marketed only outside Metro Manila, the net retail price
shall mean the price at which the cigarette is sold in five major supermarkets in the region
excluding the amount intended to cover the applicable excise tax and the value-added tax.

The classification of each brand of cigarettes based on its average net retail
price as of October 1, 1996, as set forth in Annex D of this Act, shall remain in
force until revised by Congress. (Emphasis supplied)
As such, new brands of cigarettes shall be taxed according to their current net retail price while existing
or old brands shall be taxed based on their net retail price as of October 1, 1996.
To implement RA 8240, the Bureau of Internal Revenue (BIR) issued Revenue Regulations No. 197,[2] which classified the existing brands of cigarettes as those duly registered or active brands prior
to January 1, 1997. New brands, or those registered after January 1, 1997, shall be initially assessed at
their suggested retail price until such time that the appropriate survey to determine their current net retail
price is conducted. Pertinent portion of the regulations reads
SECTION 2. Definition of Terms.
xxxx
3. Duly registered or existing brand of cigarettes shall include duly registered,
existing or active brands of cigarettes, prior to January 1, 1997.

212

xxxx
6. New Brands shall mean brands duly registered after January 1, 1997 and shall include
duly registered, inactive brands of cigarette not sold in commercial quantity before January
1, 1997.
SECTION 4. Classification and Manner of Taxation of Existing Brands, New Brands and
Variant of Existing Brands.
xxxx
B. New Brand
New brands shall be classified according to their current net retail price. In the meantime
that the current net retail price has not yet been established, the suggested net retail price
shall be used to determine the specific tax classification. Thereafter, a survey shall be
conducted in 20 major supermarkets or retail outlets in Metro Manila (for brands of cigarette
marketed nationally) or in five (5) major supermarkets or retail outlets in the region (for
brands which are marketed only outside Metro Manila) at which the cigarette is sold on retail
in reams/cartons, three (3) months after the initial removal of the new brand to determine
the actual net retail price excluding the excise tax and value added tax which shall then be
the basis in determining the specific tax classification. In case the current net retail price is
higher than the suggested net retail price, the former shall prevail. Any difference in specific
tax due shall be assessed and collected inclusive of increments as provided for by the
National Internal Revenue Code, as amended.
In June 2001, petitioner British American Tobacco introduced into the market Lucky Strike Filter, Lucky
Strike Lights and Lucky Strike Menthol Lights cigarettes, with a suggested retail price of P9.90 per pack.
[3]
Pursuant to Sec. 145 (c) quoted above, the Lucky Strike brands were initially assessed the excise tax at
P8.96 per pack.
On February 17, 2003, Revenue Regulations No. 9-2003,[4] amended Revenue Regulations No. 1-97 by
providing, among others, a periodic review every two years or earlier of the current net retail price of new
brands and variants thereof for the purpose of establishing and updating their tax classification, thus:
For the purpose of establishing or updating the tax classification of new brands and
variant(s) thereof, their current net retail price shall be reviewed periodically through the
conduct of survey or any other appropriate activity, as mentioned above, every two (2)
years unless earlier ordered by the Commissioner. However, notwithstanding any increase in
the current net retail price, the tax classification of such new brands shall remain in force
until the same is altered or changed through the issuance of an appropriate Revenue
Regulations.
Pursuant thereto, Revenue Memorandum Order No. 6-2003 [5] was issued on March 11, 2003,
prescribing the guidelines and procedures in establishing current net retail prices of new brands of
cigarettes and alcohol products.
Subsequently, Revenue Regulations No. 22-2003[6] was issued on August 8, 2003 to implement
the revised tax classification of certain new brands introduced in the market after January 1, 1997, based
on the survey of their current net retail price. The survey revealed that Lucky Strike Filter, Lucky Strike
Lights, and Lucky Strike Menthol Lights, are sold at the current net retail price of P22.54, P22.61 and
P21.23, per pack, respectively. [7] Respondent Commissioner of the Bureau of Internal Revenue thus
recommended the applicable tax rate of P13.44 per pack inasmuch as Lucky Strikes average net retail
price is above P10.00 per pack.
Thus, on September 1, 2003, petitioner filed before the Regional Trial Court (RTC) of Makati, Branch 61, a
petition for injunction with prayer for the issuance of a temporary restraining order (TRO) and/or writ of
preliminary injunction, docketed as Civil Case No. 03-1032. Said petition sought to enjoin the
implementation of Section 145 of the NIRC, Revenue Regulations Nos. 1-97, 9-2003, 22-2003 and Revenue
Memorandum Order No. 6-2003 on the ground that they discriminate against new brands of cigarettes, in
violation of the equal protection and uniformity provisions of the Constitution.
Respondent Commissioner of Internal Revenue filed an Opposition [8] to the application for the issuance of a
TRO. On September 4, 2003, the trial court denied the application for TRO, holding that the courts have no
authority to restrain the collection of taxes. [9] Meanwhile, respondent Secretary of Finance filed a Motion to
Dismiss,[10] contending that the petition is premature for lack of an actual controversy or urgent necessity
to justify judicial intervention.
In an Order dated March 4, 2004, the trial court denied the motion to dismiss and issued a writ of
preliminary injunction to enjoin the implementation of Revenue Regulations Nos. 1-97, 9-2003, 22-2003
and Revenue Memorandum Order No. 6-2003. [11] Respondents filed a Motion for Reconsideration [12] and

213

Supplemental Motion for Reconsideration.[13] At the hearing on the said motions, petitioner and respondent
Commissioner of Internal Revenue stipulated that the only issue in this case is the constitutionality of the
assailed law, order, and regulations.[14]
On May 12, 2004, the trial court rendered a decision [15] upholding the constitutionality of Section 145 of the
NIRC, Revenue Regulations Nos. 1-97, 9-2003, 22-2003 and Revenue Memorandum Order No. 6-2003. The
trial court also lifted the writ of preliminary injunction. The dispositive portion of the decision reads:
WHEREFORE, premises considered, the instant Petition is hereby DISMISSED for lack of
merit. The Writ of Preliminary Injunction previously issued is hereby lifted and dissolved.
SO ORDERED.[16]
Petitioner brought the instant petition for review directly with this Court on a pure question of law.
While the petition was pending, RA 9334 (An Act Increasing The Excise Tax Rates Imposed on
Alcohol And Tobacco Products, Amending For The Purpose Sections 131, 141, 143, 144, 145 and 288 of the
NIRC of 1997, As Amended), took effect on January 1, 2005. The statute, among others,
(1) increased the excise tax rates provided in paragraph (c) of Section 145;
(2) mandated
their suggested net
determined under a
force until revised by

that new brands of cigarettes shall initially be classified according to


retail price, until such time that their correct tax bracket is finally
specified period and, after which, their classification shall remain in
Congress;

(3) retained Annex D as tax base of those surveyed as of October 1, 1996


including the classification of brands for the same products which, although not set forth in
said Annex D, were registered on or before January 1, 1997 and were being commercially
produced and marketed on or after October 1, 1996, and which continue to be commercially
produced and marketed after the effectivity of this Act. Said classification shall remain in
force until revised by Congress; and
(4) provided a legislative freeze on brands of cigarettes introduced between the
period January 2, 1997[17] to December 31, 2003, such that said cigarettes shall remain in
the classification under which the BIR has determined them to belong as of December 31,
2003, until revised by Congress.
Pertinent portions, of RA 9334, provides:
SEC. 145. Cigars and Cigarettes.
xxxx
(C) Cigarettes Packed by Machine. There shall be levied, assessed and collected on
cigarettes packed by machine a tax at the rates prescribed below:
(1) If the net retail price (excluding the excise tax and the value-added tax) is below
Five pesos (P5.00) per pack, the tax shall be:
Effective on January 1, 2005, Two pesos (P2.00) per pack;
Effective on January 1, 2007, Two pesos and twenty-three centavos
(P2.23) per pack;
Effective on January 1, 2009, Two pesos and forty-seven centavos
(P2.47) per pack; and
Effective on January 1, 2011, Two pesos and seventy-two centavos
(P2.72) per pack.
(2) If the net retail price (excluding the excise tax and the value-added tax) is Five pesos
(P5.00) but does not exceed Six pesos and fifty centavos (P6.50) per pack, the tax shall be:
Effective on January 1, 2005, Six pesos and thirty-five centavos (P6.35)
per pack;
Effective on January 1, 2007, Six pesos and seventy-four centavos
(P6.74) per pack;

214

Effective on January 1, 2009, Seven pesos and fourteen centavos


(P7.14) per pack; and
Effective on January 1, 2011, Seven pesos and fifty-six centavos
(P7.56) per pack.
(3) If the net retail price (excluding the excise tax and the value-added tax) exceeds
Six pesos and fifty centavos (P6.50) but does not exceed Ten pesos (P10.00) per pack, the
tax shall be:
Effective on January 1, 2005, Ten pesos and thirty-five centavos (10.35)
per pack;
Effective on January 1, 2007, Ten pesos and eighty-eight centavos
(P10.88) per pack;
Effective on January 1, 2009, Eleven pesos and forty-three centavos
(P11.43) per pack; and
Effective on January 1, 2011, Twelve pesos (P12.00) per pack.
(4) If the net retail price (excluding the excise tax and the value-added tax) is above
Ten pesos (P10.00) per pack, the tax shall be:
Effective on January 1, 2005, Twenty-five pesos (P25.00) per pack;
Effective on January 1, 2007, Twenty-six pesos and six centavos
(P26.06) per pack;
Effective on January 1, 2009, Twenty-seven pesos and sixteen centavos
(P27.16) per pack; and
Effective on January 1, 2011, Twenty-eight pesos and thirty centavos
(P28.30) per pack.
xxxx
New brands, as defined in the immediately following paragraph, shall initially be classified
according to their suggested net retail price.
New brands shall mean a brand registered after the date of effectivity of R.A. No. 8240.
Suggested net retail price shall mean the net retail price at which new brands, as defined
above, of locally manufactured or imported cigarettes are intended by the manufacturer or
importer to be sold on retail in major supermarkets or retail outlets in Metro Manila for those
marketed nationwide, and in other regions, for those with regional markets. At the end of
three (3) months from the product launch, the Bureau of Internal Revenue shall validate the
suggested net retail price of the new brand against the net retail price as defined herein and
determine the correct tax bracket under which a particular new brand of cigarette, as
defined above, shall be classified. After the end of eighteen (18) months from such
validation, the Bureau of Internal Revenue shall revalidate the initially validated net retail
price against the net retail price as of the time of revalidation in order to finally determine
the correct tax bracket under which a particular new brand of cigarettes shall be
classified; Provided however, That brands of cigarettes introduced in the domestic
market between January 1, 1997 [should be January 2, 1997] and December 31, 2003
shall remain in the classification under which the Bureau of Internal Revenue has
determined them to belong as of December 31, 2003. Such classification of new
brands and brands introduced between January 1, 1997 and December 31,
2003 shall not be revised except by an act of Congress.
Net retail price, as determined by the Bureau of Internal Revenue through a price survey to
be conducted by the Bureau of Internal Revenue itself, or the National Statistics Office when
deputized for the purpose by the Bureau of Internal Revenue, shall mean the price at which
the cigarette is sold in retail in at least twenty (20) major supermarkets in Metro Manila (for
brands of cigarettes marketed nationally), excluding the amount intended to cover the
applicable excise tax and the value-added tax. For brands which are marketed only outside
Metro Manila, the net retail price shall mean the price at which the cigarette is sold in at
least five (5) major supermarkets in the region excluding the amount intended to cover the
applicable excise tax and value-added tax.

215

The classification of each brand of cigarettes based on its average net retail price
as of October 1, 1996, as set forth in Annex D, including the classification of
brands for the same products which, although not set forth in said Annex D, were
registered and were being commercially produced and marketed on or after
October 1, 1996, and which continue to be commercially produced and marketed
after the effectivity of this Act, shall remain in force until revised by
Congress. (Emphasis added)
Under RA 9334, the excise tax due on petitioners products was increased to P25.00 per pack. In the
implementation thereof, respondent Commissioner assessed petitioners importation of 911,000 packs of
Lucky Strike cigarettes at the increased tax rate of P25.00 per pack, rendering it liable for taxes in the total
sum of P22,775,000.00.[18]
Hence, petitioner filed a Motion to Admit Attached Supplement [19] and a Supplement[20] to the
petition for review, assailing the constitutionality of RA 9334 insofar as it retained Annex D and praying for
a downward classification of Lucky Strike products at the bracket taxable at P8.96 per pack. Petitioner
contended that the continued use of Annex D as the tax base of existing brands of cigarettes gives undue
protection to said brands which are still taxed based on their price as of October 1996 notwithstanding that
they are now sold at the same or even at a higher price than new brands like Lucky Strike. Thus, old
brands of cigarettes such as Marlboro and Philip Morris which, like Lucky Strike, are sold at or more than
P22.00 per pack, are taxed at the rate of P10.88 per pack, while Lucky Strike products are taxed at P26.06
per pack.
In its Comment to the supplemental petition, respondents, through the Office of the Solicitor
General (OSG), argued that the passage of RA 9334, specifically the provision imposing a legislative freeze
on the classification of cigarettes introduced into the market between January 2, 1997 and December 31,
2003, rendered the instant petition academic. The OSG claims that the provision in Section 145, as
amended by RA 9334, prohibiting the reclassification of cigarettes introduced during said period, cured the
perceived defect of Section 145 considering that, like the cigarettes under Annex D, petitioners brands and
other brands introduced between January 2, 1997 and December 31, 2003, shall remain in the
classification under which the BIR has placed them and only Congress has the power to reclassify them.
On March 20, 2006, Philip Morris Philippines Manufacturing Incorporated filed a Motion for Leave to
Intervene with attached Comment-in-Intervention.[21] This was followed by the Motions for Leave to
Intervene of Fortune Tobacco Corporation,[22] Mighty Corporation, [23] and JT International, S.A., with their
respective Comments-in-Intervention. The Intervenors claim that they are parties-in-interest who stand to
be affected by the ruling of the Court on the constitutionality of Section 145 of the NIRC and its Annex D
because they are manufacturers of cigarette brands which are included in the said Annex. Hence, their
intervention is proper since the protection of their interest cannot be addressed in a separate proceeding.
According to the Intervenors, no inequality exists because cigarettes classified by the BIR based on
their net retail price as of December 31, 2003 now enjoy the same status quo provision that prevents the
BIR from reclassifying cigarettes included in Annex D. It added that the Court has no power to pass upon
the wisdom of the legislature in retaining Annex D in RA 9334; and that the nullification of said Annex
would bring about tremendous loss of revenue to the government, chaos in the collection of taxes, illicit
trade of cigarettes, and cause decline in cigarette demand to the detriment of the farmers who depend on
the tobacco industry.
Intervenor Fortune Tobacco further contends that petitioner is estopped from questioning the
constitutionality of Section 145 and its implementing rules and regulations because it entered into the
cigarette industry fully aware of the existing tax system and its consequences. Petitioner imported
cigarettes into the country knowing that its suggested retail price, which will be the initial basis of its tax
classification, will be confirmed and validated through a survey by the BIR to determine the correct tax
that would be levied on its cigarettes.
Moreover, Fortune Tobacco claims that the challenge to the validity of the BIR issuances should
have been brought by petitioner before the Court of Tax Appeals (CTA) and not the RTC because it is the
CTA which has exclusive appellate jurisdiction over decisions of the BIR in tax disputes.
On August 7, 2006, the OSG manifested that it interposes no objection to the motions for
intervention.[24] Therefore, considering the substantial interest of the intervenors, and in the higher interest
of justice, the Court admits their intervention.
Before going into the substantive issues of this case, we must first address the matter of
jurisdiction, in light of Fortune Tobaccos contention that petitioner should have brought its petition before
the Court of Tax Appeals rather than the regional trial court.
The jurisdiction of the Court of Tax Appeals is defined in Republic Act No. 1125, as amended by
Republic Act No. 9282. Section 7 thereof states, in pertinent part:
Sec. 7. Jurisdiction. The CTA shall exercise:

216

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:


1. Decisions of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National Internal Revenue or other
laws administered by the Bureau of Internal Revenue;
2. Inaction by the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relations thereto, or other matters arising under the National Internal Revenue Code
or other laws administered by the Bureau of Internal Revenue, where the National
Internal Revenue Code provides a specific period of action, in which case the inaction
shall be deemed a denial; xxx.[25]
While the above statute confers on the CTA jurisdiction to resolve tax disputes in general, this does
not include cases where the constitutionality of a law or rule is challenged. Where what is assailed is the
validity or constitutionality of a law, or a rule or regulation issued by the administrative agency in the
performance of its quasi-legislative function, the regular courts have jurisdiction to pass upon the
same. 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.[26]
In Drilon v. Lim,[27] it was held:
We stress at the outset that the lower court had jurisdiction to consider the
constitutionality of Section 187, this authority being embraced in the general definition of
the judicial power to determine what are the valid and binding laws by the criterion of their
conformity to the fundamental law. Specifically, B.P. 129 vests in the regional trial courts
jurisdiction over all civil cases in which the subject of the litigation is incapable of pecuniary
estimation, even as the accused in a criminal action has the right to question in his defense
the constitutionality of a law he is charged with violating and of the proceedings taken
against him, particularly as they contravene the Bill of Rights. Moreover, Article X, Section
5(2), of the Constitution vests in the Supreme Court appellate jurisdiction over final
judgments and orders of lower courts in 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.
The petition for injunction filed by petitioner before the RTC is a direct attack on the
constitutionality of Section 145(C) of the NIRC, as amended, and the validity of its implementing rules and
regulations. In fact, the RTC limited the resolution of the subject case to the issue of the constitutionality of
the assailed provisions. The determination of whether the assailed law and its implementing rules and
regulations contravene the Constitution is within the jurisdiction of regular courts. 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.[28] Petitioner, therefore, properly filed the subject case before the RTC.
We come now to the issue of whether petitioner is estopped from assailing the authority of the
Commissioner of Internal Revenue. Fortune Tobacco raises this objection by pointing out that when
petitioner requested the Commissioner for a ruling that its Lucky Strike Soft Pack cigarettes was a new
brand rather than a variant of an existing brand, and thus subject to a lower specific tax rate, petitioner
executed an undertaking to comply with the procedures under existing regulations for the assessment of
deficiency internal revenue taxes.
Fortune Tobacco argues that petitioner, after invoking the authority of the Commissioner of Internal
Revenue, cannot later on turn around when the ruling is adverse to it.
Estoppel, an equitable principle rooted in natural justice, prevents persons from going back on their
own acts and representations, to the prejudice of others who have relied on them. [29] The principle is
codified in Article 1431 of the Civil Code, which provides:
Through estoppel, an admission or representation is rendered conclusive upon the
person making it and cannot be denied or disproved as against the person relying thereon.

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Estoppel can also be found in Rule 131, Section 2 (a) of the Rules of Court, viz:
Sec. 2. Conclusive
presumptions:

presumptions.

The

following

are

instances

of

conclusive

(a) Whenever a party has by his own declaration, act or omission, intentionally and
deliberately led another to believe a particular thing true, and to act upon such belief, he
cannot, in any litigation arising out of such declaration, act or omission be permitted to
falsify it.
The elements of estoppel are: first, the actor who usually must have knowledge, notice or suspicion
of the true facts, communicates something to another in a misleading way, either by words, conduct or
silence; second, the other in fact relies, and relies reasonably or justifiably, upon that
communication; third, the other would be harmed materially if the actor is later permitted to assert any
claim inconsistent with his earlier conduct; and fourth, the actor knows, expects or foresees that the other
would act upon the information given or that a reasonable person in the actor's position would expect or
foresee such action.[30]
In the early case of Kalalo v. Luz,[31] the elements of estoppel, as related to the party to be
estopped, are: (1) conduct amounting to false representation or concealment of material facts; or at least
calculated to convey the impression that the facts are other than, and inconsistent with, those which the
party subsequently attempts to assert; (2) intent, or at least expectation that this conduct shall be acted
upon by, or at least influence, the other party; and (3) knowledge, actual or constructive, of the real facts.
We find that petitioner was not guilty of estoppel. When it made the undertaking to comply with all
issuances of the BIR, which at that time it considered as valid, petitioner did not commit any false
misrepresentation or misleading act. Indeed, petitioner cannot be faulted for initially undertaking to
comply with, and subjecting itself to the operation of Section 145(C), and only later on filing the subject
case praying for the declaration of its unconstitutionality when the circumstances change and the law
results in what it perceives to be unlawful discrimination. The mere fact that a law has been relied upon in
the past and all that time has not been attacked as unconstitutional is not a ground for considering
petitioner estopped from assailing its validity. For courts will pass upon a constitutional question only when
presented before it in bona fide cases for determination, and the fact that the question has not been raised
before is not a valid reason for refusing to allow it to be raised later. [32]
Now to the substantive issues.
To place this case in its proper context, we deem it necessary to first discuss how the assailed law
operates in order to identify, with precision, the specific provisions which, according to petitioner, have
created a grossly discriminatory classification scheme between old and new brands. The pertinent portions
of RA 8240, as amended by RA 9334, are reproduced below for ready reference:
SEC. 145. Cigars and Cigarettes.
xxxx
(C) Cigarettes Packed by Machine. There shall be levied, assessed and collected on
cigarettes packed by machine a tax at the rates prescribed below:
(1) If the net retail price (excluding the excise tax and the value-added tax) is below
Five pesos (P5.00) per pack, the tax shall be:
Effective on January 1, 2005, Two pesos (P2.00) per pack;
Effective on January 1, 2007, Two pesos and twenty-three centavos
(P2.23) per pack;
Effective on January 1, 2009, Two pesos and forty-seven centavos
(P2.47) per pack; and
Effective on January 1, 2011, Two pesos and seventy-two centavos
(P2.72) per pack.
(2) If the net retail price (excluding the excise tax and the value-added tax) is Five pesos
(P5.00) but does not exceed Six pesos and fifty centavos (P6.50) per pack, the tax shall be:
Effective on January 1, 2005, Six pesos and thirty-five centavos (P6.35)
per pack;

218

Effective on January 1, 2007, Six pesos and seventy-four centavos


(P6.74) per pack;
Effective on January 1, 2009, Seven pesos and fourteen centavos
(P7.14) per pack; and
Effective on January 1, 2011, Seven pesos and fifty-six centavos
(P7.56) per pack.
(3) If the net retail price (excluding the excise tax and the value-added tax) exceeds
Six pesos and fifty centavos (P6.50) but does not exceed Ten pesos (P10.00) per pack, the
tax shall be:
Effective on January 1, 2005, Ten pesos and thirty-five centavos (10.35)
per pack;
Effective on January 1, 2007, Ten pesos and eighty-eight centavos
(P10.88) per pack;
Effective on January 1, 2009, Eleven pesos and forty-three centavos
(P11.43) per pack; and
Effective on January 1, 2011, Twelve pesos (P12.00) per pack.
(4) If the net retail price (excluding the excise tax and the value-added tax) is above
Ten pesos (P10.00) per pack, the tax shall be:
Effective on January 1, 2005, Twenty-five pesos (P25.00) per pack;
Effective on January 1, 2007, Twenty-six pesos and six centavos
(P26.06) per pack;
Effective on January 1, 2009, Twenty-seven pesos and sixteen centavos
(P27.16) per pack; and
Effective on January 1, 2011, Twenty-eight pesos and thirty centavos
(P28.30) per pack.
xxxx
New brands, as defined in the immediately following paragraph, shall initially be classified
according to their suggested net retail price.
New brands shall mean a brand registered after the date of effectivity of R.A. No. 8240.
Suggested net retail price shall mean the net retail price at which new brands, as defined
above, of locally manufactured or imported cigarettes are intended by the manufacturer or
importer to be sold on retail in major supermarkets or retail outlets in Metro Manila for those
marketed nationwide, and in other regions, for those with regional markets. At the end of
three (3) months from the product launch, the Bureau of Internal Revenue shall validate the
suggested net retail price of the new brand against the net retail price as defined herein and
determine the correct tax bracket under which a particular new brand of cigarette, as
defined above, shall be classified. After the end of eighteen (18) months from such
validation, the Bureau of Internal Revenue shall revalidate the initially validated net retail
price against the net retail price as of the time of revalidation in order to finally determine
the correct tax bracket under which a particular new brand of cigarettes shall be
classified; Provided however, That brands of cigarettes introduced in the domestic market
between January 1, 1997 [should be January 2, 1997] and December 31, 2003 shall remain
in the classification under which the Bureau of Internal Revenue has determined them to
belong as of December 31, 2003. Such classification of new brands and brands introduced
between January 1, 1997 and December 31, 2003 shall not be revised except by an act of
Congress.
Net retail price, as determined by the Bureau of Internal Revenue through a price survey to
be conducted by the Bureau of Internal Revenue itself, or the National Statistics Office when
deputized for the purpose by the Bureau of Internal Revenue, shall mean the price at which
the cigarette is sold in retail in at least twenty (20) major supermarkets in Metro Manila (for
brands of cigarettes marketed nationally), excluding the amount intended to cover the
applicable excise tax and the value-added tax. For brands which are marketed only outside
Metro Manila, the net retail price shall mean the price at which the cigarette is sold in at

219

least five (5) major supermarkets in the region excluding the amount intended to cover the
applicable excise tax and value-added tax.
The classification of each brand of cigarettes based on its average net retail price as of
October 1, 1996, as set forth in Annex D, including the classification of brands for the same
products which, although not set forth in said Annex D, were registered and were being
commercially produced and marketed on or after October 1, 1996, and which continue to be
commercially produced and marketed after the effectivity of this Act, shall remain in force
until revised by Congress.
As can be seen, the law creates a four-tiered system which we may refer to as the low-priced,
medium-priced,[34] high-priced,[35] and premium-priced[36]tax brackets. When a brand is introduced in the
market, the current net retail price is determined through the aforequoted specified procedure. The current
net retail price is then used to classify under which tax bracket the brand belongs in order to finally
determine the corresponding excise tax rate on a per pack basis. The assailed feature of this law pertains
to the mechanism where, after a brand is classified based on its current net retail price, the classification is
frozen and only Congress can thereafter reclassify the same. From a practical point of view, Annex D is
merely a by-product of the whole mechanism and philosophy of the assailed law. That is, the brands under
Annex D were also classified based on their current net retail price, the only difference being that they
were the first ones so classified since they were the only brands surveyed as of October 1, 1996, or prior to
the effectivity of RA 8240 on January 1, 1997.[37]
[33]

Due to this legislative classification scheme, it is possible that over time the net retail price of a
previously classified brand, whether it be a brand under Annex D or a new brand classified after the
effectivity of RA 8240 on January 1, 1997, would increase (due to inflation, increase of production costs,
manufacturers decision to increase its prices, etc.) to a point that its net retail price pierces the tax
bracket to which it was previously classified. [38] Consequently, even if its present day net retail price would
make it fall under a higher tax bracket, the previously classified brand would continue to be subject to the
excise tax rate under the lower tax bracket by virtue of the legislative classification freeze.
Petitioner claims that this is what happened in 2004 to the Marlboro and Philip Morris brands, which were
permanently classified under Annex D. As of October 1, 1996, Marlboro had net retail prices ranging from
P6.78 to P6.84 while Philip Morris had net retail prices ranging from P7.39 to P7.48. Thus, pursuant to RA
8240,[39]Marlboro and Philip Morris were classified under the high-priced tax bracket and subjected to an
excise tax rate of P8.96 per pack. Petitioner then presented evidence showing that after the lapse of about
seven years or sometime in 2004, Marlboros and Philip Morris net retail prices per pack both increased to
about P15.59.[40] This meant that they would fall under the premium-priced tax bracket, with a higher
excise tax rate of P13.44 per pack, [41] had they been classified based on their 2004 net retail
prices. However, due to the legislative classification freeze, they continued to be classified under the highpriced tax bracket with a lower excise tax rate. Petitioner thereafter deplores the fact that its Lucky Strike
Filter, Lucky Strike Lights, and Lucky Strike Menthol Lights cigarettes, introduced in the market sometime in
2001 and validated by a BIR survey in 2003, were found to have net retail prices of P11.53, P11.59 and
P10.34,[42] respectively, which are lower than those of Marlboro and Philip Morris. However, since
petitioners cigarettes were newly introduced brands in the market, they were taxed based on their current
net retail prices and, thus, fall under the premium-priced tax bracket with a higher excise tax rate of
P13.44 per pack. This unequal tax treatment between Marlboro and Philip Morris, on the one hand, and
Lucky Strike, on the other, is the crux of petitioners contention that the legislative classification freeze
violates the equal protection and uniformity of taxation clauses of the Constitution.
It is apparent that, contrary to its assertions, petitioner is not only questioning the undue favoritism
accorded to brands under Annex D, but the entire mechanism and philosophy of the law which freezes the
tax classification of a cigarette brand based on its current net retail price. Stated differently, the alleged
discrimination arising from the legislative classification freeze between the brands under Annex D and
petitioners newly introduced brands arose only because the former were classified based on their current
net retail price as of October 1, 1996 and petitioners newly introduced brands were classified based on
their current net retail price as of 2003. Without this corresponding freezing of the classification of
petitioners newly introduced brands based on their current net retail price, it would be impossible to
establish that a disparate tax treatment occurred between the Annex D brands and petitioners newly
introduced brands.
This clarification is significant because, under these circumstances, a declaration of
unconstitutionality would necessarily entail nullifying the whole mechanism of the law and not just Annex
D. Consequently, if the assailed law is declared unconstitutional on equal protection grounds, the entire
method by which a brand of cigarette is classified would have to be invalidated. As a result, no method to
classify brands under Annex D as well as new brands would be left behind and the whole Section 145 of
the NIRC, as amended, would become inoperative.[43]
To simplify the succeeding discussions, we shall refer to the whole mechanism and philosophy of
the assailed law which freezes the tax classification of a cigarette brand based on its current net retail
price and which, thus, produced different classes of brands based on the time of their introduction in the

220

market (starting with the brands in Annex D since they were the first brands so classified as of October 1,
1996) as the classification freeze provision.[44]
As thus formulated, the central issue is whether or not the classification freeze provision violates the equal
protection and uniformity of taxation clauses of the Constitution.
In Sison, Jr. v. Ancheta,[45] this Court, through Chief Justice Fernando, explained the applicable standard in
deciding equal protection and uniformity of taxation challenges:
Now for equal protection. The applicable standard to avoid the charge that there is a
denial of this constitutional mandate whether the assailed act is in the exercise of the police
power or the power of eminent domain is to demonstrate "that the governmental act
assailed, far from being inspired by the attainment of the common weal was prompted by
the spirit of hostility, or at the very least, discrimination that finds no support in reason. It
suffices then that the laws operate equally and uniformly on all persons under similar
circumstances or that all persons must be treated in the same manner, the conditions not
being different, both in the privileges conferred and the liabilities imposed. Favoritism and
undue preference cannot be allowed. For the principle is that equal protection and security
shall be given to every person under circumstances, which if not identical are analogous. If
law be looks upon in terms of burden or charges, those that fall within a class should be
treated in the same fashion, whatever restrictions cast on some in the group equally binding
on the rest." That same formulation applies as well to taxation measures. The equal
protection clause is, of course, inspired by the noble concept of approximating the ideal of
the laws's benefits being available to all and the affairs of men being governed by that
serene and impartial uniformity, which is of the very essence of the idea of law. There is,
however, wisdom, as well as realism, in these words of Justice Frankfurter: "The equality at
which the 'equal protection' clause aims is not a disembodied equality. The Fourteenth
Amendment enjoins 'the equal protection of the laws,' and laws are not abstract
propositions. They do not relate to abstract units A, B and C, but are expressions of policy
arising out of specific difficulties, addressed to the attainment of specific ends by the use of
specific remedies. The Constitution does not require things which are different in fact or
opinion to be treated in law as though they were the same." Hence the constant
reiteration of the view that classification if rational in character is allowable. As a
matter of fact, in a leading case of Lutz v. Araneta, this Court, through Justice J.B.L. Reyes,
went so far as to hold "at any rate, it is inherent in the power to tax that a state be free to
select the subjects of taxation, and it has been repeatedly held that 'inequalities which result
from a singling out of one particular class for taxation, or exemption infringe no
constitutional limitation.'"
Petitioner likewise invoked the kindred concept of uniformity. According to the
Constitution: "The rule of taxation shall be uniform and equitable." This requirement is met
according to Justice Laurel in Philippine Trust Company v. Yatco, decided in 1940, when the
tax "operates with the same force and effect in every place where the subject may be
found." He likewise added: "The rule of uniformity does not call for perfect uniformity or
perfect equality, because this is hardly attainable." The problem of classification did not
present itself in that case. It did not arise until nine years later, when the Supreme Court
held: "Equality and uniformity in taxation means that all taxable articles or kinds of property
of the same class shall be taxed at the same rate. The taxing power has the authority
to make reasonable and natural classifications for purposes of taxation, . . . As
clarified by Justice Tuason, where "the differentiation" complained of "conforms to the
practical dictates of justice and equity" it "is not discriminatory within the meaning of this
clause and is therefore uniform." There is quite a similarity then to the standard of equal
protection for all that is required is that the tax "applies equally to all persons, firms and
corporations placed in similar situation."[46] (Emphasis supplied)
In consonance thereto, we have held that in our jurisdiction, the standard and analysis of equal protection
challenges in the main have followed the rational basis test, coupled with a deferential attitude to
legislative classifications and a reluctance to invalidate a law unless there is a showing of a clear and
unequivocal breach of the Constitution. [47] Within the present context of tax legislation on sin products
which neither contains a suspect classification nor impinges on a fundamental right, the rational-basis test
thus finds application. Under this test, a legislative classification, to survive an equal protection
challenge, must be shown to rationally further a legitimate state interest. [48] The classifications must be
reasonable and rest upon some ground of difference having a fair and substantial relation to the object of
the legislation.[49] Since every law has in its favor the presumption of constitutionality, the burden of proof
is on the one attacking the constitutionality of the law to prove beyond reasonable doubt that the
legislative classification is without rational basis. [50] The presumption of constitutionality can be overcome
only by the most explicit demonstration that a classification is a hostile and oppressive discrimination
against particular persons and classes, and that there is no conceivable basis which might support it. [51]
A legislative classification that is reasonable does not offend the constitutional guaranty of the
equal protection of the laws. The classification is considered valid and reasonable provided that: (1) it rests

221

on substantial distinctions; (2) it is germane to the purpose of the law; (3) it applies, all things being equal,
to both present and future conditions; and (4) it applies equally to all those belonging to the same class. [52]
The first, third and fourth requisites are satisfied. The classification freeze provision was inserted in
the law for reasons of practicality and expediency. That is, since a new brand was not yet in existence at
the time of the passage of RA 8240, then Congress needed a uniform mechanism to fix the tax bracket of a
new brand. The current net retail price, similar to what was used to classify the brands under Annex D as
of October 1, 1996, was thus the logical and practical choice. Further, with the amendments introduced by
RA 9334, the freezing of the tax classifications now expressly applies not just to Annex D brands but to
newer brands introduced after the effectivity of RA 8240 on January 1, 1997 and any new brand that will be
introduced in the future. [53] (However, as will be discussed later, the intent to apply the freezing
mechanism to newer brands was already in place even prior to the amendments introduced by RA 9334 to
RA 8240.) This does not explain, however, why the classification is frozen after its determination based on
current net retail price and how this is germane to the purpose of the assailed law. An examination of the
legislative history of RA 8240 provides interesting answers to this question.
RA 8240 was the first of three parts in the Comprehensive Tax Reform Package then being pushed
by the Ramos Administration. It was enacted with the following objectives stated in the Sponsorship
Speech of Senator Juan Ponce Enrile (Senator Enrile), viz:
First, to evolve a tax structure which will promote fair competition among the
players in the industries concerned and generate buoyant and stable revenue for the
government.
Second, to ensure that the tax burden is equitably distributed not only amongst the
industries affected but equally amongst the various levels of our society that are involved in
various markets that are going to be affected by the excise tax on distilled spirits, fermented
liquor, cigars and cigarettes.
In the case of firms engaged in the industries producing the products that we are
about to tax, this means relating the tax burden to their market share, not only in terms of
quantity, Mr. President, but in terms of value.
In case of consumers, this will mean evolving a multi-tiered rate structure so
that low-priced products are subject to lower tax rates and higher-priced products are
subject to higher tax rates.
Third, to simplify the tax administration and compliance with the tax laws that are
about to unfold in order to minimize losses arising from inefficiencies and tax avoidance
scheme, if not outright tax evasion.[54]
In the initial stages of the crafting of the assailed law, the Department of Finance (DOF) recommended to
Congress a shift from the then existing ad valorem taxation system to a specific taxation system with
respect to sin products, including cigarettes. The DOF noted that the ad valorem taxation system was a
source of massive tax leakages because the taxpayer was able to evade paying the correct amount of
taxes through the undervaluation of the price of cigarettes using various marketing arms and dummy
corporations. In order to address this problem, the DOF proposed a specific taxation system where the
cigarettes would be taxed based on volume or on a per pack basis which was believed to be less
susceptible to price manipulation. The reason was that the BIR would only need to monitor the sales
volume of cigarettes, from which it could easily compute the corresponding tax liability of cigarette
manufacturers. Thus, the DOF suggested the use of a three-tiered system which operates in substantially
the same manner as the four-tiered system under RA 8240 as earlier discussed. The proposal of the DOF
was embodied in House Bill (H.B.) No. 6060, the pertinent portions of which states
SEC. 142. Cigars and cigarettes.
(c) Cigarettes packed by machine. There shall be levied, assessed and collected on
cigarettes packed by machine a tax at the rates prescribed below:
(1) If the manufacturers or importers wholesale price (net of excise tax and valueadded tax) per pack exceeds four pesos and twenty centavos (P4.20), the tax shall be seven
pesos and fifty centavos (P7.50);
(2) If the manufacturers or importers wholesale price (net of excise tax and valueadded tax) per pack exceeds three pesos and ninety centavos (P3.90) but does not exceed
four pesos and twenty centavos (P4.20), the tax shall be five pesos and fifty centavos
(P5.50): provided, that after two (2) years from the effectivity of this Act, cigarettes
otherwise subject to tax under this subparagraph shall be taxed under subparagraph (1)
above.

222

(3) If the manufacturers or importers wholesale price (net of excise tax and valueadded tax) per pack does not exceeds three pesos and ninety centavos (P3.90), the tax rate
shall be one peso (P1.00).
Variants of existing brands and new brands of cigarettes packed by machine to be
introduced in the domestic market after the effectivity of this Act, shall be taxed under
paragraph (c)(1) hereof.
The rates of specific tax on cigars and cigarettes under paragraphs (a), (b),
and (c) hereof, including the price levels for purposes of classifying cigarettes
packed by machine, shall be revised upward two (2) years after the effectivity of
this Act and every two years thereafter by the Commissioner of Internal Revenue,
subject to the approval of the Secretary of Finance, taking into account the
movement of the consumer price index for cigars and cigarettes as established by
the National Statistics Office: provided, that the increase in taxes and/or price
levels shall be equal to the present change in such consumer price index for the
two-year period: provided, further, that the President, upon the recommendation
of the Secretary of Finance, may suspend or defer the adjustment in price levels
and tax rates when the interest of the national economy and general welfare so
require, such as the need to obviate unemployment, and economic and social
dislocation: provided, finally, that the revised price levels and tax rates
authorized herein shall in all cases be rounded off to the nearest centavo and
shall be in force and effect on the date of publication thereof in a newspaper of
general circulation. x x x (Emphasis supplied)
What is of particular interest with respect to the proposal of the DOF is that it contained a provision
for the periodic adjustment of the excise tax rates and tax brackets, and a corresponding periodic resurvey
and reclassification of cigarette brands based on the increase in the consumer price index as determined
by the Commissioner of Internal Revenue subject to certain guidelines. The evident intent was to prevent
inflation from eroding the value of the excise taxes that would be collected from cigarettes over time by
adjusting the tax rate and tax brackets based on the increase in the consumer price index. Further, under
this proposal, old brands as well as new brands introduced thereafter would be subjected to a resurvey and
reclassification based on their respective values at the end of every two years in order to align them with
the adjustment of the excise tax rate and tax brackets due to the movement in the consumer price index.
[55]

Of course, we now know that the DOF proposal, insofar as the periodic adjustment of tax rates and tax
brackets, and the periodic resurvey and reclassification of cigarette brands are concerned, did not gain
approval from Congress. The House and Senate pushed through with their own versions of the excise tax
system on beers and cigarettes both denominated as H.B. No. 7198. For convenience, we shall refer to the
bill deliberated upon by the House as the House Version and that of the Senate as the Senate Version.
The Houses Committee on Ways and Means, then chaired by Congressman Exequiel B. Javier
(Congressman Javier), roundly rejected the DOF proposal. Instead, in its Committee Report submitted to
the plenary, it proposed a different excise tax system which used a specific tax as a basic tax with an ad
valorem comparator. Further, it deleted the proposal to have a periodic adjustment of tax rates and the tax
brackets as well as periodic resurvey and reclassification of cigarette brands, to wit:
The rigidity of the specific tax system calls for the need for frequent congressional
intervention to adjust the tax rates to inflation and to keep pace with the expanding needs
of government for more revenues. The DOF admits this flaw inherent in the tax system it
proposed. Hence, to obviate the need for remedial legislation, the DOF is asking Congress to
grant to the Commissioner the power to revise, one, the specific tax rates: and two, the
price levels of beer and cigarettes. What the DOF is asking, Mr. Speaker, is for Congress to
delegate to the Commissioner of Internal Revenue the power to fix the tax rates and classify
the subjects of taxation based on their price levels for purposes of fixing the tax rates. While
we sympathize with the predicament of the DOF, it is not for Congress to abdicate such
power. The power sought to be delegated to be exercised by the Commissioner of Internal
Revenue is a legislative power vested by the Constitution in Congress pursuant to Section 1,
Article VI of the Constitution. Where the power is vested, there it must remain in Congress, a
body of representatives elected by the people. Congress may not delegate such power,
much less abdicate it.
xxxx
Moreover, the grant of such power, if at all constitutionally permissible, to the
Commissioner of Internal Revenue is fraught with ethical implications. The debates on how
much revenue will be raised, how much money will be taken from the pockets of taxpayers,
will inexorably shift from the democratic Halls of Congress to the secret and non-transparent
corridors of unelected agencies of government, the Department of Finance and the Bureau
of Internal Revenue, which are not accountable to our people. We cannot countenance the

223

shift for ethical reasons, lest we be accused of betraying the trust reposed on this Chamber
by the people. x x x
A final point on this proposal, Mr. Speaker, is the exercise of the taxing power of the
Commissioner of Internal Revenue which will be triggered by inflation rates based on the
consumer price index. Simply stated, Mr. Speaker, the specific tax rates will be fixed by the
Commissioner depending on the price levels of beers and cigarettes as determined by the
consumers price index. This is a novel idea, if not necessarily weird in the field of taxation.
What if the brewer or the cigarette manufacturer sells at a price below the consumers price
index? Will it be taxed on the basis of the consumers price index which is over and above its
wholesale or retail price as the case may be? This is a weird form of exaction where the tax
is based not on what the brewer or manufacturer actually realized but on an imaginary
wholesale or retail price. This amounts to a taxation based on presumptive price levels and
renders the specific tax a presumptive tax. We hope, the DOF and the BIR will also honor a
presumptive tax payment.
Moreover, specific tax rates based on price levels tied to consumers price index as
proposed by the DOF engenders anti-trust concerns. The proposal if enacted into law will
serve as a barrier to the entry of new players in the beer and cigarette industries which are
presently dominated by shared monopolies. A new player in these industries will be denied
business flexibility to fix its price levels to promote its product and penetrate the market as
the price levels are dictated by the consumer price index. The proposed tax regime, Mr.
Speaker, will merely enhance the stranglehold of the oligopolies in the beer and cigarette
industries, thus, reversing the governments policy of dismantling monopolies and
combinations in restraint of trade.[56]
For its part, the Senates Committee on Ways and Means, then chaired by Senator Juan Ponce Enrile
(Senator Enrile), developed its own version of the excise tax system on cigarettes. The Senate Version
consisted of a four-tiered system and, interestingly enough, contained a periodic excise tax rate and tax
bracket adjustment as well as a periodic resurvey and reclassification of brands provision (periodic
adjustment and reclassification provision, for brevity) to be conducted by the DOF in coordination with the
BIR and the National Statistics Office based on the increase in the consumer price index similar to the one
proposed by the DOF, viz:
SEC. 4 Section 142 of the National Internal Revenue Code, as amended, is hereby
further amended to read as follows:
SEC. 142. Cigars and cigarettes.
xxxx
(c) Cigarettes packed by machine. There shall be levied, assessed and collected on
cigarettes packed by machine a tax at the rates prescribed below:
(1) If the net retail price (excluding the excise tax and the value-added tax) is
above Ten pesos (P10.00) per pack, the tax shall be Twelve pesos (P12.00) per
pack;
(2) If the net retail price (excluding the excise tax and the value-added tax)
exceeds Six pesos and fifty centavos (P6.50) per pack, the tax shall be Eight
pesos (P8.00) per pack;
(3) If the net retail price (excluding the excise tax and the value-added
tax) is Five pesos (P5.00) up to Six pesos and fifty centavos (P6.50) per pack,
the tax shall be Five pesos (P5.00) per pack;
(4) If the net retail price (excluding the excise tax and the value-added
tax) is below Five pesos (P5.00) per pack, the tax shall be One peso (P1.00)
per pack.
Variants of existing brands of cigarettes which are introduced in the domestic market
after the effectivity of this Act shall be taxed under the highest classification of any variant
of that brand.
xxx
The rates of specific tax on cigars and cigarettes under subparagraph (a),
(b) and (c) hereof, including the net retail prices for purposes of classification,
shall be adjusted on the sixth of January three years after the effectivity of this
Act and every three years thereafter. The adjustment shall be in accordance with
the inflation rate measured by the average increase in the consumer price index

224

over the three-year period. The adjusted tax rates and net price levels shall be in
force on the eighth of January.
Within the period hereinabove mentioned, the Secretary of Finance shall
direct the conduct of a survey of retail prices of each brand of cigarettes in
coordination with the Bureau of Internal Revenue and the National Statistics
Office.
For purposes of this Section, net retail price shall mean the price at which the
cigarette is sold on retail in 20 major supermarkets in Metro Manila (for brands of cigarettes
marketed nationally), excluding the amount intended to cover the applicable excise tax and
the value-added tax. For brands which are marketed only outside Metro Manila, the net retail
price shall mean the price at which the cigarette is sold in five major supermarkets in the
region excluding the amount intended to cover the applicable excise tax and the valueadded tax.
The classification of each brand of cigarettes in the initial year of
implementation of this Act shall be based on its average net retail price as of
October 1, 1996. The said classification by brand shall remain in force until
January 7, 2000.
New brands shall be classified according to their current net retail price. [57] (Emphasis
supplied)
During the period of interpellations, the late Senator Raul S. Roco (Senator Roco) expressed doubts
as to the legality and wisdom of putting a periodic adjustment and reclassification provision:
Senator Enrile: This will be the first time that a tax burden will be allowed to be
automatically adjusted upwards based on a system of indexing tied up with the Consumers
Price Index (CPI). Although I must add that we have adopted a similar system in adjusting
the personal tax exemption from income tax of our individual taxpayers.
Senator Roco: They are not exactly the same, Mr. President. But even then, we do note that
this the first time we are trying to put an automatic adjustment. My concern is, why do we
propose now this automatic adjustment? What is the reason that impels the committee?
Maybe we can be enlightened and maybe we shall embrace it forthwith. But what is the
reason?
Senator Enrile: Mr. President, we will recall that in the House of Representatives, it
has adopted a tax proposal on these products based on a specific tax as a basic tax with
an ad valorem comparator. The Committee on Ways and Means of the Senate has not seen it
fit to adopt this system, but it recognized the possibility that there may be an occasion
where the price movement in the country might unwarrantedly move upwards, in which
case, if we peg the government to a specific tax rate of P6.30, P9.30 and P12.30 for beer,
since we are talking of beer, [58] the government might lose in the process.
In order to consider the interest of the government in this, Mr. President, and in order
to obviate the possibility that some of these products categorized under the different tiers
with different specific tax rates from moving upwards and piercing their own tiers and
thereby expose themselves to an incremental tax of higher magnitude, it was felt that we
should adopt a system where, in spite of any escalation in the price of these products in the
future, the tax rates could be adjusted upwards so that none of these products would leave
their own tier. That was the basic principle under which we crafted this portion of the tax
proposal.
Senator Roco: Mr. President, we certainly share the judgment of the distinguished gentleman
as regards the comparator provision in the House of Representatives and we appreciate the
reasons given. But we are under the impression that the House also, aside from the
comparator, has an adjustment clause that is fixed. It has fixed rates for the adjustment. So
that one of the basic differences between the Senate proposed version now and the House
version is that, the House of Representatives has manifested its will and judgment as
regards the tax to which we will adjust, whereas the Senate version relegates fundamentally
that judgment to the Department of Finance.
Senator Enrile: That is correct, Mr. President, because we felt that in imposing a fixed
adjustment, we might be fixing an amount that is either too high or too low. We cannot
foresee the economic trends in this country over a period of two years, three years, let alone
ten years. So we felt that a mechanism ought to be adopted in order to serve the interest of
the government, the interest of the producers, and the interest of the consuming public.
Senator Roco: This is where, Mr. President, my policy difficulties start. Under the Constitution
I think it is Article VI, Section 24, and it was the distinguished chairman of the Committee on

225

Ways and Means who made this Chamber very conscious of this provision revenue measures
and tariff measures shall originate exclusively from the House of Representatives.
The reason for this, Mr. President, is, there is a long history why the House of
Representatives must originate judgments on tax. The House members represent specific
districts. They represent specific constituencies, and the whole history of parliamentarism,
the whole history of Congress as an institution is founded on the proposition that the direct
representatives of the people must speak about taxes.
Mr. President, while the Senate can concur and can introduce amendments, the proposed
change here is radical. This is the policy difficulty that I wish to clarify with the gentleman
because the judgment call now on the amount of tax to be imposed is not coming from
Congress. It is shifted to the Department of Finance. True, the Secretary of Finance may have
been the best finance officer two years ago and now the best finance officer in Asia, but that
does not make him qualified to replace the judgment call of the House of Representatives.
That is my first difficulty.
Senator Enrile: Mr. President, precisely the law, in effect, authorizes this rate beforehand.
The computation of the rate is the only thing that was left to the Department of Finance as a
tax implementor of Congress. This is not unusual because we have already, as I said,
adopted a system similar to this. If we adjust the personal exemption of an individual
taxpayer, we are in effect adjusting the applicable tax rate to him.
Senator Roco: But the point I was trying to demonstrate, Mr. President, is that we
depart precisely from the mandate of the Constitution that judgment on revenue must
emanate from Congress. Here, it is shifted to the Department of Finance for no visible or
patent reason insofar as I could understand. The only difference is, who will make the
judgment? Should it be Congress?
Senator Enrile: Mr. President, forgive me for answering sooner than I should. My
understanding of the Constitution is that all revenue measures must emanate from the
House. That is all the Constitution says.
Now, it does not say that the judgment call must belong to the House. The judgment call can
belong both to the House and to the Senate. We can change whatever proposal the House
did. Precisely, we are now crafting a measure, and we are saying that this is the rate subject
to an adjustment which we also provide. We are not giving any unusual power to the
Secretary of Finance because we tell him, This is the formula that you must adopt in arriving
at the adjustment so that you do not have to come back to us.[59]
Apart from his doubts as to the legality of the delegation of taxing power to the DOF and BIR,
Senator Roco also voiced out his concern about the possible abuse and corruption that will arise from the
periodic adjustment and reclassification provision. Continuing
Senator Roco: Mr. President, if that is the argument, that the distinguished gentleman has a
different legal interpretation, we will then now examine the choice. Because his legal
interpretation is different from mine, then the issues becomes: Is it more advantageous
that this judgment be exercised by the House? Should we not concur or modify in
terms of the exercise by the House of its power or are we better off giving this
judgment call to the Department of Finance?
Let me now submit, Mr. President, that in so doing, it is more advantageous to fix
the rate so that even if we modify the rates identified by Congress, it is better
and less susceptible to abuse.
For instance, Mr. President, would the gentlemen wish to demonstrate to us how this will be
done? On page 8, lines 5 to 9, there is a provision here as to when the Secretary of Finance
shall direct the conduct of survey of retail prices of each brand of fermented liquor in
coordination with the Bureau of Internal Revenue and the National Statistics Office.
These offices are not exactly noted, Mr. President, for having been sanctified by the Holy
Spirit in their noble intentions. x x x[60] (Emphasis supplied)
Pressing this point, Senator Roco continued his query:
Senator Roco: x x x [On page 8, lines 5 to 9] it says that during the two-year period,
the Secretary of Finance shall direct the conduct of the survey. How? When? Which retail
prices and what brand shall he consider? When he coordinates with the Bureau of Internal
Revenue, what is the Bureau of Internal Revenue supposed to be doing? What is the National
Statistics Office supposed to be doing, and under what guides and standards?

226

May the gentleman wish to demonstrate how this will be done? My point, Mr. President,
is, by giving the Secretary of Finance, the BIR and the National Statistics Office
discretion over a two-year period will invite corruption and arbitrariness, which is
more dangerous than letting the House of Representatives and this Chamber set
the adjustment rate. Why not set the adjustment rate? Why should Congress not exercise
that judgment now? x x x
Senator Enrile: x x x
Senator Roco: x x x We respectfully submit that the Chairman consider choosing the
judgment of this Chamber and the House of Representatives over a delegated judgment of
the Department of Finance.
Again, it is not to say that I do not trust the Department of Finance. It has won awards, and I
also trust the undersecretary. But that is beside the point. Tomorrow, they may not be there.
[61]
(Emphasis supplied)
This point was further dissected by the two senators. There was a genuine difference of opinion as
to which system one with a fixed excise tax rate and classification or the other with a periodic adjustment
of excise tax rate and reclassification was less susceptible to abuse, as the following exchanges show:
Senator Enrile: Mr. President, considering the sensitivity of these products from the
viewpoint of exerted pressures because of the understandable impact of this measure on the
pockets of the major players producing these products, the committee felt that perhaps to
lessen such pressures, it is best that we now establish a norm where the tax will be adjusted
without incurring too much political controversy as has happened in the case of this
proposal.
Senator Roco: But that is exactly the same reason we say we must rely upon
Congress because Congress, if it is subjected to pressure, at least balances off because of
political factors.
When the Secretary of Finance is now subjected to pressure, are we saying that the
Secretary of Finance and the Department of Finance is better-suited to withstand the
pressure? Or are we saying Let the Finance Secretary decide whom to yield?
I am saying that the temptation and the pressure on the Secretary of Finance is more
dangerous and more corruption-friendly than ascertaining for ourselves now a fixed rate of
increase for a fixed period.
Senator Enrile: Mr. President, perhaps the gentleman may not agree with this
representation, but in my humble opinion, this formulation is less susceptible to pressure
because there is a definite point of reference which is the consumer price index, and that
consumer price index is not going to be used only for this purpose. The CPI is used for a
national purpose, and there is less possibility of tinkering with it. [62]
Further, Senator Roco, like Congressman Javier, expressed the view that the periodic adjustment
and reclassification provision would create an anti-competitive atmosphere. Again, Senators Roco and
Enrile had genuine divergence of opinions on this matter, to wit:
Senator Roco: x x x On the marketing level, an adjustment clause may, in fact, be
disadvantageous to both companies, whether it is the Lucio Tan companies or the San
Miguel companies. If we have to adjust our marketing position every two years based on the
adjustment clause, the established company may survive, but the new ones will have
tremendous difficulty. Therefore, this provision tends to indicate an anticompetitive bias.
It is good for San Miguel and the Lucio Tan companies, but the new companies assuming
there may be new companies and we want to encourage them because of the old point of
liberalization will be at a disadvantage under this situation. If this observation will find
receptivity in the policy consideration of the distinguished Gentleman, maybe we can also
further, later on, seek amendments to this automatic adjustment clause in some manner.
Senator Enrile: Mr. President, I cannot foresee any anti-competitiveness of this provision with
respect to a new entrant, because a new entrant will not just come in without studying the
market. He is a lousy businessman if he will just come in without studying the market. If he
comes in, he will determine at what retail price level he will market his product, and he will
be coming under any of the tiers depending upon his net retail price. Therefore, I do not see
how this particular provision will affect a new entrant.
Senator Roco: Be that as it may, Mr. President, we obviously will not resort to debate until
this evening, and we will have to look for other ways of resolving the policy options.

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Let me just close that particular area of my interpellation, by summarizing the points we
were hoping could be clarified.
1. That the automatic adjustment clause is at best questionable in law.
2. It is corruption-friendly in the sense that it shifts the discretion from the House of
Representatives and this Chamber to the Secretary of Finance, no matter how saintly
he may be.
3. There is, although the judgment call of the gentleman disagrees to our view, an
anticompetitive situation that is geared at[63]
After these lengthy exchanges, it appears that the views of Senator Enrile were sustained by the Senate
Body because the Senate Version was passed on Third Reading without substantially altering the periodic
adjustment and reclassification provision.
It was actually at the Bicameral Conference Committee level where the Senate Version underwent
major changes. The Senate Panel prevailed upon the House Panel to abandon the basic excise tax rate
and ad valorem comparator as the means to determine the applicable excise tax rate. Thus, the Senates
four-tiered system was retained with minor adjustments as to the excise tax rate per tier. However, the
House Panel prevailed upon the Senate Panel to delete the power of the DOF and BIR to periodically adjust
the excise tax rate and tax brackets, and periodically resurvey and reclassify the cigarette brands based on
the increase in the consumer price index.
In lieu thereof, the classification of existing brands based on their average net retail price as of
October 1, 1996 was frozen and a fixed across-the-board 12% increase in the excise tax rate of each tier
after three years from the effectivity of the Act was put in place. There is a dearth of discussion in the
deliberations as to the applicability of the freezing mechanism to new brands after their classification is
determined based on their current net retail price. But a plain reading of the text of RA 8240, even before
its amendment by RA 9334, as well as the previously discussed deliberations would readily lead to the
conclusion that the intent of Congress was to likewise apply the freezing mechanism to new
brands. Precisely, Congress rejected the proposal to allow the DOF and BIR to periodically adjust the excise
tax rate and tax brackets as well as to periodically resurvey and reclassify cigarettes brands which would
have encompassed old and new brands alike. Thus, it would be absurd for us to conclude that Congress
intended to allow the periodic reclassification of new brands by the BIR after their classification is
determined based on their current net retail price. We shall return to this point when we tackle the second
issue.
In explaining the changes made at the Bicameral Conference Committee level, Senator Enrile, in his
report to the Senate plenary, noted that the fixing of the excise tax rates was done to avoid confusion.
[64]
Congressman Javier, for his part, reported to the House plenary the reasons for fixing the excise tax rate
and freezing the classification, thus:
Finally, this twin feature, Mr. Speaker, fixed specific tax rates and frozen
classification, rejects the Senate version which seeks to abdicate the power of Congress to
tax by pegging the rates as well as the classification of sin products to consumer price
index which practically vests in the Secretary of Finance the power to fix the rates
and to classify the products for tax purposes.[65] (Emphasis supplied)
Congressman Javier later added that the frozen classification was intended to give stability to the
industry as the BIR would be prevented from tinkering with the classification since it would remain
unchanged despite the increase in the net retail prices of the previously classified brands. [66] This would
also assure the industry players that there would be no new impositions as long as the law is unchanged.
[67]

From the foregoing, it is quite evident that the classification freeze provision could hardly be
considered arbitrary, or motivated by a hostile or oppressive attitude to unduly favor older brands over
newer brands. Congress was unequivocal in its unwillingness to delegate the power to periodically adjust
the excise tax rate and tax brackets as well as to periodically resurvey and reclassify the cigarette brands
based on the increase in the consumer price index to the DOF and the BIR. Congress doubted the
constitutionality of such delegation of power, and likewise, considered the ethical implications
thereof. Curiously, the classification freeze provision was put in place of the periodic adjustment and
reclassification provision because of the belief that the latter would foster an anti-competitive atmosphere
in the market. Yet, as it is, this same criticism is being foisted by petitioner upon the classification freeze
provision.
To our mind, the classification freeze provision was in the main the result of Congresss earnest
efforts to improve the efficiency and effectivity of the tax administration over sin products while trying to
balance the same with other state interests. In particular, the questioned provision addressed Congresss
administrative concerns regarding delegating too much authority to the DOF and BIR as this will open the
tax system to potential areas for abuse and corruption. Congress may have reasonably conceived that a

228

tax system which would give the least amount of discretion to the tax implementers would address the
problems of tax avoidance and tax evasion.
To elaborate a little, Congress could have reasonably foreseen that, under the DOF proposal and the
Senate Version, the periodic reclassification of brands would tempt the cigarette manufacturers to
manipulate their price levels or bribe the tax implementers in order to allow their brands to be classified at
a lower tax bracket even if their net retail prices have already migrated to a higher tax bracket after the
adjustment of the tax brackets to the increase in the consumer price index. Presumably, this could be done
when a resurvey and reclassification is forthcoming. As briefly touched upon in the Congressional
deliberations, the difference of the excise tax rate between the medium-priced and the high-priced tax
brackets under RA 8240, prior to its amendment, was P3.36. For a moderately popular brand which sells
around 100 million packs per year, this easily translates to P336,000,000. [68] The incentive for tax
avoidance, if not outright tax evasion, would clearly be present. Then again, the tax implementers may use
the power to periodically adjust the tax rate and reclassify the brands as a tool to unduly oppress the
taxpayer in order for the government to achieve its revenue targets for a given year.
Thus, Congress sought to, among others, simplify the whole tax system for sin products to remove
these potential areas of abuse and corruption from both the side of the taxpayer and the
government. Without doubt, the classification freeze provision was an integral part of this overall plan. This
is in line with one of the avowed objectives of the assailed law to simplify the tax administration and
compliance with the tax laws that are about to unfold in order to minimize losses arising from inefficiencies
and tax avoidance scheme, if not outright tax evasion. [69] RA 9334 did not alter this classification freeze
provision of RA 8240. On the contrary, Congress affirmed this freezing mechanism by clarifying the
wording of the law. We can thus reasonably conclude, as the deliberations on RA 9334 readily show, that
the administrative concerns in tax administration, which moved Congress to enact the classification freeze
provision in RA 8240, were merely continued by RA 9334. Indeed, administrative concerns may provide a
legitimate, rational basis for legislative classification. [70] In the case at bar, these administrative concerns in
the measurement and collection of excise taxes on sin products are readily apparent as afore-discussed.
Aside from the major concern regarding the elimination of potential areas for abuse and corruption
from the tax administration of sin products, the legislative deliberations also show that the classification
freeze provision was intended to generate buoyant and stable revenues for government. With the frozen
tax classifications, the revenue inflow would remain stable and the government would be able to predict
with a greater degree of certainty the amount of taxes that a cigarette manufacturer would pay given the
trend in its sales volume over time. The reason for this is that the previously classified cigarette brands
would be prevented from moving either upward or downward their tax brackets despite the changes in
their net retail prices in the future and, as a result, the amount of taxes due from them would remain
predictable. The classification freeze provision would, thus, aid in the revenue planning of the government.
[71]

All in all, the classification freeze provision addressed Congresss administrative concerns in the
simplification of tax administration of sin products, elimination of potential areas for abuse and corruption
in tax collection, buoyant and stable revenue generation, and ease of projection of
revenues. Consequently, there can be no denial of the equal protection of the laws since the rational-basis
test is amply satisfied.
Going now to the contention of petitioner that the classification freeze provision unduly favors older
brands over newer brands, we must first contextualize the basis of this claim. As previously discussed, the
evidence presented by the petitioner merely showed that in 2004, Marlboro and Philip Morris, on the one
hand, and Lucky Strike, on the other, would have been taxed at the same rate had the classification freeze
provision been not in place. But due to the operation of the classification freeze provision, Lucky Strike was
taxed higher. From here, petitioner generalizes that this differential tax treatment arising from
the classification freeze provisionadversely impacts the fairness of the playing field in the industry,
particularly, between older and newer brands. Thus, it is virtually impossible for new brands to enter the
market.
Petitioner did not, however, clearly demonstrate the exact extent of such impact. It has not been
shown that the net retail prices of other older brands previously classified under this classification system
have already pierced their tax brackets, and, if so, how this has affected the overall competition in the
market. Further, it does not necessarily follow that newer brands cannot compete against older brands
because price is not the only factor in the market as there are other factors like consumer preference,
brand loyalty, etc. In other words, even if the newer brands are priced higher due to the differential tax
treatment, it does not mean that they cannot compete in the market especially since cigarettes contain
addictive ingredients so that a consumer may be willing to pay a higher price for a particular brand solely
due to its unique formulation. It may also be noted that in 2003, the BIR surveyed 29 new brands [72] that
were introduced in the market after the effectivity of RA 8240 on January 1, 1997, thus negating the
sweeping generalization of petitioner that the classification freeze provision has become an
insurmountable barrier to the entry of new brands. Verily, where there is a claim of breach of the due
process and equal protection clauses, 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.[73]

229

Be that as it may, petitioners evidence does suggest that, at least in 2004, Philip Morris and
Marlboro, older brands, would have been taxed at the same rate as Lucky Strike, a newer brand, due to
certain conditions (i.e., the increase of the older brands net retail prices beyond the tax bracket to which
they were previously classified after the lapse of some time) were it not for the classification freeze
provision. It may be conceded that this has adversely affected, to a certain extent, the ability of petitioner
to competitively price its newer brands vis--vis the subject older brands. Thus, to a limited extent, the
assailed law seems to derogate one of its avowed objectives, i.e. promoting fair competition among the
players in the industry. Yet, will this occurrence, by itself, render the assailed law unconstitutional on equal
protection grounds?
We answer in the negative.
Whether Congress acted improvidently in derogating, to a limited extent, the states interest in
promoting fair competition among the players in the industry, while pursuing other state interests
regarding the simplification of tax administration of sin products, elimination of potential areas for abuse
and corruption in tax collection, buoyant and stable revenue generation, and ease of projection of
revenues through the classification freeze provision, and whether the questioned provision is the best
means to achieve these state interests, necessarily go into the wisdom of the assailed law which we
cannot inquire into, much less overrule. The classification freeze provision has not been shown to be
precipitated by a veiled attempt, or hostile attitude on the part of Congress to unduly favor older brands
over newer brands. On the contrary, we must reasonably assume, owing to the respect due a co-equal
branch of government and as revealed by the Congressional deliberations, that the enactment of the
questioned provision was impelled by an earnest desire to improve the efficiency and effectivity of the tax
administration of sin products. For as long as the legislative classification is rationally related to furthering
some legitimate state interest, as here, the rational-basis test is satisfied and the constitutional challenge
is perfunctorily defeated.
We do not sit in judgment as a supra-legislature to decide, after a law is passed by Congress, which
state interest is superior over another, or which method is better suited to achieve one, some or all of the
states interests, or what these interests should be in the first place. This policy-determining power, by
constitutional fiat, belongs to Congress as it is its function to determine and balance these interests or
choose which ones to pursue. Time and again we have ruled that the judiciary does not settle policy
issues. The Court can only declare what the law is and not what the law should be. 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.[74] Thus, the legislative classification under
the classification freeze provision, after having been shown to be rationally related to achieve certain
legitimate state interests and done in good faith, must, perforce, end our inquiry.
Concededly, the finding that the assailed law seems to derogate, to a limited extent, one of its
avowed objectives (i.e. promoting fair competition among the players in the industry) would suggest that,
by Congresss own standards, the current excise tax system on sin products is imperfect. But, certainly, we
cannot declare a statute unconstitutional merely because it can be improved or that it does not tend to
achieve all of its stated objectives.[75] This is especially true for tax legislation which simultaneously
addresses and impacts multiple state interests.[76] Absent a clear showing of breach of constitutional
limitations, Congress, owing to its vast experience and expertise in the field of taxation, must be given
sufficient leeway to formulate and experiment with different tax systems to address the complex issues
and problems related to tax administration. Whatever imperfections that may occur, the same should be
addressed to the democratic process to refine and evolve a taxation system which ideally will achieve
most, if not all, of the states objectives.
In fine, petitioner may have valid reasons to disagree with the policy decision of Congress and the
method by which the latter sought to achieve the same. But its remedy is with Congress and not this
Court. As succinctly articulated in Vance v. Bradley:[77]
The Constitution presumes that, absent some reason to infer antipathy, even improvident
decisions will eventually be rectified by the democratic process, and that judicial
intervention is generally unwarranted no matter how unwisely we may think a political
branch has acted. Thus, we will not overturn such a statute unless the varying treatment of
different groups or persons is so unrelated to the achievement of any combination of
legitimate purposes that we can only conclude that the legislature's actions were irrational.
[78]

We now tackle the second issue.


Petitioner asserts that Revenue Regulations No. 1-97, as amended by Revenue Regulations No. 92003, Revenue Regulations No. 22-2003 and Revenue Memorandum Order No. 6-2003, are invalid insofar
as they empower the BIR to reclassify or update the classification of new brands of cigarettes based on
their current net retail prices every two years or earlier. It claims that RA 8240, even prior to its
amendment by RA 9334, did not authorize the BIR to conduct said periodic resurvey and reclassification.

230

The questioned provisions are found in the following sections of the assailed issuances:
(1)

Section 4(B)(e)(c), 2nd paragraph of Revenue Regulations No. 1-97, as amended by


Section 2 of Revenue Regulations 9-2003, viz:

For the purpose of establishing or updating the tax classification of new brands and
variant(s) thereof, their current net retail price shall be reviewed periodically through the
conduct of survey or any other appropriate activity, as mentioned above, every two (2)
years unless earlier ordered by the Commissioner. However, notwithstanding any increase in
the current net retail price, the tax classification of such new brands shall remain in force
until the same is altered or changed through the issuance of an appropriate Revenue
Regulations.
(2)

Sections II(1)(b), II(4)(b), II(6), II(7), III (Large Tax Payers Assistance Division II) II(b) of
Revenue Memorandum Order No. 6-2003, insofar as pertinent to cigarettes packed by
machine, viz:

II. POLICIES AND GUIDELINES


1. The conduct of survey covered by this Order, for purposes of determining the
current retail prices of new brands of cigarettes and alcohol products introduced in
the market on or after January 1, 1997, shall be undertaken in the following
instances:
xxxx
b. For reclassification of new brands of said excisable products that were introduced
in the market after January 1, 1997.
xxxx
4. The determination of the current retail prices of new brands of the aforesaid
excisable products shall be initiated as follows:
xxxx
b. After the lapse of the prescribed two-year period or as the Commissioner may
otherwise direct, the appropriate tax reclassification of these brands based on the
current net retail prices thereof shall be determined by a survey to be conducted
upon a written directive by the Commissioner.
For this purpose, a memorandum order to the Assistant Commissioner, Large
Taxpayers Service, Heads, Excise Tax Areas, and Regional Directors of all Revenue
Regions, except Revenue Region Nos. 4, 5, 6, 7, 8 and 9, shall be issued by the
Commissioner for the submission of the list of major supermarkets/retail outlets
where the above excisable products are being sold, as well as the list of selected
revenue officers who shall be designated to conduct the said activity(ies).
xxxx
6. The results of the survey conducted in Revenue Region Nos. 4 to 9 shall be
submitted directly to the Chief, LT Assistance Division II (LTAD II), National Office for
consolidation. On the other hand, the results of the survey conducted in Revenue
Regions other than Revenue Region Nos. 4 to 9, shall be submitted to the Office of
the Regional Director for regional consolidation. The consolidated regional survey,
together with the accomplished survey forms shall be transmitted to the Chief, LTAD
II for national consolidation within three (3) days from date of actual receipt from the
survey teams. The LTAD II shall be responsible for the evaluation and analysis of the
submitted survey forms and the preparation of the recommendation for the
updating/revision of the tax classification of each brand of cigarettes and alcohol
products. The said recommendation, duly validated by the ACIR, LTS, shall be
submitted to the Commissioner for final review within ten (10) days from the date of
actual receipt of complete reports from all the surveying Offices.
7. Upon final review by the Commissioner of the revised tax classification of the
different new brands of cigarettes and alcohol products, the appropriate revenue
regulations shall be prepared and submitted for approval by the Secretary of Finance.
xxxx

231

III. PROCEDURES
xxxx
Large Taxpayers Assistance Division II
xxxx
1. Perform the following preparatory procedures on the identification of brands to be
surveyed, supermarkets/retail outlets where the survey shall be conducted, and the
personnel selected to conduct the survey.
xxxx
b. On the tax reclassification of new brands
i. Submit a master list of registered brands covered by the survey pursuant to
the provisions of Item II.2 of this Order containing the complete description of each
brand, existing net retail price and the corresponding tax rate thereof.
ii. Submit to the ACIR, LTS, a list of major supermarkets/retail outlets within
the territorial jurisdiction of the concerned revenue regions where the survey will be
conducted to be used as basis in the issuance of Mission Orders. Ensure that the
minimum number of establishments to be surveyed, as prescribed under existing
revenue laws and regulations, is complied with. In addition, the names and
designations of revenue officers selected to conduct the survey shall be clearly
indicated opposite the names of the establishments to be surveyed.
There is merit to the contention.
In order to implement RA 8240 following its effectivity on January 1, 1997, the BIR issued Revenue
Regulations No. 1-97, dated December 13, 1996, which mandates a one-time classification only. [79] Upon
their launch, new brands shall be initially taxed based on their suggested net retail price. Thereafter, a
survey shall be conducted within three (3) months to determine their current net retail prices and, thus, fix
their official tax classifications. However, the BIR made a turnaround by issuing Revenue Regulations No. 92003, dated February 17, 2003, which partly amended Revenue Regulations No. 1-97, by authorizing the
BIR to periodically reclassify new brands (i.e., every two years or earlier) based on their current net retail
prices. Thereafter, the BIR issued Revenue Memorandum Order No. 6-2003, datedMarch 11, 2003,
prescribing the guidelines on the implementation of Revenue Regulations No. 9-2003. This was patent error
on the part of the BIR for being contrary to the plain text and legislative intent of RA 8240.
It is clear that the afore-quoted portions of Revenue Regulations No. 1-97, as amended by Section 2
of Revenue Regulations 9-2003, and Revenue Memorandum Order No. 6-2003 unjustifiably emasculate the
operation of Section 145 of the NIRC because they authorize the Commissioner of Internal Revenue to
update the tax classification of new brands every two years or earlier subject only to its issuance of the
appropriate Revenue Regulations, when nowhere in Section 145 is such authority granted to the Bureau.
Unless expressly granted to the BIR, the power to reclassify cigarette brands remains a prerogative of the
legislature which cannot be usurped by the former.
More importantly, as previously discussed, the clear legislative intent was for new brands to benefit
from the same freezing mechanism accorded to Annex D brands. To reiterate, in enacting RA 8240,
Congress categorically rejected the DOF proposal and Senate Version which would have empowered the
DOF and BIR to periodically adjust the excise tax rate and tax brackets, and to periodically resurvey and
reclassify cigarette brands. (This resurvey and reclassification would have naturally encompassed both old
and new brands.) It would thus, be absurd for us to conclude that Congress intended to allow the periodic
reclassification of new brands by the BIR after their classification is determined based on their current net
retail price while limiting the freezing of the classification to Annex D brands. Incidentally, Senator Ralph G.
Recto expressed the following views during the deliberations on RA 9334, which later amended RA 8240:
Senator Recto: Because, like I said, when Congress agreed to adopt a specific tax
system [under R.A. 8240], when Congress did not index the brackets, and Congress did not
index the rates but only provided for a one rate increase in the year 2000, we shifted
from ad valorem which was based on value to a system of specific which is based on
volume. Congress then, in effect, determined the classification based on the prices at that
particular period of time and classified these products accordingly.
Of course, Congress then decided on what will happen to the new brands or variants
of existing brands. To favor government, a variant would be classified as the highest rate of
tax for that particular brand. In case of a new brand, Mr. President, then the BIR should
classify them. But I do not think it was the intention of Congress then to give the
BIR the authority to reclassify them every so often. I do not think it was the

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intention of Congress to allow the BIR to classify a new brand every two years, for
example, because it will be arbitrary for the BIR to do so. x x x[80] (Emphasis
supplied)
For these reasons, the amendments introduced by RA 9334 to RA 8240, insofar as the freezing mechanism
is concerned, must be seen merely as underscoring the legislative intent already in place then, i.e. new
brands as being covered by the freezing mechanism after their classification based on their current net
retail prices.
Unfortunately for petitioner, this result will not cause a downward reclassification of Lucky Strike. It will be
recalled that petitioner introduced Lucky Strike in June 2001. However, as admitted by petitioner itself, the
BIR did not conduct the required market survey within three months from product launch. As a result,
Lucky Strike was never classified based on its actual current net retail price. Petitioner failed to timely seek
redress to compel the BIR to conduct the requisite market survey in order to fix the tax classification of
Lucky Strike. In the meantime, Lucky Strike was taxed based on its suggested net retail price of P9.90 per
pack, which is within the high-priced tax bracket. It was only after the lapse of two years or in 2003 that
the BIR conducted a market survey which was the first time that Lucky Strikes actual current net retail
price was surveyed and found to be from P10.34 to P11.53 per pack, which is within the premium-priced
tax bracket. The case of petitioner falls under a situation where there was no reclassification based on its
current net retail price which would have been invalid as previously explained. Thus, we cannot grant
petitioners prayer for a downward reclassification of Lucky Strike because it was never reclassified by the
BIR based on its actual current net retail price.
It should be noted though that on August 8, 2003, the BIR issued Revenue Regulations No. 22-2003
which implemented the revised tax classifications of new brands based on their current net retail prices
through the market survey conducted pursuant to Revenue Regulations No. 9-2003. Annex A of Revenue
Regulations No. 22-2003 lists the result of the market survey and the corresponding recommended tax
classification of the new brands therein aside from Lucky Strike. However, whether these other brands
were illegally reclassified based on their actual current net retail prices by the BIR must be determined on
a case-to-case basis because it is possible that these brands were classified based on their actual current
net retail price for the first time in the year 2003 just like Lucky Strike. Thus, we shall not make any
pronouncement as to the validity of the tax classifications of the other brands listed therein.
Finally, it must be noted that RA 9334 introduced changes in the manner by which the current net
retail price of a new brand is determined and how its classification is permanently fixed, to wit:
New brands, as defined in the immediately following paragraph, shall initially be
classified according to their suggested net retail price.
New brands shall mean a brand registered after the date of effectivity of R.A. No. 8240
[on January 1, 1997].
Suggested net retail price shall mean the net retail price at which new brands, as defined
above, of locally manufactured or imported cigarettes are intended by the manufacture or
importer to be sold on retail in major supermarkets or retail outlets in Metro Manila for those
marketed nationwide, and in other regions, for those with regional markets. At the end of
three (3) months from the product launch, the Bureau of Internal Revenue shall
validate the suggested net retail price of the new brand against the net retail
price as defined herein and determine the correct tax bracket under which a
particular new brand of cigarette, as defined above, shall be classified. After the
end of eighteen (18) months from such validation, the Bureau of Internal Revenue
shall revalidate the initially validated net retail price against the net retail price
as of the time of revalidation in order to finally determine the correct tax bracket
under which a particular new brand of cigarettes shall be classified; Provided
however, That brands of cigarettes introduced in the domestic market between January 1,
1997 and December 31, 2003 shall remain in the classification under which the Bureau of
Internal Revenue has determined them to belong as of December 31, 2003. Such
classification of new brands and brands introduced between January 1,
1997 and December 31, 2003 shall not be revised except by an act of
Congress. (Emphasis supplied)
Thus, Revenue Regulations No. 9-2003 and Revenue Memorandum Order No. 6-2003 should be deemed
modified by the above provisions from the date of effectivity of RA 9334 on January 1, 2005.
In sum, Section 4(B)(e)(c), 2nd paragraph of Revenue Regulations No. 1-97, as amended by Section 2 of
Revenue Regulations 9-2003, and Sections II(1)(b), II(4)(b), II(6), II(7), III (Large Tax Payers Assistance
Division II) II(b) of Revenue Memorandum Order No. 6-2003, as pertinent to cigarettes packed by machine,
are invalid insofar as they grant the BIR the power to reclassify or update the classification of new brands
every two years or earlier. Further, these provisions are deemed modified upon the effectivity of RA 9334
on January 1, 2005 insofar as the manner of determining the permanent classification of new brands is
concerned.

233

We now tackle the last issue.


Petitioner contends that RA 8240, as amended by RA 9334, and its implementing rules and
regulations violate the General Agreement on Tariffs and Trade (GATT) of 1947, as amended, specifically,
Paragraph 2, Article III, Part II:
2. The products of the territory of any contracting party imported into the territory of any
other contracting party shall not be subject, directly or indirectly, to internal taxes or other
internal charges of any kind in excess of those applied, directly or indirectly, to like domestic
products. Moreover, no contracting party shall otherwise apply internal taxes or other
internal charges to imported or domestic products in a manner contrary to the principles set
forth in paragraph 1.
It claims that it is the duty of this Court to correct, in favor of the GATT, whatever inconsistency exists
between the assailed law and the GATT in order to prevent triggering the international dispute settlement
mechanism under the GATT-WTO Agreement.
We disagree.
The classification freeze provision uniformly applies to all newly introduced brands in the market,
whether imported or locally manufactured. It does not purport to single out imported cigarettes in order to
unduly favor locally produced ones. Further, petitioners evidence was anchored on the alleged unequal tax
treatment between old and new brands which involves a different frame of reference vis--vis local and
imported products. Petitioner has, therefore, failed to clearly prove its case, both factually and legally,
within the parameters of the GATT.
At any rate, even assuming arguendo that petitioner was able to prove that the classification freeze
provision violates the GATT, the outcome would still be the same. The GATT is a treaty duly ratified by the
Philippine Senate and under Article VII, Section 21 [81] of the Constitution, it merely acquired the status of a
statute.[82]Applying the basic principles of statutory construction in case of irreconcilable conflict between
statutes, RA 8240, as amended by RA 9334, would prevail over the GATT either as a later enactment by
Congress or as a special law dealing with the taxation of sin products. Thus, in Abbas v. Commission on
Elections,[83] we had occasion to explain:
Petitioners premise their arguments on the assumption that the Tripoli Agreement is
part of the law of the land, being a binding international agreement. The Solicitor General
asserts that the Tripoli Agreement is neither a binding treaty, not having been entered into
by the Republic of the Philippines with a sovereign state and ratified according to the
provisions of the 1973 or 1987 Constitutions, nor a binding international agreement.
We find it neither necessary nor determinative of the case to rule on the nature of the
Tripoli Agreement and its binding effect on the Philippine Government whether under public
international or internal Philippine law. In the first place, it is now the Constitution itself that
provides for the creation of an autonomous region in Muslim Mindanao. The standard for any
inquiry into the validity of R.A. No. 6734 would therefore be what is so provided in the
Constitution. Thus, any conflict between the provisions of R.A. No. 6734 and the provisions of
the Tripoli Agreement will not have the effect of enjoining the implementation of the Organic
Act. Assuming for the sake of argument that the Tripoli Agreement is a binding
treaty or international agreement, it would then constitute part of the law of the
land. But as internal law it would not be superior to R.A. No. 6734, an enactment
of the Congress of the Philippines, rather it would be in the same class as the
latter [SALONGA, PUBLIC INTERNATIONAL LAW 320 (4th ed., 1974), citing Head Money
Cases, 112 U.S. 580 (1884) and Foster v. Nelson, 2 Pet. 253 (1829)]. Thus, if at all, R.A.
No. 6734 would be amendatory of the Tripoli Agreement, being a subsequent
law. Only a determination by this Court that R.A. No. 6734 contravenes the Constitution
would result in the granting of the reliefs sought. (Emphasis supplied)
WHEREFORE, the petition is PARTIALLY GRANTED and the decision of the Regional Trial Court of
Makati, Branch 61, in Civil Case No. 03-1032, is AFFIRMED with MODIFICATION. As modified, this Court
declares that:
(1) Section 145 of the NIRC, as amended by Republic Act No. 9334, is CONSTITUTIONAL; and that
(2) Section 4(B)(e)(c), 2nd paragraph of Revenue Regulations No. 1-97, as amended by Section 2 of
Revenue Regulations 9-2003, and Sections II(1)(b), II(4)(b), II(6), II(7), III (Large Tax Payers Assistance
Division II) II(b) of Revenue Memorandum Order No. 6-2003, insofar as pertinent to cigarettes packed by
machine, are INVALID insofar as they grant the BIR the power to reclassify or update the classification of
new brands every two years or earlier.
SO ORDERED.

234

BRITISH AMERICAN TOBACCO, G.R. No. 163583


Petitioner,
Present:
Puno, C.J.,

Quisumbing,
Ynares-Santiago,
Carpio,
Austria-Martinez,

Corona,

- versus - Carpio Morales,

Tinga,
Chico-Nazario,
Velasco, Jr.,
Nachura,
Leonardo-De Castro,
Brion,
Peralta, and
Bersamin, JJ.

JOSE ISIDRO N. CAMACHO,


in his capacity as Secretary of
the Department of Finance and
GUILLERMO L. PARAYNO, JR.,
in his capacity as Commissioner of
the Bureau of Internal Revenue,
Respondents.
PHILIP MORRIS PHILIPPINES
MANUFACTURING, INC.,
FORTUNE TOBACCO, CORP., Promulgated:
MIGHTY CORPOR.A.TION, and
JT INTERNATIONAL, S.A.,
Respondents-in-Intervention. April 15, 2009

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

RESOLUTION

YNARES-SANTIAGO, J.:
On August 20, 2008, the Court rendered a Decision partially granting the petition in this case, viz:
WHEREFORE, the petition is PARTIALLY GRANTED and the decision of the Regional
Trial
Court
of
Makati,
Branch
61,
in
Civil
Case
No.
03-1032,
is AFFIRMED with MODIFICATION. As modified, this Court declares that:
(1) Section 145 of the
is CONSTITUTIONAL; and that

NIRC,

as

amended

by

Republic

Act

No.

9334,

(2) Section 4(B)(e)(c), 2nd paragraph of Revenue Regulations No. 1-97, as amended by
Section 2 of Revenue Regulations 9-2003, and Sections II(1)(b), II(4)(b), II(6), II(7), III (Large
Tax Payers Assistance Division II) II(b) of Revenue Memorandum Order No. 6-2003, insofar as

235

pertinent to cigarettes packed by machine, are INVALID insofar as they grant the BIR the
power to reclassify or update the classification of new brands every two years or earlier.
SO ORDERED.
In its Motion for Reconsideration, petitioner insists that the assailed provisions (1) violate the equal
protection and uniformity of taxation clauses of the Constitution, (2) contravene Section 19, [1] Article XII of
the Constitution on unfair competition, and (3) infringe the constitutional provisions on regressive and
inequitable taxation. Petitioner further argues that assuming the assailed provisions are constitutional,
petitioner is entitled to a downward reclassification of Lucky Strike from the premium-priced to the highpriced tax bracket.
The Court is not persuaded.
The assailed law does not violate the equal protection
and uniformity of taxation clauses.
Petitioner argues that the classification freeze provision violates the equal protection and uniformity of
taxation clauses because Annex D brands are taxed based on their 1996 net retail prices while new brands
are taxed based on their present day net retail prices. Citing Ormoc Sugar Co. v. Treasurer of Ormoc City,
[2]
petitioner asserts that the assailed provisions accord a special or privileged status to Annex D brands
while at the same time discriminate against other brands.
These contentions are without merit and a rehash of petitioners previous arguments before this Court. As
held in the assailed Decision, the instant case neither involves a suspect classification nor impinges on a
fundamental right. Consequently, the rational basis test was properly applied to gauge the constitutionality
of the assailed law in the face of an equal protection challenge. It has been held that in the areas of social
and economic policy, a statutory classification that neither proceeds along suspect lines nor infringes
constitutional rights must be upheld against equal protection challenge if there is any reasonably
conceivable state of facts that could provide a rational basis for the classification. [3] Under the rational
basis test, it is sufficient that the legislative classification is rationally related to achieving some legitimate
State interest.As the Court ruled in the assailed Decision, viz:
A legislative classification that is reasonable does not offend the constitutional
guaranty of the equal protection of the laws. The classification is considered valid and
reasonable provided that: (1) it rests on substantial distinctions; (2) it is germane to the
purpose of the law; (3) it applies, all things being equal, to both present and future
conditions; and (4) it applies equally to all those belonging to the same class.
The first, third and fourth requisites are satisfied. The classification freeze
provision was inserted in the law for reasons of practicality and expediency. That is, since a
new brand was not yet in existence at the time of the passage of RA 8240, then Congress
needed a uniform mechanism to fix the tax bracket of a new brand. The current net retail
price, similar to what was used to classify the brands under Annex D as of October 1, 1996,
was thus the logical and practical choice. Further, with the amendments introduced by RA
9334, the freezing of the tax classifications now expressly applies not just to Annex D brands
but to newer brands introduced after the effectivity of RA 8240 on January 1, 1997 and any
new brand that will be introduced in the future. (However, as will be discussed later, the
intent to apply the freezing mechanism to newer brands was already in place even prior to
the amendments introduced by RA 9334 to RA 8240.) This does not explain, however, why
the classification is frozen after its determination based on current net retail price and how
this is germane to the purpose of the assailed law. An examination of the legislative history
of RA 8240 provides interesting answers to this question.
xxxx
From the foregoing, it is quite evident that the classification freeze provision could
hardly be considered arbitrary, or motivated by a hostile or oppressive attitude to unduly
favor older brands over newer brands. Congress was unequivocal in its unwillingness to
delegate the power to periodically adjust the excise tax rate and tax brackets as well as to
periodically resurvey and reclassify the cigarette brands based on the increase in the
consumer price index to the DOF and the BIR. Congress doubted the constitutionality of such
delegation of power, and likewise, considered the ethical implications thereof. Curiously,
the classification freeze provision was put in place of the periodic adjustment and
reclassification provision because of the belief that the latter would foster an anticompetitive atmosphere in the market. Yet, as it is, this same criticism is being foisted by
petitioner upon the classification freeze provision.
To our mind, the classification freeze provision was in the main the result of
Congresss earnest efforts to improve the efficiency and effectivity of the tax administration
over sin products while trying to balance the same with other State interests. In particular,

236

the questioned provision addressed Congresss administrative concerns regarding delegating


too much authority to the DOF and BIR as this will open the tax system to potential areas for
abuse and corruption. Congress may have reasonably conceived that a tax system which
would give the least amount of discretion to the tax implementers would address the
problems of tax avoidance and tax evasion.
To elaborate a little, Congress could have reasonably foreseen that, under the DOF
proposal and the Senate Version, the periodic reclassification of brands would tempt the
cigarette manufacturers to manipulate their price levels or bribe the tax implementers in
order to allow their brands to be classified at a lower tax bracket even if their net retail
prices have already migrated to a higher tax bracket after the adjustment of the tax
brackets to the increase in the consumer price index. Presumably, this could be done when a
resurvey and reclassification is forthcoming. As briefly touched upon in the Congressional
deliberations, the difference of the excise tax rate between the medium-priced and the highpriced tax brackets under RA 8240, prior to its amendment, was P3.36. For a moderately
popular brand which sells around 100 million packs per year, this easily translates to
P336,000,000. The incentive for tax avoidance, if not outright tax evasion, would clearly be
present. Then again, the tax implementers may use the power to periodically adjust the tax
rate and reclassify the brands as a tool to unduly oppress the taxpayer in order for the
government to achieve its revenue targets for a given year.
Thus, Congress sought to, among others, simplify the whole tax system for sin
products to remove these potential areas of abuse and corruption from both the side of the
taxpayer and the government. Without doubt, the classification freeze provision was an
integral part of this overall plan. This is in line with one of the avowed objectives of the
assailed law to simplify the tax administration and compliance with the tax laws that are
about to unfold in order to minimize losses arising from inefficiencies and tax avoidance
scheme, if not outright tax evasion. RA 9334 did not alter this classification freeze
provision of RA 8240. On the contrary, Congress affirmed this freezing mechanism by
clarifying the wording of the law. We can thus reasonably conclude, as the deliberations on
RA 9334 readily show, that the administrative concerns in tax administration, which moved
Congress to enact the classification freeze provision in RA 8240, were merely continued by
RA 9334. Indeed, administrative concerns may provide a legitimate, rational basis for
legislative classification. In the case at bar, these administrative concerns in the
measurement and collection of excise taxes on sin products are readily apparent as aforediscussed.
Aside from the major concern regarding the elimination of potential areas for abuse
and corruption from the tax administration of sin products, the legislative deliberations also
show that the classification freeze provision was intended to generate buoyant and stable
revenues for government. With the frozen tax classifications, the revenue inflow would
remain stable and the government would be able to predict with a greater degree of
certainty the amount of taxes that a cigarette manufacturer would pay given the trend in its
sales volume over time. The reason for this is that the previously classified cigarette brands
would be prevented from moving either upward or downward their tax brackets despite the
changes in their net retail prices in the future and, as a result, the amount of taxes due from
them would remain predictable. The classification freeze provision would, thus, aid in the
revenue planning of the government.
All in all, the classification freeze provision addressed Congresss administrative
concerns in the simplification of tax administration of sin products, elimination of potential
areas for abuse and corruption in tax collection, buoyant and stable revenue generation, and
ease of projection of revenues. Consequently, there can be no denial of the equal protection
of the laws since the rational-basis test is amply satisfied.
Moreover, petitioners contention that the assailed provisions violate the uniformity of taxation
clause is similarly unavailing. In Churchill v. Concepcion,[4] we explained that a tax is uniform when it
operates with the same force and effect in every place where the subject of it is found. [5] It does not signify
an intrinsic but simply a geographical uniformity. [6] A levy of tax is not unconstitutional because it is not
intrinsically equal and uniform in its operation.[7] The uniformity rule does not prohibit classification for
purposes of taxation.[8] As ruled in Tan v. Del Rosario, Jr.:[9]

Uniformity of taxation, like the kindred concept of equal protection, merely requires
that all subjects or objects of taxation, similarly situated, are to be treated alike both in
privileges and liabilities (citations omitted). Uniformity does not forfend classification as long
as: (1) the standards that are used therefor are substantial and not arbitrary, (2) the
categorization is germane to achieve the legislative purpose, (3) the law applies, all things

237

being equal, to both present and future conditions, and (4) the classification applies equally
well to all those belonging to the same class (citations omitted). [10]

In the instant case, there is no question that the classification freeze provision meets the geographical
uniformity requirement because the assailed law applies to all cigarette brands in the Philippines. And, for
reasons already adverted to in our August 20, 2008 Decision, the above four-fold test has been met in the
present case.
Petitioners reliance on Ormoc Sugar Co. is misplaced. In said case, the controverted municipal
ordinance specifically named and taxed only the Ormoc Sugar Company, and excluded any subsequently
established sugar central from its coverage. Thus, the ordinance was found unconstitutional on equal
protection grounds because its terms do not apply to future conditions as well. This is not the case
here. The classification freeze provision uniformly applies to all cigarette brands whether existing or to be
introduced in the market at some future time. It does not purport to exempt any brand from its operation
nor single out a brand for the purpose of imposition of excise taxes.
At any rate, petitioners real disagreement lies with the legitimate State interests. Although it
concedes that the Court utilized the rationality test and that the classification freeze provision was
necessitated by several legitimate State interests, however, it refuses to accept the justifications given by
Congress for the classification freeze provision. As we elucidated in our August 20, 2008 Decision, this line
of argumentation revolves around the wisdom and expediency of the assailed law which we cannot inquire
into, much less overrule. Equal protection is not a license for courts to judge the wisdom, fairness, or logic
of legislative choices.[11] We reiterate, therefore, that petitioners remedy is with Congress and not this
Court.
The assailed provisions do not violate the constitutional
prohibition on unfair competition.
Petitioner asserts that the Court erroneously applied the rational basis test allegedly because this
test does not apply in a constitutional challenge based on a violation of Section 19, Article XII of the
Constitution on unfair competition. Citing Tatad v. Secretary of the Department of Energy,[12] it argues that
the classification freeze provision gives the brands under Annex D a decisive edge because it constitutes a
substantial barrier to the entry of prospective players; that the Annex D provision is no different from the
4% tariff differential which we invalidated in Tatad; that some of the new brands, like Astro, Memphis,
Capri, L&M, Bowling Green, Forbes, and Canon, which were introduced into the market after the effectivity
of the assailed law on January 1, 1997, were killed by Annex D brands because the former brands were
reclassified by the BIR to higher tax brackets; that the finding that price is not the only factor in the market
as there are other factors like consumer preference, active ingredients, etc. is contrary to the evidence
presented and the deliberations in Congress; that the classification freeze provision will encourage
predatory pricing in contravention of the constitutional prohibition on unfair competition; and that the
cumulative effect of the operation of the classification freeze provision is to perpetuate the oligopoly of
intervenors Philip Morris and Fortune Tobacco in contravention of the constitutional edict for the State to
regulate or prohibit monopolies, and to disallow combinations in restraint of trade and unfair competition.
The argument lacks merit. While previously arguing that the rational basis test was not satisfied, petitioner
now asserts that this test does not apply in this case and that the proper matrix to evaluate the
constitutionality of the assailed law is the prohibition on unfair competition under Section 19, Article XII of
the Constitution. It should be noted that during the trial below, petitioner did not invoke said constitutional
provision as it relied solely on the alleged violation of the equal protection and uniformity of taxation
clauses. Well-settled is the rule that points of law, theories, issues and arguments not adequately brought
to the attention of the lower court will not be ordinarily considered by a reviewing court as they cannot be
raised for the first time on appeal. [13] At any rate, even if we were to relax this rule, as previously stated,
the evidence presented before the trial court is insufficient to establish the alleged violation of the
constitutional proscription against unfair competition.
Indeed, in Tatad we ruled that a law which imposes substantial barriers to the entry and exit of new players
in our downstream oil industry may be struck down for being violative of Section 19, Article XII of the
Constitution.[14] However, we went on to say in that case that if they are insignificant impediments, they
need not be stricken down.[15] As we stated in our August 20, 2008 Decision, petitioner failed to
convincingly prove that there is a substantial barrier to the entry of new brands in the cigarette market
due to the classification freeze provision. We further observed that several new brands were introduced in
the market after the assailed law went into effect thus negating petitioners sweeping claim that
the classification freeze provision is an insurmountable barrier to the entry of new brands. We also noted
that price is not the only factor affecting competition in the market for there are other factors such as
taste, brand loyalty, etc.
We see no reason to depart from these findings for the following reasons:
First, petitioner did not lay down the factual foundations, as supported by verifiable documentary
proof, which would establish, among others, the cigarette brands in competition with each other; the
current net retail prices of Annex D brands, as determined through a market survey, to provide a sufficient

238

point of comparison with those covered by the BIRs market survey of new brands; and the causal
connection with as well as the extent of the impact on the competition in the cigarette market of
the classification freeze provision. Other than petitioners self-serving allegations and testimonial evidence,
no adequate documentary evidence was presented to substantiate its claims. Absent ample documentary
proof, we cannot accept petitioners claim that the classification freeze provision is an insurmountable
barrier to the entry of new players.
Second, we cannot lend credence to petitioners claim that it cannot produce cigarettes that can
compete with Marlboro and Philip Morris in the high-priced tax bracket. Except for its self-serving
testimonial evidence, no sufficient documentary evidence was presented to substantiate this claim. The
current net retail price, which is the basis for determining the tax bracket of a cigarette brand, more or less
consists of the costs of raw materials, labor, advertising and profit margin. To a large extent, these factors
are controllable by the manufacturer, as such, the decision to enter which tax bracket will depend on the
pricing strategy adopted by the individual manufacturer. The same holds true for its claims that other new
brands, like Astro, Memphis, Capri, L&M, Bowling Green, Forbes, and Canon, were killed by Annex D brands
due to the effects of the operation of the classification freeze provision over time. The evidence that
petitioner presented before the trial court failed to substantiate the basis for these claims.
Essentially, petitioner would want us to accept its conclusions of law without first laying down the
factual foundations of its arguments. This Court, which is not a trier of facts, cannot take judicial notice of
the factual premises of these arguments as petitioner now seems to suggest. The evidence should have
been presented before the trial court to allow it to examine and determine for itself whether such factual
premises, as supported by sufficient documentary evidence, provide reasonable basis for petitioners
conclusion that there arose an unconstitutional unfair competition due to the operation of the classification
freeze provision. Petitioner should be reminded that it appealed this case from the adverse ruling of the
trial court directly to this Court on pure questions of law instead of resorting to the Court of Appeals.
Third, Tatad is not applicable to the instant case. In Tatad, we found that the 4% tariff differential
between imported crude oil and imported refined petroleum products erects a high barrier to the entry of
new players because (1) it imposes an undue burden on new players to spend billions of pesos to build
refineries in order to compete with the old players, and (2) new players, who opt not to build refineries,
suffer from the huge disadvantage of increasing their product cost by 4%. [16] The tariff was imposed on the
raw materials uniformly used by the players in the oil industry. Thus, the adverse effect on competition
arising from this discriminatory treatment was readily apparent. In contrast, the excise tax under the
assailed law is imposed based on the current net retail price of a cigarette brand. As previously explained,
the current net retail price is determined by the pricing strategy of the manufacturer. This Court cannot
simply speculate that the reason why a new brand cannot enter a specific tax bracket and compete with
the brands therein was because of the classification freeze provision, rather than the manufacturers own
pricing decision or some other factor solely attributable to the manufacturer. Again, the burden of proof in
this regard is on petitioner which it failed to muster.
Fourth, the finding in our August 20, 2008 Decision that price is not the only factor which affects
consumer behavior in the cigarette market is based on petitioners own evidence. On cross-examination,
petitioners witness admitted that notwithstanding the change in price, a cigarette smoker may prefer the
old brand because of its addictive formulation.[17] As a result, even if we were to assume that
the classification freeze provision distorts the pricing scheme of the market players, it is not clear whether
a substantial barrier to the entry of new players would thereby be created because of these other factors
affecting consumer behavior.
Last, the claim that the assailed provisions encourage predatory pricing was never raised nor
substantiated before the trial court. It is merely an afterthought and cannot be given weight.
In sum, the totality of the evidence presented by petitioner before the trial court failed to
convincingly establish the alleged violation of the constitutional prohibition on unfair competition. It is a
basic postulate that the one who challenges the constitutionality of a law carries the heavy burden of proof
for laws enjoy a strong presumption of constitutionality as it is an act of a co-equal branch of
government. Petitioner failed to carry this burden.
The assailed law does not transgress the constitutional
provisions on regressive and inequitable taxation.
Petitioner argues that the classification freeze provision is a form of regressive and inequitable tax
system which is proscribed under Article VI, Section 28(1) [18]of the Constitution. It claims that people in
equal positions should be treated alike. The use of different tax bases for brands under Annex D vis--vis
new brands is discriminatory, and thus, iniquitous. Petitioner further posits that the classification freeze
provision is regressive in character. It asserts that the harmonization of revenue flow projections and ease
of tax administration cannot override this constitutional command.
We note that the points raised by petitioner with respect to alleged inequitable taxation
perpetuated by the classification freeze provision are a mere reformulation of its equal protection
challenge. As stated earlier, the assailed provisions do not infringe the equal protection clause because the

239

four-fold test is satisfied. In particular, the classification freeze provision has been found to rationally
further legitimate State interests consistent with rationality review. Petitioners repackaged argument has,
therefore, no merit.
Anent the issue of regressivity, it may be conceded that the assailed law imposes an excise tax on
cigarettes which is a form of indirect tax, and thus, regressive in character. While there was an attempt to
make the imposition of the excise tax more equitable by creating a four-tiered taxation system where
higher priced cigarettes are taxed at a higher rate, still, every consumer, whether rich or poor, of a
cigarette brand within a specific tax bracket pays the same tax rate. To this extent, the tax does not take
into account the persons ability to pay. Nevertheless, this does not mean that the assailed law may be
declared unconstitutional for being regressive in character because the Constitution does not prohibit the
imposition of indirect taxes but merely provides that Congress shall evolve a progressive system of
taxation. As we explained in Tolentino v. Secretary of Finance:[19]
[R]egressivity is not a negative standard for courts to enforce. What Congress is required by
the Constitution to do is to "evolve a progressive system of taxation." This is a directive to
Congress, just like the directive to it to give priority to the enactment of laws for the
enhancement of human dignity and the reduction of social, economic and political
inequalities [Art. XIII, Section 1] or for the promotion of the right to "quality education" [Art.
XIV, Section 1]. These provisions are put in the Constitution as moral incentives to
legislation, not as judicially enforceable rights. [20]
Petitioner is not entitled to a downward reclassification
of Lucky Strike.
Petitioner alleges that assuming the assailed law is constitutional, its Lucky Strike brand should be
reclassified from the premium-priced to the high-priced tax bracket. Relying on BIR Ruling No. 018-2001
dated May 10, 2001, it claims that it timely sought redress from the BIR to have the market survey
conducted within three months from product launch, as provided for under Section 4(B) [21] of Revenue
Regulations No. 1-97, in order to determine the actual current net retail price of Lucky Strike, and thus, fix
its tax classification. Further, the upward reclassification of Lucky Strike amounts to deprivation of property
right without due process of law. The conduct of the market survey after two years from product launch
constitutes gross neglect on the part of the BIR. Consequently, for failure of the BIR to conduct a timely
market survey, Lucky Strikes classification based on its suggested gross retail price should be deemed its
official tax classification. Finally, petitioner asserts that had the market survey been timely conducted
sometime in 2001, the current net retail price of Lucky Strike would have been found to be under the highpriced tax bracket.
These contentions are untenable and misleading.
First, BIR Ruling No. 018-2001 was requested by petitioner for the purpose of fixing Lucky Strikes
initial tax classification based on its suggested gross retail price relative to its planned introduction of
Lucky Strike in the market sometime in 2001 and not for the conduct of the market survey within three
months from product launch. In fact, the said Ruling contained an express reservation that the tax
classification of Lucky Strike set therein is without prejudice, however, to the subsequent conduct of a
survey x x x in order to determine if the actual gross retail price thereof is consistent with [petitioners]
suggested gross retail price.[22] In short, petitioner acknowledged that the initial tax classification of Lucky
Strike may be modified depending on the outcome of the survey which will determine the actual current
net retail price of Lucky Strike in the market.
Second, there was no upward reclassification of Lucky Strike because it was taxed based on its
suggested gross retail price from the time of its introduction in the market in 2001 until the BIR market
survey in 2003. We reiterate that Lucky Strikes actual current net retail price was surveyed for the first
time in 2003 and was found to be from P10.34 to P11.53 per pack, which is within the premium-priced tax
bracket. There was, thus, no prohibited upward reclassification of Lucky Strike by the BIR based on its
current net retail price.
Third, the failure of the BIR to conduct the market survey within the three-month period under the
revenue regulations then in force can in no way make the initial tax classification of Lucky Strike based on
its suggested gross retail price permanent. Otherwise, this would contravene the clear mandate of the law
which provides that the basis for the tax classification of a new brand shall be the current net retail price
and not the suggested gross retail price. It is a basic principle of law that the State cannot be estopped by
the mistakes of its agents.
Last, the issue of timeliness of the market survey was never raised before the trial court because
petitioners theory of the case was wholly anchored on the alleged unconstitutionality of the classification
freeze provision. As a consequence, no documentary evidence as to the actual net retail price of Lucky
Strike in 2001, based on a market survey at least comparable to the one mandated by law, was presented
before the trial court. Evidently, it cannot be assumed that had the BIR conducted the market survey
within three months from its product launch sometime in 2001, Lucky Strike would have been found to fall

240

under the high-priced tax bracket and not the premium-priced tax bracket. To so hold would run roughshod
over the States right to due process. Verily, petitioner prosecuted its case before the trial court solely on
the theory that the assailed law is unconstitutional instead of merely challenging the timeliness of the
market survey. The rule is that a party is bound by the theory he adopts and by the cause of action he
stands on. He cannot be permitted after having lost thereon to repudiate his theory and cause of action,
and thereafter, adopt another and seek to re-litigate the matter anew either in the same forum or on
appeal.[23] Having pursued one theory and lost thereon, petitioner may no longer pursue another
inconsistent theory without thereby trifling with court processes and burdening the courts with endless
litigation.
WHEREFORE, the motion for reconsideration is DENIED.
SO ORDERED.

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


ANTERO M. SISON, JR., petitioner,
vs.
RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue; ROMULO VILLA, Deputy
Commissioner, Bureau of Internal Revenue; TOMAS TOLEDO Deputy Commissioner, Bureau of
Internal Revenue; MANUEL ALBA, Minister of Budget, FRANCISCO TANTUICO, Chairman,
Commissioner on Audit, and CESAR E. A. VIRATA, Minister of Finance, respondents.
Antero Sison for petitioner and for his own behalf.
The Solicitor General for respondents.

FERNANDO, C.J.:
The success of the challenge posed in this suit for declaratory relief or prohibition proceeding 1 on the
validity of Section I of Batas Pambansa Blg. 135 depends upon a showing of its constitutional infirmity. The
assailed provision further amends Section 21 of the National Internal Revenue Code of 1977, which
provides for rates of tax on citizens or residents on (a) taxable compensation income, (b) taxable net
income, (c) royalties, prizes, and other winnings, (d) interest from bank deposits and yield or any other
monetary benefit from deposit substitutes and from trust fund and similar arrangements, (e) dividends and
share of individual partner in the net profits of taxable partnership, (f) adjusted gross
income. 2 Petitioner 3as taxpayer alleges that by virtue thereof, "he would be unduly discriminated against
by the imposition of higher rates of tax upon his income arising from the exercise of his profession vis-avis those which are imposed upon fixed income or salaried individual taxpayers. 4 He characterizes the
above sction as arbitrary amounting to class legislation, oppressive and capricious in character 5 For
petitioner, therefore, there is a transgression of both the equal protection and due process clauses 6 of the
Constitution as well as of the rule requiring uniformity in taxation. 7
The Court, in a resolution of January 26, 1982, required respondents to file an answer within 10 days from
notice. Such an answer, after two extensions were granted the Office of the Solicitor General, was filed on
May 28, 1982. 8 The facts as alleged were admitted but not the allegations which to their mind are "mere
arguments, opinions or conclusions on the part of the petitioner, the truth [for them] being those stated [in
their] Special and Affirmative Defenses." 9 The answer then affirmed: "Batas Pambansa Big. 135 is a valid
exercise of the State's power to tax. The authorities and cases cited while correctly quoted or paraghraph
do not support petitioner's stand." 10 The prayer is for the dismissal of the petition for lack of merit.
This Court finds such a plea more than justified. The petition must be dismissed.
1. It is manifest that the field of state activity has assumed a much wider scope, The reason was so clearly
set forth by retired Chief Justice Makalintal thus: "The areas which used to be left to private enterprise and
initiative and which the government was called upon to enter optionally, and only 'because it was better
equipped to administer for the public welfare than is any private individual or group of individuals,'
continue to lose their well-defined boundaries and to be absorbed within activities that the government
must undertake in its sovereign capacity if it is to meet the increasing social challenges of the
times." 11 Hence the need for more revenues. The power to tax, an inherent prerogative, has to be availed
of to assure the performance of vital state functions. It is the source of the bulk of public funds. To

241

praphrase a recent decision, taxes being the lifeblood of the government, their prompt and certain
availability is of the essence. 12
2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is the
strongest of all the powers of of government." 13 It is, of course, to be admitted that for all its plenitude
'the power to tax is not unconfined. There are restrictions. The Constitution sets forth such limits .
Adversely affecting as it does properly rights, both the due process and equal protection clauses inay
properly be invoked, all petitioner does, to invalidate in appropriate cases a revenue measure. if it were
otherwise, there would -be truth to the 1803 dictum of Chief Justice Marshall that "the power to tax
involves the power to destroy." 14 In a separate opinion in Graves v. New York, 15 Justice Frankfurter, after
referring to it as an 1, unfortunate remark characterized it as "a flourish of rhetoric [attributable to] the
intellectual fashion of the times following] a free use of absolutes." 16 This is merely to emphasize that it
is riot and there cannot be such a constitutional mandate. Justice Frankfurter could rightfully conclude:
"The web of unreality spun from Marshall's famous dictum was brushed away by one stroke of Mr. Justice
Holmess pen: 'The power to tax is not the power to destroy while this Court sits." 17 So it is in the
Philippines.
3. This Court then is left with no choice. The Constitution as the fundamental law overrides any legislative
or executive, act that runs counter to it. In any case therefore where it can be demonstrated that the
challenged statutory provision as petitioner here alleges fails to abide by its command, then this
Court must so declare and adjudge it null. The injury thus is centered on the question of whether the
imposition of a higher tax rate on taxable net income derived from business or profession than on
compensation is constitutionally infirm.
4, The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation, as
here. does not suffice. There must be a factual foundation of such unconstitutional taint. Considering that
petitioner here would condemn such a provision as void or its face, he has not made out a case. This is
merely to adhere to the authoritative doctrine that were the due process and equal protection clauses are
invoked, considering that they arc not fixed rules but rather broad standards, there is a need for of such
persuasive character as would lead to such a conclusion. Absent such a showing, the presumption of
validity must prevail. 18
5. It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary that it
finds no support in the Constitution. An obvious example is where it can be shown to amount to the
confiscation of property. That would be a clear abuse of power. It then becomes the duty of this Court to
say that such an arbitrary act amounted to the exercise of an authority not conferred. That properly calls
for the application of the Holmes dictum. It has also been held that where the assailed tax measure is
beyond the jurisdiction of the state, or is not for a public purpose, or, in case of a retroactive statute is so
harsh and unreasonable, it is subject to attack on due process grounds. 19
6. Now for equal protection. The applicable standard to avoid the charge that there is a denial of this
constitutional mandate whether the assailed act is in the exercise of the lice power or the power of
eminent domain is to demonstrated that the governmental act assailed, far from being inspired by the
attainment of the common weal was prompted by the spirit of hostility, or at the very least, discrimination
that finds no support in reason. It suffices then that the laws operate equally and uniformly on all persons
under similar circumstances or that all persons must be treated in the same manner, the conditions not
being different, both in the privileges conferred and the liabilities imposed. Favoritism and undue
preference cannot be allowed. For the principle is that equal protection and security shall be given to every
person under circumtances which if not Identical are analogous. If law be looked upon in terms of burden
or charges, those that fall within a class should be treated in the same fashion, whatever restrictions cast
on some in the group equally binding on the rest." 20 That same formulation applies as well to taxation
measures. The equal protection clause is, of course, inspired by the noble concept of approximating the
Ideal of the laws benefits being available to all and the affairs of men being governed by that serene and
impartial uniformity, which is of the very essence of the Idea of law. There is, however, wisdom, as well as
realism in these words of Justice Frankfurter: "The equality at which the 'equal protection' clause aims is
not a disembodied equality. The Fourteenth Amendment enjoins 'the equal protection of the laws,' and
laws are not abstract propositions. They do not relate to abstract units A, B and C, but are expressions of
policy arising out of specific difficulties, address to the attainment of specific ends by the use of specific
remedies. The Constitution does not require things which are different in fact or opinion to be treated in
law as though they were the same." 21 Hence the constant reiteration of the view that classification if
rational in character is allowable. As a matter of fact, in a leading case of Lutz V. Araneta, 22 this Court,
through Justice J.B.L. Reyes, went so far as to hold "at any rate, it is inherent in the power to tax that a

242

state be free to select the subjects of taxation, and it has been repeatedly held that 'inequalities which
result from a singling out of one particular class for taxation, or exemption infringe no constitutional
limitation.'" 23
7. Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution: "The rule of
taxation shag be uniform and equitable." 24 This requirement is met according to Justice Laurel
in Philippine Trust Company v. Yatco, 25 decided in 1940, when the tax "operates with the same force and
effect in every place where the subject may be found. " 26 He likewise added: "The rule of uniformity does
not call for perfect uniformity or perfect equality, because this is hardly attainable." 27 The problem of
classification did not present itself in that case. It did not arise until nine years later, when the Supreme
Court held: "Equality and uniformity in taxation means that all taxable articles or kinds of property of the
same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and
natural classifications for purposes of taxation, ... . 28 As clarified by Justice Tuason, where "the
differentiation" complained of "conforms to the practical dictates of justice and equity" it "is not
discriminatory within the meaning of this clause and is therefore uniform." 29 There is quite a similarity
then to the standard of equal protection for all that is required is that the tax "applies equally to all
persons, firms and corporations placed in similar situation." 30
8. Further on this point. Apparently, what misled petitioner is his failure to take into consideration the
distinction between a tax rate and a tax base. There is no legal objection to a broader tax base or taxable
income by eliminating all deductible items and at the same time reducing the applicable tax rate.
Taxpayers may be classified into different categories. To repeat, it. is enough that the classification must
rest upon substantial distinctions that make real differences. In the case of the gross income taxation
embodied in Batas Pambansa Blg. 135, the, discernible basis of classification is the susceptibility of the
income to the application of generalized rules removing all deductible items for all taxpayers within the
class and fixing a set of reduced tax rates to be applied to all of them. Taxpayers who are recipients of
compensation income are set apart as a class. As there is practically no overhead expense, these
taxpayers are e not entitled to make deductions for income tax purposes because they are in the same
situation more or less. On the other hand, in the case of professionals in the practice of their calling and
businessmen, there is no uniformity in the costs or expenses necessary to produce their income. It would
not be just then to disregard the disparities by giving all of them zero deduction and indiscriminately
impose on all alike the same tax rates on the basis of gross income. There is ample justification then for
the Batasang Pambansa to adopt the gross system of income taxation to compensation income, while
continuing the system of net income taxation as regards professional and business income.
9. Nothing can be clearer, therefore, than that the petition is without merit, considering the (1) lack of
factual foundation to show the arbitrary character of the assailed provision; 31 (2) the force of controlling
doctrines on due process, equal protection, and uniformity in taxation and (3) the reasonableness of the
distinction between compensation and taxable net income of professionals and businessman certainly not
a suspect classification,
WHEREFORE, the petition is dismissed. Costs against petitioner.
Makasiar, Concepcion, Jr., Guerero, Melencio-Herrera, Escolin, Relova, Gutierrez, Jr., De la Fuente and
Cuevas, JJ., concur.
Teehankee, J., concurs in the result.
Plana, J., took no part.

G.R. No. 99886 March 31, 1993

243

JOHN H. OSMEA, petitioner,


vs.
OSCAR ORBOS, in his capacity as Executive Secretary; JESUS ESTANISLAO, in his capacity as
Secretary of Finance; WENCESLAO DELA PAZ, in his capacity as Head of the Office of Energy
Affairs; REX V. TANTIONGCO, and the ENERGY REGULATORY BOARD, respondents.
Nachura & Sarmiento for petitioner.
The Solicitor General for public respondents.

NARVASA, C.J.:
The petitioner seeks the corrective, 1 prohibitive and coercive remedies provided by Rule 65 of the Rules of
Court, 2 upon the following posited grounds, viz.: 3

1) the invalidity of the "TRUST ACCOUNT" in the books of account of the Ministry of Energy (now, the Office
of Energy Affairs), created pursuant to 8, paragraph 1, of P.D. No. 1956, as amended, "said creation of a
trust fund being contrary to Section 29 (3), Article VI of the . . Constitution; 4

2) the unconstitutionality of 8, paragraph 1 (c) of P.D. No. 1956, as amended by Executive Order No. 137,
for "being an undue and invalid delegation of legislative power . . to the Energy Regulatory Board;" 5

3) the illegality of the reimbursements to oil companies, paid out of the Oil Price Stabilization
Fund, 6 because it contravenes 8, paragraph 2 (2) of P. D. 1956, as amended; and

4) the consequent nullity of the Order dated December 10, 1990 and the necessity of a rollback of the
pump prices and petroleum products to the levels prevailing prior to the said Order.

It will be recalled that on October 10, 1984, President Ferdinand Marcos issued P.D. 1956 creating a Special
Account in the General Fund, designated as the Oil Price Stabilization Fund (OPSF). The OPSF was designed
to reimburse oil companies for cost increases in crude oil and imported petroleum products resulting from
exchange rate adjustments and from increases in the world market prices of crude oil.

Subsequently, the OPSF was reclassified into a "trust liability account," in virtue of E.O. 1024, 7 and ordered
released from the National Treasury to the Ministry of Energy. The same Executive Order also authorized
the investment of the fund in government securities, with the earnings from such placements accruing to
the fund.

President Corazon C. Aquino, amended P.D. 1956. She promulgated Executive Order No. 137 on February
27, 1987, expanding the grounds for reimbursement to oil companies for possible cost
underrecovery incurred as a result of the reduction of domestic prices of petroleum products, the amount
of the underrecovery being left for determination by the Ministry of Finance.

244

Now, the petition alleges that the status of the OPSF as of March 31, 1991 showed a "Terminal Fund
Balance deficit" of some P12.877 billion; 8 that to abate the worsening deficit, "the Energy Regulatory
Board . . issued an Order on December 10, 1990, approving the increase in pump prices of petroleum
products," and at the rate of recoupment, the OPSF deficit should have been fully covered in a span of six
(6) months, but this notwithstanding, the respondents Oscar Orbos, in his capacity as Executive
Secretary; Jesus Estanislao, in his capacity as Secretary of Finance; Wenceslao de la Paz, in his capacity as
Head of the Office of Energy Affairs; Chairman Rex V. Tantiongco and the Energy Regulatory Board "are
poised to accept, process and pay claims not authorized under P.D. 1956." 9

The petition further avers that the creation of the trust fund violates 29(3), Article VI of the Constitution,
reading as follows:
(3) All money collected on any tax levied for a special purpose shall be treated as a special
fund and paid out for such purposes only. If the purpose for which a special fund was created
has been fulfilled or abandoned, the balance, if any, shall be transferred to the general funds
of the Government.

The petitioner argues that "the monies collected pursuant to . . P.D. 1956, as amended, must be treated as
a 'SPECIAL FUND,' not as a 'trust account' or a 'trust fund,' and that "if a special tax is collected for a
specific purpose, the revenue generated therefrom shall 'be treated as a special fund' to be used only for
the purpose indicated, and not channeled to another government objective." 10

Petitioner further points out that since "a 'special fund' consists of monies collected through the taxing
power of a State, such amounts belong to the State, although the use thereof is limited to the special
purpose/objective for which it was created." 11
He also contends that the "delegation of legislative authority" to the ERB violates 28 (2). Article VI of the
Constitution, viz.:
(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; and, inasmuch as the delegation
relates to the exercise of the power of taxation, "the limits, limitations and restrictions must
be quantitative, that is, the law must not only specify how to tax, who (shall) be taxed (and)
what the tax is for, but also impose a specific limit on how much to tax." 12

The petitioner does not suggest that a "trust account" is illegal per se, but maintains that the monies
collected, which form part of the OPSF, should be maintained in a special account of the general fund for
the reason that the Constitution so provides, and because they are, supposedly, taxes levied for a special
purpose. He assumes that the Fund is formed from a tax undoubtedly because a portion thereof is taken
from collections of ad valoremtaxes and the increases thereon.

It thus appears that the challenge posed by the petitioner is premised primarily on the view that the
powers granted to the ERB under P.D. 1956, as amended, partake of the nature of the taxation power of
the State. The Solicitor General observes that the "argument rests on the assumption that the OPSF is a
form of revenue measure drawing from a special tax to be expended for a special purpose." 13

245

The petitioner's perceptions are, in the Court's view, not quite correct.

To address this critical misgiving in the position of the petitioner on these issues, the Court recalls its
holding in Valmonte v. Energy Regulatory Board, et al. 14
The foregoing arguments suggest the presence of misconceptions about the nature and
functions of the OPSF. The OPSF is a "Trust Account" which was established "for the purpose
of minimizing the frequent price changes brought about by exchange rate adjustment and/or
changes in world market prices of crude oil and imported petroleum products." 15 Under P.D.
No. 1956, as amended by Executive Order No. 137 dated 27 February 1987, this Trust
Account may be funded from any of the following sources:

a) Any increase in the tax collection from ad valorem tax or customs duty
imposed on petroleum products subject to tax under this Decree arising from
exchange rate adjustment, as may be determined by the Minister of Finance
in consultation with the Board of Energy;

b) Any increase in the tax collection as a result of the lifting of tax exemptions
of government corporations, as may be determined by the Minister of Finance
in consultation with the Board of Energy:

c) Any additional amount to be imposed on petroleum products to augment


the resources of the Fund through an appropriate Order that may be issued by
the Board of Energy requiring payment of persons or companies engaged in
the business of importing, manufacturing and/or marketing petroleum
products;
d) Any resulting peso cost differentials in case the actual peso costs paid by
oil companies in the importation of crude oil and petroleum products is less
than the peso costs computed using the reference foreign exchange rate as
fixed by the Board of Energy.
xxx xxx xxx
The fact that the world market prices of oil, measured by the spot market in Rotterdam, vary
from day to day is of judicial notice. Freight rates for hauling crude oil and petroleum
products from sources of supply to the Philippines may also vary from time to time. The
exchange rate of the peso vis-a-vis the U.S. dollar and other convertible foreign currencies
also changes from day to day. These fluctuations in world market prices and in tanker rates
and foreign exchange rates would in a completely free market translate into corresponding
adjustments in domestic prices of oil and petroleum products with sympathetic frequency.
But domestic prices which vary from day to day or even only from week to week would
result in a chaotic market with unpredictable effects upon the country's economy in general.

The OPSF was established precisely to protect local consumers from the adverse
consequences that such frequent oil price adjustments may have upon the economy. Thus,
the OPSF serves as a pocket, as it were, into which a portion of the purchase price of oil and
petroleum products paid by consumers as well as some tax revenues are inputted and from
which amounts are drawn from time to time to reimburse oil companies, when appropriate
situations arise, for increases in, as well as underrecovery of, costs of crude importation. The
OPSF is thus a buffer mechanism through which the domestic consumer prices of oil and
petroleum products are stabilized, instead of fluctuating every so often, and oil companies

246

are allowed to recover those portions of their costs which they would not otherwise recover
given the level of domestic prices existing at any given time. To the extent that some tax
revenues are also put into it, the OPSF is in effect a device through which the domestic
prices of petroleum products are subsidized in part. It appears to the Court that the
establishment and maintenance of the OPSF is well within that pervasive and non-waivable
power and responsibility of the government to secure the physical and economic survival
and well-being of the community, that comprehensive sovereign authority we designate as
the police power of the State. The stabilization, and subsidy of domestic prices of petroleum
products and fuel oil clearly critical in importance considering, among other things, the
continuing high level of dependence of the country on imported crude oil are
appropriately regarded as public purposes.

Also of relevance is this Court's ruling in relation to the sugar stabilization fund the nature of which is not
far different from the OPSF. In Gaston v. Republic Planters Bank, 16 this Court upheld the legality of the
sugar stabilization fees and explained their nature and character, viz.:
The stabilization fees collected are in the nature of a tax, which is within the power of the
State to impose for the promotion of the sugar industry (Lutz v. Araneta, 98 Phil.
148). . . . The tax collected is not in a pure exercise of the taxing power. It is levied with a
regulatory purpose, to provide a means for the stabilization of the sugar industry. The levy is
primarily in the exercise of the police power of the State (Lutz v. Araneta, supra).
xxx xxx xxx
The stabilization fees in question are levied by the State upon sugar millers, planters and
producers for a special purpose that of "financing the growth and development of the
sugar industry and all its components, stabilization of the domestic market including the
foreign market." The fact that the State has taken possession of moneys pursuant to law is
sufficient to constitute them state funds, even though they are held for a special purpose
(Lawrence v. American Surety Co. 263 Mich. 586, 249 ALR 535, cited in 42 Am Jur Sec. 2, p.
718). Having been levied for a special purpose, the revenues collected are to be treated as a
special fund, to be, in the language of the statute, "administered in trust" for the purpose
intended. Once the purpose has been fulfilled or abandoned, the balance if any, is to be
transferred to the general funds of the Government. That is the essence of the trust
intended (SEE 1987 Constitution, Article VI, Sec. 29(3), lifted from the 1935 Constitution,
Article VI, Sec. 23(1). 17

The character of the Stabilization Fund as a special kind of fund is emphasized by the fact
that the funds are deposited in the Philippine National Bank and not in the Philippine
Treasury, moneys from which may be paid out only in pursuance of an appropriation made
by law (1987) Constitution, Article VI, Sec. 29 (3), lifted from the 1935 Constitution, Article
VI, Sec. 23(1). (Emphasis supplied).

Hence, it seems clear that while the funds collected may be referred to as taxes, they are exacted in the
exercise of the police power of the State. Moreover, that the OPSF is a special fund is plain from the special
treatment given it by E.O. 137. It is segregated from the general fund; and while it is placed in what the
law refers to as a "trust liability account," the fund nonetheless remains subject to the scrutiny and review
of the COA. The Court is satisfied that these measures comply with the constitutional description of a
"special fund." Indeed, the practice is not without precedent.

With regard to the alleged undue delegation of legislative power, the Court finds that the provision
conferring the authority upon the ERB to impose additional amounts on petroleum products provides a
sufficient standard by which the authority must be exercised. In addition to the general policy of the law
to protect the local consumer by stabilizing and subsidizing domestic pump rates, 8(c) of P.D.

247

1956 18 expressly authorizes the ERB to impose additional amounts to augment the resources of
the Fund.

What petitioner would wish is the fixing of some definite, quantitative restriction, or "a specific limit on how
much to tax." 19 The Court is cited to this requirement by the petitioner on the premise that what is
involved here is the power of taxation; but as already discussed, this is not the case. What is here involved
is not so much the power of taxation as police power. Although the provision authorizing the ERB to impose
additional amounts could be construed to refer to the power of taxation, it cannot be overlooked that
the overriding consideration is to enable the delegate to act with expediency in carrying out
the objectives of the law which are embraced by the police power of the State.

The interplay and constant fluctuation of the various factors involved in the determination of the price of
oil and petroleum products, and the frequently shifting need to either augment or exhaust the Fund, do not
conveniently permit the setting of fixed or rigid parameters in the law as proposed by the petitioner. To do
so would render the ERB unable to respond effectively so as to mitigate or avoid the undesirable
consequences of such fluidity. As such, the standard as it is expressed, suffices to guide the delegate in the
exercise of the delegated power, taking account of the circumstances under which it is to be exercised.

For a valid delegation of power, it is essential that the law delegating the power must be
(1) complete in itself, that is it must set forth the policy to be executed by the delegate and
(2) it must fix a standard limits of which are sufficiently determinate or determinable to which the
delegate must conform. 20
. . . As pointed out in Edu v. Ericta: "To avoid the taint of unlawful delegation, there must be
a standard, which implies at the very least that the legislature itself determines matters of
principle and lays down fundamental policy. Otherwise, the charge of complete abdication
may be hard to repel. A standard thus defines legislative policy, marks its limits, maps out
its boundaries and specifies the public agency to apply it. It indicates the circumstances
under which the legislative command is to be effected. It is the criterion by which the
legislative purpose may be carried out. Thereafter, the executive or administrative office
designated may in pursuance of the above guidelines promulgate supplemental rules and
regulations. The standard may either be express or implied. If the former, the non-delegation
objection is easily met. The standard though does not have to be spelled out specifically. It
could be implied from the policy and purpose of the act considered as a whole. 21

It would seem that from the above-quoted ruling, the petition for prohibition should fail.

The standard, as the Court has already stated, may even be implied. In that light, there can be no ground
upon which to sustain the petition, inasmuch as the challenged law sets forth a determinable standard
which guides the exercise of the power granted to the ERB. By the same token, the proper exercise of the
delegated power may be tested with ease. It seems obvious that what the law intended was to permit the
additional imposts for as long as there exists a need to protect the general public and the petroleum
industry from the adverse consequences of pump rate fluctuations. "Where the standards set up for the
guidance of an administrative officer and the action taken are in fact recorded in the orders of such officer,
so that Congress, the courts and the public are assured that the orders in the judgment of such officer
conform to the legislative standard, there is no failure in the performance of the legislative functions." 22
This Court thus finds no serious impediment to sustaining the validity of the legislation; the express
purpose for which the imposts are permitted and the general objectives and purposes of the fund are

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readily discernible, and they constitute a sufficient standard upon which the delegation of power may be
justified.

In relation to the third question respecting the illegality of the reimbursements to oil companies, paid
out of the Oil Price Stabilization Fund, because allegedly in contravention of 8, paragraph 2 (2) of P.D.
1956, amended 23 the Court finds for the petitioner.

The petition assails the payment of certain items or accounts in favor of the petroleum companies (i.e.,
inventory losses, financing charges, fuel oil sales to the National Power Corporation, etc.) because not
authorized by law. Petitioner contends that "these claims are not embraced in the enumeration in 8 of
P.D. 1956 . . since none of them was incurred 'as a result of the reduction of domestic prices of
petroleum products,'" 24 and since these items are reimbursements for which the OPSF should not have
responded, the amount of the P12.877 billion deficit "should be reduced by P5,277.2 million." 25 It is argued
"that under the principle of ejusdem generis . . . the term 'other factors' (as used in 8 of P.D. 1956) . . can
only include such 'other factors' which necessarily result in the reduction of domestic prices of petroleum
products." 26

The Solicitor General, for his part, contends that "(t)o place said (term) within the restrictive confines of
the rule of ejusdem generis would reduce (E.O. 137) to a meaningless provision."

This Court, in Caltex Philippines, Inc. v. The Honorable Commissioner on Audit, et al.,
application of ejusdem generis to paragraph 2 of 8 of P.D. 1956, viz.:

27

passed upon the

The rule of ejusdem generis states that "[w]here words follow an enumeration of persons or
things, by words of a particular and specific meaning, such general words are not to be
construed in their widest extent, but are held to be as applying only to persons or things of
the same kind or class as those specifically mentioned." 28 A reading of subparagraphs (i)
and (ii) easily discloses that they do not have a common characteristic. The first relates to
price reduction as directed by the Board of Energy while the second refers to reduction in
internal ad valorem taxes. Therefore, subparagraph (iii) cannot be limited by the
enumeration in these subparagraphs. What should be considered for purposes of
determining the "other factors" in subparagraph (iii) is the first sentence of paragraph (2) of
the Section which explicitly allows the cost underrecovery only if such were incurred as
a result of the reduction of domestic prices of petroleum products.

The Court thus holds, that the reimbursement of financing charges is not authorized by paragraph 2 of 8
of P.D. 1956, for the reason that they were not incurred as a result of the reduction of domestic prices of
petroleum products. Under the same provision, however, the payment of inventory losses is upheld as
valid, being clearly a result of domestic price reduction, when oil companies incur a cost underrecovery for
yet unsold stocks of oil in inventory acquired at a higher price.

Reimbursement for cost underrecovery from the sales of oil to the National Power Corporation is equally
permissible, not as coming within the provisions of P.D. 1956, but in virtue of other laws and regulations as
held in Caltex 29 and which have been pointed to by the Solicitor General. At any rate, doubts about the
propriety of such reimbursements have been dispelled by the enactment of R.A. 6952, establishing the
Petroleum Price Standby Fund, 2 of which specifically authorizes the reimbursement of "cost
underrecovery incurred as a result of fuel oil sales to the National Power Corporation."

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Anent the overpayment refunds mentioned by the petitioner, no substantive discussion has been
presented to show how this is prohibited by P.D. 1956. Nor has the Solicitor General taken any effort to
defend the propriety of this refund. In fine, neither of the parties, beyond the mere mention of
overpayment refunds, has at all bothered to discuss the arguments for or against the legality of the socalled overpayment refunds. To be sure, the absence of any argument for or against the validity of the
refund cannot result in its disallowance by the Court. Unless the impropriety or illegality of the
overpayment refund has been clearly and specifically shown, there can be no basis upon which to nullify
the same.
Finally, the Court finds no necessity to rule on the remaining issue, the same having been rendered moot
and academic. As of date hereof, the pump rates of gasoline have been reduced to levels below even
those prayed for in the petition.

WHEREFORE, the petition is GRANTED insofar as it prays for the nullification of the reimbursement of
financing charges, paid pursuant to E.O. 137, and DISMISSED in all other respects.
SO ORDERED.

[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 and Garden Center.
The petitioner accepts paying and non-paying patients. It also renders medical services to outpatients, 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-021-01226 (16-2518) and C-021-01231 (15-2518-A) were issued for the land and the

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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. QCBAA[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

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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]

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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]

253

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] In Congregational 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 inIntermountain 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

254

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 and exclusivelyused 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]

255

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 Appeals which 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 nonprofit 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 and P1,679,999.28 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.

256

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.

21. 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.
257

The parking was primarily for members with stickers on the windshields of their cars and they
charged P.50 for non-members. 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
258

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
259

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 not 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 (CA) 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
260

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
261

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 non-stock, 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
262

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
47
Constitution.
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 Revenue 50and 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.
263

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 to
costs.
SO ORDERED.
Davide, Jr., Vitug and Quisumbing, JJ., concur.
Bellosillo, J., Please see Dissenting Opinion.
Separate Opinions
BELLOSILLO, J., dissenting;
I vote to deny the petition. The basic rule is that the factual findings of the Court of Tax Appeals
when supported by substantial evidence will not be disturbed on appeal unless it is shown that
the court committed grave error in the appreciation of facts. 1 In the instant case, there is no
dispute as to the validity of the findings of the Court of Tax Appeals that private respondent
Young Men's Christian Association (YMCA) is an association organized and operated exclusively
for the promotion of social welfare and other non-profitable purposes, particularly the physical
and character development of the youth. 2 The enduring objectives of respondent YMCA as
reflected in its Constitution and By-laws are:
(a) To develop well-balanced Christian personality, mission in life, usefulness of individuals, and
the promotion of unity among Christians and understanding among peoples of all faiths, to the
end that the Brotherhood of Man under the Fatherhood of God may be fostered in an atmosphere
of mutual respect and understanding;
(b) To promote on equal basis the physical, mental, and spiritual welfare of the youth, with
emphasis on reverence for God, social discipline, responsibility for the common good, respect for
human dignity, and the observance of the Golden Rule;
(c) To encourage members of the Young Men's Christian Associations in the Philippines to
participate loyally in the life of their respective churches; to bring these churches closer together;
and to participate in the effort to realize the church Universal;
(d) To strengthen and coordinate the work of the Young Men's Christian Associations in the
Philippines and to foster the extension of the Youth Men's Christian Associations to new areas;
(e) To help its Member Associations develop and adopt their programs to the needs of the youth;
(f) To assist the Member Associations in developing and maintaining a high standard of
management, operation and practice; and
(g) To undertake and sponsor national and international programs and activities in pursuance of
its purposes and objectives. 3
Pursuant to these objectives, YMCA has continuously organized and undertaken throughout the
country various programs for the youth through actual workshops, seminars, training, sports and
summer camps, conferences on the cultivation of Christian moral values, drug addiction, out-ofschool youth, those with handicap and physical defects and youth alcoholism. To fulfill these
multifarious projects and attain the laudable objectives of YMCA, fund raising has become an
indispensable and integral part of the activities of the Association. YMCA derives its funds from
various sources such as membership dues, charges on the use of facilities like bowling and
billiards, lodging, interest income, parking fees, restaurant and canteen. Since the membership
264

dues are very minimal, the Association derives funds from rentals of small shops, restaurant,
canteen and parking fees. For the taxable year ending December 1980, YMCA earned gross
rental income of P676,829.00 and P44,259.00 from parking fees which became the subject of the
questioned assessment by petitioner.
The majority of this Court upheld the findings of the Court of Tax Appeals that the leasing of
petitioner's facilities to small shop owners and to restaurant and canteen operators in addition to
the operation of a parking lot are reasonably necessary for and incidental to the accomplishment
of the objectives of YMCA. 4 In fact, these facilities are leased to members in order to service
their needs and those of their guests. The rentals are minimal, such as, the rent of P300.00 for
the barbershop. With regard to parking space, there is no lot actually devoted therefor and the
parking is done only along the sides of the building. The parking is primarily for members with
car stickers but to non-members, parking fee is P0.50 only. The rentals and parking fees are just
enough to cover the operation and maintenance costs of these facilities. The earnings which
YMCA derives from these rentals and parking fees, together with the charges for lodging and use
of recreational facilities, constitute the bulk or majority of its income used to support its
programs and activities.
In its decision of 16 February 1994, the Court of Appeals thus committed grave error in departing
from the findings of the Court of Tax Appeals by declaring that the leasing of YMCA's facilities to
shop owners and restaurant operators and the operation of a parking lot are used for commercial
purposes or for profit, which fact takes YMCA outside the coverage of tax exemption. In later
granting the motion for reconsideration filed by respondent YMCA, the Court of Appeals correctly
reversed its earlier decision and upheld the findings of the Court of Tax Appeals by ruling that
YMCA is not designed for profit and the little income it derives from rentals and parking fees
helps maintain its noble existence for the fulfillment of its goals for the Christian development of
the youth.
Respondent YMCA is undoubtedly exempt from corporate income tax under the provisions of Sec.
27, pars. (g) and (h), of the National Internal Revenue Code, to wit:
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 . . . (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 . . . . 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 tax imposed under this Code.
The majority of the Court accepted petitioner's view that while the income of organizations
enumerated in Sec. 27 are exempt from income tax, such exemption does not however extend to
their income of whatever kind or character from any of their properties real or personal
regardless of the disposition made of such income; that based on the wording of the law which is
plain and simple and does not need any interpretation, any income of a tax exempt entity from
any of its properties is a taxable income; hence, the rental income derived by a tax exempt
organization from the lease of its properties is not therefore exempt from income taxation even if
such income is exclusively used for the accomplishment of its objectives.
Income derived from its property by a tax exempt organization is not absolutely taxable. Taken in
solitude, a word or phrase such as, in this case, "the income of whatever kind and character . . .
from any of their properties" might easily convey a meaning quite different from the one actually
intended and evident when a word or phrase is considered with those with which it is
associated. 5 It is a rule in statutory construction that every part of the statute must be
interpreted with reference to the context, that every part of the statute must be considered
together with the other parts and kept subservient to the general intent of the whole
265

enactment. 6 A close reading of the last paragraph of Sec. 27 of the National Internal Revenue
Code, in relation to the whole section on tax exemption of the organizations enumerated therein,
shows that the phrase "conducted for profit" in the last paragraph of Sec. 27 qualifies, limits and
describes "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" in order to make such income
taxable. It is the exception to Sec. 27 pars. (g) and (h) providing for the tax exemptions of the
income of said organizations. Hence, if such income from property or any other property is not
conducted for profit, then it is not taxable.
Even taken alone and understood according to its plain, simple and literal meaning, the word
"income" which is derived from property, real or personal, provided in the last paragraph of Sec.
27 means the amount of money coming to a person or corporation within a specified time as
profit from investment; the return in money from one's business or capital invested. 7 Income
from property also means gains and profits derived from the sale or other disposition of capital
assets; the money which any person or corporation periodically receives either as profits from
business, or as returns from investments 8 The word "income" as used in tax statutes is to be
taken in its ordinary sense as gain or profit. 9
Clearly, therefore, income derived from property whether real or personal connotes profit from
business or from investment of the same. If we are to apply the ordinary meaning of income from
property as profit to the language of the last paragraph of Sec. 27 of the NIRC, then only those
profits arising from business and investment involving property are taxable. In the instant case,
there is no question that in leasing its facilities to small shop owners and in operating parking
spaces, YMCA does not engage in any profit-making business. Both the Court of Tax Appeals, and
the Court of Appeals in its resolution of 25 September 1995, categorically found that these
activities conducted on YMCA's property were aimed not only at fulfilling the needs and
requirements of its members as part of YMCA's youth program but, more importantly, at raising
funds to finance the multifarious projects of the Association.
As the Court has ruled in one case, the fact that an educational institution charges tuition fees
and other fees for the different services it renders to the students does not in itself make the
school a profit-making enterprise that would place it beyond the purview of the law exempting it
from taxation. The mere realization of profits out of its operation does not automatically result in
the loss of an educational institution's exemption from income tax as long as no part of its profits
inures to the benefit of any stockholder or individual. 10 In order to claim exemption from income
tax, a corporation or association must show that it is organized and operated exclusively for
religious, charitable, scientific, athletic, cultural or educational purposes or for the rehabilitation
of veterans, and that no part of its income inures to the benefit of any private stockholder or
individual. 11 The main evidence of the purpose of a corporation should be its articles of
incorporation and by-laws, for such purpose is required by statute to be stated in the articles of
incorporation, and the by-laws outline the administrative organization of the corporation which,
in turn, is supposed to insure or facilitate the accomplishment of said purpose. 12
The foregoing principle applies to income derived by tax exempt corporations from their
property. The criterion or test in order to make such income taxable is when it arises from purely
profit-making business. Otherwise, when the income derived from use of property is reasonable
and incidental to the charitable, benevolent, educational or religious purpose for which the
corporation or association is created, such income should be tax-exempt.
In Hospital de San Juan de Dios, Inc. v. Pasay City

13

we held

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
266

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 . . . (W)e held that the UST 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.
In YMCA of Manila v. Collector of Internal Revenue,

14

this Court explained

It is claimed however that the institution is run as a business in that it keeps a lodging and
boarding house. It may be admitted that there are 64 persons occupying rooms in the main
building as lodgers or roomers and that they take their meals at the restaurant below. These
facts however are far from constituting a business in the ordinary acceptation of the word. In the
first place, no profit is realized by the association in any sense. In the second place it is
undoubted, as it is undisputed, that the purpose of the association is not primarily to obtain the
money which comes from the lodgers and boarders. The real purpose is to keep the membership
continually within the sphere of influence of the institution; and thereby to prevent, as far as
possible, the opportunities which vice presents to young men in foreign countries who lack home
or other similar influences.
The majority, if not all, of the income of the organizations covered by the exemption provided in
Sec. 27, pars. (g) and (h), of the NIRC are derived from their properties, real or personal. If we are
to interpret the last paragraph of Sec. 27 to the effect that all income of whatever kind from the
properties of said organization, real or personal, are taxable, even if not conducted for profit,
then Sec. 27, pars. (g) and (h), would be rendered ineffective and nugatory. As this Court
elucidated in Jesus Sacred Heart College v. Collector of Internal Revenue, 15 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. It should always strive whenever possible to have a
surplus. If the benefits of the exemption would be limited to institutions which do not hope or
propose to have such surplus, then the exemption would apply only to schools which are on the
verge of bankruptcy. Unlike 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 years, there are and there
have always been very few educational enterprises in the Philippines which are supported by
donations, and these organizations usually have a very precarious existence. 16
Finally, the non-taxability of all income and properties of educational institutions finds enduring
support in Art. XIV, Sec. 4, par. 3, of the 1987 Constitution
(3) All revenues and assets of non-stock, non-profit educational institutions used actually, directly
and exclusively for educational purposes shall be exempt from taxes and duties. Upon the
dissolution or cessation of the corporate existence of such institutions, their assets shall be
disposed of in the manner provided by law.
In YMCA of Manila v. Collector of Internal Revenue 17 this Court categorically held and found
YMCA to be an educational institution exclusively devoted to educational and charitable purposes
and not operated for profit. The purposes of the Association as set forth in its charter and
constitution are "to develop the Christian character and usefulness of its members, to improve
the spiritual, intellectual, social and physical condition of young men and to acquire, hold,
mortgage and dispose of the necessary lands, buildings and personal property for the use of said
corporation exclusively for religious, charitable and educational purposes, and not for investment
or profit." YMCA has an educational department, the aim of which is to furnish, at much less than
cost, instructions on subjects that will greatly increase the mental efficiency and wage-earning
capacity of young men, prepare them in special lines of business and offer them special lines of
study. We ruled therein that YMCA cannot be said to be an institution used exclusively for
religious purposes or an institution devoted exclusively for charitable purposes or an institution
267

devoted exclusively to educational purposes, but it can be truthfully said that it is an institution
used exclusively for all three purposes and that, as such, it is entitled to be exempted from
taxation.
Footnotes
1 Special Former Fourth Division composed of J. Nathanael P. de Pano, Jr., presiding justice
andponente; and JJ. Fidel P. Purisima (now an associate justice of the Supreme Court) and Corona
Ibay-Somera, concurring.
23 Reply Memorandum of private respondent, p. 10; rollo, p. 234.
24 "Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques,
non-profit cemeteries, and all lands, buildings, and improvements actually, directly, and
exclusively used for religious, charitable, or educational purposes shall be exempt from taxation."
(Underlining copied from Reply Memorandum of Private Respondent, p. 7; rollo, p. 231)
26 "Cemeteries, churches, and parsonages or convents appurtenant thereto, and all lands,
buildings, and improvements actually, directly, and exclusively used for religious, charitable, or
educational purposes shall be exempt from taxation."
36 "All revenue and assets of non-stock, non-profit educational institutions used actually,
directly, and exclusively for educational purposes shall b exempt from taxes and duties. Upon the
dissolution or cessation of the corporate existence of such institutions, their assets shall be
disposed of in the mannerprovided by law."
BELLOSILLO, J., dissenting;

22.

G.R. No. 188550

August 19, 2013

DEUTSCHE BANK AG MANILA BRANCH, PETITIONER,


vs.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
DECISION
SERENO, CJ.:
This is a Petition for Review1 filed by Deutsche Bank AG Manila Branch (petitioner) under Rule 45
of the 1997 Rules of Civil Procedure assailing the Court of Tax Appeals En Banc (CTA En Banc)
Decision2 dated 29 May 2009 and Resolution 3 dated 1 July 2009 in C.T.A. EB No. 456.
THE FACTS
In accordance with Section 28(A)(5)4 of the National Internal Revenue Code (NIRC) of 1997,
petitioner withheld and remitted to respondent on 21 October 2003 the amount of PHP
67,688,553.51, which represented the fifteen percent (15%) branch profit remittance tax (BPRT)
on its regular banking unit (RBU) net income remitted to Deutsche Bank Germany (DB Germany)
for 2002 and prior taxable years. 5
Believing that it made an overpayment of the BPRT, petitioner filed with the BIR Large Taxpayers
Assessment and Investigation Division on 4 October 2005 an administrative claim for refund or
issuance of its tax credit certificate in the total amount of PHP 22,562,851.17. On the same date,
268

petitioner requested from the International Tax Affairs Division (ITAD) a confirmation of its
entitlement to the preferential tax rate of 10% under the RP-Germany Tax Treaty. 6
Alleging the inaction of the BIR on its administrative claim, petitioner filed a Petition for
Review7 with the CTA on 18 October 2005. Petitioner reiterated its claim for the refund or
issuance of its tax credit certificate for the amount of PHP 22,562,851.17 representing the
alleged excess BPRT paid on branch profits remittance to DB Germany.
THE CTA SECOND DIVISION RULING8
After trial on the merits, the CTA Second Division found that petitioner indeed paid the total
amount of PHP 67,688,553.51 representing the 15% BPRT on its RBU profits amounting to PHP
451,257,023.29 for 2002 and prior taxable years. Records also disclose that for the year 2003,
petitioner remitted to DB Germany the amount of EURO 5,174,847.38 (or PHP 330,175,961.88 at
the exchange rate of PHP 63.804:1 EURO), which is net of the 15% BPRT.
However, the claim of petitioner for a refund was denied on the ground that the application for a
tax treaty relief was not filed with ITAD prior to the payment by the former of its BPRT and actual
remittance of its branch profits to DB Germany, or prior to its availment of the preferential rate of
ten percent (10%) under the RP-Germany Tax Treaty provision. The court a quo held that
petitioner violated the fifteen (15) day period mandated under Section III paragraph (2) of
Revenue Memorandum Order (RMO) No. 1-2000.
Further, the CTA Second Division relied on Mirant (Philippines) Operations Corporation (formerly
Southern Energy Asia-Pacific Operations [Phils.], Inc.) v. Commissioner of Internal
Revenue9 (Mirant) where the CTA En Banc ruled that before the benefits of the tax treaty may be
extended to a foreign corporation wishing to avail itself thereof, the latter should first invoke the
provisions of the tax treaty and prove that they indeed apply to the corporation.
THE CTA EN BANC RULING10
The CTA En Banc affirmed the CTA Second Divisions Decision dated 29 August 2008 and
Resolution dated 14 January 2009. Citing Mirant, the CTA En Banc held that a ruling from the
ITAD of the BIR must be secured prior to the availment of a preferential tax rate under a tax
treaty. Applying the principle of stare decisis et non quieta movere, the CTA En Banc took into
consideration that this Court had denied the Petition in G.R. No. 168531 filed by Mirant for failure
to sufficiently show any reversible error in the assailed judgment. 11 The CTA En Banc ruled that
once a case has been decided in one way, any other case involving exactly the same point at
issue should be decided in the same manner.
The court likewise ruled that the 15-day rule for tax treaty relief application under RMO No. 12000 cannot be relaxed for petitioner, unlike in CBK Power Company Limited v. Commissioner of
Internal Revenue.12 In that case, the rule was relaxed and the claim for refund of excess final
withholding taxes was partially granted. While it issued a ruling to CBK Power Company Limited
after the payment of withholding taxes, the ITAD did not issue any ruling to petitioner even if it
filed a request for confirmation on 4 October 2005 that the remittance of branch profits to DB
Germany is subject to a preferential tax rate of 10% pursuant to Article 10 of the RP-Germany
Tax Treaty.
ISSUE
This Court is now confronted with the issue of whether the failure to strictly comply with RMO No.
1-2000 will deprive persons or corporations of the benefit of a tax treaty.
REVENUE MEMORANDUM ORDER NO. 1-2000 issued January 4, 2000 prescribes the procedures for processing tax treaty

relief applications, amending RMO No. 10-92 dated February 1, 1992. The Order covers exclusively applications for tax
treaty relief, including claims or requests for tax exemption, preferential tax treaty rate and refund or credit of taxes on
income derived or to be derived by the taxpayer under existing tax treaties. The processing for tax treaty relief shall

269

be transferred from Law Division to the International Tax Affairs Division (ITAD). Any availment of the tax treaty relief
shall be preceded by an application by filing BIR Form No. 0901 (Application for Relief from Double Taxation) with ITAD
at least 15 days before the transaction (i.e. payment of dividends, royalties, etc.), accompanied by supporting
documents justifying the relief. Consequently, BIR Form Nos. TC 001 and TC 002 prescribed under RMO No. 10-92 are
declared obsolete. Claims for tax credit/refund pertinent to the tax treaty relief requested shall be filed with ITAD
within the two year period prescribed by Section 229 of the NIRC, as amended under RA 8424. The Tax Credit
Certificate (TCC) for this purpose shall be issued for the account of the "non-resident taxpayer/recipient of the income".
Issuance of the TCC shall be done by the Appellate Division upon receipt of endorsement memo from ITAD
recommending the issuance of such. The release of the signed TCC to the taxpayer/applicant, however, shall be done
by ITAD.

THE COURTS RULING


The Petition is meritorious.
Under Section 28(A)(5) of the NIRC, any profit remitted to its head office shall be subject to a tax
of 15% based on the total profits applied for or earmarked for remittance without any deduction
of the tax component. However, petitioner invokes paragraph 6, Article 10 of the RP-Germany
Tax Treaty, which provides that where a resident of the Federal Republic of Germany has a
branch in the Republic of the Philippines, this branch may be subjected to the branch profits
remittance tax withheld at source in accordance with Philippine law but shall not exceed 10% of
the gross amount of the profits remitted by that branch to the head office.
By virtue of the RP-Germany Tax Treaty, we are bound to extend to a branch in the Philippines,
remitting to its head office in Germany, the benefit of a preferential rate equivalent to 10% BPRT.
On the other hand, the BIR issued RMO No. 1-2000, which requires that any availment of the tax
treaty relief must be preceded by an application with ITAD at least 15 days before the
transaction. The Order was issued to streamline the processing of the application of tax treaty
relief in order to improve efficiency and service to the taxpayers. Further, it also aims to prevent
the consequences of an erroneous interpretation and/or application of the treaty provisions (i.e.,
filing a claim for a tax refund/credit for the overpayment of taxes or for deficiency tax liabilities
for underpayment).13
The crux of the controversy lies in the implementation of RMO No. 1-2000.
Petitioner argues that, considering that it has met all the conditions under Article 10 of the RPGermany Tax Treaty, the CTA erred in denying its claim solely on the basis of RMO No. 1-2000.
The filing of a tax treaty relief application is not a condition precedent to the availment of a
preferential tax rate. Further, petitioner posits that, contrary to the ruling of the CTA, Mirant is
not a binding judicial precedent to deny a claim for refund solely on the basis of noncompliance
with RMO No. 1-2000.
Respondent counters that the requirement of prior application under RMO No. 1-2000 is
mandatory in character. RMO No. 1-2000 was issued pursuant to the unquestioned authority of
the Secretary of Finance to promulgate rules and regulations for the effective implementation of
the NIRC. Thus, courts cannot ignore administrative issuances which partakes the nature of a
statute and have in their favor a presumption of legality.
The CTA ruled that prior application for a tax treaty relief is mandatory, and noncompliance with
this prerequisite is fatal to the taxpayers availment of the preferential tax rate.
We disagree.
A minute resolution is not a binding precedent
At the outset, this Courts minute resolution on Mirant is not a binding precedent. The Court has
clarified this matter in Philippine Health Care Providers, Inc. v. Commissioner of Internal
Revenue14 as follows:
270

It is true that, although contained in a minute resolution, our dismissal of the petition was a
disposition of the merits of the case. When we dismissed the petition, we effectively affirmed the
CA ruling being questioned. As a result, our ruling in that case has already become final. When a
minute resolution denies or dismisses a petition for failure to comply with formal and substantive
requirements, the challenged decision, together with its findings of fact and legal conclusions,
are deemed sustained. But what is its effect on other cases?
With respect to the same subject matter and the same issues concerning the same parties, it
constitutes res judicata. However, if other parties or another subject matter (even with the same
parties and issues) is involved, the minute resolution is not binding precedent. Thus, in CIR v.
Baier-Nickel, the Court noted that a previous case, CIR v. Baier-Nickel involving the same parties
and the same issues, was previously disposed of by the Court thru a minute resolution dated
February 17, 2003 sustaining the ruling of the CA. Nonetheless, the Court ruled that the previous
case "ha(d) no bearing" on the latter case because the two cases involved different subject
matters as they were concerned with the taxable income of different taxable years.
Besides, there are substantial, not simply formal, distinctions between a minute resolution and a
decision. The constitutional requirement under the first paragraph of Section 14, Article VIII of
the Constitution that the facts and the law on which the judgment is based must be expressed
clearly and distinctly applies only to decisions, not to minute resolutions. A minute resolution is
signed only by the clerk of court by authority of the justices, unlike a decision. It does not require
the certification of the Chief Justice. Moreover, unlike decisions, minute resolutions are not
published in the Philippine Reports. Finally, the proviso of Section 4(3) of Article VIII speaks of a
decision. Indeed, as a rule, this Court lays down doctrines or principles of law which constitute
binding precedent in a decision duly signed by the members of the Court and certified by the
Chief Justice. (Emphasis supplied)
Even if we had affirmed the CTA in Mirant, the doctrine laid down in that Decision cannot bind
this Court in cases of a similar nature. There are differences in parties, taxes, taxable periods,
and treaties involved; more importantly, the disposition of that case was made only through a
minute resolution.
Tax Treaty vs. RMO No. 1-2000
Our Constitution provides for adherence to the general principles of international law as part of
the law of the land.15The time-honored international principle of pacta sunt servanda demands
the performance in good faith of treaty obligations on the part of the states that enter into the
agreement. Every treaty in force is binding upon the parties, and obligations under the treaty
must be performed by them in good faith. 16 More importantly, treaties have the force and effect
of law in this jurisdiction.17
Tax treaties are entered into "to reconcile the national fiscal legislations of the contracting parties
and, in turn, help the taxpayer avoid simultaneous taxations in two different jurisdictions." 18 CIR
v. S.C. Johnson and Son, Inc. further clarifies that "tax conventions are drafted with a view
towards the elimination of international juridical double taxation, which is defined as the
imposition of comparable taxes in two or more states on the same taxpayer in respect of the
same subject matter and for identical periods. The apparent rationale for doing away with double
taxation is to encourage the free flow of goods and services and the movement of capital,
technology and persons between countries, conditions deemed vital in creating robust and
dynamic economies. Foreign investments will only thrive in a fairly predictable and reasonable
international investment climate and the protection against double taxation is crucial in creating
such a climate."19
Simply put, tax treaties are entered into to minimize, if not eliminate the harshness of
international juridical double taxation, which is why they are also known as double tax
treaty or double tax agreements.
271

"A state that has contracted valid international obligations is bound to make in its legislations
those modifications that may be necessary to ensure the fulfillment of the obligations
undertaken."20 Thus, laws and issuances must ensure that the reliefs granted under tax treaties
are accorded to the parties entitled thereto. The BIR must not impose additional requirements
that would negate the availment of the reliefs provided for under international agreements. More
so, when the RP-Germany Tax Treaty does not provide for any pre-requisite for the availment of
the benefits under said agreement.
Likewise, it must be stressed that there is nothing in RMO No. 1-2000 which would indicate a
deprivation of entitlement to a tax treaty relief for failure to comply with the 15-day period. We
recognize the clear intention of the BIR in implementing RMO No. 1-2000, but the CTAs outright
denial of a tax treaty relief for failure to strictly comply with the prescribed period is not in
harmony with the objectives of the contracting state to ensure that the benefits granted under
tax treaties are enjoyed by duly entitled persons or corporations.
Bearing in mind the rationale of tax treaties, the period of application for the availment of tax
treaty relief as required by RMO No. 1-2000 should not operate to divest entitlement to the relief
as it would constitute a violation of the duty required by good faith in complying with a tax treaty.
The denial of the availment of tax relief for the failure of a taxpayer to apply within the
prescribed period under the administrative issuance would impair the value of the tax treaty. At
most, the application for a tax treaty relief from the BIR should merely operate to confirm the
entitlement of the taxpayer to the relief.
The obligation to comply with a tax treaty must take precedence over the objective of RMO No.
1-2000.1wphi1 Logically, noncompliance with tax treaties has negative implications on
international relations, and unduly discourages foreign investors. While the consequences sought
to be prevented by RMO No. 1-2000 involve an administrative procedure, these may be remedied
through other system management processes, e.g., the imposition of a fine or penalty. But we
cannot totally deprive those who are entitled to the benefit of a treaty for failure to strictly
comply with an administrative issuance requiring prior application for tax treaty relief.
Prior Application vs. Claim for Refund
Again, RMO No. 1-2000 was implemented to obviate any erroneous interpretation and/or
application of the treaty provisions. The objective of the BIR is to forestall assessments against
corporations who erroneously availed themselves of the benefits of the tax treaty but are not
legally entitled thereto, as well as to save such investors from the tedious process of claims for a
refund due to an inaccurate application of the tax treaty provisions. However, as earlier
discussed, noncompliance with the 15-day period for prior application should not operate to
automatically divest entitlement to the tax treaty relief especially in claims for refund.
The underlying principle of prior application with the BIR becomes moot in refund cases, such as
the present case, where the very basis of the claim is erroneous or there is excessive payment
arising from non-availment of a tax treaty relief at the first instance. In this case, petitioner
should not be faulted for not complying with RMO No. 1-2000 prior to the transaction. It could not
have applied for a tax treaty relief within the period prescribed, or 15 days prior to the payment
of its BPRT, precisely because it erroneously paid the BPRT not on the basis of the preferential tax
rate under
the RP-Germany Tax Treaty, but on the regular rate as prescribed by the NIRC. Hence, the prior
application requirement becomes illogical. Therefore, the fact that petitioner invoked the
provisions of the RP-Germany Tax Treaty when it requested for a confirmation from the ITAD
before filing an administrative claim for a refund should be deemed substantial compliance with
RMO No. 1-2000.
Corollary thereto, Section 22921 of the NIRC provides the taxpayer a remedy for tax recovery
when there has been an erroneous payment of tax.1wphi1 The outright denial of petitioners
272

claim for a refund, on the sole ground of failure to apply for a tax treaty relief prior to the
payment of the BPRT, would defeat the purpose of Section 229.
Petitioner is entitled to a refund
It is significant to emphasize that petitioner applied though belatedly for a tax treaty relief, in
substantial compliance with RMO No. 1-2000. A ruling by the BIR would have confirmed whether
petitioner was entitled to the lower rate of 10% BPRT pursuant to the RP-Germany Tax Treaty.
Nevertheless, even without the BIR ruling, the CTA Second Division found as follows:
Based on the evidence presented, both documentary and testimonial, petitioner was able to
establish the following facts:
a. That petitioner is a branch office in the Philippines of Deutsche Bank AG, a corporation
organized and existing under the laws of the Federal Republic of Germany;
b. That on October 21, 2003, it filed its Monthly Remittance Return of Final Income Taxes
Withheld under BIR Form No. 1601-F and remitted the amount of P67,688,553.51 as branch
profits remittance tax with the BIR; and
c. That on October 29, 2003, the Bangko Sentral ng Pilipinas having issued a clearance,
petitioner remitted to Frankfurt Head Office the amount of EUR5,174,847.38 (or P330,175,961.88
at 63.804 Peso/Euro) representing its 2002 profits remittance. 22
The amount of PHP 67,688,553.51 paid by petitioner represented the 15% BPRT on its RBU net
income, due for remittance to DB Germany amounting to PHP 451,257,023.29 for 2002 and prior
taxable years.23
Likewise, both the administrative and the judicial actions were filed within the two-year
prescriptive period pursuant to Section 229 of the NIRC. 24
Clearly, there is no reason to deprive petitioner of the benefit of a preferential tax rate of 10%
BPRT in accordance with the RP-Germany Tax Treaty.
Petitioner is liable to pay only the amount of PHP 45,125,702.34 on its RBU net income
amounting to PHP 451,257,023.29 for 2002 and prior taxable years, applying the 10% BPRT.
Thus, it is proper to grant petitioner a refund ofthe difference between the PHP 67,688,553.51
(15% BPRT) and PHP 45,125,702.34 (10% BPRT) or a total of PHP 22,562,851.17.
WHEREFORE, premises considered, the instant Petition is GRANTED. Accordingly, the Court of Tax
Appeals En Banc Decision dated 29 May 2009 and Resolution dated 1 July 2009 are REVERSED
and SET ASIDE. A new one is hereby entered ordering respondent Commissioner of Internal
Revenue to refund or issue a tax credit certificate in favor of petitioner Deutsche Bank AG Manila
Branch the amount of TWENTY TWO MILLION FIVE HUNDRED SIXTY TWO THOUSAND EIGHT
HUNDRED FIFTY ONE PESOS AND SEVENTEEN CENTAVOS (PHP 22,562,851.17), Philippine
currency, representing the erroneously paid BPRT for 2002 and prior taxable years.
SO ORDERED.
MARIA LOURDES P. A. SERENO
Chief Justice, Chairperson
WE CONCUR:
TERESITA J. LEONARDO-DE CASTRO
Associate Justice
273

JOSE C. MENDOZA*
Associate Justice

LUCAS P. BERSAMIN
Associate Justice

BIENVENIDO L. REYES
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above
Decision had been reached in consultation before the case was assigned, to the writer of the
opinion of the Court's Division.
MARIA LOURDES P. A. SERENO
Chief Justice
4

SEC. 28. Rates of Income Tax on Foreign Corporations.-

(A) Tax on Resident Foreign Corporations.xxxx


(5) Tax on Branch Profits Remittances. - Any profit remitted by a branch to its head office shall be
subject to a tax of fifteen percent (15%) which shall be based on the total profits applied or
earmarked for remittance without any deduction for the tax component thereof (except those
activities which are registered with the Philippine Economic Zone Authority). The tax shall be
collected and paid in the same manner as provided in Sections 57 and 58 of this Code: Provided,
That interests, dividends, rents, royalties, including remuneration for technical services, salaries,
wages, premiums, annuities, emoluments or other fixed or determinable annual, periodic or
casual gains, profits, income and capital gains received by a foreign corporation during each
taxable year from all sources within the Philippines shall not be treated as branch profits unless
the same are effectively connected with the conduct of its trade or business in the Philippines.
9

C.T.A. EB No. 40 (CTA Case No. 6382), 7 June 2005, penned by Associate Justice Erlinda P. Uy
and concurred in by then Presiding Justice Ernesto D. Acosta, and Associate Justices Juanito C.
Castaeda Jr., Lovell R. Bautista, Caesar A. Casanova and Olga Palanca-Enriquez. The case was
affirmed by the Supreme Court in the Resolutions dated 12 November 2007 and 18 February
2008 in G.R. No. 168531; (visited 5 June 2013). Pertinent portion of Mirant provides:
"However, it must be remembered that a foreign corporation wishing to avail of the benefits of
the tax treaty should invoke the provisions of the tax treaty and prove that indeed the provisions
of the tax treaty applies to it, before the benefits may be extended to such corporation. In other
words, a resident or non-resident foreign corporation shall be taxed according to the provisions of
the National Internal Revenue Code, unless it is shown that the treaty provisions apply to the said
corporation, and that, in cases the same are applicable, the option to avail of the tax benefits
under the tax treaty has been successfully invoked.
Under Revenue Memorandum Order 01-2000 of the Bureau of Internal Revenue, it is provided
that the availment of a tax treaty provision must be preceded by an application for a tax treaty
relief with its International Tax Affairs Division (ITAD). This is to prevent any erroneous
interpretation and/or application of the treaty provisions with which the Philippines is a signatory
to. The implementation of the said Revenue Memorandum Order is in harmony with the
objectives of the contracting state to ensure that the granting of the benefits under the tax
treaties are enjoyed by the persons or corporations duly entitled to the same."
13

REVENUE MEMORANDUM ORDER NO. 01-00

SUBJECT : Procedures for Processing Tax Treaty Relief Application


274

TO : All Internal Revenue Officers and Others Concerned


I. Objectives:
This Order is issued to streamline the processing of the tax treaty relief application in order to
improve efficiency and service to the taxpayers.
Furthermore, it is to the best interest of both the taxpayer and the Bureau of Internal Revenue
that any availment of the tax treaty provisions be preceded by an application for treaty relief
with the International Tax Affairs Division (ITAD). In this way, the consequences of any erroneous
interpretation and/or application of the treaty provisions (i.e., claim for tax refund/credit for
overpayment of taxes, or deficiency tax liabilities for underpayment) can be averted before
proceeding with the transaction and or paying the tax liability covered by the tax treaty.
xxxx
III. Policies:
In order to achieve the above-mentioned objectives, the following policies shall be observed:
xxxx
2. Any availment of the tax treaty relief shall be preceded by an application by filing BIR Form
No. 0901 (Application for Relief from Double Taxation) with ITAD at least 15 days before the
transaction i.e. payment of dividends, royalties, etc., accompanied by supporting documents
justifying the relief. Consequently, BIR Form Nos. TC 001 and TC 002 prescribed under RMO 10-92
are hereby declared obsolete.
x x x x.
21

Section 229. Recovery 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, of any sum alleged to have been excessively or in any manner
wrongfully collected without authority, or of any sum alleged to have been excessively 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 filed after the expiration of two (2) 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.

23

G.R. No. 180651

July 30, 2014

NURSERY CARE CORPORATION; SHOEMART, INC.; STAR APPLIANCE CENTER, INC.; H&B,
INC.; SUPPLIES STATION, INC.; and HARDWARE WORKSHOP, INC., Petitioners,
vs.
ANTHONY ACEVEDO, in his capacity as THE TREASURER OF MANILA; and THE CITY OF
MANILA,Respondents.
DECISION

275

BERSAMIN, J.:
The issue here concerns double taxation. There is double taxation when the same taxpayer is
taxed twice when he should be taxed only once for the same purpose by the same taxing
authority within the same jurisdiction during the same taxing period, and the taxes are of the
same kind or character. Double taxation is obnoxious.
The Case
Under review are the resolution promulgated in CA-G.R. SP No. 72191 on June 18,
2007,1 whereby the Court of Appeals (CA) denied petitioners' appeal for lack of jurisdiction; and
the resolution promulgated on November 14, 2007, 2 whereby the CA denied their motion for
reconsideration for its lack of merit.
Antecedents
The City of Manila assessed and collected taxes from the individual petitioners pursuant to
Section 15 (Tax on Wholesalers, Distributors, or Dealers) and Section 17 (Tax on Retailers) of the
Revenue Code of Manila.3 At the same time, the City of Manila imposed additional taxes upon the
petitioners pursuant to Section 21 ofthe Revenue Code of Manila, 4 as amended, as a condition for
the renewal of their respective business licenses for the year 1999. Section 21 of the Revenue
Code of Manila stated:
Section 21. Tax on Business Subject to the Excise, Value-Added or Percentage Taxes under the
NIRC - On any of the following businesses and articles of commerce subject to the excise, valueadded or percentage taxes under the National Internal Revenue Code, hereinafter referred to as
NIRC, as amended, a tax of FIFTY PERCENT (50%) OF ONE PERCENT (1%) per annum on the gross
sales or receipts of the preceding calendar year is hereby imposed:
A) On person who sells goods and services in the course of trade or businesses; x x x PROVIDED,
that all registered businesses in the City of Manila already paying the aforementioned tax shall
be exempted from payment thereof.
To comply with the City of Manilas assessmentof taxes under Section 21, supra, the petitioners
paid under protest the following amounts corresponding to the first quarter of 1999, 5 to wit:
(a) Nursery Care Corporation P595,190.25
(b) Shoemart Incorporated P3,283,520.14
(c) Star Appliance Center P236,084.03
(d) H & B, Inc. P1,271,118.74
(e) Supplies Station, Inc. P239,501.25
(f) Hardware Work Shop, Inc. P609,953.24
By letter dated March 1, 1999, the petitioners formally requested the Office of the City Treasurer
for the tax credit or refund of the local business taxes paid under protest. 6 However, then City
Treasurer Anthony Acevedo (Acevedo) denied the request through his letter of March 10, 1999. 7
On April 8, 1999, the petitioners, through their representative, Cecilia R. Patricio, sought the
reconsideration of the denial of their request. 8 Still, the City Treasurer did not reconsider. 9 In the
meanwhile, Liberty Toledo succeeded Acevedo as the City Treasurer of Manila. 10

276

On April 29, 1999, the petitioners filed their respective petitions for certiorariin the Regional Trial
Court (RTC) in Manila. The petitions, docketed as Civil Cases Nos. 99-93668 to 99-93673, 11 were
initially raffled to different branches, but were soon consolidated in Branch 34. 12 After the
presiding judge of Branch 34 voluntarily inhibited himself, the consolidated cases were
transferred to Branch 23,13 but were again re-raffled to Branch 19 upon the designation of Branch
23 as a special drugs court.14
The parties agreed on and jointly submitted the following issues for the consideration and
resolution of the RTC, namely:
(a) Whether or not the collection of taxes under Section 21 of Ordinance No. 7794, as amended,
constitutes double taxation.
(b) Whether or not the failure of the petitioners to avail of the statutorily provided remedy for
their tax protest on the ground of unconstitutionality, illegality and oppressiveness under Section
187 of the Local Government Code renders the present action dismissible for non-exhaustion of
administrative remedy.15
Decision of the RTC
On April 26, 2002, the RTC rendered its decision, holding thusly:
The Court perceives of no instance of the constitutionally proscribed double taxation, in the
strict, narrow or obnoxious sense, imposed upon the petitioners under Section 15 and 17, on the
one hand, and under Section 21, on the other, of the questioned Ordinance. The tax imposed
under Section 15 and 17, as against that imposed under Section 21, are levied against different
tax objects or subject matter. The tax under Section 15 is imposed upon wholesalers, distributors
or dealers, while that under Section 17 is imposedupon retailers. In short, taxes imposed under
Section 15 and 17 is a tax on the business of wholesalers, distributors, dealers and retailers. On
the other hand, the tax imposed upon herein petitioners under Section 21 is not a tax against the
business of the petitioners (as wholesalers, distributors, dealers or retailers)but is rather a tax
against consumers or end-users of the articles sold by petitioners. This is plain from a reading of
the modifying paragraph of Section 21 which says:
"The tax shall be payable by the person paying for the services rendered and shall be paid to the
person rendering the services who is required to collect and pay the tax within twenty (20) days
after the end of each quarter." (Underscoring supplied)
In effect, the petitioners only act as the collection or withholding agent of the City while the ones
actually paying the tax are the consumers or end-users of the articles being sold by petitioners.
The taxes imposed under Sec. 21 represent additional amounts added by the business
establishment to the basic prices of its goods and services which are paid by the end-users to the
businesses. It is actually not taxes on the business of petitioners but on the consumers. Hence,
there is no double taxation in the narrow, strict or obnoxious sense,involved in the imposition of
taxes by the City of Manila under Sections 15, 17 and 21 of the questioned Ordinance. This in
effect resolves infavor of the constitutionality of the assailed sections of Ordinance No. 7807 of
the City of Manila.
Petitioners, likewise, pray the Court to direct respondents to cease and desist from implementing
Section 21 of the questioned Ordinance. That the Court cannot do, without doing away with the
mandatory provisions of Section 187 of the Local Government Code which distinctly commands
that an appeal questioning the constitutionality or legality of a tax ordinance shall not have the
effectof suspending the effectivity of the ordinance and the accrual and payment of the tax, fee
or charge levied therein. This is so because an ordinance carries with it the presumption of
validity.
xxx
277

With the foregoing findings, petitioners prayer for the refund of the amounts paid by them under
protest must, likewise, fail.
Wherefore, the petitions are dismissed. Without pronouncement as to costs.
SO ORDERED.16
The petitioners appealed to the CA.17
Ruling of the CA
On June 18, 2007, the CA deniedthe petitioners appeal, ruling as follows:
The six (6) cases were consolidated on a common question of fact and law, that is, whether the
act ofthe City Treasurer of Manila of assessing and collecting business taxes under Section 21of
Ordinance 7807, on top of other business taxes alsoassessed and collected under the previous
sections of the same ordinance is a violation of the provisions of Section 143 of the Local
Government Code.
Clearly, the disposition of the present appeal in these consolidated cases does not necessitate
the calibration of the whole evidence as there is no question or doubt as to the truth or the
falsehood of the facts obtaining herein, as both parties agree thereon. The present case involves
a question of law that would not lend itself to an examination or evaluation by this Court of the
probative value of the evidence presented.
Thus the Court is constrained todismiss the instant petition for lack of jurisdiction under Section
2,Rule 50 of the 1997 Rules on Civil Procedure which states:
"Sec. 2. Dismissal of improper appeal to the Court of Appeals. An appeal under Rule 41 taken
from the Regional Trial Court to the Court of Appeals raising only questions of law shall be
dismissed, issues purely of law not being reviewable by said court. similarly, an appeal by notice
of appeal instead of by petition for review from the appellate judgment of a Regional Trial Court
shall be dismissed.
An appeal erroneously taken tothe Court of Appeals shall not be transferred to the appropriate
court but shall be dismissed outright.
WHEREFORE, the foregoing considered, the appeal is DISMISSED.
SO ORDERED.18
The petitioners moved for reconsideration, but the CA denied their motion through the resolution
promulgated on November 14, 2007.19
Issues
The petitioners now appeal, raising the following grounds, to wit:
A.
THE COURT OF APPEALS, IN DISMISSING THE APPEAL OF THE PETITIONERS AND
DENYING THEIR MOTION FOR RECONSIDERATION, ERRED INRULING THAT THE ISSUE
INVOLVED IS A PURELY LEGAL QUESTION.
B.
THE COURT OF APPEALS ERRED IN NOT REVERSING THE DECISION OF BRANCH 19
OF THE REGIONAL TRIAL COURT OF MANILA DATED 26 APRIL 2002 DENYING
278

PETITIONERS PRAYER FOR REFUND OF THE AMOUNTS PAID BY THEM UNDER


PROTEST AND DISMISSING THE PETITION FOR CERTIORARI FILED BY THE
PETITIONERS.
C.
THE COURT OF APPEALS ERRED IN NOT RULING THAT THE ACT OF THE CITY
TREASURER OF MANILA IN IMPOSING, ASSESSING AND COLLECTING THE
ADDITIONAL BUSINESS TAX UNDER SECTION 21 OFORDINANCE NO. 7794, AS
AMENDED BY ORDINANCE NO. 7807, ALSO KNOWN AS THE REVENUE CODE OF THE
CITY OFMANILA, IS CONSTITUTIVE OF DOUBLE TAXATION AND VIOLATIVE OF THE
LOCAL GOVERNMENT CODE OF 1991.20
The main issues for resolution are, therefore, (1) whether or not the CA properly denied due
course to the appeal for raising pure questions of law; and (2) whether or not the petitioners
were entitled to the tax credit or tax refund for the taxes paid under Section 21, supra.
Ruling
The appeal is meritorious.
1.
The CA did not err in dismissing the appeal;
but the rules should be liberally applied
for the sake of justice and equity
The Rules of Courtprovides three modes of appeal from the decisions and final orders of the RTC,
namely: (1) ordinary appeal or appeal by writ of error under Rule 41, where the decisionsand final
orders were rendered in civil or criminal actions by the RTC in the exercise of original jurisdiction;
(2) petition for review under Rule 42, where the decisions and final orders were rendered by the
RTC in the exerciseof appellate jurisdiction; and (3) petition for review on certiorarito the
Supreme Court under Rule 45.21 The first mode of appeal is taken to the CA on questions of fact,
or mixed questions of fact and law. The second mode of appeal is brought to the CA on questions
of fact, of law, or mixed questions of fact and law. 22 The third mode of appeal is elevated to the
Supreme Court only on questions of law. 23
The distinction between a question oflaw and a question of fact is well established. On the one
hand, a question of law ariseswhen there is doubt as to what the law is on a certain state of
facts; on the other, there is a question of fact when the doubt arises asto the truth or falsity of
the alleged facts.24 According to Leoncio v. De Vera:25
x x x For a question to beone of law, the same must not involve an examination of the probative
value ofthe evidence presented by the litigants or any of them. The resolution of the issue must
restsolely on what the law provides on the given set of circumstances. Once it is clear that the
issue invites a review of the evidence presented, the question posed is one of fact. Thus, the test
of whether a question isone of law or offact is not the appellation given to such question by the
party raising the same; rather, it is whether the appellate court can determine the issue raised
without reviewing or evaluating the evidence, in which case, it is a question oflaw; otherwise it is
a question of fact.26
The nature of the issues to be raised on appeal can be gleaned from the appellants notice of
appeal filed in the trial court, and from the appellants brief submitted to the appellate court. 27 In
this case, the petitioners filed a notice of appeal in which they contended that the April 26, 2002
decision and the order of July 17, 2002 issued by the RTC denying their consolidated motion for
reconsideration were contrary to the facts and law obtaining in the consolidated cases. 28 In their
consolidated memorandum filed in the CA, they essentially assailed the RTCs ruling that the
279

taxes imposed on and collected from the petitioners under Section 21 of the Revenue Code of
Manila constituted double taxation in the strict, narrow or obnoxious sense. Considered together,
therefore, the notice of appeal and consolidated memorandum evidently did notraise issues that
required the reevaluation of evidence or the relevance of surrounding circumstances.
The CA rightly concluded that the petitioners thereby raised only a question of law. The dismissal
of their appeal was proper, strictly speaking, because Section 2, Rule 50 of the Rules of Court
provides that an appeal from the RTC to the CA raising only questions of law shall be dismissed;
and that an appeal erroneously taken to the CA shall be outrightly dismissed. 29
2.
Collection of taxes pursuant to Section 21 of the
Revenue Code of Manila constituted double taxation
The foregoing notwithstanding, the Court, given the circumstances obtaining herein and in light
of jurisprudence promulgated subsequent to the filing of the petition, deems it fitting and proper
to adopt a liberal approach in order to render a justand speedy disposition of the substantive
issue at hand. Hence, we resolve, bearing inmind the following pronouncement in Go v. Chaves: 30
Our rules of procedure are designed to facilitate the orderly disposition of cases and permit the
prompt disposition of unmeritorious cases which clog the court dockets and do little more than
waste the courts time. These technical and procedural rules, however, are intended to ensure,
rather than suppress, substantial justice. A deviation from their rigid enforcement may thus be
allowed, as petitioners should be given the fullest opportunity to establish the merits of their
case, rather than lose their property on mere technicalities. We held in Ong Lim Sing, Jr. v. FEB
Leasing and Finance Corporation that:
Courts have the prerogative to relax procedural rules of even the most mandatory character,
mindful of the duty to reconcile both the need to speedily put an end to litigation and the parties'
right to due process.In numerous cases, this Court has allowed liberal construction of the rules
when to do so would serve the demands of substantial justice and equity.
The petitioners point out that although Section 21 of the Revenue Code of Manila was not itself
unconstitutional or invalid, its enforcement against the petitioners constituted double taxation
because the local business taxes under Section 15 and Section 17 of the Revenue Code of Manila
were already being paid by them.31 They contend that the proviso in Section 21 exempted all
registered businesses in the City of Manila from paying the tax imposed under Section 21; 32 and
that the exemption was more in accord with Section 143 of the Local Government Code, 33 the law
that vested in the municipal and city governments the power to impose business taxes.
The respondents counter, however, that double taxation did not occur from the imposition and
collection of the tax pursuant to Section 21 of the Revenue Code of Manila; 34 that the taxes
imposed pursuant to Section 21 were in the concept of indirect taxes upon the consumers of the
goods and services sold by a business establishment; 35 and that the petitioners did not exhaust
their administrative remedies by first appealing to the Secretary of Justice to challenge the
constitutionalityor legality of the tax ordinance.36
In resolving the issue of double taxation involving Section 21 of the Revenue Code of Manila, the
Court is mindful of the ruling in City of Manila v. Coca-Cola Bottlers Philippines, Inc., 37 which has
been reiterated in Swedish Match Philippines, Inc. v. The Treasurer of the City of Manila. 38 In the
latter, the Court has held:
x x x [T]he issue of double taxation is not novel, as it has already been settled by this Court in
The City of Manila v. Coca-Cola Bottlers Philippines, Inc.,in this wise:
280

Petitioners obstinately ignore the exempting proviso in Section 21 of Tax Ordinance No. 7794, to
their own detriment.1wphi1 Said exempting proviso was precisely included in said section so as
to avoid double taxation.
Double taxation means taxingthe same property twice when it should be taxed only once; that is,
"taxing the same person twice by the same jurisdictionfor the same thing." It is obnoxious when
the taxpayer is taxed twice, when it should be but once. Otherwise described as "direct duplicate
taxation," the two taxes must be imposed on the same subject matter, for the same purpose, by
the same taxing authority, within the same jurisdiction, during the same taxing period; and the
taxes must be of the same kind or character.
Using the aforementioned test, the Court finds that there is indeed double taxation if respondent
is subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No. 7794, since these
are being imposed: (1) on the same subject matter the privilege of doing business in the City of
Manila; (2) for the same purpose to make persons conducting business within the City of Manila
contribute tocity revenues; (3) by the same taxing authority petitioner Cityof Manila; (4) within
the same taxing jurisdiction within the territorial jurisdiction of the City of Manila; (5) for the
same taxing periods per calendar year; and (6) of the same kind or character a local business
tax imposed on gross sales or receipts of the business.
The distinction petitioners attempt to make between the taxes under Sections 14 and 21 of Tax
Ordinance No. 7794 is specious. The Court revisits Section 143 of the LGC, the very source of the
power of municipalities and cities to impose a local business tax, and to which any local business
tax imposed by petitioner City of Manila must conform. It is apparent from a perusal thereof that
when a municipality or city has already imposed a business tax on manufacturers, etc.of liquors,
distilled spirits, wines, and any other article of commerce, pursuant to Section 143(a) of the LGC,
said municipality or city may no longer subject the same manufacturers, etc.to a business tax
under Section 143(h) of the same Code. Section 143(h) may be imposed only on businesses that
are subject to excise tax, VAT, or percentagetax under the NIRC, and that are "not otherwise
specified in preceding paragraphs." In the same way, businesses such as respondents, already
subject to a local business tax under Section 14 of Tax Ordinance No. 7794 [which is based on
Section 143(a) of the LGC], can no longer be made liable for local business tax under Section 21
of the same Tax Ordinance [which is based on Section 143(h) of the LGC].
Based on the foregoing reasons, petitioner should not have been subjected to taxes under
Section 21 of the ManilaRevenue Code for the fourth quarter of 2001, considering thatit had
already been paying local business tax under Section 14 of the same ordinance.
xxxx
Accordingly, respondents assessment under both Sections 14 and 21 had no basis. Petitioner is
indeed liable to pay business taxes to the City of Manila; nevertheless, considering that the
former has already paid these taxes under Section 14 of the Manila Revenue Code, it is exempt
from the same payments under Section 21 of the same code. Hence, payments made under
Section 21 must be refunded in favor of petitioner.
It is undisputed thatpetitioner paid business taxes based on Sections 14 and 21 for the fourth
quarter of 2001 in the total amount of P470,932.21. Therefore, it is entitled to a refund
of P164,552.04 corresponding to the payment under Section 21 of the Manila Revenue Code.
On the basis of the rulings in Coca-Cola Bottlers Philippines, Inc. and Swedish Match Philippines,
Inc., the Court now holds that all the elements of double taxation concurred upon the Cityof
Manilas assessment on and collection from the petitioners of taxes for the first quarter of 1999
pursuant to Section 21 of the Revenue Code of Manila.
Firstly, because Section 21 of the Revenue Code of Manila imposed the tax on a person who sold
goods and services in the course of trade or business based on a certain percentage ofhis gross
281

sales or receipts in the preceding calendar year, while Section 15 and Section 17 likewise
imposed the tax on a person who sold goods and services in the course of trade or business but
only identified such person with particularity, namely, the wholesaler, distributor or dealer
(Section 15), and the retailer (Section 17), all the taxes being imposed on the privilege of doing
business in the City of Manila in order to make the taxpayers contributeto the citys revenues
were imposed on the same subject matter and for the same purpose.
Secondly, the taxes were imposed by the same taxing authority (the City of Manila) and within
the same jurisdiction in the same taxing period (i.e., per calendar year).
Thirdly, the taxes were all in the nature of local business taxes.
We note that although Coca-Cola Bottlers Philippines, Inc. and Swedish Match Philippines, Inc.
involved Section 21 vis--vis Section 14 (Tax on Manufacturers, Assemblers and Other
Processors)39 of the Revenue Code of Manila, the legal principlesenunciated therein should
similarly apply because Section 15 (Tax on Wholesalers, Distributors, or Dealers)and Section 17
(Tax on Retailers) of the Revenue Code of Manila imposed the same nature of tax as that
imposed under Section 14, i.e., local business tax, albeit on a different subject matter or group of
taxpayers.
In fine, the imposition of the tax under Section 21 of the Revenue Code of Manila constituted
double taxation, and the taxes collected pursuant thereto must be refunded.
WHEREFORE, the Court GRANTS the petition for review on certiorari; REVERSES and SETS ASIDE
the resolutions promulgated on June 18, 2007 and November 14, 2007 in CA-G.R. SP No. 72191;
and DIRECTS the City of Manila to refund the payments made by the petitioners of the taxes
assessed and collected for the first quarter of 1999 pursuant to Section 21 of the Revenue Code
of Manila.
No pronouncement on costs of suit.
SO ORDERED.
LUCAS P. BERSAMIN
Associate Justice
WE CONCUR:
MARIA LOURDES P. A. SERENO
Chief Justice
TERESITA J. LEONARDO-DE
CASTRO
Associate Justice

MARTIN S. VILLARAMA, JR.


Associate Justice

BIENVENIDO L. REYES
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above
Decision had been reached in consultation before the case was assigned to the writer of the
opinion of the Court's Division.
MARIA LOURDES P. A. SERENO
Chief Justice

282

26

See also First Bancorp, Inc. v. Court of Appeals, G.R. No. 151132, June 22, 2006, 492 SCRA 221,
238, where the Court issued a similar explanation, to wit:
A question of fact exists when a doubt or difference arises as to the truth or falsity of alleged
facts. If the query requires a reevaluation of the credibility of witnesses or the existence or
relevance of surrounding circumstances and their relation to each other, the issue in that query
is factual. On the other hand, there is a question of law when the doubt or difference arises as to
what the law is on certain state of facts and which doesnot call for an existence of the probative
value of the evidence presented by the parties-litigants. In a case involving a question of law, the
resolution of the issue rests solely on what the law provides on the given set of circumstances.
Ordinarily, the determination of whether an appeal involves only questions of law or both
questions of law and fact is best left to the appellate court. All doubts as to the correctness of the
conclusions of the appellate court will be resolved in favor of the CA unless it commits an error or
commits a grave abuse of discretion.
33

Section 143. Tax on Business. The municipality may impose taxes on the following
businesses:
(a) On manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and
compounders of liquors, distilled spirits, and wines or manufacturers of any article of commerce
of whatever kind or nature, in accordance with the following schedule: xxx
(b) On wholesalers, distributors, or dealers in any article of commerce of whatever kind or nature
in accordance with the following schedule: xxx
(c) On exporters, and on manufacturers, millers, producers, wholesalers, distributors, dealers or
retailers of essential commodities enumerated hereunder at a rate not exceeding one-half (1/2)
of the rates prescribed under subsections (a), (b) and (d) of this Section: xxx
(d) Provided, however, That barangays shall have the exclusive power to levy taxes, as provided
under Section 152 hereof, ongross sales or receipts of the precedingcalendar year of Fifty
thousand pesos (P50,000.00) or less, in the case ofcities, and Thirty thousand pesos (P30,000) or
less, in the case of municipalities.
(e) On contractors and other independent contractors, in accordance with the following schedule:
xxx
(f) On banks and other financial institutions, at a rate not exceeding fifty percent (50%) of one
percent (1%) on the gross receipts of the preceding calendar year derived from interest,
commissions and discounts from lending activities, income from financial leasing, dividends,
rentals on property and profit from exchange or sale of property, insurance premium.
(g) On peddlers engaged in the sale of any merchandise or article of commerce, at a rate not
exceeding Fifty pesos (P50.00) per peddler annually.
(h) On any business, not otherwise specified in the preceding paragraphs, which the sanggunian
concerned may deem proper to tax: Provided, That on any business subject to the excise, valueadded or percentage tax under the National Internal Revenue Code, as amended, the rate of tax
shall not exceed two percent (2%) of gross sales or receipts of the preceding calendar year.
39

Section 14. Tax on Manufacturers, Assemblers and Other Processors. There is hereby
imposed a graduated tax on manufacturers, assemblers, repackers,processors, brewers,
distillers, rectifiers, and compounders of liquors, distilled spirits, and wines or manufacturers of
any article of commerce of whatever kind or nature, in accordance with any of the following
schedule: x x x

283

24

G.R. No. 181845

August 4, 2009

THE CITY OF MANILA, LIBERTY M. TOLEDO, in her capacity as THE TREASURER OF


MANILA and JOSEPH SANTIAGO, in his capacity as the CHIEF OF THE LICENSE DIVISION
OF
CITY
OF
MANILA, petitioners,
vs.
COCA-COLA BOTTLERS PHILIPPINES, INC., Respondent.
DECISION
CHICO-NAZARIO, J.:
This case is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Civil
Procedure seeking to review and reverse the Decision 1 dated 18 January 2008 and
Resolution2 dated 18 February 2008 of the Court of Tax Appeals en banc (CTA en banc) in C.T.A.
EB No. 307. In its assailed Decision, the CTA en banc dismissed the Petition for Review of herein
petitioners City of Manila, Liberty M. Toledo (Toledo), and Joseph Santiago (Santiago); and
affirmed the Resolutions dated 24 May 2007, 3 8 June 2007,4 and 26 July 2007,5 of the CTA First
Division in C.T.A. AC No. 31, which, in turn, dismissed the Petition for Review of petitioners in said
case for being filed out of time. In its questioned Resolution, the CTA en banc denied the Motion
for Reconsideration of petitioners.
Petitioner City of Manila is a public corporation empowered to collect and assess business taxes,
revenue fees, and permit fees, through its officers, petitioners Toledo and Santiago, in their
capacities as City Treasurer and Chief of the Licensing Division, respectively. On the other hand,
respondent Coca-Cola Bottlers Philippines, Inc. is a corporation engaged in the business of
manufacturing and selling beverages, and which maintains a sales office in the City of Manila.
The case stemmed from the following facts:
Prior to 25 February 2000, respondent had been paying the City of Manila local business tax only
under Section 14 of Tax Ordinance No. 7794, 6 being expressly exempted from the business tax
under Section 21 of the same tax ordinance. Pertinent provisions of Tax Ordinance No. 7794
provide:
Section 14. Tax on Manufacturers, Assemblers and Other Processors. There is hereby imposed
a graduated tax on manufacturers, assemblers, repackers, processors, brewers, distillers,
rectifiers, and compounders of liquors, distilled spirits, and wines or manufacturers of any article
of commerce of whatever kind or nature, in accordance with any of the following schedule:
xxxx
over P6,500,000.00 up to
P25,000,000.00 - - - - - - - - - - - - - - - - - - - P36,000.00 plus 50% of
-1%
in excess
of P6,500,000.00
xxxx
Section 21. Tax on Businesses Subject to the Excise, Value-Added or Percentage Taxes under
the NIRC. On any of the following businesses and articles of commerce subject to excise, valueadded or percentage taxes under the National Internal Revenue Code hereinafter referred to as
NIRC, as amended, a tax of FIFTY PERCENT (50%) of ONE PERCENT (1%) per annum on the gross
sales or receipts of the preceding calendar year is hereby imposed:
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(A) On persons who sell goods and services in the course of trade or business; and those who
import goods whether for business or otherwise; as provided for in Sections 100 to 103 of the
NIRC as administered and determined by the Bureau of Internal Revenue pursuant to the
pertinent provisions of the said Code.
xxxx
(D) Excisable goods subject to VAT
(1) Distilled spirits
(2) Wines
xxxx
(8) Coal and coke
(9) Fermented liquor, brewers wholesale price, excluding the ad valorem tax
xxxx
PROVIDED, that all registered businesses in the City of Manila that are already paying the
aforementioned tax shall be exempted from payment thereof.
Petitioner City of Manila subsequently approved on 25 February 2000, Tax Ordinance No.
7988,7 amending certain sections of Tax Ordinance No. 7794, particularly: (1) Section 14, by
increasing the tax rates applicable to certain establishments operating within the territorial
jurisdiction of the City of Manila; and (2) Section 21, by deleting the proviso found therein, which
stated "that all registered businesses in the City of Manila that are already paying the
aforementioned tax shall be exempted from payment thereof." Petitioner City of Manila approved
only after a year, on 22 February 2001, another tax ordinance, Tax Ordinance No. 8011,
amending Tax Ordinance No. 7988.
Tax Ordinances No. 7988 and No. 8011 were later declared by the Court null and void in CocaCola Bottlers Philippines, Inc. v. City of Manila 8 (Coca-Cola case) for the following reasons: (1) Tax
Ordinance No. 7988 was enacted in contravention of the provisions of the Local Government
Code (LGC) of 1991 and its implementing rules and regulations; and (2) Tax Ordinance No. 8011
could not cure the defects of Tax Ordinance No. 7988, which did not legally exist.
However, before the Court could declare Tax Ordinance No. 7988 and Tax Ordinance No. 8011
null and void, petitioner City of Manila assessed respondent on the basis of Section 21 of Tax
Ordinance No. 7794, as amended by the aforementioned tax ordinances, for deficiency local
business taxes, penalties, and interest, in the total amount of P18,583,932.04, for the third and
fourth quarters of the year 2000. Respondent filed a protest with petitioner Toledo on the ground
that the said assessment amounted to double taxation, as respondent was taxed twice, i.e.,
under Sections 14 and 21 of Tax Ordinance No. 7794, as amended by Tax Ordinances No. 7988
and No. 8011. Petitioner Toledo did not respond to the protest of respondent.
Consequently, respondent filed with the Regional Trial Court (RTC) of Manila, Branch 47, an action
for the cancellation of the assessment against respondent for business taxes, which was
docketed as Civil Case No. 03-107088.
On 14 July 2006, the RTC rendered a Decision 9 dismissing Civil Case No. 03-107088. The RTC
ruled that the business taxes imposed upon the respondent under Sections 14 and 21 of Tax
Ordinance No. 7988, as amended, were not of the same kind or character; therefore, there was
no double taxation. The RTC, though, in an Order 10dated 16 November 2006, granted the Motion
for Reconsideration of respondent, decreed the cancellation and withdrawal of the assessment
285

against the latter, and barred petitioners from further imposing/assessing local business taxes
against respondent under Section 21 of Tax Ordinance No. 7794, as amended by Tax Ordinance
No. 7988 and Tax Ordinance No. 8011. The 16 November 2006 Decision of the RTC was in
conformity with the ruling of this Court in the Coca-Cola case, in which Tax Ordinance No. 7988
and Tax Ordinance No. 8011 were declared null and void. The Motion for Reconsideration of
petitioners was denied by the RTC in an Order 11 dated 4 April 2007. Petitioners received a copy of
the 4 April 2007 Order of the RTC, denying their Motion for Reconsideration of the 16 November
2006 Order of the same court, on 20 April 2007.
On 4 May 2007, petitioners filed with the CTA a Motion for Extension of Time to File Petition for
Review, praying for a 15-day extension or until 20 May 2007 within which to file their Petition.
The Motion for Extension of petitioners was docketed as C.T.A. AC No. 31, raffled to the CTA First
Division.
Again, on 18 May 2007, petitioners filed, through registered mail, a Second Motion for Extension
of Time to File a Petition for Review, praying for another 10-day extension, or until 30 May 2007,
within which to file their Petition.
On 24 May 2007, however, the CTA First Division already issued a Resolution dismissing C.T.A. AC
No. 31 for failure of petitioners to timely file their Petition for Review on 20 May 2007.
Unaware of the 24 May 2007 Resolution of the CTA First Division, petitioners filed their Petition
for Review therewith on 30 May 2007 via registered mail. On 8 June 2007, the CTA First Division
issued another Resolution, reiterating the dismissal of the Petition for Review of petitioners.
Petitioners moved for the reconsideration of the foregoing Resolutions dated 24 May 2007 and 8
June 2007, but their motion was denied by the CTA First Division in a Resolution dated 26 July
2007. The CTA First Division reasoned that the Petition for Review of petitioners was not only filed
out of time -- it also failed to comply with the provisions of Section 4, Rule 5; and Sections 2 and
3, Rule 6, of the Revised Rules of the CTA.
Petitioners thereafter filed a Petition for Review before the CTA en banc, docketed as C.T.A. EB
No. 307, arguing that the CTA First Division erred in dismissing their Petition for Review in C.T.A.
AC No. 31 for being filed out of time, without considering the merits of their Petition.
The CTA en banc rendered its Decision on 18 January 2008, dismissing the Petition for Review of
petitioners and affirming the Resolutions dated 24 May 2007, 8 June 2007, and 26 July 2007 of
the CTA First Division. The CTA en banc similarly denied the Motion for Reconsideration of
petitioners in a Resolution dated 18 February 2008.
Hence, the present Petition, where petitioners raise the following issues:
I. WHETHER OR NOT PETITIONERS SUBSTANTIALLY COMPLIED WITH THE REGLEMENTARY PERIOD
TO TIMELY APPEAL THE CASE FOR REVIEW BEFORE THE [CTA DIVISION].
II. WHETHER OR NOT THE RULING OF THIS COURT IN THE EARLIER [COCA-COLA CASE] IS
DOCTRINAL AND CONTROLLING IN THE INSTANT CASE.
III. WHETHER OR NOT PETITIONER CITY OF MANILA CAN STILL ASSESS TAXES UNDER [SECTIONS]
14 AND 21 OF [TAX ORDINANCE NO. 7794, AS AMENDED].
IV. WHETHER OR NOT THE ENFORCEMENT OF [SECTION] 21 OF THE [TAX ORDINANCE NO. 7794,
AS AMENDED] CONSTITUTES DOUBLE TAXATION.
Petitioners assert that Section 1, Rule 712 of the Revised Rules of the CTA refers to certain
provisions of the Rules of Court, such as Rule 42 of the latter, and makes them applicable to the
tax court. Petitioners then cannot be faulted in relying on the provisions of Section 1, Rule 42 13 of
286

the Rules of Court as regards the period for filing a Petition for Review with the CTA in division.
Section 1, Rule 42 of the Rules of Court provides for a 15-day period, reckoned from receipt of
the adverse decision of the trial court, within which to file a Petition for Review with the Court of
Appeals. The same rule allows an additional 15-day period within which to file such a Petition;
and, only for the most compelling reasons, another extension period not to exceed 15 days.
Petitioners received on 20 April 2007 a copy of the 4 April 2007 Order of the RTC, denying their
Motion for Reconsideration of the 16 November 2006 Order of the same court. On 4 May 2007,
believing that they only had 15 days to file a Petition for Review with the CTA in division,
petitioners moved for a 15-day extension, or until 20 May 2007, within which to file said Petition.
Prior to the lapse of their first extension period, or on 18 May 2007, petitioners again moved for a
10-day extension, or until 30 May 2007, within which to file their Petition for Review. Thus, when
petitioners filed their Petition for Review with the CTA First Division on 30 May 2007, the same
was filed well within the reglementary period for doing so.
Petitioners argue in the alternative that even assuming that Section 3(a), Rule 8 14 of the Revised
Rules of the CTA governs the period for filing a Petition for Review with the CTA in division, still,
their Petition for Review was filed within the reglementary period. Petitioners call attention to the
fact that prior to the lapse of the 30-day period for filing a Petition for Review under Section 3(a),
Rule 8 of the Revised Rules of the CTA, they had already moved for a 10-day extension, or until
30 May 2007, within which to file their Petition. Petitioners claim that there was sufficient
justification in equity for the grant of the 10-day extension they requested, as the primordial
consideration should be the substantive, and not the procedural, aspect of the case. Moreover,
Section 3(a), Rule 8 of the Revised Rules of the CTA, is silent as to whether the 30-day period for
filing a Petition for Review with the CTA in division may be extended or not.
Petitioners also contend that the Coca-Cola case is not determinative of the issues in the present
case because the issue of nullity of Tax Ordinance No. 7988 and Tax Ordinance No. 8011 is not
the lis mota herein. The Coca-Cola case is not doctrinal and cannot be considered as the law of
the case.
Petitioners further insist that notwithstanding the declaration of nullity of Tax Ordinance No. 7988
and Tax Ordinance No. 8011, Tax Ordinance No. 7794 remains a valid piece of local legislation.
The nullity of Tax Ordinance No. 7988 and Tax Ordinance No. 8011 does not effectively bar
petitioners from imposing local business taxes upon respondent under Sections 14 and 21 of Tax
Ordinance No. 7794, as they were read prior to their being amended by the foregoing null and
void tax ordinances.
Petitioners finally maintain that imposing upon respondent local business taxes under both
Sections 14 and 21 of Tax Ordinance No. 7794 does not constitute direct double taxation. Section
143 of the LGC gives municipal, as well as city governments, the power to impose business
taxes, to wit:
SECTION 143. Tax on Business. The municipality may impose taxes on the following businesses:
(a) On manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and
compounders of liquors, distilled spirits, and wines or manufacturers of any article of commerce
of whatever kind or nature, in accordance with the following schedule:
xxxx
(b) On wholesalers, distributors, or dealers in any article of commerce of whatever kind or nature
in accordance with the following schedule:
xxxx

287

(c) On exporters, and on manufacturers, millers, producers, wholesalers, distributors, dealers or


retailers of essential commodities enumerated hereunder at a rate not exceeding one-half (1/2)
of the rates prescribed under subsections (a), (b) and (d) of this Section:
xxxx
Provided, however, That barangays shall have the exclusive power to levy taxes, as provided
under Section 152 hereof, on gross sales or receipts of the preceding calendar year of Fifty
thousand pesos (P50,000.00) or less, in the case of cities, and Thirty thousand pesos (P30,000)
or less, in the case of municipalities.
(e) On contractors and other independent contractors, in accordance with the following schedule:
xxxx
(f) On banks and other financial institutions, at a rate not exceeding fifty percent (50%) of one
percent (1%) on the gross receipts of the preceding calendar year derived from interest,
commissions and discounts from lending activities, income from financial leasing, dividends,
rentals on property and profit from exchange or sale of property, insurance premium.
(g) On peddlers engaged in the sale of any merchandise or article of commerce, at a rate not
exceeding Fifty pesos (P50.00) per peddler annually.
(h) On any business, not otherwise specified in the preceding paragraphs, which the sanggunian
concerned may deem proper to tax: Provided, That on any business subject to the excise, valueadded or percentage tax under the National Internal Revenue Code, as amended, the rate of tax
shall not exceed two percent (2%) of gross sales or receipts of the preceding calendar year.
Section 14 of Tax Ordinance No. 7794 imposes local business tax on manufacturers, etc. of
liquors, distilled spirits, wines, and any other article of commerce, pursuant to Section 143(a) of
the LGC. On the other hand, the local business tax under Section 21 of Tax Ordinance No. 7794 is
imposed upon persons selling goods and services in the course of trade or business, and those
importing goods for business or otherwise, who, pursuant to Section 143(h) of the LGC, are
subject to excise tax, value-added tax (VAT), or percentage tax under the National Internal
Revenue Code (NIRC). Thus, there can be no double taxation when respondent is being taxed
under both Sections 14 and 21 of Tax Ordinance No. 7794, for under the first, it is being taxed as
a manufacturer; while under the second, it is being taxed as a person selling goods in the course
of trade or business subject to excise, VAT, or percentage tax.
The Court first addresses the issue raised by petitioners concerning the period within which to
file with the CTA a Petition for Review from an adverse decision or ruling of the RTC.
The period to appeal the decision or ruling of the RTC to the CTA via a Petition for Review is
specifically governed by Section 11 of Republic Act No. 9282, 15 and Section 3(a), Rule 8 of the
Revised Rules of the CTA.
Section 11 of Republic Act No. 9282 provides:
SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. Any party adversely affected by a
decision, ruling or inaction of the Commissioner of Internal Revenue, the Commissioner of
Customs, the Secretary of Finance, the Secretary of Trade and Industry or the Secretary of
Agriculture or the Central Board of Assessment Appeals or the Regional Trial Courts may file an
Appeal with the CTA within thirty (30) days after the receipt of such decision or ruling or after the
expiration of the period fixed by law for action as referred to in Section 7(a)(2) herein.
Appeal shall be made by filing a petition for review under a procedure analogous to that provided
for under Rule 42 of the 1997 Rules of Civil Procedure with the CTA within thirty (30) days from
288

the receipt of the decision or ruling or in the case of inaction as herein provided, from the
expiration of the period fixed by law to act thereon. x x x. (Emphasis supplied.)
Section 3(a), Rule 8 of the Revised Rules of the CTA states:
SEC 3. Who may appeal; period to file petition. (a) A party adversely affected by a decision,
ruling or the inaction of the Commissioner of Internal Revenue on disputed assessments or
claims for refund of internal revenue taxes, or by a decision or ruling of the Commissioner of
Customs, the Secretary of Finance, the Secretary of Trade and Industry, the Secretary of
Agriculture, or a Regional Trial Court in the exercise of its original jurisdiction may appeal to the
Court by petition for review filed within thirty days after receipt of a copy of such decision or
ruling, or expiration of the period fixed by law for the Commissioner of Internal Revenue to act on
the disputed assessments. x x x. (Emphasis supplied.)
It is crystal clear from the afore-quoted provisions that to appeal an adverse decision or ruling of
the RTC to the CTA, the taxpayer must file a Petition for Review with the CTA within 30 days from
receipt of said adverse decision or ruling of the RTC.
It is also true that the same provisions are silent as to whether such 30-day period can be
extended or not. However, Section 11 of Republic Act No. 9282 does state that the Petition for
Review shall be filed with the CTA following the procedure analogous to Rule 42 of the Revised
Rules of Civil Procedure. Section 1, Rule 42 16 of the Revised Rules of Civil Procedure provides that
the Petition for Review of an adverse judgment or final order of the RTC must be filed with the
Court of Appeals within: (1) the original 15-day period from receipt of the judgment or final order
to be appealed; (2) an extended period of 15 days from the lapse of the original period; and (3)
only for the most compelling reasons, another extended period not to exceed 15 days from the
lapse of the first extended period.
Following by analogy Section 1, Rule 42 of the Revised Rules of Civil Procedure, the 30-day
original period for filing a Petition for Review with the CTA under Section 11 of Republic Act No.
9282, as implemented by Section 3(a), Rule 8 of the Revised Rules of the CTA, may be extended
for a period of 15 days. No further extension shall be allowed thereafter, except only for the most
compelling reasons, in which case the extended period shall not exceed 15 days.
Even the CTA en banc, in its Decision dated 18 January 2008, recognizes that the 30-day period
within which to file the Petition for Review with the CTA may, indeed, be extended, thus:
Being suppletory to R.A. 9282, the 1997 Rules of Civil Procedure allow an additional period of
fifteen (15) days for the movant to file a Petition for Review, upon Motion, and payment of the full
amount of the docket fees. A further extension of fifteen (15) days may be granted on compelling
reasons in accordance with the provision of Section 1, Rule 42 of the 1997 Rules of Civil
Procedure x x x.17
In this case, the CTA First Division did indeed err in finding that petitioners failed to file their
Petition for Review in C.T.A. AC No. 31 within the reglementary period.
From 20 April 2007, the date petitioners received a copy of the 4 April 2007 Order of the RTC,
denying their Motion for Reconsideration of the 16 November 2006 Order, petitioners had 30
days, or until 20 May 2007, within which to file their Petition for Review with the CTA. Hence, the
Motion for Extension filed by petitioners on 4 May 2007 grounded on their belief that the
reglementary period for filing their Petition for Review with the CTA was to expire on 5 May 2007,
thus, compelling them to seek an extension of 15 days, or until 20 May 2007, to file said Petition
was unnecessary and superfluous. Even without said Motion for Extension, petitioners could file
their Petition for Review until 20 May 2007, as it was still within the 30-day reglementary period
provided for under Section 11 of Republic Act No. 9282; and implemented by Section 3(a), Rule 8
of the Revised Rules of the CTA.
289

The Motion for Extension filed by the petitioners on 18 May 2007, prior to the lapse of the 30-day
reglementary period on 20 May 2007, in which they prayed for another extended period of 10
days, or until 30 May 2007, to file their Petition for Review was, in reality, only the first Motion for
Extension of petitioners. The CTA First Division should have granted the same, as it was
sanctioned by the rules of procedure. In fact, petitioners were only praying for a 10-day
extension, five days less than the 15-day extended period allowed by the rules. Thus, when
petitioners filed via registered mail their Petition for Review in C.T.A. AC No. 31 on 30 May 2007,
they were able to comply with the reglementary period for filing such a petition.
Nevertheless, there were other reasons for which the CTA First Division dismissed the Petition for
Review of petitioners in C.T.A. AC No. 31; i.e., petitioners failed to conform to Section 4 of Rule 5,
and Section 2 of Rule 6 of the Revised Rules of the CTA. The Court sustains the CTA First Division
in this regard.
Section 4, Rule 5 of the Revised Rules of the CTA requires that:
SEC. 4. Number of copies. The parties shall file eleven signed copies of every paper for cases
before the Court en banc and six signed copies for cases before a Division of the Court in
addition to the signed original copy, except as otherwise directed by the Court. Papers to be filed
in more than one case shall include one additional copy for each additional case. (Emphasis
supplied.)
Section 2, Rule 6 of the Revised Rules of the CTA further necessitates that:
SEC. 2. Petition for review; contents. The petition for review shall contain allegations showing
the jurisdiction of the Court, a concise statement of the complete facts and a summary
statement of the issues involved in the case, as well as the reasons relied upon for the review of
the challenged decision. The petition shall be verified and must contain a certification against
forum shopping as provided in Section 3, Rule 46 of the Rules of Court. A clearly legible duplicate
original or certified true copy of the decision appealed from shall be attached to the petition.
(Emphasis supplied.)
The aforesaid provisions should be read in conjunction with Section 1, Rule 7 of the Revised Rules
of the CTA, which provides:
SECTION 1. Applicability of the Rules of Court on procedure in the Court of Appeals, exception.
The procedure in the Court en banc or in Divisions in original or in appealed cases shall be the
same as those in petitions for review and appeals before the Court of Appeals pursuant to the
applicable provisions of Rules 42, 43, 44, and 46 of the Rules of Court, except as otherwise
provided for in these Rules. (Emphasis supplied.)
As found by the CTA First Division and affirmed by the CTA en banc, the Petition for Review filed
by petitioners via registered mail on 30 May 2007 consisted only of one copy and all the
attachments thereto, including the Decision dated 14 July 2006; and that the assailed Orders
dated 16 November 2006 and 4 April 2007 of the RTC in Civil Case No. 03-107088 were mere
machine copies. Evidently, petitioners did not comply at all with the requirements set forth under
Section 4, Rule 5; or with Section 2, Rule 6 of the Revised Rules of the CTA. Although the Revised
Rules of the CTA do not provide for the consequence of such non-compliance, Section 3, Rule 42
of the Rules of Court may be applied suppletorily, as allowed by Section 1, Rule 7 of the Revised
Rules of the CTA. Section 3, Rule 42 of the Rules of Court reads:
SEC. 3. Effect of failure to comply with requirements. The failure of the petitioner to comply
with any of the foregoing requirements regarding the payment of the docket and other lawful
fees, the deposit for costs, proof of service of the petition, and the contents of and the
documents which should accompany the petition shall be sufficient ground for the dismissal
thereof. (Emphasis supplied.)
290

True, petitioners subsequently submitted certified copies of the Decision dated 14 July 2006 and
assailed Orders dated 16 November 2006 and 4 April 2007 of the RTC in Civil Case No. 03107088, but a closer examination of the stamp on said documents reveals that they were
prepared and certified only on 14 August 2007, about two months and a half after the filing of
the Petition for Review by petitioners.
Petitioners never offered an explanation for their non-compliance with Section 4 of Rule 5, and
Section 2 of Rule 6 of the Revised Rules of the CTA. Hence, although the Court had, in previous
instances, relaxed the application of rules of procedure, it cannot do so in this case for lack of
any justification.
Even assuming arguendo that the Petition for Review of petitioners in C.T.A. AC No. 31 should
have been given due course by the CTA First Division, it is still dismissible for lack of merit.
Contrary to the assertions of petitioners, the Coca-Cola case is indeed applicable to the instant
case. The pivotal issue raised therein was whether Tax Ordinance No. 7988 and Tax Ordinance
No. 8011 were null and void, which this Court resolved in the affirmative. Tax Ordinance No. 7988
was declared by the Secretary of the Department of Justice (DOJ) as null and void and without
legal effect due to the failure of herein petitioner City of Manila to satisfy the requirement under
the law that said ordinance be published for three consecutive days. Petitioner City of Manila
never appealed said declaration of the DOJ Secretary; thus, it attained finality after the lapse of
the period for appeal of the same. The passage of Tax Ordinance No. 8011, amending Tax
Ordinance No. 7988, did not cure the defects of the latter, which, in any way, did not legally
exist.
By virtue of the Coca-Cola case, Tax Ordinance No. 7988 and Tax Ordinance No. 8011 are null and
void and without any legal effect. Therefore, respondent cannot be taxed and assessed under the
amendatory laws--Tax Ordinance No. 7988 and Tax Ordinance No. 8011.
Petitioners insist that even with the declaration of nullity of Tax Ordinance No. 7988 and Tax
Ordinance No. 8011, respondent could still be made liable for local business taxes under both
Sections 14 and 21 of Tax Ordinance No. 7944 as they were originally read, without the
amendment by the null and void tax ordinances.
Emphasis must be given to the fact that prior to the passage of Tax Ordinance No. 7988 and Tax
Ordinance No. 8011 by petitioner City of Manila, petitioners subjected and assessed respondent
only for the local business tax under Section 14 of Tax Ordinance No. 7794, but never under
Section 21 of the same. This was due to the clear and unambiguous proviso in Section 21 of Tax
Ordinance No. 7794, which stated that "all registered business in the City of Manila that are
already paying the aforementioned tax shall be exempted from payment thereof." The
"aforementioned tax" referred to in said proviso refers to local business tax. Stated differently,
Section 21 of Tax Ordinance No. 7794 exempts from the payment of the local business tax
imposed by said section, businesses that are already paying such tax under other sections of the
same tax ordinance. The said proviso, however, was deleted from Section 21 of Tax Ordinance
No. 7794 by Tax Ordinances No. 7988 and No. 8011. Following this deletion, petitioners began
assessing respondent for the local business tax under Section 21 of Tax Ordinance No. 7794, as
amended.1avvphi1
The Court easily infers from the foregoing circumstances that petitioners themselves believed
that prior to Tax Ordinance No. 7988 and Tax Ordinance No. 8011, respondent was exempt from
the local business tax under Section 21 of Tax Ordinance No. 7794. Hence, petitioners had to wait
for the deletion of the exempting proviso in Section 21 of Tax Ordinance No. 7794 by Tax
Ordinance No. 7988 and Tax Ordinance No. 8011 before they assessed respondent for the local
business tax under said section. Yet, with the pronouncement by this Court in the Coca-Cola case
that Tax Ordinance No. 7988 and Tax Ordinance No. 8011 were null and void and without legal
effect, then Section 21 of Tax Ordinance No. 7794, as it has been previously worded, with its
exempting proviso, is back in effect. Accordingly, respondent should not have been subjected to
291

the local business tax under Section 21 of Tax Ordinance No. 7794 for the third and fourth
quarters of 2000, given its exemption therefrom since it was already paying the local business
tax under Section 14 of the same ordinance.
Petitioners obstinately ignore the exempting proviso in Section 21 of Tax Ordinance No. 7794, to
their own detriment. Said exempting proviso was precisely included in said section so as to avoid
double taxation.
Double taxation means taxing the same property twice when it should be taxed only once; that
is, "taxing the same person twice by the same jurisdiction for the same thing." It is obnoxious
when the taxpayer is taxed twice, when it should be but once. Otherwise described as "direct
duplicate taxation," the two taxes must be imposed on the same subject matter, for the same
purpose, by the same taxing authority, within the same jurisdiction, during the same taxing
period; and the taxes must be of the same kind or character. 18
Using the aforementioned test, the Court finds that there is indeed double taxation if respondent
is subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No. 7794, since these
are being imposed: (1) on the same subject matter the privilege of doing business in the City of
Manila; (2) for the same purpose to make persons conducting business within the City of Manila
contribute to city revenues; (3) by the same taxing authority petitioner City of Manila; (4) within
the same taxing jurisdiction within the territorial jurisdiction of the City of Manila; (5) for the
same taxing periods per calendar year; and (6) of the same kind or character a local business
tax imposed on gross sales or receipts of the business.
The distinction petitioners attempt to make between the taxes under Sections 14 and 21 of Tax
Ordinance No. 7794 is specious. The Court revisits Section 143 of the LGC, the very source of the
power of municipalities and cities to impose a local business tax, and to which any local business
tax imposed by petitioner City of Manila must conform. It is apparent from a perusal thereof that
when a municipality or city has already imposed a business tax on manufacturers, etc. of liquors,
distilled spirits, wines, and any other article of commerce, pursuant to Section 143(a) of the LGC,
said municipality or city may no longer subject the same manufacturers, etc. to a business tax
under Section 143(h) of the same Code. Section 143(h) may be imposed only on businesses that
are subject to excise tax, VAT, or percentage tax under the NIRC, and that are "not otherwise
specified in preceding paragraphs." In the same way, businesses such as respondents, already
subject to a local business tax under Section 14 of Tax Ordinance No. 7794 [which is based on
Section 143(a) of the LGC], can no longer be made liable for local business tax under Section 21
of the same Tax Ordinance [which is based on Section 143(h) of the LGC].
WHEREFORE, premises considered, the instant Petition for Review on Certiorari is hereby
DENIED. No costs.
SO ORDERED.
MINITA V. CHICO-NAZARIO
Associate Justice
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
PRESBITERO J. VELASCO, JR.
Associate Justice

292

ANTONIO EDUARDO B.
NACHURA
Associate Justice

DIOSDADO M. PERALTA
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation before the case
was assigned to the writer of the opinion of the Courts Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation,
it is hereby certified that the conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice
6

Otherwise known as "Revenue Code of the City of Manila." Tax Ordinance No. 7794, as referred
to in this case, is deemed to have already incorporated the amendments previously introduced to
it by Tax Ordinance No. 7807. The Court no longer highlights the fact of the previous amendment
of Tax Ordinance No. 7794 by Tax Ordinance No. 7807, since it is not an issue in this case, and to
avoid confusion with the subsequent amendment of the former by Tax Ordinances No. 7988 and
No. 8011.
12

SEC. 1. Applicability of the Rules on procedure in the Court of Appeals, exception. The
procedure in the Court En Banc or in Divisions in original and in appealed cases shall be the
same as those in petitions for review and appeals before the Court of Appeals pursuant to the
applicable provisions of Rules 42, 43, 44 and 46 of the Rules of Court, except as otherwise
provided for in these Rules.
13

SEC. 1. How appeal taken; time for filing. A party desiring to appeal from a decision of the
Regional Trial Court rendered in the exercise of its appellate jurisdiction may file a verified
petition for review with the Court of Appeals, paying at the same time to the clerk of said court
the corresponding docket and other lawful fees, depositing the amount of P500.00 for costs, and
furnishing the Regional Trial Court and the adverse party with a copy of the petition. The petition
shall be filed and served within fifteen (15) days from notice of the decision sought to be
reviewed or of the denial of petitioners motion for new trial or reconsideration filed in due time
after judgment. Upon proper motion and the payment of the full amount of the docket and other
lawful fees and the deposit for costs before the expiration of the reglementary period, the Court
of Appeals may grant an additional period of fifteen (15) days only within which to file the
petition for review. No further extension shall be granted except for the most compelling reason
and in no case to exceed fifteen (15) days.
14

SEC. 3. Who may appeal; period to file petition. (a) A party adversely affected by a decision,
ruling or the inaction of the Commissioner of Internal Revenue on disputed assessments or
claims for refund of internal revenue taxes, or by a decision or ruling of the Commissioner of
Customs, the Secretary of Finance, the Secretary of Trade and Industry, the Secretary of
Agriculture, or a Regional Trial Court in the exercise of its original jurisdiction may appeal to the
Court by petition for review filed within thirty days after receipt of a copy of such decision or
ruling, or expiration of the period fixed by law for the Commissioner of Internal Revenue to act on
the disputed assessments. In case of inaction of the Commissioner of Internal Revenue on claims
for refund of internal revenue taxes erroneously or illegally collected, the taxpayer must file a
293

petition for review within the two-year period prescribed by law from payment or collection of the
taxes.
15

An Act Expanding the Jurisdiction of the Court of Tax Appeals (CTA), Elevating its Rank to the
Level of a Collegiate Court with Special Jurisdiction and Enlarging its Membership, Amending for
the Purpose Certain Sections of Republic Act No. 1125, as amended, Otherwise Known as the Law
Creating the Court of Tax Appeals and for Other Purposes.
16

Section 1. How appeal taken; time for filing. x x x The petition shall be filed and served within
fifteen (15) days from notice of the decision sought to be reviewed or of the denial of petitioners
motion for new trial or reconsideration filed in due time after judgment. Upon proper motion and
the payment of the full amount of the docket and other lawful fees and the deposit for costs
before the expiration of the reglementary period, the Court of Appeals may grant an additional
period of fifteen (15) days only within which to file the petition for review. No further extension
shall be granted except for the most compelling reason and in no case to exceed fifteen (15)
days.

25

G.R. No. 147188

September 14, 2004

COMMISSIONER OF INTERNAL REVENUE, petitioner,


vs.
THE ESTATE OF BENIGNO P. TODA, JR., Represented by Special Co-administrators
Lorna Kapunan and Mario Luza Bautista, respondents.
DECISION
DAVIDE, JR., C.J.:
This Court is called upon to determine in this case whether the tax planning scheme adopted by
a corporation constitutes tax evasion that would justify an assessment of deficiency income tax.
The petitioner seeks the reversal of the Decision 1 of the Court of Appeals of 31 January 2001 in
CA-G.R. SP No. 57799 affirming the 3 January 2000 Decision 2 of the Court of Tax Appeals (CTA) in
C.T.A. Case No. 5328,3 which held that the respondent Estate of Benigno P. Toda, Jr. is not liable
for the deficiency income tax of Cibeles Insurance Corporation (CIC) in the amount
of P79,099,999.22 for the year 1989, and ordered the cancellation and setting aside of the
assessment issued by Commissioner of Internal Revenue Liwayway Vinzons-Chato on 9 January
1995.
The case at bar stemmed from a Notice of Assessment sent to CIC by the Commissioner of
Internal Revenue for deficiency income tax arising from an alleged simulated sale of a 16-storey
commercial building known as Cibeles Building, situated on two parcels of land on Ayala Avenue,
Makati City.
On 2 March 1989, CIC authorized Benigno P. Toda, Jr., President and owner of 99.991% of its
issued and outstanding capital stock, to sell the Cibeles Building and the two parcels of land on
which the building stands for an amount of not less than P90 million.4
On 30 August 1989, Toda purportedly sold the property for P100 million to Rafael A. Altonaga,
who, in turn, sold the same property on the same day to Royal Match Inc. (RMI) for P200 million.
These two transactions were evidenced by Deeds of Absolute Sale notarized on the same day by
the same notary public.5
For the sale of the property to RMI, Altonaga paid capital gains tax in the amount of P10 million.6
294

On 16 April 1990, CIC filed its corporate annual income tax return 7 for the year 1989, declaring,
among other things, its gain from the sale of real property in the amount of P75,728.021. After
crediting withholding taxes of P254,497.00, it paid P26,341,2078 for its net taxable income
of P75,987,725.
On 12 July 1990, Toda sold his entire shares of stocks in CIC to Le Hun T. Choa for P12.5 million,
as evidenced by a Deed of Sale of Shares of Stocks. 9 Three and a half years later, or on 16
January 1994, Toda died.
On 29 March 1994, the Bureau of Internal Revenue (BIR) sent an assessment notice 10 and
demand letter to the CIC for deficiency income tax for the year 1989 in the amount
of P79,099,999.22.
The new CIC asked for a reconsideration, asserting that the assessment should be directed
against the old CIC, and not against the new CIC, which is owned by an entirely different set of
stockholders; moreover, Toda had undertaken to hold the buyer of his stockholdings and the CIC
free from all tax liabilities for the fiscal years 1987-1989. 11
On 27 January 1995, the Estate of Benigno P. Toda, Jr., represented by special co-administrators
Lorna Kapunan and Mario Luza Bautista, received a Notice of Assessment 12 dated 9 January 1995
from the Commissioner of Internal Revenue for deficiency income tax for the year 1989 in the
amount of P79,099,999.22, computed as follows:
Income Tax 1989
Net Income per return

P75,987,725.00

Add: Additional gain on sale of real property


taxable under ordinary corporate income but
were substituted with individual capital
gains(P200M 100M)
Total Net Taxable Income per investigation
Tax Due thereof at 35%

100,000,000.00

P175,987,725.00
P 61,595,703.75

Less: Payment already made


1. Per return

P26,595,704.
00

2. Thru Capital Gains Tax


made
by R.A. Altonaga

10,000,000.0
0

36,595,704.00

P 24,999,999.75
Add: 50% Surcharge

25% Surcharge

295

12,499,999.88
6,249,999.94

Balance of tax
due

Total

P 43,749,999.57

Add: Interest 20% from


4/16/90-4/30/94 (.808)

TOTAL AMT. DUE & COLLECTIBLE

35,349,999.65

P 79,099,999.22
============
==

The Estate thereafter filed a letter of protest. 13


In the letter dated 19 October 1995, 14 the Commissioner dismissed the protest, stating that a
fraudulent scheme was deliberately perpetuated by the CIC wholly owned and controlled by Toda
by covering up the additional gain of P100 million, which resulted in the change in the income
structure of the proceeds of the sale of the two parcels of land and the building thereon to an
individual capital gains, thus evading the higher corporate income tax rate of 35%.
On 15 February 1996, the Estate filed a petition for review 15 with the CTA alleging that the
Commissioner erred in holding the Estate liable for income tax deficiency; that the inference of
fraud of the sale of the properties is unreasonable and unsupported; and that the right of the
Commissioner to assess CIC had already prescribed.
In his Answer16 and Amended Answer,17 the Commissioner argued that the two transactions
actually constituted a single sale of the property by CIC to RMI, and that Altonaga was neither
the buyer of the property from CIC nor the seller of the same property to RMI. The additional gain
of P100 million (the difference between the second simulated sale for P200 million and the first
simulated sale for P100 million) realized by CIC was taxed at the rate of only 5% purportedly as
capital gains tax of Altonaga, instead of at the rate of 35% as corporate income tax of CIC. The
income tax return filed by CIC for 1989 with intent to evade payment of the tax was thus false or
fraudulent. Since such falsity or fraud was discovered by the BIR only on 8 March 1991, the
assessment issued on 9 January 1995 was well within the prescriptive period prescribed by
Section 223 (a) of the National Internal Revenue Code of 1986, which provides that tax may be
assessed within ten years from the discovery of the falsity or fraud. With the sale being tainted
with fraud, the separate corporate personality of CIC should be disregarded. Toda, being the
registered owner of the 99.991% shares of stock of CIC and the beneficial owner of the remaining
0.009% shares registered in the name of the individual directors of CIC, should be held liable for
the deficiency income tax, especially because the gains realized from the sale were withdrawn
by him as cash advances or paid to him as cash dividends. Since he is already dead, his estate
shall answer for his liability.
In its decision18 of 3 January 2000, the CTA held that the Commissioner failed to prove that CIC
committed fraud to deprive the government of the taxes due it. It ruled that even assuming that
a pre-conceived scheme was adopted by CIC, the same constituted mere tax avoidance, and not
tax evasion. There being no proof of fraudulent transaction, the applicable period for the BIR to
assess CIC is that prescribed in Section 203 of the NIRC of 1986, which is three years after the
last day prescribed by law for the filing of the return. Thus, the governments right to assess CIC
prescribed on 15 April 1993. The assessment issued on 9 January 1995 was, therefore, no longer
valid. The CTA also ruled that the mere ownership by Toda of 99.991% of the capital stock of CIC
was not in itself sufficient ground for piercing the separate corporate personality of CIC. Hence,
the CTA declared that the Estate is not liable for deficiency income tax of P79,099,999.22 and,
accordingly, cancelled and set aside the assessment issued by the Commissioner on 9 January
1995.

296

In its motion for reconsideration,19 the Commissioner insisted that the sale of the property owned
by CIC was the result of the connivance between Toda and Altonaga. She further alleged that the
latter was a representative, dummy, and a close business associate of the former, having held
his office in a property owned by CIC and derived his salary from a foreign corporation (Aerobin,
Inc.) duly owned by Toda for representation services rendered. The CTA denied 20 the motion for
reconsideration, prompting the Commissioner to file a petition for review 21 with the Court of
Appeals.
In its challenged Decision of 31 January 2001, the Court of Appeals affirmed the decision of the
CTA, reasoning that the CTA, being more advantageously situated and having the necessary
expertise in matters of taxation, is "better situated to determine the correctness, propriety, and
legality of the income tax assessments assailed by the Toda Estate." 22
Unsatisfied with the decision of the Court of Appeals, the Commissioner filed the present petition
invoking the following grounds:
I. THE COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENT COMMITTED NO FRAUD WITH
INTENT TO EVADE THE TAX ON THE SALE OF THE PROPERTIES OF CIBELES INSURANCE
CORPORATION.
II. THE COURT OF APPEALS ERRED IN NOT DISREGARDING THE SEPARATE CORPORATE
PERSONALITY OF CIBELES INSURANCE CORPORATION.
III. THE COURT OF APPEALS ERRED IN HOLDING THAT THE RIGHT OF PETITIONER TO ASSESS
RESPONDENT FOR DEFICIENCY INCOME TAX FOR THE YEAR 1989 HAD PRESCRIBED.
The Commissioner reiterates her arguments in her previous pleadings and insists that the sale by
CIC of the Cibeles property was in connivance with its dummy Rafael Altonaga, who was
financially incapable of purchasing it. She further points out that the documents themselves
prove the fact of fraud in that (1) the two sales were done simultaneously on the same date, 30
August 1989; (2) the Deed of Absolute Sale between Altonaga and RMI was notarized ahead of
the alleged sale between CIC and Altonaga, with the former registered in the Notarial Register of
Jocelyn H. Arreza Pabelana as Doc. 91, Page 20, Book I, Series of 1989; and the latter, as Doc.
No. 92, Page 20, Book I, Series of 1989, of the same Notary Public; (3) as early as 4 May 1989,
CIC received P40 million from RMI, and not from Altonaga. The said amount was debited by RMI
in its trial balance as of 30 June 1989 as investment in Cibeles Building. The substantial portion
of P40 million was withdrawn by Toda through the declaration of cash dividends to all its
stockholders.
For its part, respondent Estate asserts that the Commissioner failed to present the income tax
return of Altonaga to prove that the latter is financially incapable of purchasing the Cibeles
property.
To resolve the grounds raised by the Commissioner, the following questions are pertinent:
1. Is this a case of tax evasion or tax avoidance?
2. Has the period for assessment of deficiency income tax for the year 1989 prescribed? and
3. Can respondent Estate be held liable for the deficiency income tax of CIC for the year 1989, if
any?
We shall discuss these questions in seriatim.
Is this a case of tax evasion or tax avoidance?

297

Tax avoidance and tax evasion are the two most common ways used by taxpayers in escaping
from taxation. Tax avoidance is the tax saving device within the means sanctioned by law. This
method should be used by the taxpayer in good faith and at arms length. Tax evasion, on the
other hand, is a scheme used outside of those lawful means and when availed of, it usually
subjects the taxpayer to further or additional civil or criminal liabilities. 23
Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e., the
payment of less than that known by the taxpayer to be legally due, or the non-payment of tax
when it is shown that a tax is due; (2) an accompanying state of mind which is described as
being "evil," in "bad faith," "willfull," or "deliberate and not accidental"; and (3) a course of action
or failure of action which is unlawful.24
All these factors are present in the instant case. It is significant to note that as early as 4 May
1989, prior to the purported sale of the Cibeles property by CIC to Altonaga on 30 August 1989,
CIC received P40 million from RMI,25and not from Altonaga. That P40 million was debited by RMI
and reflected in its trial balance 26 as "other inv. Cibeles Bldg." Also, as of 31 July 1989,
another P40 million was debited and reflected in RMIs trial balance as "other inv. Cibeles Bldg."
This would show that the real buyer of the properties was RMI, and not the intermediary
Altonaga.lavvphi1.net
The investigation conducted by the BIR disclosed that Altonaga was a close business associate
and one of the many trusted corporate executives of Toda. This information was revealed by Mr.
Boy Prieto, the assistant accountant of CIC and an old timer in the company. 27 But Mr. Prieto did
not testify on this matter, hence, that information remains to be hearsay and is thus inadmissible
in evidence. It was not verified either, since the letter-request for investigation of Altonaga was
unserved,28 Altonaga having left for the United States of America in January 1990. Nevertheless,
that Altonaga was a mere conduit finds support in the admission of respondent Estate that the
sale to him was part of the tax planning scheme of CIC. That admission is borne by the records.
In its Memorandum, respondent Estate declared:
Petitioner, however, claims there was a "change of structure" of the proceeds of sale. Admitted
one hundred percent. But isnt this precisely the definition of tax planning? Change the structure
of the funds and pay a lower tax. Precisely, Sec. 40 (2) of the Tax Code exists, allowing tax free
transfers of property for stock, changing the structure of the property and the tax to be paid. As
long as it is done legally, changing the structure of a transaction to achieve a lower tax is not
against the law. It is absolutely allowed.
Tax planning is by definition to reduce, if not eliminate altogether, a tax. Surely petitioner [sic]
cannot be faulted for wanting to reduce the tax from 35% to 5%.29 [Underscoring supplied].
The scheme resorted to by CIC in making it appear that there were two sales of the subject
properties, i.e., from CIC to Altonaga, and then from Altonaga to RMI cannot be considered a
legitimate tax planning. Such scheme is tainted with fraud.
Fraud in its general sense, "is deemed to comprise anything calculated to deceive, including all
acts, omissions, and concealment involving a breach of legal or equitable duty, trust or
confidence justly reposed, resulting in the damage to another, or by which an undue and
unconscionable advantage is taken of another." 30
Here, it is obvious that the objective of the sale to Altonaga was to reduce the amount of tax to
be paid especially that the transfer from him to RMI would then subject the income to only 5%
individual capital gains tax, and not the 35% corporate income tax. Altonagas sole purpose of
acquiring and transferring title of the subject properties on the same day was to create a tax
shelter. Altonaga never controlled the property and did not enjoy the normal benefits and
burdens of ownership. The sale to him was merely a tax ploy, a sham, and without business
purpose and economic substance. Doubtless, the execution of the two sales was calculated to
mislead the BIR with the end in view of reducing the consequent income tax liability.lavvphi1.net
298

In a nutshell, the intermediary transaction, i.e., the sale of Altonaga, which was prompted more
on the mitigation of tax liabilities than for legitimate business purposes constitutes one of tax
evasion.31
Generally, a sale or exchange of assets will have an income tax incidence only when it is
consummated.32 The incidence of taxation depends upon the substance of a transaction. The tax
consequences arising from gains from a sale of property are not finally to be determined solely
by the means employed to transfer legal title. Rather, the transaction must be viewed as a
whole, and each step from the commencement of negotiations to the consummation of the sale
is relevant. A sale by one person cannot be transformed for tax purposes into a sale by another
by using the latter as a conduit through which to pass title. To permit the true nature of the
transaction to be disguised by mere formalisms, which exist solely to alter tax liabilities, would
seriously impair the effective administration of the tax policies of Congress. 33
To allow a taxpayer to deny tax liability on the ground that the sale was made through another
and distinct entity when it is proved that the latter was merely a conduit is to sanction a
circumvention of our tax laws. Hence, the sale to Altonaga should be disregarded for income tax
purposes.34 The two sale transactions should be treated as a single direct sale by CIC to RMI.
Accordingly, the tax liability of CIC is governed by then Section 24 of the NIRC of 1986, as
amended (now 27 (A) of the Tax Reform Act of 1997), which stated as follows:
Sec. 24. Rates of tax on corporations. (a) Tax on domestic corporations.- A tax is hereby
imposed upon the taxable net income received during each taxable year from all sources by
every corporation organized in, or existing under the laws of the Philippines, and partnerships, no
matter how created or organized but not including general professional partnerships, in
accordance with the following:
Twenty-five percent upon the amount by which the taxable net income does not exceed one
hundred thousand pesos; and
Thirty-five percent upon the amount by which the taxable net income exceeds one hundred
thousand pesos.
CIC is therefore liable to pay a 35% corporate tax for its taxable net income in 1989. The 5%
individual capital gains tax provided for in Section 34 (h) of the NIRC of 1986 35 (now 6% under
Section 24 (D) (1) of the Tax Reform Act of 1997) is inapplicable. Hence, the assessment for the
deficiency income tax issued by the BIR must be upheld.
Has the period of assessment prescribed?
No. Section 269 of the NIRC of 1986 (now Section 222 of the Tax Reform Act of 1997) read:
Sec. 269. Exceptions as to period of limitation of assessment and collection of taxes.-(a) In the
case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax
may be assessed, or a proceeding in court after the collection of such tax may be begun without
assessment, at any time within ten years after the discovery of the falsity, fraud or omission:
Provided, That in a fraud assessment which has become final and executory, the fact of fraud
shall be judicially taken cognizance of in the civil or criminal action for collection thereof .
Put differently, in cases of (1) fraudulent returns; (2) false returns with intent to evade tax; and
(3) failure to file a return, the period within which to assess tax is ten years from discovery of the
fraud, falsification or omission, as the case may be.
It is true that in a query dated 24 August 1989, Altonaga, through his counsel, asked the Opinion
of the BIR on the tax consequence of the two sale transactions. 36 Thus, the BIR was amply
informed of the transactions even prior to the execution of the necessary documents to effect
299

the transfer. Subsequently, the two sales were openly made with the execution of public
documents and the declaration of taxes for 1989. However, these circumstances do not negate
the existence of fraud. As earlier discussed those two transactions were tainted with fraud. And
even assuming arguendo that there was no fraud, we find that the income tax return filed by CIC
for the year 1989 was false. It did not reflect the true or actual amount gained from the sale of
the Cibeles property. Obviously, such was done with intent to evade or reduce tax liability.
As stated above, the prescriptive period to assess the correct taxes in case of false returns is ten
years from the discovery of the falsity. The false return was filed on 15 April 1990, and the falsity
thereof was claimed to have been discovered only on 8 March 1991. 37 The assessment for the
1989 deficiency income tax of CIC was issued on 9 January 1995. Clearly, the issuance of the
correct assessment for deficiency income tax was well within the prescriptive period.
Is respondent Estate liable for the 1989 deficiency income tax of Cibeles Insurance Corporation?
A corporation has a juridical personality distinct and separate from the persons owning or
composing it. Thus, the owners or stockholders of a corporation may not generally be made to
answer for the liabilities of a corporation and vice versa. There are, however, certain instances in
which personal liability may arise. It has been held in a number of cases that personal liability of
a corporate director, trustee, or officer along, albeit not necessarily, with the corporation may
validly attach when:
1. He assents to the (a) patently unlawful act of the corporation, (b) bad faith or gross negligence
in directing its affairs, or (c) conflict of interest, resulting in damages to the corporation, its
stockholders, or other persons;
2. He consents to the issuance of watered down stocks or, having knowledge thereof, does not
forthwith file with the corporate secretary his written objection thereto;
3. He agrees to hold himself personally and solidarily liable with the corporation; or
4. He is made, by specific provision of law, to personally answer for his corporate action. 38
It is worth noting that when the late Toda sold his shares of stock to Le Hun T. Choa, he knowingly
and voluntarily held himself personally liable for all the tax liabilities of CIC and the buyer for the
years 1987, 1988, and 1989. Paragraph g of the Deed of Sale of Shares of Stocks specifically
provides:
g. Except for transactions occurring in the ordinary course of business, Cibeles has no liabilities
or obligations, contingent or otherwise, for taxes, sums of money or insurance claims other than
those reported in its audited financial statement as of December 31, 1989, attached hereto as
"Annex B" and made a part hereof. The business of Cibeles has at all times been conducted in full
compliance with all applicable laws, rules and regulations. SELLER undertakes and agrees to
hold the BUYER and Cibeles free from any and all income tax liabilities of Cibeles for
the fiscal years 1987, 1988 and 1989.39 [Underscoring Supplied].
When the late Toda undertook and agreed "to hold the BUYER and Cibeles free from any all
income tax liabilities of Cibeles for the fiscal years 1987, 1988, and 1989," he thereby voluntarily
held himself personally liable therefor. Respondent estate cannot, therefore, deny liability for
CICs deficiency income tax for the year 1989 by invoking the separate corporate personality of
CIC, since its obligation arose from Todas contractual undertaking, as contained in the Deed of
Sale of Shares of Stock.
WHEREFORE, in view of all the foregoing, the petition is hereby GRANTED. The decision of the
Court of Appeals of 31 January 2001 in CA-G.R. SP No. 57799 is REVERSED and SET ASIDE, and
another one is hereby rendered ordering respondent Estate of Benigno P. Toda Jr. to
300

pay P79,099,999.22 as deficiency income tax of Cibeles Insurance Corporation for the year 1989,
plus legal interest from 1 May 1994 until the amount is fully paid.
Costs against respondent.
SO ORDERED.
Quisumbing, Ynares-Santiago, Carpio, and Azcuna, JJ., concur.
Item No. 135
Agenda OF 13 September 2004
FIRST DIVISION
FOR

CONCURRENCE

G.R. No. 147188


COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
THE ESTATE OF BENIGNO P. TODA, JR., Represented by Special Co-administrators
Lorna Kapunan and Mario Luza Bautista, respondents.
X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -X
COUNSEL FOR THE PETITIONER:
ATTY. ALBERT C. ARPON
Bureau of Internal Revenue
Rms. 703, BIR Bldg.
1104 Diliman, Quezon City
COURT OF TAX APPEALS
Quezon Avenue
1100 Quezon City
COUNSEL FOR THE RESPONDENTS:
ATTY. JOSE MARIO C. BUAG
BUAG & ASSOCIATES
Suite 17-E, 17th Flr., Strata 100 Bldg.
Emerald Ave., Ortigas Center
1605 Pasig City
X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -X
Court of Appeals - Decision of 31 January 2001
Per Associate Justice Rodrigo V. Cosico,
with Associate Justices Ramon A.
Barcelona and Alicia J. Santos
concurring.
X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -X
(Please return to the Office of Chief Justice HILARIO G. DAVIDE, JR.)

301

26

G.R. No. 167919

February 14, 2007

PLARIDEL M. ABAYA, COMMODORE PLARIDEL C. GARCIA (retired) and PMA 59


FOUNDATION, INC., rep. by its President, COMMODORE CARLOS L. AGUSTIN
(retired), Petitioners,
vs.
HON. SECRETARY HERMOGENES E. EBDANE, JR., in his capacity as Secretary of the
DEPARTMENT OF PUBLIC WORKS and HIGHWAYS, HON. SECRETARY EMILIA T.
BONCODIN, in her capacity as Secretary of the DEPARTMENT OF BUDGET and
MANAGEMENT, HON. SECRETARY CESAR V. PURISIMA, in his capacity as Secretary of
the DEPARTMENT OF FINANCE, HON. TREASURER NORMA L. LASALA, in her capacity as
Treasurer of the Bureau of Treasury, and CHINA ROAD and BRIDGE
CORPORATION, Respondents.
DECISION
CALLEJO, SR., J.:
Before the Court is the petition for certiorari and prohibition under Rule 65 of the Rules of Court
seeking to set aside and nullify Resolution No. PJHL-A-04-012 dated May 7, 2004 issued by the
Bids and Awards Committee (BAC) of the Department of Public Works and Highways (DPWH) and
approved by then DPWH Acting Secretary Florante Soriquez. The assailed resolution
recommended the award to private respondent China Road & Bridge Corporation of the contract
for the implementation of civil works for Contract Package No. I (CP I), which consists of the
improvement/rehabilitation of the San Andres (Codon)-Virac-Jct. Bago-Viga road, with the length
of 79.818 kilometers, in the island province of Catanduanes.
The CP I project is one of the four packages comprising the project for the
improvement/rehabilitation of the Catanduanes Circumferential Road, covering a total length of
about 204.515 kilometers, which is the main highway in Catanduanes Province. The road section
(Catanduanes Circumferential Road) is part of the Arterial Road Links Development Project
(Phase IV) funded under Loan Agreement No. PH-P204 dated December 28, 1999 between the
Japan Bank for International Cooperation (JBIC) and the Government of the Republic of the
Philippines.
Background
Based on the Exchange of Notes dated December 27, 1999, 1 the Government of Japan and the
Government of the Philippines, through their respective representatives, namely, Mr. Yoshihisa
Ara, Ambassador Extraordinary and Plenipotentiary of Japan to the Republic of the Philippines,
and then Secretary of Foreign Affairs Domingo L. Siazon, have reached an understanding
concerning Japanese loans to be extended to the Philippines. These loans were aimed at
promoting our countrys economic stabilization and development efforts.
The Exchange of Notes consisted of two documents: (1) a Letter from the Government of Japan,
signed by Ambassador Ara, addressed to then Secretary of Foreign Affairs Siazon, confirming the
understanding reached between the two governments concerning the loans to be extended by
the Government of Japan to the Philippines; and (2) a document denominated as Records of
Discussion where the salient terms of the loans as set forth by the Government of Japan, through
the Japanese delegation, were reiterated and the said terms were accepted by the Philippine
delegation. Both Ambassador Ara and then Secretary Siazon signed the Records of Discussion as
representatives of the Government of Japan and Philippine Government, respectively.
302

The Exchange of Notes provided that the loans to be extended by the Government of Japan to
the Philippines consisted of two loans: Loan I and Loan II. The Exchange of Notes stated in part:
I
1. A loan in Japanese yen up to the amount of seventy-nine billion eight hundred and sixty-one
million yen (Y79,861,000,000) (hereinafter referred to as "the Loan I") will be extended, in
accordance with the relevant laws and regulations of Japan, to the Government of the Republic of
the Philippines (hereinafter referred to as "the Borrower I") by the Japan Bank for International
Cooperation (hereinafter referred to as "the Bank") to implement the projects enumerated in the
List A attached hereto (hereinafter referred to as "the List A") according to the allocation for each
project as specified in the List A.
2. (1) The Loan I will be made available by loan agreements to be concluded between the
Borrower I and the Bank. The terms and conditions of the Loan I as well as the procedure for its
utilization will be governed by said loan agreements which will contain, inter alia, the following
principles:
...
(2) Each of the loan agreements mentioned in sub-paragraph (1) above will be concluded after
the Bank is satisfied of the feasibility, including environmental consideration, of the project to
which such loan agreement relates.
3. (1) The Loan I will be made available to cover payments to be made by the Philippine
executing agencies to suppliers, contractors and/or consultants of eligible source countries under
such contracts as may be entered into between them for purchases of products and/or services
required for the implementation of the projects enumerated in the List A, provided that such
purchases are made in such eligible source countries for products produced in and/or services
supplied from those countries.
(2) The scope of eligible source countries mentioned in sub-paragraph (1) above will be agreed
upon between the authorities concerned of the two Governments.
(3) A part of the Loan I may be used to cover eligible local currency requirements for the
implementation of the projects enumerated in the List A.
4. With regard to the shipping and marine insurance of the products purchased under the Loan I,
the Government of the Republic of the Philippines will refrain from imposing any restrictions that
may hinder fair and free competition among the shipping and marine insurance companies.
x x x x2 1awphi1.net
Pertinently, List A, which specified the projects to be financed under the Loan I, includes the
Arterial Road Links Development Project (Phase IV), to wit:
LIST A
Maximum amount in million yen)
1. Secondary Education Development and Improvement Project 7,210
2. Rural Water Supply Project (Phase V) 951
3. Bohol Irrigation Project (Phase II) 6,078
4. Agrarian Reform Infrastructure Support Project (Phase II) 16,990
303

5. Arterial Road Links Development Project (Phase IV) 15,384


6. Cordillera Road Improvement Project 5,852
7. Philippines-Japan Friendship Highway Mindanao Section Rehabilitation Project (Phase II) 7,434
8. Rehabilitation and Maintenance of Bridges Along Arterial Roads Project (Phase IV) 5,068
9. Maritime Safety Improvement Project (Phase C) 4,714
10. Pinatubo Hazard Urgent Mitigation Project (Phase II) 9,013
11. Pasig-Marikina River Channel Improvement Project (Phase I) 1,167
Total 79,8613
The Exchange of Notes further provided that:
III
xxxx
3. The Government of the Republic of the Philippines will ensure that the products and/or
services mentioned in sub-paragraph (1) of paragraph 3 of Part I and sub-paragraph (1) of
paragraph 4 of Part II are procured in accordance with the guidelines for procurement of the
Bank, which set forth, inter alia, the procedures of international tendering to be followed except
where such procedures are inapplicable or inappropriate.
x x x x4
The Records of Discussion, which formed part of the Exchange of Notes, also stated in part, thus:
xxxx
1. With reference to sub-paragraph (3) of paragraph 3 of Part I of the Exchange of Notes
concerning the financing of eligible local currency requirements for the implementation of the
projects mentioned in the said sub-paragraph, the representative of the Japanese delegation
stated that:
(1) such requirement of local currency as general administrative expenses, interest during
construction, taxes and duties, expenses concerning office, remuneration to employees of the
executing agencies and housing, not directly related to the implementation of the said projects,
as well as purchase of land properties, compensation and the like, however, will not be
considered as eligible for financing under the Loan I; and
(2) the procurement of products and/or services will be made in accordance with the procedures
of international competitive tendering except where such procedures are inapplicable and
inappropriate.
x x x x5
Thus, in accordance with the agreement reached by the Government of Japan and the Philippine
Government, as expressed in the Exchange of Notes between the representatives of the two
governments, the Philippines obtained from and was granted a loan by the JBIC. Loan Agreement
No. PH-P204 dated December 28, 1999, in particular, stated as follows:
Loan Agreement No. PH-P204, dated December 28, 1999, between JAPAN BANK FOR
INTERNATIONAL COOPERATION and the GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES.
304

In the light of the contents of the Exchange of Notes between the Government of Japan and the
Government of the Republic of the Philippines dated December 27, 1999, concerning Japanese
loans to be extended with a view to promoting the economic stabilization and development
efforts of the Republic of the Philippines.
JAPAN BANK FOR INTERNATIONAL COOPERATION (hereinafter referred to as "the BANK") and THE
GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES (hereinafter referred to as "the Borrower")
herewith conclude the following Loan Agreement (hereinafter referred to as "the Loan
Agreement", which includes all agreements supplemental hereto).
x x x x6
Under the terms and conditions of Loan Agreement No. PH-P204, JBIC agreed to lend the
Philippine Government an amount not exceeding FIFTEEN BILLION THREE HUNDRED EIGHTYFOUR MILLION Japanese Yen (Y15,384,000,000) as principal for the implementation of the Arterial
Road Links Development Project (Phase IV) on the terms and conditions set forth in the Loan
Agreement and in accordance with the relevant laws and regulations of Japan. 7 The said amount
shall be used for the purchase of eligible goods and services necessary for the implementation of
the above-mentioned project from suppliers, contractors or consultants. 8
Further, it was provided under the said loan agreement that other terms and conditions generally
applicable thereto shall be set forth in the General Terms and Conditions, dated November 1987,
issued by the Overseas Economic Cooperation Fund (OECF) and for the purpose, reference to
"the OECF" and "Fund" therein (General Terms and Conditions) shall be substituted by "the JBIC"
and "Bank," respectively.9 Specifically, the guidelines for procurement of all goods and services to
be financed out of the proceeds of the said loan shall be as stipulated in the Guidelines for
Procurement under OECF Loans dated December 1997 (herein referred to as JBIC Procurement
Guidelines).10
As mentioned earlier, the proceeds of Loan Agreement No. PH-P204 was to be used to finance
the Arterial Road Links Development Project (Phase IV), of which the Catanduanes
Circumferential Road was a part. This road section, in turn, was divided into four contract
packages (CP):
CP I: San Andres (Codon)-Virac-Jct. Bato- Viga Road - 79.818 kms
CP II: Viga-Bagamanoc Road - 10.40 kms.
CP III: Bagamanoc-Pandan Road - 47.50 kms.
CP IV: Pandan-Caramoran-Codon Road - 66.40 kms. 11
Subsequently, the DPWH, as the government agency tasked to implement the project, caused
the publication of the "Invitation to Prequalify and to Bid" for the implementation of the CP I
project in two leading national newspapers, namely, the Manila Times and Manila Standard on
November 22 and 29, and December 5, 2002.
A total of twenty-three (23) foreign and local contractors responded to the invitation by
submitting their accomplished prequalification documents on January 23, 2003. In accordance
with the established prequalification criteria, eight contractors were evaluated or considered
eligible to bid as concurred by the JBIC. One of them, however, withdrew; thus, only seven
contractors submitted their bid proposals.
The bid documents submitted by the prequalified contractors/bidders were examined to
determine
their
compliance
with
the
requirements
as
12
stipulated in Article 6 of the Instruction to Bidders. After the lapse of the deadline for the
submission of bid proposals, the opening of the bids commenced immediately. Prior to the
305

opening of the respective bid proposals, it was announced that the Approved Budget for the
Contract (ABC) was in the amount of P738,710,563.67.
The result of the bidding revealed the following three lowest bidders and their respective bids
vis--vis the ABC:13

Name of Bidder

Original Bid As
Read (Pesos)

As-Corrected Bid
Amount (Pesos)

Varianc
e

1) China Road And


Bridge Corporation

P 993,183,904.98

P952,564,821.71

28.95
%

2) Cavite Ideal Intl


Const. Devt. Corp.

P1,099,926,598.11

P1,099,926,598.11

48.90
%

3) Italian Thai Devt.


Public Company, Ltd.

P1,125,022,075.34

P1,125,392,475.36

52.35
%

The bid of private respondent China Road & Bridge Corporation was corrected from the
original P993,183,904.98 (with variance of 34.45% from the ABC) to P952,564,821.71 (with
variance of 28.95% from the ABC) based on their letter clarification dated April 21, 2004. 14
After further evaluation of the bids, particularly those of the lowest three bidders, Mr. Hedifume
Ezawa, Project Manager of the Catanduanes Circumferential Road Improvement Project (CCRIP),
in his Contractors Bid Evaluation Report dated April 2004, recommended the award of the
contract to private respondent China Road & Bridge Corporation:
In accordance with the Guidelines for the Procurements under ODA [Official Development
Assistance] Loans, the Consultant hereby recommends the award of the contract for the
construction of CP I, San Andres (Codon) Virac Jct. Bato Viga Section under the Arterial Road
Links Development Projects, Phase IV, JBIC Loan No. PH-P204 to the Lowest Complying Bidder,
China Road and Bridge Corporation, at its total corrected bid amount of Nine Hundred Fifty-Two
Million Five Hundred Sixty-Four Thousand Eight Hundred Twenty-One & 71/100 Pesos. 15
The BAC of the DPWH, with the approval of then Acting Secretary Soriquez, issued the assailed
Resolution No. PJHL-A-04-012 dated May 7, 2004 recommending the award in favor of private
respondent China Road & Bridge Corporation of the contract for the implementation of civil works
for CP I, San Andres (Codon) Virac Jct. Bato Viga Road (Catanduanes Circumferential Road
Improvement Project) of the Arterial Roads Links Development Project, Phase IV, located in
Catanduanes Province, under JBIC Loan Agreement No. PH-P204. 16 On September 29, 2004, a
Contract of Agreement was entered into by and between the DPWH and private respondent
China Road & Bridge Corporation for the implementation of the CP I project.
The Parties
Petitioner Plaridel M. Abaya claims that he filed the instant petition as a taxpayer, former
lawmaker, and a Filipino citizen. Petitioner Plaridel C. Garcia likewise claims that he filed the suit
as a taxpayer, former military officer, and a Filipino citizen. Petitioner PMA 59 Foundation, Inc.,
on the other hand, is a non-stock, non-profit corporation organized under the existing Philippine
laws. It claims that its members are all taxpayers and alumni of the Philippine Military Academy.
It is represented by its President, Carlos L. Agustin.
Named as public respondents are the DPWH, as the government agency tasked with the
implementation of government infrastructure projects; the Department of Budget and
Management (DBM) as the government agency that authorizes the release and disbursement of
public funds for the implementation of government infrastructure projects; and the Department
306

of Finance (DOF) as the government agency that acts as the custodian and manager of all
financial resources of the government. Also named as individual public respondents are
Hermogenes E. Ebdane, Jr., Emilia T. Boncodin and Cesar V. Purisima in their capacities as former
Secretaries of the DPWH, DBM and DOF, respectively. On the other hand, public respondent
Norma L. Lasala was impleaded in her capacity as Treasurer of the Bureau of Treasury.
Private respondent China Road & Bridge Corporation is a duly organized corporation engaged in
the business of construction.
The Petitioners Case
The petitioners mainly seek to nullify DPWH Resolution No. PJHL-A-04-012 dated May 7, 2004,
which recommended the award to private respondent China Road & Bridge Corporation of the
contract for the implementation of the civil works of CP I. They also seek to annul the contract of
agreement subsequently entered into by and between the DPWH and private respondent China
Road & Bridge Corporation pursuant to the said resolution.
They pose the following issues for the Courts resolution:
I. Whether or not Petitioners have standing to file the instant Petition.
II. Whether or not Petitioners are entitled to the issuance of a Writ of Certiorari reversing and
setting aside DPWH Resolution No. PJHL-A-04-012, recommending the award of the Contract
Agreement for the implementation of civil works for CPI, San Andres (CODON)-VIRAC-JCT BATOVIGA ROAD (CATANDUANES CIRCUMFERENTIAL ROAD IMPROVEMENT PROJECT) of the Arterial
Road Links Development Project, Phase IV, located in Catanduanes Province, under JBIC L/A No.
PH-P204, to China Road & Bridge Corporation.
III. Whether or not the Contract Agreement executed by and between the Republic of the
Philippines, through the Department of Public Works and Highways, and the China Road & Bridge
Corporation, for the implementation of civil works for CPI, San Andres (CODON)-VIRAC-JCT BATOVIGA ROAD (CATANDUANES CIRCUMFERENTIAL ROAD IMPROVEMENT PROJECT) of the Arterial
Road Links Development Project, Phase IV, located in Catanduanes Province, under JBIC L/A No.
PH-P204, is void ab initio.
IV. Whether or not Petitioners are entitled to the issuance of a Writ of Prohibition permanently
prohibiting the implementation of DPWH Resolution No. PJHL-A-04-012 and the Contract
Agreement executed by and between the Republic of the Philippines (through the Department of
Public Works and Highways) and the China Road & Bridge Corporation, and the disbursement of
public funds by the [D]epartment of [B]udget and [M]anagement for such purpose.
V. Whether or not Petitioners are entitled to a Preliminary Injunction and/or a Temporary
Restraining Order immediately enjoining the implementation of DPWH Resolution No. PJHL-A-04012 and the Contract Agreement executed by and between the Republic of the Philippines
(through the Department of Public Works and Highways) and the China Road & Bridge
Corporation, and the disbursement of public funds by the Department of Budget and
Management for such purpose, during the pendency of this case. 17
Preliminarily, the petitioners assert that they have standing or locus standi to file the instant
petition. They claim that as taxpayers and concerned citizens, they have the right and duty to
question the expenditure of public funds on illegal acts. They point out that the Philippine
Government allocates a peso-counterpart for CP I, which amount is appropriated by Congress in
the General Appropriations Act; hence, funds that are being utilized in the implementation of the
questioned project also partake of taxpayers money. The present action, as a taxpayers suit, is
thus allegedly proper.

307

They likewise characterize the instant petition as one of transcendental importance that warrants
the Courts adoption of a liberal stance on the issue of standing. It cited several cases where the
Court brushed aside procedural technicalities in order to resolve issues involving paramount
public interest and transcendental importance. 18 Further, petitioner Abaya asserts that he
possesses the requisite standing as a former member of the House of Representatives and one of
the principal authors of Republic Act No. 9184 (RA 9184) 19 known as the Government
Procurement Reform Act, the law allegedly violated by the public respondents.
On the substantive issues, the petitioners anchor the instant petition on the contention that the
award of the contract to private respondent China Road & Bridge Corporation violates RA 9184,
particularly Section 31 thereof which reads:
SEC. 31. Ceiling for Bid Prices. The ABC shall be the upper limit or ceiling for the Bid prices. Bid
prices that exceed this ceiling shall be disqualified outright from further participating in the
bidding. There shall be no lower limit to the amount of the award.
In relation thereto, the petitioners cite the definition of the ABC, thus:
SEC. 5. Definition of Terms.
xxx
(a) Approved Budget for the Contract (ABC). refers to the budget for the contract duly approved
by the Head of the Procuring Entity, as provided for in the General Appropriations Act and/or
continuing appropriations, in the case of National Government Agencies; the Corporate Budget
for the contract approved by the governing Boards, pursuant to E.O. No. 518, series of 1979, in
the case of Government-Owned and/or Controlled Corporations, Government Financial
Institutions and State Universities and Colleges; and the Budget for the contract approved by the
respective Sanggunian, in the case of Local Government Units.
xxx
The petitioners theorize that the foregoing provisions show the mandatory character of ceilings
or upper limits of every bid. Under the above-quoted provisions of RA 9184, all bids or awards
should not exceed the ceilings or upper limits; otherwise, the contract is deemed void and
inexistent.
Resolution No. PJHL-A-04-012 was allegedly issued with grave abuse of discretion because it
recommended the award of the contract to private respondent China Road & Bridge Corporation
whose bid was more than P200 million overpriced based on the ABC. As such, the award is
allegedly illegal and unconscionable.
In this connection, the petitioners opine that the contract subsequently entered into by and
between the DPWH and private respondent China Road & Bridge Corporation is void ab initio for
being prohibited by RA 9184. They stress that Section 31 thereof expressly provides that "bid
prices that exceed this ceiling shall be disqualified outright from participating in the bidding." The
upper limit or ceiling is called the ABC and since the bid of private respondent China Road &
Bridge Corporation exceeded the ABC for the CP I project, it should have been allegedly
disqualified from the bidding process and should not, by law, have been awarded the said
contract. They invoke Article 1409 of the Civil Code:
ART. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order
or public policy;
(2) Those which are absolutely simulated or fictitious;
308

(3) Those whose cause or object did not exist at the time of the transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal object of the contract cannot
be ascertained;
(7) Those expressly prohibited or declared void by law.
For violating the above provision, the contract between the DPWH and private respondent China
Road & Bridge Corporation is allegedly inexistent and void ab initio and can produce no effects
whatsoever.
It is the contention of the petitioners that RA 9184 is applicable to both local- and foreign-funded
procurement contracts. They cite the following excerpt of the deliberations of the Bicameral
Conference Committee on the Disagreeing Provisions of Senate Bill No. 2248 and House Bill No.
4809:20
REP. ABAYA. Mr. Chairman, can we just propose additional amendments? Can we go back to
Section 4, Mr. Chairman?
THE CHAIRMAN (SEN. ANGARA). Section? Section ano, Del, 4? Definition definition of terms.
REP. ABAYA. Sa House bill, it is sa scope and application.
THE CHAIRMAN (SEN. ANGARA). Okay.
REP. ABAYA. It should read as follows: "This Act shall apply to the procurement of goods, supplies
and materials, infrastructure projects and consulting services regardless of funding source
whether local or foreign by the government."
THE CHAIRMAN (SEN. ANGARA). Okay, accepted. We accept. The Senate accepts it. 21
xxx xxx xxx
THE CHAIRMAN (SEN ANGARA). Just take note of that ano. Medyo nga problematic yan eh. Now,
just for the record Del, can you repeat again the justification for including foreign funded
contracts within the scope para malinaw because the World Bank daw might raise some
objection to it.
REP. ABAYA. Well, Mr. Chairman, we should include foreign funded projects kasi these are the big
projects. To give an example, if you allow bids above government estimate, lets say take the
case of 500 million project, included in that 500 million is the 20 percent profit. If you allow them
to bid above government estimate, they will add another say 28 percent of (sic) 30 percent, 30
percent of 500 million is another 150 million. Ito, this is a rich source of graft money, aregluhan
na lang, 150 million, five contractors will gather, "O eto 20 million, 20 million, 20 million." So, it is
rigged. Yun ang practice na nangyayari. If we eliminate that, if we have a ceiling then, it will not
be very tempting kasi walang extra money na pwedeng ibigay sa ibang contractor. So this
promote (sic) collusion among bidders, of course, with the cooperation of irresponsible officials of
some agencies. So we should have a ceiling to include foreign funded projects. 22
The petitioners insist that Loan Agreement No. PH-P204 between the JBIC and the Philippine
Government is neither a treaty, an international nor an executive agreement that would bar the
application of RA 9184. They point out that to be considered a treaty, an international or an
executive agreement, the parties must be two sovereigns or States whereas in the case of Loan
309

Agreement No. PH-P204, the parties are the Philippine Government and the JBIC, a banking
agency of Japan, which has a separate juridical personality from the Japanese Government.
They further insist on the applicability of RA 9184 contending that while it took effect on January
26, 200323 and Loan Agreement No. PH-P204 was executed prior thereto or on December 28,
1999, the actual procurement or award of the contract to private respondent China Road &
Bridge Corporation was done after the effectivity of RA 9184. The said law is allegedly specific as
to its application, which is on the actual procurement of infrastructure and other projects only,
and not on the loan agreements attached to such projects. Thus, the petition only prays for the
annulment of Resolution No. PJHL-A-04-012 as well as the contract between the DPWH and
private respondent China Road & Bridge Corporation. The petitioners clarify that they do not pray
for the annulment of Loan Agreement No. PH-P204. Since the subject procurement and award of
the contract were done after the effectivity of RA 9184, necessarily, the procurement rules
established by that law allegedly apply, and not Presidential Decree No. 1594 (PD 1594) 24 and
Executive Order No. 40 (EO 40), series of 2001, 25 as contended by the respondents. The latter
laws, including their implementing rules, have allegedly been repealed by RA 9184. Even RA
4860, as amended, known as the Foreign Borrowings Act, the petitioners posit, may have also
been repealed or modified by RA 9184 insofar as its provisions are inconsistent with the latter.
The petitioners also argue that the "Implementing Rules and Regulations (IRR) of RA 9184,
Otherwise Known as the Government Procurement Reform Act, Part A" (IRR-A) cited by the
respondents is not applicable as these rules only govern domestically-funded procurement
contracts. They aver that the implementing rules to govern foreign-funded procurement, as in
the present case, have yet to be drafted and in fact, there are concurrent resolutions drafted by
both houses of Congress for the Reconvening of the Joint Congressional Oversight Committee for
the formulation of the IRR for foreign-funded procurements under RA 9184.
The petitioners maintain that disbursement of public funds to implement a patently void and
illegal contract is itself illegal and must be enjoined. They bring to the Courts attention the fact
that the works on the CP I project have already commenced as early as October 2004. They thus
urge the Court to issue a writ of certiorari to set aside Resolution No. PJHL-A-04-012 as well as to
declare null and void the contract entered into between the DPWH and private respondent China
Road & Bridge Corporation. They also pray for the issuance of a temporary restraining order and,
eventually, a writ of prohibition to permanently enjoin the DPWH from implementing Resolution
No. PJHL-A-04-012 and its contract with private respondent China Road & Bridge Corporation as
well as the DBM from disbursing funds for the said purpose.
The Respondents Counter-Arguments
The public respondents, namely the DPWH, DBM and DOF, and their respective named officials,
through the Office of the Solicitor General, urge the Court to dismiss the petition on grounds that
the petitioners have no locus standi and, in any case, Resolution No. PJHL-A-04-012 and the
contract between the DPWH and private respondent China Road & Bridge Corporation are valid.
According to the public respondents, a taxpayers locus standi was recognized in the following
cases: (a) where a tax measure is assailed as unconstitutional; 26 (b) where there is a question of
validity of election laws;27 (c) where legislators questioned the validity of any official action upon
the claim that it infringes on their prerogatives as legislators; 28 (d) where there is a claim of
illegal disbursement or wastage of public funds through the enforcement of an invalid or
unconstitutional law;29 (e) where it involves the right of members of the Senate or House of
Representatives to question the validity of a presidential veto or condition imposed on an item in
an appropriation bill;30 or (f) where it involves an invalid law, which when enforced will put the
petitioner in imminent danger of sustaining some direct injury as a result thereof, or that he has
been or is about to be denied some right or privilege to which he is lawfully entitled or that he is
about to be subjected to some burdens or penalties by reason of the statute complained
of.31 None of the above considerations allegedly obtains in the present case.
310

It is also the view of the public respondents that the fact that petitioner Abaya was a former
lawmaker would not suffice to confer locus standi on himself. Members of Congress may properly
challenge the validity of an official act of any department of the government only upon showing
that the assailed official act affects or impairs their rights and prerogatives as legislators.
The public respondents further assail the standing of the petitioners to file the instant suit
claiming that they failed to allege any specific injury suffered nor an interest that is direct and
personal to them. If at all, the interest or injuries claimed by the petitioners are allegedly merely
of a general interest common to all members of the public. Their interest is allegedly too vague,
highly speculative and uncertain to satisfy the requirements of locus standi.
The public respondents find it noteworthy that the petitioners do not raise issues of
constitutionality but only of contract law, which the petitioners not being privies to the
agreement cannot raise. This is following the principle that a stranger to a contract cannot sue
either or both the contracting parties to annul and set aside the same except when he is
prejudiced on his rights and can show detriment which would positively result to him from the
implementation of the contract in which he has no intervention. There being no particularized
interest or elemental substantial injury necessary to confer locus standi, the public respondents
implore the Court to dismiss the petition.
On the merits, the public respondents maintain that the imposition of ceilings or upper limits on
bid prices in RA 9184 does not apply because the CP I project and the entire Catanduanes
Circumferential Road Improvement Project, financed by Loan Agreement No. PH-P204 executed
between the Philippine Government and the JBIC, is governed by the latters Procurement
Guidelines which precludes the imposition of ceilings on bid prices. Section 5.06 of the JBIC
Procurement Guidelines reads:
Section 5.06. Evaluation and Comparison of Bids.
xxx
(e) Any procedure under which bids above or below a predetermined bid value assessment are
automatically disqualified is not permitted.
It was explained that other foreign banks such as the Asian Development Bank (ADB) and the
World Bank (WB) similarly prohibit the bracketing or imposition of a ceiling on bid prices.
The public respondents stress that it was pursuant to Loan Agreement No. PH-P204 that the
assailed Resolution No. PJHL-A-04-012 and the subsequent contract between the DPWH and
private respondent China Road & Bridge Corporation materialized. They likewise aver that Loan
Agreement No. PH-P204 is governed by RA 4860, as amended, or the Foreign Borrowings Act.
Section 4 thereof states:
SEC. 4. In the contracting of any loan, credit or indebtedness under this Act, the President of the
Philippines may, when necessary, agree to waive or modify, the application of any law granting
preferences or imposing restrictions on international competitive bidding, including among
others [Act No. 4239, Commonwealth Act No. 138], the provisions of [CA 541], insofar as such
provisions do not pertain to constructions primarily for national defense or security purposes, [RA
5183]; Provided, however, That as far as practicable, utilization of the services of qualified
domestic firms in the prosecution of projects financed under this Act shall be encouraged:
Provided, further, That in case where international competitive bidding shall be conducted
preference of at least fifteen per centum shall be granted in favor of articles, materials or
supplies of the growth, production or manufacture of the Philippines: Provided, finally, That the
method and procedure in comparison of bids shall be the subject of agreement between the
Philippine Government and the lending institution.

311

DOJ Opinion No. 46, Series of 1987, is relied upon by the public respondents as it opined that an
agreement for the exclusion of foreign assisted projects from the coverage of local bidding
regulations does not contravene existing legislations because the statutory basis for foreign loan
agreements is RA 4860, as amended, and under Section 4 thereof, the President is empowered to
waive the application of any law imposing restrictions on the procurement of goods and services
pursuant to such loans.
Memorandum Circular Nos. 104 and 108, issued by the President, to clarify RA 4860, as
amended, and PD 1594, relative to the award of foreign-assisted projects, are also invoked by the
public respondents, to wit:
Memorandum Circular No. 104:
In view of the provisions of Section 4 of Republic Act No. 4860, as amended, otherwise known as
the "Foreign Borrowings Act"
xxx
It is hereby clarified that foreign-assisted infrastructure projects may be exempted from the
application for the pertinent provisions of the Implementing Rules and Regulations (IRR) of
Presidential Decree (P.D.) No. 1594 relative to the method and procedure in the comparison of
bids, which matter may be the subject of agreement between the infrastructure agency
concerned and the lending institution. It should be made clear however that public bidding is still
required and can only be waived pursuant to existing laws.
Memorandum Circular No. 108:
In view of the provisions of Section 4 of Republic Act No. 4860, as amended, otherwise known as
the "Foreign Borrowings Act", it is hereby clarified that, for projects supported in whole or in part
by foreign assistance awarded through international or local competitive bidding, the
government agency concerned may award the contract to the lowest evaluated bidder at his bid
price consistent with the provisions of the applicable loan/grant agreement.
Specifically, when the loan/grant agreement so stipulates, the government agency concerned
may award the contract to the lowest bidder even if his/its bid exceeds the approved agency
estimate.
It is understood that the concerned government agency shall, as far as practicable, adhere
closely to the implementing rules and regulations of Presidential Decree No. 1594 during
loan/grant negotiation and the implementation of the projects. 32
The public respondents characterize foreign loan agreements, including Loan Agreement No. PHP204, as executive agreements and, as such, should be observed pursuant to the fundamental
principle in international law of pacta sunt servanda. 33 They cite Section 20 of Article VII of the
Constitution as giving the President the authority to contract foreign loans:
SEC. 20. The President may contract or guarantee foreign loans on behalf of the Republic of the
Philippines with the prior concurrence of the Monetary Board, and subject to such limitations as
may be provided by law. The Monetary Board shall, within thirty days from the end of every
quarter of the calendar year, submit to the Congress a complete report of its decisions on
applications for loans to be contracted or guaranteed by the Government or Government-owned
and Controlled Corporations which would have the effect of increasing the foreign debt, and
containing other matters as may be provided by law.
The Constitution, the public respondents emphasize, recognizes the enforceability of executive
agreements in the same way that it recognizes generally accepted principles of international law
as forming part of the law of the land. 34 This recognition allegedly buttresses the binding effect of
312

executive agreements to which the Philippine Government is a signatory. It is pointed out by the
public respondents that executive agreements are essentially contracts governing the rights and
obligations of the parties. A contract, being the law between the parties, must be faithfully
adhered to by them. Guided by the fundamental rule of pacta sunt servanda, the Philippine
Government bound itself to perform in good faith its duties and obligations under Loan
Agreement No. PH-P204.
The public respondents further argue against the applicability of RA 9184 stating that it was
signed into law on January 10, 2003. 35 On the other hand, Loan Agreement No. PH-P204 was
executed on December 28, 1999, where the laws then in force on government procurements
were PD 1594 and EO 40. The latter law (EO 40), in particular, excluded from its application "any
existing and future government commitments with respect to the bidding and award of contracts
financed partly or wholly with funds from international financing institutions as well as from
bilateral and other similar foreign sources."
The applicability of EO 40, not RA 9184, is allegedly bolstered by the fact that the "Invitation to
Prequalify and to Bid" for the implementation of the CP I project was published in two leading
national newspapers, namely, the Manila Times and Manila Standard on November 22, 29 and
December 5, 2002, or before the signing into law of RA 9184 on January 10, 2003. In this
connection, the public respondents point to Section 77 of IRR-A, which reads:
SEC. 77. Transitory Clause.
In all procurement activities, if the advertisement or invitation for bids was issued prior to the
effectivity of the Act, the provisions of EO 40 and its IRR, PD 1594 and its IRR, RA 7160 and its
IRR, or other applicable laws as the case may be, shall govern.
In cases where the advertisements or invitations for bids were issued after the effectivity of the
Act but before the effectivity of this IRR-A, procuring entities may continue adopting the
procurement procedures, rules and regulations provided in EO 40 and its IRR, or other applicable
laws, as the case may be.
Section 4 of RA 9184 is also invoked by the public respondents as it provides:
SEC. 4. Scope and Applications. This Act shall apply to the Procurement of Infrastructure
Projects, Goods and Consulting Services, regardless of source of funds, whether local or foreign,
by all branches and instrumentalities of government, its departments, offices and agencies,
including government-owned and/or controlled corporations and local government units, subject
to the provisions of Commonwealth Act No. 138. Any treaty or international or executive
agreement affecting the subject matter of this Act to which the Philippine government is a
signatory shall be observed.
It is also the position of the public respondents that even granting arguendo that Loan
Agreement No. PH-P204 were an ordinary loan contract, still, RA 9184 is inapplicable under the
non-impairment clause36 of the Constitution. The said loan agreement expressly provided that
the procurement of goods and services for the project financed by the same shall be governed by
the Guidelines for Procurement under OECF Loans dated December 1997. Further, Section 5.06
of the JBIC Procurement Guidelines categorically provides that "[a]ny procedure under which bids
above or below a predetermined bid value assessment are automatically disqualified is not
permitted."
The public respondents explain that since the contract is the law between the parties and Loan
Agreement No. PH-P204 states that the JBIC Procurement Guidelines shall govern the parties
relationship and further dictates that there be no ceiling price for the bidding, it naturally follows
that any subsequent law passed contrary to the letters of the said contract would have no effect
with respect to the parties rights and obligations arising therefrom.
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To insist on the application of RA 9184 on the bidding for the CP I project would, notwithstanding
the terms and conditions of Loan Agreement No. PH-P204, allegedly violate the constitutional
provision on non-impairment of obligations and contracts, and destroy vested rights duly
acquired under the said loan agreement.
Lastly, the public respondents deny that there was illegal disbursement of public funds by the
DBM. They asseverate that all the releases made by the DBM for the implementation of the
entire Arterial Road Links Project Phase IV, which includes the Catanduanes Circumferential
Road Improvement Project, were covered by the necessary appropriations made by law,
specifically the General Appropriations Act (GAA). Further, the requirements and procedures
prescribed for the release of the said funds were duly complied with.
For its part, private respondent China Road & Bridge Corporation similarly assails the standing of
the petitioners, either as taxpayers or, in the case of petitioner Abaya, as a former lawmaker, to
file the present suit. In addition, it is also alleged that, by filing the petition directly to this Court,
the petitioners failed to observe the hierarchy of courts.
On the merits, private respondent China Road & Bridge Corporation asserts that the applicable
law to govern the bidding of the CP I project was EO 40, not RA 9184, because the former was
the law governing the procurement of government projects at the time that it was bidded out. EO
40 was issued by the Office of the President on October 8, 2001 and Section 1 thereof states
that:
SEC. 1. Scope and Application. This Executive Order shall apply to the procurement of: (a) goods,
supplies, materials and related services; (b) civil works; and (c) consulting services, by all
National Government agencies, including State Universities and Colleges (SUCs), GovernmentOwned or Controlled Corporations (GOCCs) and Government Financial Institutions (GFIs), hereby
referred to as the Agencies. This Executive Order shall cover the procurement process from the
pre-procurement conference up to the award of contract.
xxx
The Invitation to Prequalify and to Bid was first published on November 22, 2002. On the other
hand, RA 9184 was signed into law only on January 10, 2003. Since the law in effect at the time
the procurement process was initiated was EO 40, private respondent China Road & Bridge
Corporation submits that it should be the said law which should govern the entire procurement
process relative to the CP I project.
EO 40 expressly recognizes as an exception from the application of the provisions thereof on
approved budget ceilings, those projects financed by international financing institutions (IFIs) and
foreign bilateral sources. Section 1 thereof, quoted in part earlier, further states:
SEC. 1. Scope and Application. x x x
Nothing in this Order shall negate any existing and future government commitments with respect
to the bidding and award of contracts financed partly or wholly with funds from international
financing institutions as well as from bilateral and other similar foreign sources.
Section 1.2 of the Implementing Rules and Regulations of EO 40 is likewise invoked as it
provides:
For procurement financed wholly or partly from Official Development Assistance (ODA) funds
from International Financing Institutions (IFIs), as well as from bilateral and other similar foreign
sources, the corresponding loan/grant agreement governing said funds as negotiated and agreed
upon by and between the Government and the concerned IFI shall be observed.

314

Private respondent China Road & Bridge Corporation thus postulates that following EO 40, the
procurement of goods and services for the CP I project should be governed by the terms and
conditions of Loan Agreement No. PH-P204 entered into between the JBIC and the Philippine
Government. Pertinently, Section 5.06 of the JBIC Procurement Guidelines prohibits the setting of
ceilings on bid prices.
Private respondent China Road & Bridge Corporation claims that when it submitted its bid for the
CP I project, it relied in good faith on the provisions of EO 40. It was allegedly on the basis of the
said law that the DPWH awarded the project to private respondent China Road & Bridge
Coporation even if its bid was higher than the ABC. Under the circumstances, RA 9184 could not
be applied retroactively for to do so would allegedly impair the vested rights of private
respondent China Road & Bridge Corporation arising from its contract with the DPWH.
It is also contended by private respondent China Road & Bridge Corporation that even assuming
arguendo that RA 9184 could be applied retroactively, it is still the terms of Loan Agreement No.
PH-P204 which should govern the procurement of goods and services for the CP I project. It
supports its theory by characterizing the said loan agreement, executed pursuant to the
Exchange of Notes between the Government of Japan and the Philippine Government, as an
executive agreement.
Private respondent China Road & Bridge Corporation, like the public respondents, cites RA 4860
as the basis for the Exchange of Notes and Loan Agreement No. PH-P204. As an international or
executive agreement, the Exchange of Notes and Loan Agreement No. PH-P204 allegedly created
a legally binding obligation on the parties.
The following excerpt of the deliberations of the Bicameral Conference Committee on the
Disagreeing Provision of Senate Bill No. 2248 and House Bill No. 4809 is cited by private
respondent China Road & Bridge Corporation to support its contention that it is the intent of the
lawmakers to exclude from the application of RA 9184 those foreign-funded projects:
xxx
REP. MARCOS. Yes, Mr. Chairman, to respond and to put into the record, a justification for the
inclusion of foreign contracts, may we just state that foreign contracts have, of course, been
brought into the ambit of the law because of the Filipino counterpart for this foreign projects,
they are no longer strictly foreign in nature but fall under the laws of the Philippine government.
THE CHAIRMAN (SEN. ANGARA). Okay. I think thats pretty clear. I think the possible concern is
that some ODA are with strings attached especially the Japanese. The Japanese are quite strict
about that, that they are (sic) even provide the architect and the design, etcetera, plus, of
course, the goods that will be supplied.
Now, I think weve already provided that this is open to all and we will recognize our international
agreements so that this bill will not also restrict the flow of foreign funding, because some
countries now make it a condition that they supply both services and goods especially the
Japanese.
So I think we can put a sentence that we continue to honor our international obligations, di ba
Laura?
MR. ENCARNACION. Actually, subject to any treaty.
THE CHAIRMAN (SEN. ANGARA). Yun pala eh. That should allay their anxiety and concern. Okay,
buti na lang for the record para malaman nila na we are conscious sa ODA. 37

315

Private respondent China Road & Bridge Corporation submits that based on the provisions of the
Exchange of Notes and Loan Agreement No. PH-P204, it was rightfully and legally awarded the
CP I project. It urges the Court to dismiss the petition for lack of merit.
The Courts Rulings
Petitioners, as taxpayers, possess locus standi to file the present suit
Briefly stated, locus standi is "a right of appearance in a court of justice on a given
question."38 More particularly, it is a partys personal and substantial interest in a case such that
he has sustained or will sustain direct injury as a result of the governmental act being
challenged. It calls for more than just a generalized grievance. The term "interest" means a
material interest, an interest in issue affected by the decree, as distinguished from mere interest
in the question involved, or a mere incidental interest. 39 Standing or locus standi is a peculiar
concept in constitutional law40 and the rationale for requiring a party who challenges the
constitutionality of a statute to allege such a personal stake in the outcome of the controversy is
"to assure that concrete adverseness which sharpens the presentation of issues upon which the
court so largely depends for illumination of difficult constitutional questions." 41
Locus standi, however, is merely a matter of procedure 42 and it has been recognized that in some
cases, suits are not brought by parties who have been personally injured by the operation of a
law or any other government act but by concerned citizens, taxpayers or voters who actually sue
in the public interest.43 Consequently, the Court, in a catena of cases, 44 has invariably adopted a
liberal stance on locus standi, including those cases involving taxpayers.
The prevailing doctrine in taxpayers suits is to allow taxpayers to question contracts entered
into by the national government or government- owned or controlled corporations allegedly in
contravention of law.45 A taxpayer is allowed to sue where there is a claim that public funds are
illegally disbursed, or that public money is being deflected to any improper purpose, or that there
is a wastage of public funds through the enforcement of an invalid or unconstitutional
law.46 Significantly, a taxpayer need not be a party to the contract to challenge its validity. 47
In the present case, the petitioners are suing as taxpayers. They have sufficiently demonstrated
that, notwithstanding the fact that the CP I project is primarily financed from loans obtained by
the government from the JBIC, nonetheless, taxpayers money would be or is being spent on the
project considering that the Philippine Government is required to allocate a peso-counterpart
therefor. The public respondents themselves admit that appropriations for these foreign-assisted
projects in the GAA are composed of the loan proceeds and the peso-counterpart. The
counterpart funds, the Solicitor General explains, refer to the component of the project cost to be
financed from government-appropriated funds, as part of the governments commitment in the
implementation of the project.48 Hence, the petitioners correctly asserted their standing since a
part of the funds being utilized in the implementation of the CP I project partakes of taxpayers
money.
Further, the serious legal questions raised by the petitioners, e.g., whether RA 9184 applies to
the CP I project, in particular, and to foreign-funded government projects, in general, and the fact
that public interest is indubitably involved considering the public expenditure of millions of
pesos, warrant the Court to adopt in the present case its liberal policy on locus standi.
In any case, for reasons which will be discussed shortly, the substantive arguments raised by the
petitioners fail to persuade the Court as it holds that Resolution No. PJHL-A-04-012 is valid. As a
corollary, the subsequent contract entered into by and between the DPWH and private
respondent China Road & Bridge Corporation is likewise valid.
History of Philippine Procurement Laws

316

It is necessary, at this point, to give a brief history of Philippine laws pertaining to procurement
through public bidding. The United States Philippine Commission introduced the American
practice of public bidding through Act No. 22, enacted on October 15, 1900, by requiring the
Chief Engineer, United States Army for the Division of the Philippine Islands, acting as purchasing
agent under the control of the then Military Governor, to advertise and call for a competitive
bidding for the purchase of the necessary materials and lands to be used for the construction of
highways and bridges in the Philippine Islands. 49 Act No. 74, enacted on January 21, 1901 by the
Philippine Commission, required the General Superintendent of Public Instruction to purchase
office supplies through competitive public bidding. 50 Act No. 82, approved on January 31, 1901,
and Act No. 83, approved on February 6, 1901, required the municipal and provincial
governments, respectively, to hold competitive public biddings in the making of contracts for
public works and the purchase of office supplies. 51
On June 21, 1901, the Philippine Commission, through Act No. 146, created the Bureau of Supply
and with its creation, public bidding became a popular policy in the purchase of supplies,
materials and equipment for the use of the national government, its subdivisions and
instrumentalities.52 On February 3, 1936, then President Manuel L. Quezon issued Executive
Order No. 16 declaring as a matter of general policy that government contracts for public service
or for furnishing supplies, materials and equipment to the government should be subjected to
public bidding.53 The requirement of public bidding was likewise imposed for public works of
construction or repair pursuant to the Revised Administrative Code of 1917.
Then President Diosdado Macapagal, in Executive Order No. 40 dated June 1, 1963, reiterated the
directive that no government contract for public service or for furnishing supplies, materials and
equipment to the government or any of its branches, agencies or instrumentalities, should be
entered into without public bidding except for very extraordinary reasons to be determined by a
Committee constituted thereunder. Then President Ferdinand Marcos issued PD 1594 prescribing
guidelines for government infrastructure projects and Section 4 54 thereof stated that they should
generally be undertaken by contract after competitive public bidding.
Then President Corazon Aquino issued Executive Order No. 301 (1987) prescribing guidelines for
government negotiated contracts. Pertinently, Section 62 of the Administrative Code of 1987
reiterated the requirement of competitive public bidding in government projects. In 1990,
Congress passed RA 6957,55 which authorized the financing, construction, operation and
maintenance of infrastructure by the private sector. RA 7160 was likewise enacted by Congress
in 1991 and it contains provisions governing the procurement of goods and locally-funded civil
works by the local government units.
Then President Fidel Ramos issued Executive Order No. 302 (1996), providing guidelines for the
procurement of goods and supplies by the national government. Then President Joseph Ejercito
Estrada issued Executive Order No. 201 (2000), providing additional guidelines in the
procurement of goods and supplies by the national government. Thereafter, he issued Executive
Order No. 262 (2000) amending EO 302 (1996) and EO 201 (2000).
On October 8, 2001, President Gloria Macapagal-Arroyo issued EO 40, the law mainly relied upon
by the respondents, entitled Consolidating Procurement Rules and Procedures for All National
Government Agencies, Government-Owned or Controlled Corporations and Government Financial
Institutions, and Requiring the Use of the Government Procurement System. It accordingly
repealed, amended or modified all executive issuances, orders, rules and regulations or parts
thereof inconsistent therewith.56
On January 10, 2003, President Arroyo signed into law RA 9184. It took effect on January 26,
2004, or fifteen days after its publication in two newspapers of general circulation. 57 It expressly
repealed, among others, EO 40, EO 262 (2000), EO 302(1996) and PD 1594, as amended:
SEC. 76. Repealing Clause. This law repeals Executive Order No. 40, series of 2001, entitled
"Consolidating Procurement Rules and Procedures for All National Government Agencies,
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Government Owned or Controlled Corporations and/or Government Financial Institutions, and


Requiring the Use of the Government Electronic Procurement System"; Executive Order No. 262,
series of 1996, entitled "Amending Executive Order No. 302, series of 1996, entitled Providing
Policies, Guidelines, Rules and Regulations for the Procurement of Goods/Supplies by the National
Government" and Section 3 of Executive Order No. 201, series of 2000, entitled "Providing
Additional Policies and Guidelines in the Procurement of Goods/Supplies by the National
Government"; Executive Order No. 302, series of 1996, entitled "Providing Policies, Guidelines,
Rules and Regulations for the Procurement of Goods/Supplies by the National Government" and
Presidential Decree No. 1594 dated June 11, 1978, entitled "Prescribing Policies, Guidelines, Rules
and Regulations for Government Infrastructure Contracts." This law amends Title Six, Book Two of
Republic Act No. 7160, otherwise known as the "Local Government Code of 1991"; the relevant
provisions of Executive Order No. 164, series of 1987, entitled "Providing Additional Guidelines in
the Processing and Approval of Contracts of the National Government"; and the relevant
provisions of Republic Act No. 7898 dated February 23, 1995, entitled "An Act Providing for the
Modernization of the Armed Forces of the Philippines and for Other Purposes." Any other law,
presidential decree or issuance, executive order, letter of instruction, administrative order,
proclamation, charter, rule or regulation and/or parts thereof contrary to or inconsistent with the
provisions of this Act is hereby repealed, modified or amended accordingly.
In addition to these laws, RA 4860, as amended, must be mentioned as Section 4 thereof
provides that "[i]n the contracting of any loan, credit or indebtedness under this Act, the
President of the Philippines may, when necessary, agree to waive or modify the application of
any law granting preferences or imposing restrictions on international competitive bidding x x x
Provided, finally, That the method and procedure in the comparison of bids shall be the subject of
agreement between the Philippine Government and the lending institution."
EO 40, not RA 9184, is applicable to the procurement
process undertaken for the CP I project. RA 9184
cannot be given retroactive application.
It is not disputed that with respect to the CP I project, the Invitation to Prequalify and to Bid for
its implementation was published in two leading national newspapers, namely, the Manila Times
and Manila Standard on November 22, 29 and December 5, 2002. At the time, the law in effect
was EO 40. On the other hand, RA 9184 took effect two months later or on January 26, 2003.
Further, its full implementation was even delayed as IRR-A was only approved by President
Arroyo on September 18, 2003 and subsequently published on September 23, 2003 in the Manila
Times and Malaya newspapers.58
The provisions of EO 40 apply to the procurement process pertaining to the CP I project as it is
explicitly provided in Section 1 thereof that:
SEC. 1. Scope and Application. This Executive Order shall apply to see procurement of (a)
goods, supplies, materials and related service; (b) civil works; and (c) consulting services, by all
National Government agencies, including State Universities and Colleges (SUCs), GovernmentOwned or Controlled Corporations (GOCCs) and Government Financial Institutions (GFIs), hereby
referred to as "Agencies." This Executive Order shall cover the procurement process from the
pre-procurement conference up to the award of the contract.
Nothing in this Order shall negate any existing and future government commitments with respect
to the bidding and award of contracts financed partly or wholly with funds from international
financing institutions as well as from bilateral and similar foreign sources.
The procurement process basically involves the following steps: (1) pre-procurement conference;
(2) advertisement of the invitation to bid; (3) pre-bid conference; (4) eligibility check of
prospective bidders; (5) submission and receipt of bids; (6) modification and withdrawal of bids;
318

(7) bid opening and examination; (8) bid evaluation; (9) post qualification; (10) award of contract
and notice to proceed.59 Clearly then, when the Invitation to Prequalify and to Bid for the
implementation of the CP I project was published on November 22, 29 and December 5, 2002,
the procurement process thereof had already commenced and the application of EO 40 to the
procurement process for the CP I project had already attached.
RA 9184 cannot be applied retroactively to govern the procurement process relative to the CP I
project because it is well settled that a law or regulation has no retroactive application unless it
expressly provides for retroactivity. 60Indeed, Article 4 of the Civil Code is clear on the matter:
"[l]aws shall have no retroactive effect, unless the contrary is provided." In the absence of such
categorical provision, RA 9184 will not be applied retroactively to the CP I project whose
procurement process commenced even before the said law took effect.
That the legislators did not intend RA 9184 to have retroactive effect could be gleaned from the
IRR-A formulated by the Joint Congressional Oversight Committee (composed of the Chairman of
the Senate Committee on Constitutional Amendments and Revision of Laws, and two members
thereof appointed by the Senate President and the Chairman of the House Committee on
Appropriations, and two members thereof appointed by the Speaker of the House of
Representatives) and the Government Procurement Policy Board (GPPB). Section 77 of the IRR-A
states, thus:
SEC. 77. Transitory Clause
In all procurement activities, if the advertisement or invitation for bids was issued prior to the
effectivity of the Act, the provisions of E.O. 40 and its IRR, P.D. 1594 and its IRR, R.A. 7160 and its
IRR, or other applicable laws, as the case may be, shall govern.
In cases where the advertisements or invitations for bids were issued after the effectivity of the
Act but before the effectivity of this IRR-A, procuring entities may continue adopting the
procurement procedures, rules and regulations provided in E.O. 40 and its IRR, P.D. 1594 and its
IRR, R.A. 7160 and its IRR, or other applicable laws, as the case may be.
In other words, under IRR-A, if the advertisement of the invitation for bids was issued prior to the
effectivity of RA 9184, such as in the case of the CP I project, the provisions of EO 40 and its IRR,
and PD 1594 and its IRR in the case of national government agencies, and RA 7160 and its IRR in
the case of local government units, shall govern.
Admittedly, IRR-A covers only fully domestically-funded procurement activities from procurement
planning up to contract implementation and that it is expressly stated that IRR-B for foreignfunded procurement activities shall be subject of a subsequent issuance. 61 Nonetheless, there is
no reason why the policy behind Section 77 of IRR-A cannot be applied to foreign-funded
procurement projects like the CP I project. Stated differently, the policy on the prospective or
non-retroactive application of RA 9184 with respect to domestically-funded procurement projects
cannot be any different with respect to foreign-funded procurement projects like the CP I project.
It would be incongruous, even absurd, to provide for the prospective application of RA 9184 with
respect to domestically-funded procurement projects and, on the other hand, as urged by the
petitioners, apply RA 9184 retroactively with respect to foreign- funded procurement projects. To
be sure, the lawmakers could not have intended such an absurdity.
Thus, in the light of Section 1 of EO 40, Section 77 of IRR-A, as well as the fundamental rule
embodied in Article 4 of the Civil Code on prospectivity of laws, the Court holds that the
procurement process for the implementation of the CP I project is governed by EO 40 and its IRR,
not RA 9184.
Under EO 40, the award of the contract to private
respondent China Road & Bridge Corporation is valid
319

Section 25 of EO 40 provides that "[t]he approved budget of the contract shall be the upper limit
or ceiling of the bid price. Bid prices which exceed this ceiling shall be disqualified outright from
further participating in the bidding. There shall be no lower limit to the amount of the award. x x
x" It should be observed that this text is almost similar to the wording of Section 31 of RA 9184,
relied upon by the petitioners in contending that since the bid price of private respondent China
Road & Bridge Corporation exceeded the ABC, then it should not have been awarded the contract
for the CP I project.
Nonetheless, EO 40 expressly recognizes as an exception to its scope and application those
government commitments with respect to bidding and award of contracts financed partly or
wholly with funds from international financing institutions as well as from bilateral and other
similar foreign sources. The pertinent portion of Section 1 of EO 40 is quoted anew:
SEC. 1. Scope and Application. x x x
Nothing in this Order shall negate any existing and future government commitments with respect
to the bidding and award of contracts financed partly or wholly with funds from international
financing institutions as well as from bilateral and similar foreign sources.
In relation thereto, Section 4 of RA 4860, as amended, was correctly cited by the respondents as
likewise authorizing the President, in the contracting of any loan, credit or indebtedness
thereunder, "when necessary, agree to waive or modify the application of any law granting
preferences or imposing restrictions on international competitive bidding x x x." The said
provision of law further provides that "the method and procedure in the comparison of bids shall
be the subject of agreement between the Philippine Government and the lending institution."
Consequently, in accordance with these applicable laws, the procurement of goods and services
for the CP I project is governed by the corresponding loan agreement entered into by the
government and the JBIC, i.e., Loan Agreement No. PH-P204. The said loan agreement stipulated
that the procurement of goods and services for the Arterial Road Links Development Project
(Phase IV), of which CP I is a component, is to be governed by the JBIC Procurement Guidelines.
Section 5.06, Part II (International Competitive Bidding) thereof quoted earlier reads:
Section 5.06. Evaluation and Comparison of Bids
xxx
(e) Any procedure under which bids above or below a predetermined bid value assessment are
automatically disqualified is not permitted.62
It is clear that the JBIC Procurement Guidelines proscribe the imposition of ceilings on bid prices.
On the other hand, it enjoins the award of the contract to the bidder whose bid has been
determined to be the lowest evaluated bid. The pertinent provision, quoted earlier, is reiterated,
thus:
Section 5.09. Award of Contract
The contract is to be awarded to the bidder whose bid has been determined to be the lowest
evaluated bid and who meets the appropriate standards of capability and financial resources. A
bidder shall not be required as a condition of award to undertake responsibilities or work not
stipulated in the specifications or to modify the bid. 63
Since these terms and conditions are made part of Loan Agreement No. PH-P204, the
government is obliged to observe and enforce the same in the procurement of goods and
services for the CP I project. As shown earlier, private respondent China Road & Bridge
Corporations bid was the lowest evaluated bid, albeit 28.95% higher than the ABC. In
320

accordance with the JBIC Procurement Guidelines, therefore, it was correctly awarded the
contract for the CP I project.
Even if RA 9184 were to be applied retroactively, the terms of the Exchange of
Notes dated December 27, 1999 and Loan Agreement No. PH-P204 would still
govern the procurement for the CP I project
For clarity, Section 4 of RA 9184 is quoted anew, thus:
SEC. 4. Scope and Applications. This Act shall apply to the Procurement of Infrastructure
Projects, Goods and Consulting Services, regardless of source of funds, whether local or foreign,
by all branches and instrumentalities of government, its departments, offices and agencies,
including government-owned and/or controlled corporations and local government units, subject
to the provisions of Commonwealth Act No. 138. Any treaty or international or executive
agreement affecting the subject matter of this Act to which the Philippine government is a
signatory shall be observed.
The petitioners, in order to place the procurement process undertaken for the CP I project within
the ambit of RA 9184, vigorously assert that Loan Agreement No. PH-P204 is neither a treaty, an
international agreement nor an executive agreement. They cite Executive Order No. 459 dated
November 25, 1997 where the three agreements are defined in this wise:
a) International agreement shall refer to a contract or understanding, regardless of
nomenclature, entered into between the Philippines and another government in written form and
governed by international law, whether embodied in a single instrument or in two or more
related instruments.
b) Treaties international agreements entered into by the Philippines which require legislative
concurrence after executive ratification. This term may include compacts like conventions,
declarations, covenants and acts.
c) Executive agreements similar to treaties except that they do not require legislative
concurrence.64
The petitioners mainly argue that Loan Agreement No. PH-P204 does not fall under any of the
three categories because to be any of the three, an agreement had to be one where the parties
are the Philippines as a State and another State. The JBIC, the petitioners maintain, is a Japanese
banking agency, which presumably has a separate juridical personality from the Japanese
Government.
The petitioners arguments fail to persuade. The Court holds that Loan Agreement No. PH-P204
taken in conjunction with the Exchange of Notes dated December 27, 1999 between the
Japanese Government and the Philippine Government is an executive agreement.
To recall, Loan Agreement No. PH-P204 was executed by and between the JBIC and the Philippine
Government pursuant to the Exchange of Notes executed by and between Mr. Yoshihisa Ara,
Ambassador Extraordinary and Plenipotentiary of Japan to the Philippines, and then Foreign
Affairs Secretary Siazon, in behalf of their respective governments. The Exchange of Notes
expressed that the two governments have reached an understanding concerning Japanese loans
to be extended to the Philippines and that these loans were aimed at promoting our countrys
economic stabilization and development efforts.
Loan Agreement No. PH-P204 was subsequently executed and it declared that it was so entered
by the parties "[i]n the light of the contents of the Exchange of Notes between the Government
of Japan and the Government of the Republic of the Philippines dated December 27, 1999,
concerning Japanese loans to be extended with a view to promoting the economic stabilization
and development efforts of the Republic of the Philippines." 65 Under the circumstances, the JBIC
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may well be considered an adjunct of the Japanese Government. Further, Loan Agreement No.
PH-P204 is indubitably an integral part of the Exchange of Notes. It forms part of the Exchange of
Notes such that it cannot be properly taken independent thereof.
In this connection, it is well to understand the definition of an "exchange of notes" under
international law. The term is defined in the United Nations Treaty Collection in this wise:
An "exchange of notes" is a record of a routine agreement that has many similarities with the
private law contract. The agreement consists of the exchange of two documents, each of the
parties being in the possession of the one signed by the representative of the other. Under the
usual procedure, the accepting State repeats the text of the offering State to record its assent.
The signatories of the letters may be government Ministers, diplomats or departmental heads.
The technique of exchange of notes is frequently resorted to, either because of its speedy
procedure, or, sometimes, to avoid the process of legislative approval. 66
It is stated that "treaties, agreements, conventions, charters, protocols, declarations,
memoranda of understanding, modus vivendi and exchange of notes" all refer to "international
instruments binding at international law." 67 It is further explained thatAlthough these instruments differ from each other by title, they all have common features and
international law has applied basically the same rules to all these instruments. These rules are
the result of long practice among the States, which have accepted them as binding norms in
their mutual relations. Therefore, they are regarded as international customary law. Since there
was a general desire to codify these customary rules, two international conventions were
negotiated. The 1969 Vienna Convention on the Law of Treaties ("1969 Vienna Convention"),
which entered into force on 27 January 1980, contains rules for treaties concluded between
States. The 1986 Vienna Convention on the Law of Treaties between States and International
Organizations ("1986 Vienna Convention"), which has still not entered into force, added rules for
treaties with international organizations as parties. Both the 1969 Vienna Convention and the
1986 Vienna Convention do not distinguish between the different designations of these
instruments. Instead, their rules apply to all of those instruments as long as they meet the
common requirements.68
Significantly, an exchange of notes is considered a form of an executive agreement, which
becomes binding through executive action without the need of a vote by the Senate or Congress.
The following disquisition by Francis B. Sayre, former United States High Commissioner to the
Philippines, entitled "The Constitutionality of Trade Agreement Acts," quoted in Commissioner of
Customs v. Eastern Sea Trading,69 is apropos:
Agreements concluded by the President which fall short of treaties are commonly referred to as
executive agreements and are no less common in our scheme of government than are the more
formal instruments treaties and conventions. They sometimes take the form of exchange of
notes and at other times that of more formal documents denominated "agreements" or
"protocols". The point where ordinary correspondence between this and other governments ends
and agreements whether denominated executive agreements or exchange of notes or
otherwise begin, may sometimes be difficult of ready ascertainment. It would be useless to
undertake to discuss here the large variety of executive agreements as such, concluded from
time to time. Hundreds of executive agreements, other than those entered into under the tradeagreements act, have been negotiated with foreign governments. x x x 70
The Exchange of Notes dated December 27, 1999, stated, inter alia, that the Government of
Japan would extend loans to the Philippines with a view to promoting its economic stabilization
and development efforts; Loan I in the amount of Y79,8651,000,000 would be extended by the
JBIC to the Philippine Government to implement the projects in the List A (including the Arterial
Road Links Development Project - Phase IV); and that such loan (Loan I) would be used to cover
payments to be made by the Philippine executing agencies to suppliers, contractors and/or
consultants of eligible source countries under such contracts as may be entered into between
322

them for purchases of products and/or services required for the implementation of the projects
enumerated in the List A.71 With respect to the procurement of the goods and services for the
projects, it bears reiterating that as stipulated:
3. The Government of the Republic of the Philippines will ensure that the products and/or
services mentioned in sub-paragraph (1) of paragraph 3 of Part I and sub-paragraph (1) of
paragraph 4 of Part II are procured in accordance with the guidelines for procurement of the
Bank, which set forth, inter alia, the procedures of international tendering to be followed except
where such procedures are inapplicable or inappropriate. 72
The JBIC Procurements Guidelines, as quoted earlier, forbids any procedure under which bids
above or below a predetermined bid value assessment are automatically disqualified. Succinctly
put, it absolutely prohibits the imposition of ceilings on bids.
Under the fundamental principle of international law of pacta sunt servanda, 73 which is, in fact,
embodied in Section 4 of RA 9184 as it provides that "[a]ny treaty or international or executive
agreement affecting the subject matter of this Act to which the Philippine government is a
signatory shall be observed," the DPWH, as the executing agency of the projects financed by
Loan Agreement No. PH-P204, rightfully awarded the contract for the implementation of civil
works for the CP I project to private respondent China Road & Bridge Corporation.
WHEREFORE, premises considered, the petition is DISMISSED.
SO ORDERED.
ROMEO J. CALLEJO, SR.
Associate Justice
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice

MINITA V. CHICO-NAZARIO
Asscociate Justice

ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons Attestation,
it is hereby certified that the conclusions in the above decision were reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice

61

Section 1 of IRR-A reads in part:

323

Sec. 1. Purpose and General Coverage


This Implementing Rules and Regulations (IRR) Part A, hereinafter called "IRR-A," is promulgated
pursuant to Section 75 of Republic Act No. 9184 (R.A. 9184), otherwise known as the Government
Procurement Reform Act (GPRA), for the purpose of prescribing the necessary rules and
regulations for the modernization, standardization, and regulation of the procurement activities
of the government. This IRR-A shall cover all fully domestically-funded procurement activities
from procurement planning up to contract implementation and termination, except for the
following:
xxx
The IRR-B for foreign-funded procurement activities shall be the subject of a subsequent
issuance.

27

G.R. No. 171396

May 3, 2006

PROF. RANDOLF S. DAVID, LORENZO TAADA III, RONALD LLAMAS, H. HARRY L.


ROQUE, JR., JOEL RUIZ BUTUYAN, ROGER R. RAYEL, GARY S. MALLARI, ROMEL
REGALADO BAGARES, CHRISTOPHER F.C. BOLASTIG, Petitioners,
vs.
GLORIA MACAPAGAL-ARROYO, AS PRESIDENT AND COMMANDER-IN-CHIEF, EXECUTIVE
SECRETARY EDUARDO ERMITA, HON. AVELINO CRUZ II, SECRETARY OF NATIONAL
DEFENSE, GENERAL GENEROSO SENGA, CHIEF OF STAFF, ARMED FORCES OF THE
PHILIPPINES, DIRECTOR GENERAL ARTURO LOMIBAO, CHIEF, PHILIPPINE NATIONAL
POLICE, Respondents.
x-------------------------------------x
G.R. No. 171409

May 3, 2006

NIEZ CACHO-OLIVARES AND TRIBUNE PUBLISHING CO., INC., Petitioners,


vs.
HONORABLE SECRETARY EDUARDO ERMITA AND HONORABLE DIRECTOR GENERAL
ARTURO C. LOMIBAO, Respondents.
x-------------------------------------x
G.R. No. 171485

May 3, 2006

FRANCIS JOSEPH G. ESCUDERO, JOSEPH A. SANTIAGO, TEODORO A. CASINO, AGAPITO


A. AQUINO, MARIO J. AGUJA, SATUR C. OCAMPO, MUJIV S. HATAMAN, JUAN EDGARDO
ANGARA, TEOFISTO DL. GUINGONA III, EMMANUEL JOSEL J. VILLANUEVA, LIZA L. MAZA,
IMEE R. MARCOS, RENATO B. MAGTUBO, JUSTIN MARC SB. CHIPECO, ROILO GOLEZ,
DARLENE ANTONINO-CUSTODIO, LORETTA ANN P. ROSALES, JOSEL G. VIRADOR,
RAFAEL V. MARIANO, GILBERT C. REMULLA, FLORENCIO G. NOEL, ANA THERESIA
HONTIVEROS-BARAQUEL, IMELDA C. NICOLAS, MARVIC M.V.F. LEONEN, NERI JAVIER
COLMENARES, MOVEMENT OF CONCERNED CITIZENS FOR CIVIL LIBERTIES
REPRESENTED BY AMADO GAT INCIONG, Petitioners,
vs.
EDUARDO R. ERMITA, EXECUTIVE SECRETARY, AVELINO J. CRUZ, JR., SECRETARY, DND
RONALDO V. PUNO, SECRETARY, DILG, GENEROSO SENGA, AFP CHIEF OF STAFF,
ARTURO LOMIBAO, CHIEF PNP,Respondents.
324

x-------------------------------------x
G.R. No. 171483

May 3, 2006

KILUSANG MAYO UNO, REPRESENTED BY ITS CHAIRPERSON ELMER C. LABOG AND


SECRETARY GENERAL JOEL MAGLUNSOD, NATIONAL FEDERATION OF LABOR UNIONS
KILUSANG MAYO UNO (NAFLU-KMU), REPRESENTED BY ITS NATIONAL PRESIDENT,
JOSELITO V. USTAREZ, ANTONIO C. PASCUAL, SALVADOR T. CARRANZA, EMILIA P.
DAPULANG, MARTIN CUSTODIO, JR., AND ROQUE M. TAN, Petitioners,
vs.
HER EXCELLENCY, PRESIDENT GLORIA MACAPAGAL-ARROYO, THE HONORABLE
EXECUTIVE SECRETARY, EDUARDO ERMITA, THE CHIEF OF STAFF, ARMED FORCES OF
THE PHILIPPINES, GENEROSO SENGA, AND THE PNP DIRECTOR GENERAL, ARTURO
LOMIBAO, Respondents.
x-------------------------------------x
G.R. No. 171400

May 3, 2006

ALTERNATIVE LAW GROUPS, INC. (ALG), Petitioner,


vs.
EXECUTIVE SECRETARY EDUARDO R. ERMITA, LT. GEN. GENEROSO SENGA, AND
DIRECTOR GENERAL ARTURO LOMIBAO, Respondents.
G.R. No. 171489

May 3, 2006

JOSE ANSELMO I. CADIZ, FELICIANO M. BAUTISTA, ROMULO R. RIVERA, JOSE AMOR M.


AMORADO, ALICIA A. RISOS-VIDAL, FELIMON C. ABELITA III, MANUEL P. LEGASPI, J.B.
JOVY C. BERNABE, BERNARD L. DAGCUTA, ROGELIO V. GARCIA AND INTEGRATED BAR
OF THE PHILIPPINES (IBP), Petitioners,
vs.
HON. EXECUTIVE SECRETARY EDUARDO ERMITA, GENERAL GENEROSO SENGA, IN HIS
CAPACITY AS AFP CHIEF OF STAFF, AND DIRECTOR GENERAL ARTURO LOMIBAO, IN HIS
CAPACITY AS PNP CHIEF,Respondents.
x-------------------------------------x
G.R. No. 171424

May 3, 2006

LOREN B. LEGARDA, Petitioner,


vs.
GLORIA MACAPAGAL-ARROYO, IN HER CAPACITY AS PRESIDENT AND COMMANDER-INCHIEF; ARTURO LOMIBAO, IN HIS CAPACITY AS DIRECTOR-GENERAL OF THE PHILIPPINE
NATIONAL POLICE (PNP); GENEROSO SENGA, IN HIS CAPACITY AS CHIEF OF STAFF OF
THE ARMED FORCES OF THE PHILIPPINES (AFP); AND EDUARDO ERMITA, IN HIS
CAPACITY AS EXECUTIVE SECRETARY, Respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
All powers need some restraint; practical adjustments rather than rigid formula are
necessary.1 Superior strength the use of force cannot make wrongs into rights. In this regard,
the courts should be vigilant in safeguarding the constitutional rights of the citizens, specifically
their liberty.

325

Chief Justice Artemio V. Panganibans philosophy of liberty is thus most relevant. He said: "In
cases involving liberty, the scales of justice should weigh heavily against government
and in favor of the poor, the oppressed, the marginalized, the dispossessed and the
weak." Laws and actions that restrict fundamental rights come to the courts "with a heavy
presumption against their constitutional validity." 2
These seven (7) consolidated petitions for certiorari and prohibition allege that in issuing
Presidential Proclamation No. 1017 (PP 1017) and General Order No. 5 (G.O. No. 5), President
Gloria Macapagal-Arroyo committed grave abuse of discretion. Petitioners contend that
respondent officials of the Government, in their professed efforts to defend and preserve
democratic institutions, are actually trampling upon the very freedom guaranteed and protected
by the Constitution. Hence, such issuances are void for being unconstitutional.
Once again, the Court is faced with an age-old but persistently modern problem. How does the
Constitution of a free people combine the degree of liberty, without which, law becomes
tyranny, with the degree of law, without which, liberty becomes license?3
On February 24, 2006, as the nation celebrated the 20th Anniversary of the Edsa People Power I,
President Arroyo issued PP 1017 declaring a state of national emergency, thus:
NOW, THEREFORE, I, Gloria Macapagal-Arroyo, President of the Republic of the Philippines and
Commander-in-Chief of the Armed Forces of the Philippines, by virtue of the powers vested upon
me by Section 18, Article 7 of the Philippine Constitution which states that: "The President. . .
whenever it becomes necessary, . . . may call out (the) armed forces to prevent or suppress. .
.rebellion. . .," and in my capacity as their Commander-in-Chief, do hereby command the
Armed Forces of the Philippines, to maintain law and order throughout the
Philippines, prevent or suppress all forms of lawless violence as well as any act of
insurrection or rebellion and to enforce obedience to all the laws and to all decrees,
orders and regulations promulgated by me personally or upon my direction; and as
provided in Section 17, Article 12 of the Constitution do hereby declare a State of
National Emergency.
She cited the following facts as bases:
WHEREAS, over these past months, elements in the political opposition have conspired
with authoritarians of the extreme Left represented by the NDF-CPP-NPA and the
extreme Right, represented by military adventurists the historical enemies of the
democratic Philippine State who are now in a tactical alliance and engaged in a concerted
and systematic conspiracy, over a broad front, to bring down the duly constituted Government
elected in May 2004;
WHEREAS, these conspirators have repeatedly tried to bring down the President;
WHEREAS, the claims of these elements have been recklessly magnified by certain
segments of the national media;
WHEREAS, this series of actions is hurting the Philippine State by obstructing governance
including hindering the growth of the economy and sabotaging the peoples confidence
in government and their faith in the future of this country;
WHEREAS, these actions are adversely affecting the economy;
WHEREAS, these activities give totalitarian forces of both the extreme Left and
extreme Right the opening to intensify their avowed aims to bring down the
democratic Philippine State;

326

WHEREAS, Article 2, Section 4 of the our Constitution makes the defense and preservation of
the democratic institutions and the State the primary duty of Government;
WHEREAS, the activities above-described, their consequences, ramifications and collateral
effects constitute a clear and present danger to the safety and the integrity of the Philippine
State and of the Filipino people;
On the same day, the President issued G. O. No. 5 implementing PP 1017, thus:
WHEREAS, over these past months, elements in the political opposition have conspired with
authoritarians of the extreme Left, represented by the NDF-CPP-NPA and the extreme Right,
represented by military adventurists - the historical enemies of the democratic Philippine State
and who are now in a tactical alliance and engaged in a concerted and systematic conspiracy,
over a broad front, to bring down the duly-constituted Government elected in May 2004;
WHEREAS, these conspirators have repeatedly tried to bring down our republican government;
WHEREAS, the claims of these elements have been recklessly magnified by certain segments of
the national media;
WHEREAS, these series of actions is hurting the Philippine State by obstructing governance,
including hindering the growth of the economy and sabotaging the peoples confidence in the
government and their faith in the future of this country;
WHEREAS, these actions are adversely affecting the economy;
WHEREAS, these activities give totalitarian forces; of both the extreme Left and extreme Right
the opening to intensify their avowed aims to bring down the democratic Philippine State;
WHEREAS, Article 2, Section 4 of our Constitution makes the defense and preservation of the
democratic institutions and the State the primary duty of Government;
WHEREAS, the activities above-described, their consequences, ramifications and collateral
effects constitute a clear and present danger to the safety and the integrity of the Philippine
State and of the Filipino people;
WHEREAS, Proclamation 1017 date February 24, 2006 has been issued declaring a State of
National Emergency;
NOW, THEREFORE, I GLORIA MACAPAGAL-ARROYO, by virtue of the powers vested in me
under the Constitution as President of the Republic of the Philippines, and Commander-in-Chief of
the Republic of the Philippines, and pursuant to Proclamation No. 1017 dated February 24, 2006,
do hereby call upon the Armed Forces of the Philippines (AFP) and the Philippine National Police
(PNP), to prevent and suppress acts of terrorism and lawless violence in the country;
I hereby direct the Chief of Staff of the AFP and the Chief of the PNP, as well as the officers and
men of the AFP and PNP, to immediately carry out the necessary and appropriate actions
and measures to suppress and prevent acts of terrorism and lawless violence.
On March 3, 2006, exactly one week after the declaration of a state of national emergency and
after all these petitions had been filed, the President lifted PP 1017. She issued Proclamation No.
1021 which reads:
WHEREAS, pursuant to Section 18, Article VII and Section 17, Article XII of the Constitution,
Proclamation No. 1017 dated February 24, 2006, was issued declaring a state of national
emergency;

327

WHEREAS, by virtue of General Order No.5 and No.6 dated February 24, 2006, which were
issued on the basis of Proclamation No. 1017, the Armed Forces of the Philippines (AFP) and the
Philippine National Police (PNP), were directed to maintain law and order throughout the
Philippines, prevent and suppress all form of lawless violence as well as any act of rebellion and
to undertake such action as may be necessary;
WHEREAS, the AFP and PNP have effectively prevented, suppressed and quelled the acts
lawless violence and rebellion;
NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, President of the Republic of the
Philippines, by virtue of the powers vested in me by law, hereby declare that the state of
national emergency has ceased to exist.
In their presentation of the factual bases of PP 1017 and G.O. No. 5, respondents stated that the
proximate cause behind the executive issuances was the conspiracy among some military
officers, leftist insurgents of the New Peoples Army (NPA), and some members of the political
opposition in a plot to unseat or assassinate President Arroyo. 4 They considered the aim to oust
or assassinate the President and take-over the reigns of government as a clear and present
danger.
During the oral arguments held on March 7, 2006, the Solicitor General specified the facts
leading to the issuance of PP 1017 and G.O. No. 5. Significantly, there was no refutation
from petitioners counsels.
The Solicitor General argued that the intent of the Constitution is to give full discretionary
powers to the President in determining the necessity of calling out the armed forces. He
emphasized that none of the petitioners has shown that PP 1017 was without factual bases.
While he explained that it is not respondents task to state the facts behind the questioned
Proclamation, however, they are presenting the same, narrated hereunder, for the elucidation of
the issues.
On January 17, 2006, Captain Nathaniel Rabonza and First Lieutenants Sonny Sarmiento,
Lawrence San Juan and Patricio Bumidang, members of the Magdalo Group indicted in the
Oakwood mutiny, escaped their detention cell in Fort Bonifacio, Taguig City. In a public
statement, they vowed to remain defiant and to elude arrest at all costs. They called upon the
people to "show and proclaim our displeasure at the sham regime. Let us demonstrate our
disgust, not only by going to the streets in protest, but also by wearing red bands on our left
arms." 5
On February 17, 2006, the authorities got hold of a document entitled "Oplan Hackle I " which
detailed plans for bombings and attacks during the Philippine Military Academy Alumni
Homecoming in Baguio City. The plot was to assassinate selected targets including some cabinet
members and President Arroyo herself. 6 Upon the advice of her security, President Arroyo
decided not to attend the Alumni Homecoming. The next day, at the height of the celebration, a
bomb was found and detonated at the PMA parade ground.
On February 21, 2006, Lt. San Juan was recaptured in a communist safehouse in Batangas
province. Found in his possession were two (2) flash disks containing minutes of the meetings
between members of the Magdalo Group and the National Peoples Army (NPA), a tape recorder,
audio cassette cartridges, diskettes, and copies of subversive documents. 7 Prior to his arrest, Lt.
San Juan announced through DZRH that the "Magdalos D-Day would be on February 24, 2006,
the 20th Anniversary of Edsa I."
On February 23, 2006, PNP Chief Arturo Lomibao intercepted information that members of the
PNP- Special Action Force were planning to defect. Thus, he immediately ordered SAF
Commanding General Marcelino Franco, Jr. to "disavow" any defection. The latter promptly
328

obeyed and issued a public statement: "All SAF units are under the effective control of
responsible and trustworthy officers with proven integrity and unquestionable loyalty."
On the same day, at the house of former Congressman Peping Cojuangco, President Cory
Aquinos brother, businessmen and mid-level government officials plotted moves to bring down
the Arroyo administration. Nelly Sindayen of TIME Magazine reported that Pastor Saycon,
longtime Arroyo critic, called a U.S. government official about his groups plans if President
Arroyo is ousted. Saycon also phoned a man code-named Delta. Saycon identified him as B/Gen.
Danilo Lim, Commander of the Armys elite Scout Ranger. Lim said "it was all systems go for the
planned movement against Arroyo."8
B/Gen. Danilo Lim and Brigade Commander Col. Ariel Querubin confided to Gen. Generoso
Senga, Chief of Staff of the Armed Forces of the Philippines (AFP), that a huge number of soldiers
would join the rallies to provide a critical mass and armed component to the Anti-Arroyo protests
to be held on February 24, 2005. According to these two (2) officers, there was no way they could
possibly stop the soldiers because they too, were breaking the chain of command to join the
forces foist to unseat the President. However, Gen. Senga has remained faithful to his
Commander-in-Chief and to the chain of command. He immediately took custody of B/Gen. Lim
and directed Col. Querubin to return to the Philippine Marines Headquarters in Fort Bonifacio.
Earlier, the CPP-NPA called for intensification of political and revolutionary work within the
military and the police establishments in order to forge alliances with its members and key
officials. NPA spokesman Gregorio "Ka Roger" Rosal declared: "The Communist Party and
revolutionary movement and the entire people look forward to the possibility in the coming year
of accomplishing its immediate task of bringing down the Arroyo regime; of rendering it to
weaken and unable to rule that it will not take much longer to end it."9
On the other hand, Cesar Renerio, spokesman for the National Democratic Front (NDF) at North
Central Mindanao, publicly announced: "Anti-Arroyo groups within the military and police are
growing rapidly, hastened by the economic difficulties suffered by the families of AFP officers
and enlisted personnel who undertake counter-insurgency operations in the field." He claimed
that with the forces of the national democratic movement, the anti-Arroyo conservative political
parties, coalitions, plus the groups that have been reinforcing since June 2005, it is probable that
the Presidents ouster is nearing its concluding stage in the first half of 2006.
Respondents further claimed that the bombing of telecommunication towers and cell sites in
Bulacan and Bataan was also considered as additional factual basis for the issuance of PP 1017
and G.O. No. 5. So is the raid of an army outpost in Benguet resulting in the death of three (3)
soldiers. And also the directive of the Communist Party of the Philippines ordering its front
organizations to join 5,000 Metro Manila radicals and 25,000 more from the provinces in mass
protests.10
By midnight of February 23, 2006, the President convened her security advisers and several
cabinet members to assess the gravity of the fermenting peace and order situation. She directed
both the AFP and the PNP to account for all their men and ensure that the chain of command
remains solid and undivided. To protect the young students from any possible trouble that might
break loose on the streets, the President suspended classes in all levels in the entire National
Capital Region.
For their part, petitioners cited the events that followed after the issuance of PP 1017
and G.O. No. 5.
Immediately, the Office of the President announced the cancellation of all programs and
activities related to the 20th anniversary celebration of Edsa People Power I; and revoked the
permits to hold rallies issued earlier by the local governments. Justice Secretary Raul Gonzales
stated that political rallies, which to the Presidents mind were organized for purposes of
329

destabilization, are cancelled.Presidential Chief of Staff Michael Defensor announced that


"warrantless arrests and take-over of facilities, including media, can already be implemented."11
Undeterred by the announcements that rallies and public assemblies would not be allowed,
groups of protesters (members of Kilusang Mayo Uno [KMU] and National Federation of Labor
Unions-Kilusang Mayo Uno [NAFLU-KMU]), marched from various parts of Metro Manila with the
intention of converging at the EDSA shrine. Those who were already near the EDSA site were
violently dispersed by huge clusters of anti-riot police. The well-trained policemen used
truncheons, big fiber glass shields, water cannons, and tear gas to stop and break up the
marching groups, and scatter the massed participants. The same police action was used against
the protesters marching forward to Cubao, Quezon City and to the corner of Santolan Street and
EDSA. That same evening, hundreds of riot policemen broke up an EDSA celebration rally held
along Ayala Avenue and Paseo de Roxas Street in Makati City. 12
According to petitioner Kilusang Mayo Uno, the police cited PP 1017 as the ground for the
dispersal of their assemblies.
During the dispersal of the rallyists along EDSA, police arrested (without warrant) petitioner
Randolf S. David, a professor at the University of the Philippines and newspaper columnist. Also
arrested was his companion, Ronald Llamas, president of party-list Akbayan.
At around 12:20 in the early morning of February 25, 2006, operatives of the Criminal
Investigation and Detection Group (CIDG) of the PNP, on the basis of PP 1017 and G.O. No. 5,
raided the Daily Tribune offices in Manila. The raiding team confiscated news stories by
reporters, documents, pictures, and mock-ups of the Saturday issue. Policemen from Camp
Crame in Quezon City were stationed inside the editorial and business offices of the newspaper;
while policemen from the Manila Police District were stationed outside the building. 13
A few minutes after the search and seizure at the Daily Tribune offices, the police surrounded the
premises of another pro-opposition paper, Malaya, and its sister publication, the tabloid Abante.
The raid, according to Presidential Chief of Staff Michael Defensor, is "meant to show a strong
presence, to tell media outlets not to connive or do anything that would help the rebels in
bringing down this government." The PNP warned that it would take over any media organization
that would not follow "standards set by the government during the state of national
emergency." Director General Lomibao stated that "if they do not follow the standards and the
standards are - if they would contribute to instability in the government, or if they do not
subscribe to what is in General Order No. 5 and Proc. No. 1017 we will recommend a
takeover." National Telecommunications Commissioner Ronald Solis urged television and radio
networks to "cooperate" with the government for the duration of the state of national emergency.
He asked for "balanced reporting" from broadcasters when covering the events surrounding the
coup attempt foiled by the government. He warned that his agency will not hesitate to
recommend the closure of any broadcast outfit that violates rules set out for media coverage
when the national security is threatened.14
Also, on February 25, 2006, the police arrested Congressman Crispin Beltran, representing
the Anakpawis Party and Chairman of Kilusang Mayo Uno (KMU), while leaving his farmhouse in
Bulacan. The police showed a warrant for his arrest dated 1985. Beltrans lawyer explained that
the warrant, which stemmed from a case of inciting to rebellion filed during the Marcos regime,
had long been quashed. Beltran, however, is not a party in any of these petitions.
When members of petitioner KMU went to Camp Crame to visit Beltran, they were told they could
not be admitted because of PP 1017 and G.O. No. 5. Two members were arrested and detained,
while the rest were dispersed by the police.

330

Bayan Muna Representative Satur Ocampo eluded arrest when the police went after him during a
public forum at the Sulo Hotel in Quezon City. But his two drivers, identified as Roel and Art, were
taken into custody.
Retired Major General Ramon Montao, former head of the Philippine Constabulary, was arrested
while with his wife and golfmates at the Orchard Golf and Country Club in Dasmarias, Cavite.
Attempts were made to arrest Anakpawis Representative Satur Ocampo, Representative Rafael
Mariano, Bayan Muna Representative Teodoro Casio and Gabriela Representative Liza
Maza. Bayan Muna Representative Josel Virador was arrested at the PAL Ticket Office in Davao
City. Later, he was turned over to the custody of the House of Representatives where the
"Batasan 5" decided to stay indefinitely.
Let it be stressed at this point that the alleged violations of the rights of Representatives Beltran,
Satur Ocampo, et al., are not being raised in these petitions.
On March 3, 2006, President Arroyo issued PP 1021 declaring that the state of national
emergency has ceased to exist.
In the interim, these seven (7) petitions challenging the constitutionality of PP 1017 and G.O. No.
5 were filed with this Court against the above-named respondents. Three (3) of these petitions
impleaded President Arroyo as respondent.
In G.R. No. 171396, petitioners Randolf S. David, et al. assailed PP 1017 on the grounds
that (1) it encroaches on the emergency powers of Congress; (2) itis a subterfuge to avoid the
constitutional requirements for the imposition of martial law; and (3) it violates the constitutional
guarantees of freedom of the press, of speech and of assembly.
In G.R. No. 171409, petitioners Ninez Cacho-Olivares and Tribune Publishing Co.,
Inc. challenged the CIDGs act of raiding the Daily Tribune offices as a clear case of "censorship"
or "prior restraint." They also claimed that the term "emergency" refers only to tsunami,
typhoon, hurricane and similar occurrences, hence, there is "absolutely no emergency" that
warrants the issuance of PP 1017.
In G.R. No. 171485, petitioners herein are Representative Francis Joseph G. Escudero, and
twenty one (21) other members of the House of Representatives, including Representatives Satur
Ocampo, Rafael Mariano, Teodoro Casio, Liza Maza, and Josel Virador. They asserted that PP
1017 and G.O. No. 5 constitute "usurpation of legislative powers"; "violation of freedom of
expression" and "a declaration of martial law." They alleged that President Arroyo "gravely
abused her discretion in calling out the armed forces without clear and verifiable factual basis of
the possibility of lawless violence and a showing that there is necessity to do so."
In G.R. No. 171483,petitioners KMU, NAFLU-KMU, and their members averred that PP 1017 and
G.O. No. 5 are unconstitutional because (1) they arrogate unto President Arroyo the power to
enact laws and decrees; (2) their issuance was without factual basis; and (3) they violate
freedom of expression and the right of the people to peaceably assemble to redress their
grievances.
In G.R. No. 171400, petitioner Alternative Law Groups, Inc. (ALGI) alleged that PP 1017 and
G.O. No. 5 are unconstitutional because they violate (a) Section 415 of Article II, (b) Sections
1,16 2,17 and 418 of Article III, (c)Section 2319 of Article VI, and (d) Section 1720 of Article XII of the
Constitution.
In G.R. No. 171489, petitioners Jose Anselmo I. Cadiz et al., alleged that PP 1017 is an
"arbitrary and unlawful exercise by the President of her Martial Law powers." And assuming that
PP 1017 is not really a declaration of Martial Law, petitioners argued that "it amounts to an
exercise by the President of emergency powers without congressional approval." In addition,
331

petitioners asserted that PP 1017 "goes beyond the nature and function of a proclamation as
defined under the Revised Administrative Code."
And lastly, in G.R. No. 171424,petitionerLoren B. Legarda maintained that PP 1017 and G.O. No.
5 are "unconstitutional for being violative of the freedom of expression, including its cognate
rights such as freedom of the press and the right to access to information on matters of public
concern, all guaranteed under Article III, Section 4 of the 1987 Constitution." In this regard, she
stated that these issuances prevented her from fully prosecuting her election protest pending
before the Presidential Electoral Tribunal.
In respondents Consolidated Comment, the Solicitor General countered that: first, the petitions
should be dismissed for being moot; second,petitioners in G.R. Nos. 171400 (ALGI), 171424
(Legarda), 171483 (KMU et al.), 171485 (Escudero et al.) and 171489 (Cadiz et al.) have no legal
standing; third, it is not necessary for petitioners to implead President Arroyo as
respondent; fourth, PP 1017 has constitutional and legal basis; and fifth, PP 1017 does not violate
the peoples right to free expression and redress of grievances.
On March 7, 2006, the Court conducted oral arguments and heard the parties on the above
interlocking issues which may be summarized as follows:
A. PROCEDURAL:
1) Whether the issuance of PP 1021 renders the petitions moot and academic.
2) Whether petitioners in 171485 (Escudero et al.), G.R. Nos. 171400 (ALGI), 171483 (KMU et
al.), 171489(Cadiz et al.), and 171424 (Legarda) have legal standing.
B. SUBSTANTIVE:
1) Whetherthe Supreme Court can review the factual bases of PP 1017.
2) Whether PP 1017 and G.O. No. 5 are unconstitutional.
a. Facial Challenge
b. Constitutional Basis
c. As Applied Challenge
A. PROCEDURAL
First, we must resolve the procedural roadblocks.
I- Moot and Academic Principle
One of the greatest contributions of the American system to this country is the concept of judicial
review enunciated in Marbury v. Madison.21 This concept rests on the extraordinary simple
foundation -The Constitution is the supreme law. It was ordained by the people, the ultimate source of all
political authority. It confers limited powers on the national government. x x x If the
government consciously or unconsciously oversteps these limitations there must be
some authority competent to hold it in control, to thwart its unconstitutional attempt,
and thus to vindicate and preserve inviolate the will of the people as expressed in the
Constitution. This power the courts exercise. This is the beginning and the end of the
theory of judicial review.22

332

But the power of judicial review does not repose upon the courts a "self-starting
capacity."23 Courts may exercise such power only when the following requisites are
present: first, there must be an actual case or controversy; second, petitioners have to raise a
question of constitutionality; third, the constitutional question must be raised at the earliest
opportunity; and fourth, the decision of the constitutional question must be necessary to the
determination of the case itself.24
Respondents maintain that the first and second requisites are absent, hence, we shall limit our
discussion thereon.
An actual case or controversy involves a conflict of legal right, an opposite legal claims
susceptible of judicial resolution. It is "definite and concrete, touching the legal relations of
parties having adverse legal interest;" a real and substantial controversy admitting of specific
relief.25 The Solicitor General refutes the existence of such actual case or controversy, contending
that the present petitions were rendered "moot and academic" by President Arroyos issuance of
PP 1021.
Such contention lacks merit.
A moot and academic case is one that ceases to present a justiciable controversy by virtue of
supervening events,26so that a declaration thereon would be of no practical use or
value.27 Generally, courts decline jurisdiction over such case 28 or dismiss it on ground of
mootness.29
The Court holds that President Arroyos issuance of PP 1021 did not render the present petitions
moot and academic. During the eight (8) days that PP 1017 was operative, the police officers,
according to petitioners, committed illegal acts in implementing it. Are PP 1017 and G.O. No.
5 constitutional or valid? Do they justify these alleged illegal acts? These are the vital
issues that must be resolved in the present petitions. It must be stressed that "an
unconstitutional act is not a law, it confers no rights, it imposes no duties, it affords
no protection; it is in legal contemplation, inoperative."30
The "moot and academic" principle is not a magical formula that can automatically dissuade the
courts in resolving a case. Courts will decide cases, otherwise moot and academic, if: first, there
is a grave violation of the Constitution; 31second, the exceptional character of the situation and
the paramount public interest is involved; 32 third, when constitutional issue raised requires
formulation of controlling principles to guide the bench, the bar, and the public; 33and fourth, the
case is capable of repetition yet evading review. 34
All the foregoing exceptions are present here and justify this Courts assumption of jurisdiction
over the instant petitions. Petitioners alleged that the issuance of PP 1017 and G.O. No. 5 violates
the Constitution. There is no question that the issues being raised affect the publics interest,
involving as they do the peoples basic rights to freedom of expression, of assembly and of the
press. Moreover, the Court has the duty to formulate guiding and controlling constitutional
precepts, doctrines or rules. It has the symbolic function of educating the bench and the bar, and
in the present petitions, the military and the police, on the extent of the protection given by
constitutional guarantees.35 And lastly, respondents contested actions are capable of repetition.
Certainly, the petitions are subject to judicial review.
In their attempt to prove the alleged mootness of this case, respondents cited Chief Justice
Artemio V. Panganibans Separate Opinion in Sanlakas v. Executive Secretary.36 However, they
failed to take into account the Chief Justices very statement that an otherwise "moot" case may
still be decided "provided the party raising it in a proper case has been and/or continues to be
prejudiced or damaged as a direct result of its issuance." The present case falls right within this
exception to the mootness rule pointed out by the Chief Justice.
II- Legal Standing
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In view of the number of petitioners suing in various personalities, the Court deems it imperative
to have a more than passing discussion on legal standing or locus standi.
Locus standi is defined as "a right of appearance in a court of justice on a given question." 37 In
private suits, standing is governed by the "real-parties-in interest" rule as contained in Section 2,
Rule 3 of the 1997 Rules of Civil Procedure, as amended. It provides that "every action must be
prosecuted or defended in the name of the real party in interest." Accordingly, the "realparty-in interest" is "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."38 Succinctly put, the plaintiffs
standing is based on his own right to the relief sought.
The difficulty of determining locus standi arises in public suits. Here, the plaintiff who asserts a
"public right" in assailing an allegedly illegal official action, does so as a representative of the
general public. He may be a person who is affected no differently from any other person. He
could be suing as a "stranger," or in the category of a "citizen," or taxpayer." In either case, he
has to adequately show that he is entitled to seek judicial protection. In other words, he has to
make out a sufficient interest in the vindication of the public order and the securing of relief as a
"citizen" or "taxpayer.
Case law in most jurisdictions now allows both "citizen" and "taxpayer" standing in public
actions. The distinction was first laid down in Beauchamp v. Silk,39 where it was held that the
plaintiff in a taxpayers suit is in a different category from the plaintiff in a citizens suit. In the
former, the plaintiff is affected by the expenditure of public funds, while in the latter,
he is but the mere instrument of the public concern. As held by the New York Supreme
Court in People ex rel Case v. Collins:40 "In matter of mere public right, howeverthe
people are the real partiesIt is at least the right, if not the duty, of every citizen to
interfere and see that a public offence be properly pursued and punished, and that a
public grievance be remedied." With respect to taxpayers suits, Terr v. Jordan41 held that
"the right of a citizen and a taxpayer to maintain an action in courts to restrain the
unlawful use of public funds to his injury cannot be denied."
However, to prevent just about any person from seeking judicial interference in any official policy
or act with which he disagreed with, and thus hinders the activities of governmental agencies
engaged in public service, the United State Supreme Court laid down the more stringent "direct
injury" test in Ex Parte Levitt,42 later reaffirmed in Tileston v. Ullman.43 The same Court ruled
that for a private individual to invoke the judicial power to determine the validity of an executive
or legislative action, he must show that he has sustained a direct injury as a result of
that action, and it is not sufficient that he has a general interest common to all
members of the public.
This Court adopted the "direct injury" test in our jurisdiction. In People v. Vera,44 it held that
the person who impugns the validity of a statute must have "a personal and substantial
interest in the case such that he has sustained, or will sustain direct injury as a
result." The Vera doctrine was upheld in a litany of cases, such as, Custodio v. President of the
Senate,45 Manila Race Horse Trainers Association v. De la Fuente,46 Pascual v. Secretary of Public
Works47 and Anti-Chinese League of the Philippines v. Felix. 48
However, being a mere procedural technicality, the requirement of locus standi may be waived
by the Court in the exercise of its discretion. This was done in the 1949 Emergency Powers
Cases, Araneta v. Dinglasan,49 where the "transcendental importance" of the cases prompted
the Court to act liberally. Such liberality was neither a rarity nor accidental. In Aquino v.
Comelec,50 this Court resolved to pass upon the issues raised due to the "far-reaching
implications" of the petition notwithstanding its categorical statement that petitioner therein
had no personality to file the suit. Indeed, there is a chain of cases where this liberal policy has
been observed, allowing ordinary citizens, members of Congress, and civic organizations to
prosecute actions involving the constitutionality or validity of laws, regulations and rulings. 51
334

Thus, the Court has adopted a rule that even where the petitioners have failed to show direct
injury, they have been allowed to sue under the principle of "transcendental importance."
Pertinent are the following cases:
(1) Chavez v. Public Estates Authority, 52 where the Court ruled that the enforcement of the
constitutional right to information and the equitable diffusion of natural resources are
matters of transcendental importance which clothe the petitioner with locus standi;
(2) Bagong Alyansang Makabayan v. Zamora,53 wherein the Court held that "given the
transcendental importance of the issues involved, the Court may relax the standing
requirements and allow the suit to prosper despite the lack of direct injury to the
parties seeking judicial review" of the Visiting Forces Agreement;
(3) Lim v. Executive Secretary,54 while the Court noted that the petitioners may not file suit in
their capacity as taxpayers absent a showing that "Balikatan 02-01" involves the exercise of
Congress taxing or spending powers, it reiterated its ruling in Bagong Alyansang Makabayan v.
Zamora,55that in cases of transcendental importance, the cases must be settled
promptly and definitely and standing requirements may be relaxed.
By way of summary, the following rules may be culled from the cases decided by this Court.
Taxpayers, voters, concerned citizens, and legislators may be accorded standing to sue, provided
that the following requirements are met:
(1) the cases involve constitutional issues;
(2) for taxpayers, there must be a claim of illegal disbursement of public funds or that the tax
measure is unconstitutional;
(3) for voters, there must be a showing of obvious interest in the validity of the election law in
question;
(4) for concerned citizens, there must be a showing that the issues raised are of
transcendental importance which must be settled early; and
(5) for legislators, there must be a claim that the official action complained of infringes upon
their prerogatives as legislators.
Significantly, recent decisions show a certain toughening in the Courts attitude toward legal
standing.
In Kilosbayan, Inc. v. Morato,56 the Court ruled that the status of Kilosbayan as a peoples
organization does not give it the requisite personality to question the validity of the on-line
lottery contract, more so where it does not raise any issue of constitutionality. Moreover, it
cannot sue as a taxpayer absent any allegation that public funds are being misused. Nor can it
sue as a concerned citizen as it does not allege any specific injury it has suffered.
In Telecommunications and Broadcast Attorneys of the Philippines, Inc. v. Comelec,57 the Court
reiterated the "direct injury" test with respect to concerned citizens cases involving
constitutional issues. It held that "there must be a showing that the citizen personally suffered
some actual or threatened injury arising from the alleged illegal official act."
In Lacson v. Perez,58 the Court ruled that one of the petitioners, Laban ng Demokratikong
Pilipino (LDP), is not a real party-in-interest as it had not demonstrated any injury to itself or to
its leaders, members or supporters.
In Sanlakas v. Executive Secretary,59 the Court ruled that only the petitioners who are members
of Congress have standing to sue, as they claim that the Presidents declaration of a state of
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rebellion is a usurpation of the emergency powers of Congress, thus impairing their


legislative powers. As to petitioners Sanlakas, Partido Manggagawa, and Social Justice Society,
the Court declared them to be devoid of standing, equating them with the LDP in Lacson.
Now, the application of the above principles to the present petitions.
The locus standi of petitioners in G.R. No. 171396, particularly David and Llamas, is beyond
doubt. The same holds true with petitioners in G.R. No. 171409, Cacho-Olivares
and Tribune Publishing Co. Inc. They alleged "direct injury" resulting from "illegal arrest" and
"unlawful search" committed by police operatives pursuant to PP 1017. Rightly so, the Solicitor
General does not question their legal standing.
In G.R. No. 171485, the opposition Congressmen alleged there was usurpation of legislative
powers. They also raised the issue of whether or not the concurrence of Congress is necessary
whenever the alarming powers incident to Martial Law are used. Moreover, it is in the interest of
justice that those affected by PP 1017 can be represented by their Congressmen in bringing to
the attention of the Court the alleged violations of their basic rights.
In G.R. No. 171400, (ALGI), this Court applied the liberality rule in Philconsa v.
Enriquez,60 Kapatiran Ng Mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan,61 Association
of Small Landowners in the Philippines, Inc. v. Secretary of Agrarian Reform,62 Basco v. Philippine
Amusement and Gaming Corporation,63 and Taada v. Tuvera,64 that when the issue concerns a
public right, it is sufficient that the petitioner is a citizen and has an interest in the execution of
the laws.
In G.R. No. 171483, KMUs assertion that PP 1017 and G.O. No. 5 violated its right to peaceful
assembly may be deemed sufficient to give it legal standing. Organizations may be granted
standing to assert the rights of their members.65 We take judicial notice of the
announcement by the Office of the President banning all rallies and canceling all permits for
public assemblies following the issuance of PP 1017 and G.O. No. 5.
In G.R. No. 171489, petitioners, Cadiz et al., who are national officers of the Integrated Bar of
the Philippines (IBP) have no legal standing, having failed to allege any direct or potential injury
which the IBP as an institution or its members may suffer as a consequence of the issuance of PP
No. 1017 and G.O. No. 5. In Integrated Bar of the Philippines v. Zamora, 66 the Court held that the
mere invocation by the IBP of its duty to preserve the rule of law and nothing more, while
undoubtedly true, is not sufficient to clothe it with standing in this case. This is too general an
interest which is shared by other groups and the whole citizenry. However, in view of the
transcendental importance of the issue, this Court declares that petitioner have locus standi.
In G.R. No. 171424, Loren Legarda has no personality as a taxpayer to file the instant petition
as there are no allegations of illegal disbursement of public funds. The fact that she is a former
Senator is of no consequence. She can no longer sue as a legislator on the allegation that her
prerogatives as a lawmaker have been impaired by PP 1017 and G.O. No. 5. Her claim that she is
a media personality will not likewise aid her because there was no showing that the enforcement
of these issuances prevented her from pursuing her occupation. Her submission that she has
pending electoral protest before the Presidential Electoral Tribunal is likewise of no relevance.
She has not sufficiently shown that PP 1017 will affect the proceedings or result of her case. But
considering once more the transcendental importance of the issue involved, this Court may relax
the standing rules.
It must always be borne in mind that the question of locus standi is but corollary to the bigger
question of proper exercise of judicial power. This is the underlying legal tenet of the "liberality
doctrine" on legal standing. It cannot be doubted that the validity of PP No. 1017 and G.O. No. 5
is a judicial question which is of paramount importance to the Filipino people. To paraphrase
Justice Laurel, the whole of Philippine society now waits with bated breath the ruling of this Court
on this very critical matter. The petitions thus call for the application of the "transcendental
336

importance" doctrine, a relaxation of the standing requirements for the petitioners in the "PP
1017 cases."1avvphil.net
This Court holds that all the petitioners herein have locus standi.
Incidentally, it is not proper to implead President Arroyo as respondent. Settled is the doctrine
that the President, during his tenure of office or actual incumbency, 67 may not be sued
in any civil or criminal case, and there is no need to provide for it in the Constitution or law. It will
degrade the dignity of the high office of the President, the Head of State, if he can be dragged
into court litigations while serving as such. Furthermore, it is important that he be freed from any
form of harassment, hindrance or distraction to enable him to fully attend to the performance of
his official duties and functions. Unlike the legislative and judicial branch, only one constitutes
the executive branch and anything which impairs his usefulness in the discharge of the many
great and important duties imposed upon him by the Constitution necessarily impairs the
operation of the Government. However, this does not mean that the President is not accountable
to anyone. Like any other official, he remains accountable to the people 68 but he may be
removed from office only in the mode provided by law and that is by impeachment. 69
B. SUBSTANTIVE
I. Review of Factual Bases
Petitioners maintain that PP 1017 has no factual basis. Hence, it was not "necessary" for
President Arroyo to issue such Proclamation.
The issue of whether the Court may review the factual bases of the Presidents exercise of his
Commander-in-Chief power has reached its distilled point - from the indulgent days of Barcelon v.
Baker70 and Montenegro v. Castaneda71 to the volatile era of Lansang v. Garcia,72 Aquino, Jr. v.
Enrile,73 and Garcia-Padilla v. Enrile.74 The tug-of-war always cuts across the line defining
"political questions," particularly those questions "in regard to which full discretionary authority
has been delegated to the legislative or executive branch of the government." 75 Barcelon and
Montenegro were in unison in declaring that the authority to decide whether an exigency
has arisen belongs to the President and his decision is final and conclusive on the
courts. Lansang took the opposite view. There, the members of the Court were unanimous in the
conviction that the Court has the authority to inquire into the existence of factual bases in order
to determine their constitutional sufficiency. From the principle of separation of powers, it
shifted the focus to the system of checks and balances, "under which the President is
supreme, x x x only if and when he acts within the sphere allotted to him by the Basic
Law, and the authority to determine whether or not he has so acted is vested in the
Judicial Department, which in this respect, is, in turn, constitutionally supreme."76 In
1973, the unanimous Court of Lansang was divided in Aquino v. Enrile.77 There, the Court was
almost evenly divided on the issue of whether the validity of the imposition of Martial Law is a
political
or justiciable
question.78 Then
came Garcia-Padilla
v. Enrile which
greatly
diluted Lansang. It declared that there is a need to re-examine the latter case, ratiocinating that
"in times of war or national emergency, the President must be given absolute control
for the very life of the nation and the government is in great peril. The President, it
intoned, is answerable only to his conscience, the People, and God."79
The Integrated Bar of the Philippines v. Zamora 80 -- a recent case most pertinent to these cases
at bar -- echoed a principle similar to Lansang. While the Court considered the Presidents
"calling-out" power as a discretionary power solely vested in his wisdom, it stressed that "this
does not prevent an examination of whether such power was exercised within
permissible constitutional limits or whether it was exercised in a manner constituting
grave abuse of discretion."This ruling is mainly a result of the Courts reliance on Section 1,
Article VIII of 1987 Constitution which fortifies the authority of the courts to determine in an
appropriate action the validity of the acts of the political departments. Under the new definition
of judicial power, the courts are authorized not only "to settle actual controversies involving
337

rights which are legally demandable and enforceable," but also "to determine whether or not
there has been a grave abuse of discretion amounting to lack or excess of jurisdiction
on the part of any branch or instrumentality of the government." The latter part of the
authority represents a broadening of judicial power to enable the courts of justice to review what
was before a forbidden territory, to wit, the discretion of the political departments of the
government.81 It speaks of judicial prerogative not only in terms of power but also of duty.82
As to how the Court may inquire into the Presidents exercise of power, Lansang adopted the test
that "judicial inquiry can go no further than to satisfy the Court not that the Presidents decision
is correct," but that "the President did not act arbitrarily." Thus, the standard laid down is not
correctness, but arbitrariness.83 In Integrated Bar of the Philippines, this Court further ruled that
"it is incumbent upon the petitioner to show that the Presidents decision is totally
bereft of factual basis" and that if he fails, by way of proof, to support his assertion, then "this
Court cannot undertake an independent investigation beyond the pleadings."
Petitioners failed to show that President Arroyos exercise of the calling-out power, by issuing PP
1017, is totally bereft of factual basis. A reading of the Solicitor Generals Consolidated Comment
and Memorandum shows a detailed narration of the events leading to the issuance of PP 1017,
with supporting reports forming part of the records. Mentioned are the escape of the Magdalo
Group, their audacious threat of the Magdalo D-Day, the defections in the military, particularly in
the Philippine Marines, and the reproving statements from the communist leaders. There was
also the Minutes of the Intelligence Report and Security Group of the Philippine Army showing the
growing alliance between the NPA and the military. Petitioners presented nothing to refute such
events. Thus, absent any contrary allegations, the Court is convinced that the President was
justified in issuing PP 1017 calling for military aid.
Indeed, judging the seriousness of the incidents, President Arroyo was not expected to simply
fold her arms and do nothing to prevent or suppress what she believed was lawless violence,
invasion or rebellion. However, the exercise of such power or duty must not stifle liberty.
II. Constitutionality of PP 1017 and G.O. No. 5
Doctrines of Several Political Theorists
on the Power of the President in Times of Emergency
This case brings to fore a contentious subject -- the power of the President in times of
emergency. A glimpse at the various political theories relating to this subject provides an
adequate backdrop for our ensuing discussion.
John Locke, describing the architecture of civil government, called upon the English doctrine of
prerogative to cope with the problem of emergency. In times of danger to the nation, positive law
enacted by the legislature might be inadequate or even a fatal obstacle to the promptness of
action necessary to avert catastrophe. In these situations, the Crown retained a prerogative
"power to act according to discretion for the public good, without the proscription of
the law and sometimes even against it."84 But Locke recognized that this moral restraint
might not suffice to avoid abuse of prerogative powers. Who shall judge the need for
resorting to the prerogative and how may its abuse be avoided? Here, Locke readily
admitted defeat, suggesting that "the people have no other remedy in this, as in all other
cases where they have no judge on earth, but to appeal to Heaven."85
Jean-Jacques Rousseau also assumed the need for temporary suspension of democratic
processes of government in time of emergency. According to him:
The inflexibility of the laws, which prevents them from adopting themselves to circumstances,
may, in certain cases, render them disastrous and make them bring about, at a time of crisis, the
ruin of the State

338

It is wrong therefore to wish to make political institutions as strong as to render it impossible to


suspend their operation. Even Sparta allowed its law to lapse...
If the peril is of such a kind that the paraphernalia of the laws are an obstacle to their
preservation, the method is to nominate a supreme lawyer, who shall silence all the laws and
suspend for a moment the sovereign authority. In such a case, there is no doubt about the
general will, and it clear that the peoples first intention is that the State shall not perish. 86
Rosseau did not fear the abuse of the emergency dictatorship or "supreme magistracy" as he
termed it. For him, it would more likely be cheapened by "indiscreet use." He was unwilling to
rely upon an "appeal to heaven." Instead, he relied upon a tenure of office of prescribed
duration to avoid perpetuation of the dictatorship. 87
John Stuart Mill concluded his ardent defense of representative government: "I am far from
condemning, in cases of extreme necessity, the assumption of absolute power in the
form of a temporary dictatorship."88
Nicollo Machiavellis view of emergency powers, as one element in the whole scheme of limited
government, furnished an ironic contrast to the Lockean theory of prerogative. He recognized
and attempted to bridge this chasm in democratic political theory, thus:
Now, in a well-ordered society, it should never be necessary to resort to extra constitutional
measures; for although they may for a time be beneficial, yet the precedent is pernicious, for if
the practice is once established for good objects, they will in a little while be disregarded under
that pretext but for evil purposes. Thus, no republic will ever be perfect if she has not by law
provided for everything, having a remedy for every emergency and fixed rules for applying it. 89
Machiavelli in contrast to Locke, Rosseau and Mill sought to incorporate into the constitution a
regularized system of standby emergency powers to be invoked with suitable checks and
controls in time of national danger. He attempted forthrightly to meet the problem of combining
a capacious reserve of power and speed and vigor in its application in time of emergency, with
effective constitutional restraints.90
Contemporary political theorists, addressing themselves to the problem of response to
emergency by constitutional democracies, have employed the doctrine of constitutional
dictatorship.91 Frederick M. Watkins saw "no reason why absolutism should not be used as
a means for the defense of liberal institutions," provided it "serves to protect
established institutions from the danger of permanent injury in a period of temporary
emergency and is followed by a prompt return to the previous forms of political
life."92 He recognized the two (2) key elements of the problem of emergency governance, as well
as all constitutional governance: increasing administrative powers of the executive, while
at the same time "imposing limitation upon that power."93Watkins placed his real faith in a
scheme of constitutional dictatorship. These are the conditions of success of such a
dictatorship: "The period of dictatorship must be relatively shortDictatorship should
always be strictly legitimate in characterFinal authority to determine the need for
dictatorship in any given case must never rest with the dictator himself"94 and the
objective of such an emergency dictatorship should be "strict political conservatism."
Carl J. Friedrich cast his analysis in terms similar to those of Watkins. 95 "It is a problem of
concentrating power in a government where power has consciously been divided to cope
with situations of unprecedented magnitude and gravity. There must be a broad grant of
powers, subject to equally strong limitations as to who shall exercise such powers, when, for how
long, and to what end." 96 Friedrich, too, offered criteria for judging the adequacy of any of
scheme of emergency powers, to wit: "The emergency executive must be appointed by
constitutional means i.e., he must be legitimate; he should not enjoy power to
determine the existence of an emergency; emergency powers should be exercised
339

under a strict time limitation; and last, the objective of emergency action must be the
defense of the constitutional order."97
Clinton L. Rossiter, after surveying the history of the employment of emergency powers in Great
Britain, France, Weimar, Germany and the United States, reverted to a description of a scheme of
"constitutional dictatorship" as solution to the vexing problems presented by emergency. 98 Like
Watkins and Friedrich, he stated a priori the conditions of success of the "constitutional
dictatorship," thus:
1) No general regime or particular institution of constitutional dictatorship should be initiated
unless it is necessary or even indispensable to the preservation of the State and its constitutional
order
2) the decision to institute a constitutional dictatorship should never be in the hands of the
man or men who will constitute the dictator
3) No government should initiate a constitutional dictatorship without making specific provisions
for its termination
4) all uses of emergency powers and all readjustments in the organization of the government
should be effected in pursuit of constitutional or legal requirements
5) no dictatorial institution should be adopted, no right invaded, no regular procedure altered
any more than is absolutely necessary for the conquest of the particular crisis . . .
6) The measures adopted in the prosecution of the a constitutional dictatorship should never be
permanent in character or effect
7) The dictatorship should be carried on by persons representative of every part of the citizenry
interested in the defense of the existing constitutional order. . .
8) Ultimate responsibility should be maintained for every action taken under a constitutional
dictatorship. . .
9) The decision to terminate a constitutional dictatorship, like the decision to institute one should
never be in the hands of the man or men who constitute the dictator. . .
10) No constitutional dictatorship should extend beyond the termination of the crisis for which it
was instituted
11) the termination of the crisis must be followed by a complete return as possible to the
political and governmental conditions existing prior to the initiation of the constitutional
dictatorship99
Rossiter accorded to legislature a far greater role in the oversight exercise of emergency powers
than did Watkins. He would secure to Congress final responsibility for declaring the existence or
termination of an emergency, and he places great faith in the effectiveness of congressional
investigating committees.100
Scott and Cotter, in analyzing the above contemporary theories in light of recent experience,
were one in saying that, "the suggestion that democracies surrender the control of
government to an authoritarian ruler in time of grave danger to the nation
is not based upon sound constitutional theory." To appraise emergency power in terms of
constitutional dictatorship serves merely to distort the problem and hinder realistic analysis. It
matters not whether the term "dictator" is used in its normal sense (as applied to authoritarian
rulers) or is employed to embrace all chief executives administering emergency powers.
However used, "constitutional dictatorship" cannot be divorced from the implication of
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suspension of the processes of constitutionalism. Thus, they favored instead the "concept of
constitutionalism" articulated by Charles H. McIlwain:
A concept of constitutionalism which is less misleading in the analysis of problems of emergency
powers, and which is consistent with the findings of this study, is that formulated by Charles H.
McIlwain. While it does not by any means necessarily exclude some indeterminate limitations
upon the substantive powers of government, full emphasis is placed upon procedural
limitations, and political responsibility. McIlwain clearly recognized the need to repose
adequate power in government. And in discussing the meaning of constitutionalism, he insisted
that the historical and proper test of constitutionalism was the existence of adequate
processes for keeping government responsible. He refused to equate constitutionalism
with the enfeebling of government by an exaggerated emphasis upon separation of powers and
substantive limitations on governmental power. He found that the really effective checks on
despotism have consisted not in the weakening of government but, but rather in the limiting of
it; between which there is a great and very significant difference. In associating
constitutionalism with "limited" as distinguished from "weak" government, McIlwain
meant government limited to the orderly procedure of law as opposed to the
processes of force. The two fundamental correlative elements of constitutionalism for
which all lovers of liberty must yet fight are the legal limits to arbitrary power and a
complete political responsibility of government to the governed.101
In the final analysis, the various approaches to emergency of the above political theorists - from
Locks "theory of prerogative," to Watkins doctrine of "constitutional dictatorship" and,
eventually, to McIlwains "principle of constitutionalism" --- ultimately aim to solve one real
problem in emergency governance, i.e., that of allotting increasing areas of discretionary
power to the Chief Executive, while insuring that such powers will be exercised with a
sense of political responsibility and under effective limitations and checks.
Our Constitution has fairly coped with this problem. Fresh from the fetters of a repressive regime,
the 1986 Constitutional Commission, in drafting the 1987 Constitution, endeavored to create a
government in the concept of Justice Jacksons "balanced power structure." 102 Executive,
legislative, and judicial powers are dispersed to the President, the Congress, and the Supreme
Court, respectively. Each is supreme within its own sphere. But none has the monopoly of
power in times of emergency. Each branch is given a role to serve as limitation or
check upon the other. This system does not weaken the President, it just limits his power,
using the language of McIlwain. In other words, in times of emergency, our Constitution
reasonably demands that we repose a certain amount of faith in the basic integrity and wisdom
of the Chief Executive but, at the same time, it obliges him to operate within carefully
prescribed procedural limitations.
a. "Facial Challenge"
Petitioners contend that PP 1017 is void on its face because of its "overbreadth." They claim that
its enforcement encroached on both unprotected and protected rights under Section 4, Article III
of the Constitution and sent a "chilling effect" to the citizens.
A facial review of PP 1017, using the overbreadth doctrine, is uncalled for.
First and foremost, the overbreadth doctrine is an analytical tool developed for testing "on their
faces" statutes in free speech cases, also known under the American Law as First Amendment
cases.103
A plain reading of PP 1017 shows that it is not primarily directed to speech or even speechrelated conduct. It is actually a call upon the AFP to prevent or suppress all forms
of lawless violence. In United States v. Salerno,104the US Supreme Court held that "we have
not recognized an overbreadth doctrine outside the limited context of the First
Amendment" (freedom of speech).
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Moreover, the overbreadth doctrine is not intended for testing the validity of a law that "reflects
legitimate state interest in maintaining comprehensive control over harmful, constitutionally
unprotected conduct." Undoubtedly, lawless violence, insurrection and rebellion are considered
"harmful" and "constitutionally unprotected conduct." In Broadrick v. Oklahoma,105 it was held:
It remains a matter of no little difficulty to determine when a law may properly be held void on
its face and when such summary action is inappropriate. But the plain import of our cases
is, at the very least, that facial overbreadth adjudication is an exception to our
traditional rules of practice and that its function, a limited one at the outset,
attenuates as the otherwise unprotected behavior that it forbids the State to sanction
moves from pure speech toward conduct and that conduct even if expressive falls
within the scope of otherwise valid criminal laws that reflect legitimate state interests
in maintaining comprehensive controls over harmful, constitutionally unprotected
conduct.
Thus, claims of facial overbreadth are entertained in cases involving statutes which, by their
terms, seek to regulate only "spoken words" and again, that "overbreadth claims, if
entertained at all, have been curtailed when invoked against ordinary criminal laws
that are sought to be applied to protected conduct."106 Here, the incontrovertible fact
remains that PP 1017 pertains to a spectrum of conduct, not free speech, which is manifestly
subject to state regulation.
Second, facial invalidation of laws is considered as "manifestly strong medicine," to be used
"sparingly and only as a last resort," and is "generally disfavored;"107 The reason for this is
obvious. Embedded in the traditional rules governing constitutional adjudication is the principle
that a person to whom a law may be applied will not be heard to challenge a law on the ground
that it may conceivably be applied unconstitutionally to others, i.e., in other situations not
before the Court.108 A writer and scholar in Constitutional Law explains further:
The most distinctive feature of the overbreadth technique is that it marks an
exception to some of the usual rules of constitutional litigation. Ordinarily, a
particular litigant claims that a statute is unconstitutional as applied to him or her; if
the litigant prevails, the courts carve away the unconstitutional aspects of the law by
invalidating its improper applications on a case to case basis. Moreover, challengers
to a law are not permitted to raise the rights of third parties and can only assert their
own interests. In overbreadth analysis, those rules give way; challenges are
permitted to raise the rights of third parties; and the court invalidates the entire statute
"on its face," not merely "as applied for" so that the overbroad law becomes unenforceable until
a properly authorized court construes it more narrowly. The factor that motivates courts to depart
from the normal adjudicatory rules is the concern with the "chilling;" deterrent effect of the
overbroad statute on third parties not courageous enough to bring suit. The Court assumes that
an overbroad laws "very existence may cause others not before the court to refrain from
constitutionally protected speech or expression." An overbreadth ruling is designed to remove
that deterrent effect on the speech of those third parties.
In other words, a facial challenge using the overbreadth doctrine will require the Court to
examine PP 1017 and pinpoint its flaws and defects, not on the basis of its actual operation to
petitioners, but on the assumption or prediction that its very existence may cause others not
before the Court to refrain from constitutionally protected speech or expression. In Younger v.
Harris,109 it was held that:
[T]he task of analyzing a proposed statute, pinpointing its deficiencies, and requiring correction
of these deficiencies before the statute is put into effect, is rarely if ever an appropriate task for
the judiciary. The combination of the relative remoteness of the controversy, the impact on
the legislative process of the relief sought, and above all the speculative and
amorphous nature of the required line-by-line analysis of detailed statutes,...ordinarily
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results in a kind of case that is wholly unsatisfactory for deciding constitutional questions,
whichever way they might be decided.
And third, a facial challenge on the ground of overbreadth is the most difficult challenge to
mount successfully, since the challenger must establish that there can be no instance when
the assailed law may be valid. Here, petitioners did not even attempt to show whether this
situation exists.
Petitioners likewise seek a facial review of PP 1017 on the ground of vagueness. This, too, is
unwarranted.
Related to the "overbreadth" doctrine is the "void for vagueness doctrine" which holds that "a
law is facially invalid if men of common intelligence must necessarily guess at its
meaning and differ as to its application."110 It is subject to the same principles governing
overbreadth doctrine. For one, it is also an analytical tool for testing "on their faces" statutes in
free speech cases. And like overbreadth, it is said that a litigant may challenge a statute on its
face only if it is vague in all its possible applications. Again, petitioners did not even
attempt to show that PP 1017 is vague in all its application. They also failed to establish
that men of common intelligence cannot understand the meaning and application of PP 1017.
b. Constitutional Basis of PP 1017
Now on the constitutional foundation of PP 1017.
The operative portion of PP 1017 may be divided into three important provisions, thus:
First provision:
"by virtue of the power vested upon me by Section 18, Artilce VII do hereby command the
Armed Forces of the Philippines, to maintain law and order throughout the Philippines, prevent or
suppress all forms of lawless violence as well any act of insurrection or rebellion"
Second provision:
"and to enforce obedience to all the laws and to all decrees, orders and regulations promulgated
by me personally or upon my direction;"
Third provision:
"as provided in Section 17, Article XII of the Constitution do hereby declare a State of National
Emergency."
First Provision: Calling-out Power
The first provision pertains to the Presidents calling-out power. In Sanlakas v. Executive
Secretary,111 this Court, through Mr. Justice Dante O. Tinga, held that Section 18, Article VII of the
Constitution reproduced as follows:
Sec. 18. The President shall be the Commander-in-Chief of all armed forces of the Philippines
and whenever it becomes necessary, he may call out such armed forces to prevent or
suppress lawless violence, invasion or rebellion. In case of invasion or rebellion, when the
public safety requires it, he may, for a period not exceeding sixty days, suspend the privilege of
the writ of habeas corpus or place the Philippines or any part thereof under martial law. Within
forty-eight hours from the proclamation of martial law or the suspension of the privilege of the
writ of habeas corpus, the President shall submit a report in person or in writing to the Congress.
The Congress, voting jointly, by a vote of at least a majority of all its Members in regular or
special session, may revoke such proclamation or suspension, which revocation shall not be set
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aside by the President. Upon the initiative of the President, the Congress may, in the same
manner, extend such proclamation or suspension for a period to be determined by the Congress,
if the invasion or rebellion shall persist and public safety requires it.
The Congress, if not in session, shall within twenty-four hours following such proclamation or
suspension, convene in accordance with its rules without need of a call.
The Supreme Court may review, in an appropriate proceeding filed by any citizen, the sufficiency
of the factual bases of the proclamation of martial law or the suspension of the privilege of the
writ or the extension thereof, and must promulgate its decision thereon within thirty days from
its filing.
A state of martial law does not suspend the operation of the Constitution, nor supplant the
functioning of the civil courts or legislative assemblies, nor authorize the conferment of
jurisdiction on military courts and agencies over civilians where civil courts are able to function,
nor automatically suspend the privilege of the writ.
The suspension of the privilege of the writ shall apply only to persons judicially charged for
rebellion or offenses inherent in or directly connected with invasion.
During the suspension of the privilege of the writ, any person thus arrested or detained shall be
judicially charged within three days, otherwise he shall be released.
grants the President, as Commander-in-Chief, a "sequence" of graduated powers. From the most
to the least benign, these are: the calling-out power, the power to suspend the privilege of the
writ of habeas corpus, and the power to declare Martial Law. Citing Integrated Bar of the
Philippines v. Zamora,112 the Court ruled that the only criterion for the exercise of the calling-out
power is that "whenever it becomes necessary," the President may call the armed forces "to
prevent or suppress lawless violence, invasion or rebellion." Are these conditions present
in the instant cases? As stated earlier, considering the circumstances then prevailing, President
Arroyo found it necessary to issue PP 1017. Owing to her Offices vast intelligence network, she is
in the best position to determine the actual condition of the country.
Under the calling-out power, the President may summon the armed forces to aid him in
suppressing lawless violence, invasion and rebellion. This involves ordinary police action.
But every act that goes beyond the Presidents calling-out power is considered illegal or ultra
vires. For this reason, a President must be careful in the exercise of his powers. He cannot invoke
a greater power when he wishes to act under a lesser power. There lies the wisdom of our
Constitution, the greater the power, the greater are the limitations.
It is pertinent to state, however, that there is a distinction between the Presidents authority to
declare a "state of rebellion" (in Sanlakas) and the authority to proclaim a state of national
emergency. While President Arroyos authority to declare a "state of rebellion" emanates from
her powers as Chief Executive, the statutory authority cited in Sanlakas was Section 4, Chapter
2, Book II of the Revised Administrative Code of 1987, which provides:
SEC. 4. Proclamations. Acts of the President fixing a date or declaring a status or condition of
public moment or interest, upon the existence of which the operation of a specific law or
regulation is made to depend, shall be promulgated in proclamations which shall have the force
of an executive order.
President Arroyos declaration of a "state of rebellion" was merely an act declaring a status or
condition of public moment or interest, a declaration allowed under Section 4 cited above. Such
declaration, in the words of Sanlakas, is harmless, without legal significance, and deemed not
written. In these cases, PP 1017 is more than that. In declaring a state of national emergency,
President Arroyo did not only rely on Section 18, Article VII of the Constitution, a provision calling
on the AFP to prevent or suppress lawless violence, invasion or rebellion. She also relied on
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Section 17, Article XII, a provision on the States extraordinary power to take over privatelyowned public utility and business affected with public interest. Indeed, PP 1017 calls for the
exercise of an awesome power. Obviously, such Proclamation cannot be deemed harmless,
without legal significance, or not written, as in the case of Sanlakas.
Some of the petitioners vehemently maintain that PP 1017 is actually a declaration of Martial
Law. It is no so. What defines the character of PP 1017 are its wordings. It is plain therein that
what the President invoked was her calling-out power.
The declaration of Martial Law is a "warn[ing] to citizens that the military power has been called
upon by the executive to assist in the maintenance of law and order, and that, while the
emergency lasts, they must, upon pain of arrest and punishment, not commit any acts which will
in any way render more difficult the restoration of order and the enforcement of law." 113
In his "Statement before the Senate Committee on Justice" on March 13, 2006, Mr. Justice Vicente
V. Mendoza,114an authority in constitutional law, said that of the three powers of the President as
Commander-in-Chief, the power to declare Martial Law poses the most severe threat to civil
liberties. It is a strong medicine which should not be resorted to lightly. It cannot be used to stifle
or persecute critics of the government. It is placed in the keeping of the President for the
purpose of enabling him to secure the people from harm and to restore order so that they can
enjoy their individual freedoms. In fact, Section 18, Art. VII, provides:
A state of martial law does not suspend the operation of the Constitution, nor supplant the
functioning of the civil courts or legislative assemblies, nor authorize the conferment of
jurisdiction on military courts and agencies over civilians where civil courts are able to function,
nor automatically suspend the privilege of the writ.
Justice Mendoza also stated that PP 1017 is not a declaration of Martial Law. It is no more than a
call by the President to the armed forces to prevent or suppress lawless violence. As such, it
cannot be used to justify acts that only under a valid declaration of Martial Law can be done. Its
use for any other purpose is a perversion of its nature and scope, and any act done contrary to
its command is ultra vires.
Justice Mendoza further stated that specifically, (a) arrests and seizures without judicial warrants;
(b) ban on public assemblies; (c) take-over of news media and agencies and press censorship;
and (d) issuance of Presidential Decrees, are powers which can be exercised by the President as
Commander-in-Chief only where there is a valid declaration of Martial Law or suspension of the
writ of habeas corpus.
Based on the above disquisition, it is clear that PP 1017 is not a declaration of Martial Law. It is
merely an exercise of President Arroyos calling-out power for the armed forces to assist
her in preventing or suppressing lawless violence.
Second Provision: "Take Care" Power
The second provision pertains to the power of the President to ensure that the laws be faithfully
executed. This is based on Section 17, Article VII which reads:
SEC. 17. The President shall have control of all the executive departments, bureaus, and
offices. He shall ensure that the laws be faithfully executed.
As the Executive in whom the executive power is vested, 115 the primary function of the President
is to enforce the laws as well as to formulate policies to be embodied in existing laws. He sees to
it that all laws are enforced by the officials and employees of his department. Before assuming
office, he is required to take an oath or affirmation to the effect that as President of the
Philippines, he will, among others, "execute its laws." 116 In the exercise of such function, the
President, if needed, may employ the powers attached to his office as the Commander-in-Chief of
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all the armed forces of the country, 117 including the Philippine National Police 118 under the
Department of Interior and Local Government.119
Petitioners, especially Representatives Francis Joseph G. Escudero, Satur Ocampo, Rafael
Mariano, Teodoro Casio, Liza Maza, and Josel Virador argue that PP 1017 is unconstitutional as it
arrogated upon President Arroyo the power to enact laws and decrees in violation of Section 1,
Article VI of the Constitution, which vests the power to enact laws in Congress. They assail the
clause "to enforce obedience to all the laws and to all decrees, orders and regulations
promulgated by me personally or upon my direction."
\
Petitioners contention is understandable. A reading of PP 1017 operative clause shows that it
was lifted120 from Former President Marcos Proclamation No. 1081, which partly reads:
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines by virtue of the
powers vested upon me by Article VII, Section 10, Paragraph (2) of the Constitution, do hereby
place the entire Philippines as defined in Article 1, Section 1 of the Constitution under martial law
and, in my capacity as their Commander-in-Chief, do hereby command the Armed Forces of
the Philippines, to maintain law and order throughout the Philippines, prevent or
suppress all forms of lawless violence as well as any act of insurrection or rebellion
and to enforce obedience to all the laws and decrees, orders and regulations
promulgated by me personally or upon my direction.
We all know that it was PP 1081 which granted President Marcos legislative power. Its enabling
clause states: "to enforce obedience to all the laws and decrees, orders and regulations
promulgated by me personally or upon my direction." Upon the other hand, the enabling
clause of PP 1017 issued by President Arroyo is: to enforce obedience to all the laws and to
all decrees, orders and regulations promulgated by me personally or upon my
direction."
Is it within the domain of President Arroyo to promulgate "decrees"?
PP 1017 states in part: "to enforce obedience to all the laws and decrees x x x promulgated by
me personally or upon my direction."
The President is granted an Ordinance Power under Chapter 2, Book III of Executive Order No.
292 (Administrative Code of 1987). She may issue any of the following:
Sec. 2. Executive Orders. Acts of the President providing for rules of a general or permanent
character in implementation or execution of constitutional or statutory powers shall be
promulgated in executive orders.
Sec. 3. Administrative Orders. Acts of the President which relate to particular aspect of
governmental operations in pursuance of his duties as administrative head shall be promulgated
in administrative orders.
Sec. 4. Proclamations. Acts of the President fixing a date or declaring a status or condition of
public moment or interest, upon the existence of which the operation of a specific law or
regulation is made to depend, shall be promulgated in proclamations which shall have the force
of an executive order.
Sec. 5. Memorandum Orders. Acts of the President on matters of administrative detail or of
subordinate or temporary interest which only concern a particular officer or office of the
Government shall be embodied in memorandum orders.

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Sec. 6. Memorandum Circulars. Acts of the President on matters relating to internal


administration, which the President desires to bring to the attention of all or some of the
departments, agencies, bureaus or offices of the Government, for information or compliance,
shall be embodied in memorandum circulars.
Sec. 7. General or Special Orders. Acts and commands of the President in his capacity as
Commander-in-Chief of the Armed Forces of the Philippines shall be issued as general or special
orders.
President Arroyos ordinance power is limited to the foregoing issuances. She cannot
issue decrees similar to those issued by Former President Marcos under PP 1081. Presidential
Decrees are laws which are of the same category and binding force as statutes because they
were issued by the President in the exercise of his legislative power during the period of Martial
Law under the 1973 Constitution. 121
This Court rules that the assailed PP 1017 is unconstitutional insofar as it grants
President Arroyo the authority to promulgate "decrees." Legislative power is peculiarly
within the province of the Legislature. Section 1, Article VI categorically states that "[t]he
legislative power shall be vested in the Congress of the Philippines which shall consist
of a Senate and a House of Representatives." To be sure, neither Martial Law nor a state of
rebellion nor a state of emergency can justify President Arroyos exercise of legislative power by
issuing decrees.
Can President Arroyo enforce obedience to all decrees and laws through the military?
As this Court stated earlier, President Arroyo has no authority to enact decrees. It follows that
these decrees are void and, therefore, cannot be enforced. With respect to "laws," she cannot
call the military to enforce or implement certain laws, such as customs laws, laws governing
family and property relations, laws on obligations and contracts and the like. She can only order
the military, under PP 1017, to enforce laws pertinent to its duty to suppress lawless
violence.
Third Provision: Power to Take Over
The pertinent provision of PP 1017 states:
x x x and to enforce obedience to all the laws and to all decrees, orders, and regulations
promulgated by me personally or upon my direction; and as provided in Section 17, Article
XII of the Constitution do hereby declare a state of national emergency.
The import of this provision is that President Arroyo, during the state of national emergency
under PP 1017, can call the military not only to enforce obedience "to all the laws and to all
decrees x x x" but also to act pursuant to the provision of Section 17, Article XII which reads:
Sec. 17. In times of national emergency, when the public interest so requires, the State may,
during the emergency and under reasonable terms prescribed by it, temporarily take over or
direct the operation of any privately-owned public utility or business affected with public interest.
What could be the reason of President Arroyo in invoking the above provision when she issued
PP 1017?
The answer is simple. During the existence of the state of national emergency, PP 1017 purports
to grant the President, without any authority or delegation from Congress, to take over or direct
the operation of any privately-owned public utility or business affected with public interest.
This provision was first introduced in the 1973 Constitution, as a product of the "martial law"
thinking of the 1971 Constitutional Convention. 122 In effect at the time of its approval was
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President Marcos Letter of Instruction No. 2 dated September 22, 1972 instructing the Secretary
of National Defense to take over "the management, control and operation of the Manila Electric
Company, the Philippine Long Distance Telephone Company, the National Waterworks and
Sewerage Authority, the Philippine National Railways, the Philippine Air Lines, Air Manila (and)
Filipinas Orient Airways . . . for the successful prosecution by the Government of its effort to
contain, solve and end the present national emergency."
Petitioners, particularly the members of the House of Representatives, claim that President
Arroyos inclusion of Section 17, Article XII in PP 1017 is an encroachment on the legislatures
emergency powers.
This is an area that needs delineation.
A distinction must be drawn between the Presidents authority to declare "a state of national
emergency" and to exercise emergency powers. To the first, as elucidated by the Court, Section
18, Article VII grants the President such power, hence, no legitimate constitutional objection can
be raised. But to the second, manifold constitutional issues arise.
Section 23, Article VI of the Constitution reads:
SEC. 23. (1) The Congress, by a vote of two-thirds of both Houses in joint session assembled,
voting separately, shall have the sole power to declare the existence of a state of war.
(2) In times of war or other national emergency, the Congress may, by law, authorize the
President, for a limited period and subject to such restrictions as it may prescribe, to exercise
powers necessary and proper to carry out a declared national policy. Unless sooner withdrawn by
resolution of the Congress, such powers shall cease upon the next adjournment thereof.
It may be pointed out that the second paragraph of the above provision refers not only to war
but also to "other national emergency." If the intention of the Framers of our Constitution was
to withhold from the President the authority to declare a "state of national emergency" pursuant
to Section 18, Article VII (calling-out power) and grant it to Congress (like the declaration of the
existence of a state of war), then the Framers could have provided so. Clearly, they did not
intend that Congress should first authorize the President before he can declare a "state of
national emergency." The logical conclusion then is that President Arroyo could validly declare
the existence of a state of national emergency even in the absence of a Congressional
enactment.
But the exercise of emergency powers, such as the taking over of privately owned public utility
or business affected with public interest, is a different matter. This requires a delegation from
Congress.
Courts have often said that constitutional provisions in pari materia are to be construed together.
Otherwise stated, different clauses, sections, and provisions of a constitution which relate to the
same subject matter will be construed together and considered in the light of each
other.123 Considering that Section 17 of Article XII and Section 23 of Article VI, previously quoted,
relate to national emergencies, they must be read together to determine the limitation of the
exercise of emergency powers.
Generally, Congress is the repository of emergency powers. This is evident in the tenor of
Section 23 (2), Article VI authorizing it to delegate such powers to the President. Certainly, a
body cannot delegate a power not reposed upon it. However, knowing that during grave
emergencies, it may not be possible or practicable for Congress to meet and exercise its powers,
the Framers of our Constitution deemed it wise to allow Congress to grant emergency powers to
the President, subject to certain conditions, thus:
(1) There must be a war or other emergency.
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(2) The delegation must be for a limited period only.


(3) The delegation must be subject to such restrictions as the Congress may prescribe.
(4) The emergency powers must be exercised to carry out a national policy declared by
Congress.124
Section 17, Article XII must be understood as an aspect of the emergency powers clause. The
taking over of private business affected with public interest is just another facet of the
emergency powers generally reposed upon Congress. Thus, when Section 17 states that the " the
State may, during the emergency and under reasonable terms prescribed by it,
temporarily take over or direct the operation of any privately owned public utility or
business affected with public interest," it refers to Congress, not the President. Now,
whether or not the President may exercise such power is dependent on whether Congress may
delegate it to him pursuant to a law prescribing the reasonable terms thereof. Youngstown Sheet
& Tube Co. et al. v. Sawyer, 125 held:
It is clear that if the President had authority to issue the order he did, it must be found in some
provision of the Constitution. And it is not claimed that express constitutional language grants
this power to the President. The contention is that presidential power should be implied from the
aggregate of his powers under the Constitution. Particular reliance is placed on provisions in
Article II which say that "The executive Power shall be vested in a President . . . .;" that "he shall
take Care that the Laws be faithfully executed;" and that he "shall be Commander-in-Chief of the
Army and Navy of the United States.
The order cannot properly be sustained as an exercise of the Presidents military power as
Commander-in-Chief of the Armed Forces. The Government attempts to do so by citing a number
of cases upholding broad powers in military commanders engaged in day-to-day fighting in a
theater of war. Such cases need not concern us here. Even though "theater of war" be an
expanding concept, we cannot with faithfulness to our constitutional system hold that
the Commander-in-Chief of the Armed Forces has the ultimate power as such to take
possession of private property in order to keep labor disputes from stopping
production. This is a job for the nations lawmakers, not for its military authorities.
Nor can the seizure order be sustained because of the several constitutional
provisions that grant executive power to the President. In the framework of our
Constitution, the Presidents power to see that the laws are faithfully executed
refutes the idea that he is to be a lawmaker. The Constitution limits his functions in
the lawmaking process to the recommending of laws he thinks wise and the vetoing
of laws he thinks bad. And the Constitution is neither silent nor equivocal about who
shall make laws which the President is to execute. The first section of the first article
says that "All legislative Powers herein granted shall be vested in a Congress of the
United States. . ."126
Petitioner Cacho-Olivares, et al. contends that the term "emergency" under Section 17, Article XII
refers to "tsunami," "typhoon," "hurricane"and"similar occurrences." This is a limited view
of "emergency."
Emergency, as a generic term, connotes the existence of conditions suddenly intensifying the
degree of existing danger to life or well-being beyond that which is accepted as normal. Implicit
in this definitions are the elements of intensity, variety, and perception. 127 Emergencies, as
perceived by legislature or executive in the United Sates since 1933, have been occasioned by a
wide range of situations, classifiable under three (3) principal heads: a)economic,128 b) natural
disaster,129 and c) national security.130
"Emergency," as contemplated in our Constitution, is of the same breadth. It may include
rebellion, economic crisis, pestilence or epidemic, typhoon, flood, or other similar catastrophe of
349

nationwide proportions or effect.131 This is evident in the Records of the Constitutional


Commission, thus:
MR. GASCON. Yes. What is the Committees definition of "national emergency" which appears in
Section 13, page 5? It reads:
When the common good so requires, the State may temporarily take over or direct the operation
of any privately owned public utility or business affected with public interest.
MR.
VILLEGAS.
What
I
mean
is
example, calamities or natural disasters.

threat

from external

aggression,

for

MR. GASCON. There is a question by Commissioner de los Reyes. What about strikes and riots?
MR. VILLEGAS. Strikes, no; those would not be covered by the term "national emergency."
MR. BENGZON. Unless they are of such proportions such that they would paralyze government
service.132
xxxxxx
MR. TINGSON. May I ask the committee if "national emergency" refers to military national
emergency or could this be economic emergency?"
MR. VILLEGAS. Yes, it could refer to both military or economic dislocations.
MR. TINGSON. Thank you very much. 133
It may be argued that when there is national emergency, Congress may not be able to convene
and, therefore, unable to delegate to the President the power to take over privately-owned public
utility or business affected with public interest.
In Araneta v. Dinglasan,134 this Court emphasized that legislative power, through which
extraordinary measures are exercised, remains in Congress even in times of crisis.
"x x x
After all the criticisms that have been made against the efficiency of the system of the
separation of powers, the fact remains that the Constitution has set up this form of government,
with all its defects and shortcomings, in preference to the commingling of powers in one man or
group of men. The Filipino people by adopting parliamentary government have given notice that
they share the faith of other democracy-loving peoples in this system, with all its faults, as the
ideal. The point is, under this framework of government, legislation is preserved for Congress all
the time, not excepting periods of crisis no matter how serious. Never in the history of the United
States, the basic features of whose Constitution have been copied in ours, have specific functions
of the legislative branch of enacting laws been surrendered to another department unless we
regard as legislating the carrying out of a legislative policy according to prescribed standards; no,
not even when that Republic was fighting a total war, or when it was engaged in a life-and-death
struggle to preserve the Union. The truth is that under our concept of constitutional government,
in times of extreme perils more than in normal circumstances the various branches, executive,
legislative, and judicial, given the ability to act, are called upon to perform the duties and
discharge the responsibilities committed to them respectively."
Following our interpretation of Section 17, Article XII, invoked by President Arroyo in issuing PP
1017, this Court rules that such Proclamation does not authorize her during the emergency to
temporarily take over or direct the operation of any privately owned public utility or business
affected with public interest without authority from Congress.
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Let it be emphasized that while the President alone can declare a state of national emergency,
however, without legislation, he has no power to take over privately-owned public utility or
business affected with public interest. The President cannot decide whether exceptional
circumstances exist warranting the take over of privately-owned public utility or business
affected with public interest. Nor can he determine when such exceptional circumstances have
ceased. Likewise, without legislation, the President has no power to point out the types of
businesses affected with public interest that should be taken over. In short, the President has no
absolute authority to exercise all the powers of the State under Section 17, Article VII in the
absence of an emergency powers act passed by Congress.
c. "AS APPLIED CHALLENGE"
One of the misfortunes of an emergency, particularly, that which pertains to security, is that
military necessity and the guaranteed rights of the individual are often not compatible. Our
history reveals that in the crucible of conflict, many rights are curtailed and trampled upon. Here,
the right against unreasonable search and seizure; the right against warrantless
arrest; and the freedom of speech, of expression, of the press, and of assembly under
the Bill of Rights suffered the greatest blow.
Of the seven (7) petitions, three (3) indicate "direct injury."
In G.R. No. 171396, petitioners David and Llamas alleged that, on February 24, 2006, they were
arrested without warrants on their way to EDSA to celebrate the 20th Anniversary of People
Power I. The arresting officers cited PP 1017 as basis of the arrest.
In G.R. No. 171409, petitioners Cacho-Olivares and Tribune Publishing Co., Inc. claimed that on
February 25, 2006, the CIDG operatives "raided and ransacked without warrant" their office.
Three policemen were assigned to guard their office as a possible "source of destabilization."
Again, the basis was PP 1017.
And in G.R. No. 171483, petitioners KMU and NAFLU-KMU et al. alleged that their members
were "turned away and dispersed" when they went to EDSA and later, to Ayala Avenue, to
celebrate the 20th Anniversary of People Power I.
A perusal of the "direct injuries" allegedly suffered by the said petitioners shows that they
resulted from the implementation, pursuant to G.O. No. 5, of PP 1017.
Can this Court adjudge as unconstitutional PP 1017 and G.O. No 5 on the basis of these illegal
acts? In general, does the illegal implementation of a law render it unconstitutional?
Settled is the rule that courts are not at liberty to declare statutes invalid although they may
be abused and misabused135 and may afford an opportunity for abuse in the manner of
application.136 The validity of a statute or ordinance is to be determined from its general
purpose and its efficiency to accomplish the end desired, not from its effects in a particular
case.137 PP 1017 is merely an invocation of the Presidents calling-out power. Its general purpose
is to command the AFP to suppress all forms of lawless violence, invasion or rebellion. It had
accomplished the end desired which prompted President Arroyo to issue PP 1021. But there is
nothing in PP 1017 allowing the police, expressly or impliedly, to conduct illegal arrest, search or
violate the citizens constitutional rights.
Now, may this Court adjudge a law or ordinance unconstitutional on the ground that its
implementor committed illegal acts? The answer is no. The criterion by which the validity of the
statute or ordinance is to be measured is the essential basis for the exercise of power, and not a
mere incidental result arising from its exertion.138 This is logical. Just imagine the absurdity
of situations when laws maybe declared unconstitutional just because the officers implementing
them have acted arbitrarily. If this were so, judging from the blunders committed by policemen in
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the cases passed upon by the Court, majority of the provisions of the Revised Penal Code would
have been declared unconstitutional a long time ago.
President Arroyo issued G.O. No. 5 to carry into effect the provisions of PP 1017. General orders
are "acts and commands of the President in his capacity as Commander-in-Chief of the Armed
Forces of the Philippines." They are internal rules issued by the executive officer to his
subordinates precisely for the proper and efficientadministration of law. Such rules and
regulations create no relation except between the official who issues them and the official who
receives them.139 They are based on and are the product of, a relationship in which power is their
source, and obedience, their object.140 For these reasons, one requirement for these rules to be
valid is that they must be reasonable, not arbitrary or capricious.
G.O. No. 5 mandates the AFP and the PNP to immediately carry out the "necessary and
appropriate actions and measures to suppress and prevent acts of terrorism and
lawless violence."
Unlike the term "lawless violence" which is unarguably extant in our statutes and the
Constitution, and which is invariably associated with "invasion, insurrection or rebellion," the
phrase "acts of terrorism" is still an amorphous and vague concept. Congress has yet to enact a
law defining and punishing acts of terrorism.
In fact, this "definitional predicament" or the "absence of an agreed definition of terrorism"
confronts not only our country, but the international community as well. The following
observations are quite apropos:
In the actual unipolar context of international relations, the "fight against terrorism" has become
one of the basic slogans when it comes to the justification of the use of force against certain
states and against groups operating internationally. Lists of states "sponsoring terrorism" and of
terrorist organizations are set up and constantly being updated according to criteria that are not
always known to the public, but are clearly determined by strategic interests.
The basic problem underlying all these military actions or threats of the use of force as the
most recent by the United States against Iraq consists in the absence of an agreed definition of
terrorism.
Remarkable confusion persists in regard to the legal categorization of acts of violence either by
states, by armed groups such as liberation movements, or by individuals.
The dilemma can by summarized in the saying "One countrys terrorist is another countrys
freedom fighter." The apparent contradiction or lack of consistency in the use of the term
"terrorism" may further be demonstrated by the historical fact that leaders of national liberation
movements such as Nelson Mandela in South Africa, Habib Bourgouiba in Tunisia, or Ahmed Ben
Bella in Algeria, to mention only a few, were originally labeled as terrorists by those who
controlled the territory at the time, but later became internationally respected statesmen.
What, then, is the defining criterion for terrorist acts the differentia specifica distinguishing
those acts from eventually legitimate acts of national resistance or self-defense?
Since the times of the Cold War the United Nations Organization has been trying in vain to reach
a consensus on the basic issue of definition. The organization has intensified its efforts recently,
but has been unable to bridge the gap between those who associate "terrorism" with any violent
act by non-state groups against civilians, state functionaries or infrastructure or military
installations, and those who believe in the concept of the legitimate use of force when resistance
against foreign occupation or against systematic oppression of ethnic and/or religious groups
within a state is concerned.

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The dilemma facing the international community can best be illustrated by reference to the
contradicting categorization of organizations and movements such as Palestine Liberation
Organization (PLO) which is a terrorist group for Israel and a liberation movement for Arabs and
Muslims the Kashmiri resistance groups who are terrorists in the perception of India, liberation
fighters in that of Pakistan the earlier Contras in Nicaragua freedom fighters for the United
States, terrorists for the Socialist camp or, most drastically, the Afghani Mujahedeen (later to
become the Taliban movement): during the Cold War period they were a group of freedom
fighters for the West, nurtured by the United States, and a terrorist gang for the Soviet Union.
One could go on and on in enumerating examples of conflicting categorizations that cannot be
reconciled in any way because of opposing political interests that are at the roots of those
perceptions.
How, then, can those contradicting definitions and conflicting perceptions and evaluations of one
and the same group and its actions be explained? In our analysis, the basic reason for these
striking inconsistencies lies in the divergent interest of states. Depending on whether a state is in
the position of an occupying power or in that of a rival, or adversary, of an occupying power in a
given territory, the definition of terrorism will "fluctuate" accordingly. A state may eventually see
itself as protector of the rights of a certain ethnic group outside its territory and will therefore
speak of a "liberation struggle," not of "terrorism" when acts of violence by this group are
concerned, and vice-versa.
The United Nations Organization has been unable to reach a decision on the definition of
terrorism exactly because of these conflicting interests of sovereign states that determine in
each and every instance how a particular armed movement (i.e. a non-state actor) is labeled in
regard to the terrorists-freedom fighter dichotomy. A "policy of double standards" on this vital
issue of international affairs has been the unavoidable consequence.
This "definitional predicament" of an organization consisting of sovereign states and not of
peoples, in spite of the emphasis in the Preamble to the United Nations Charter! has become
even more serious in the present global power constellation: one superpower exercises the
decisive role in the Security Council, former great powers of the Cold War era as well as medium
powers are increasingly being marginalized; and the problem has become even more acute since
the terrorist attacks of 11 September 2001 I the United States. 141
The absence of a law defining "acts of terrorism" may result in abuse and oppression on the part
of the police or military. An illustration is when a group of persons are merely engaged in a
drinking spree. Yet the military or the police may consider the act as an act of terrorism and
immediately arrest them pursuant to G.O. No. 5. Obviously, this is abuse and oppression on their
part. It must be remembered that an act can only be considered a crime if there is a law defining
the same as such and imposing the corresponding penalty thereon.
So far, the word "terrorism" appears only once in our criminal laws, i.e., in P.D. No. 1835 dated
January 16, 1981 enacted by President Marcos during the Martial Law regime. This decree is
entitled "Codifying The Various Laws on Anti-Subversion and Increasing The Penalties for
Membership in Subversive Organizations." The word "terrorism" is mentioned in the following
provision: "That one who conspires with any other person for the purpose of overthrowing the
Government of the Philippines x x x by force, violence, terrorism, x x x shall be punished
by reclusion temporalx x x."
P.D. No. 1835 was repealed by E.O. No. 167 (which outlaws the Communist Party of the
Philippines) enacted by President Corazon Aquino on May 5, 1985. These two (2) laws, however,
do not define "acts of terrorism." Since there is no law defining "acts of terrorism," it is President
Arroyo alone, under G.O. No. 5, who has the discretion to determine what acts constitute
terrorism. Her judgment on this aspect is absolute, without restrictions. Consequently, there can
be indiscriminate arrest without warrants, breaking into offices and residences, taking over the
media enterprises, prohibition and dispersal of all assemblies and gatherings unfriendly to the
administration. All these can be effected in the name of G.O. No. 5. These acts go far beyond the
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calling-out power of the President. Certainly, they violate the due process clause of the
Constitution. Thus, this Court declares that the "acts of terrorism" portion of G.O. No. 5 is
unconstitutional.
Significantly, there is nothing in G.O. No. 5 authorizing the military or police to commit acts
beyond what are necessary and appropriate to suppress and prevent lawless violence,
the limitation of their authority in pursuing the Order. Otherwise, such acts are considered illegal.
We first examine G.R. No. 171396 (David et al.)
The Constitution provides that "the right of the people to be secured in their persons, houses,
papers and effects against unreasonable search and seizure of whatever nature and for any
purpose shall be inviolable, and no search warrant or warrant of arrest shall issue except
upon probable cause to be determined personally by the judge after examination under oath or
affirmation of the complainant and the witnesses he may produce, and particularly describing
the place to be searched and the persons or things to be seized." 142 The plain import of the
language of the Constitution is that searches, seizures and arrests are normally unreasonable
unless authorized by a validly issued search warrant or warrant of arrest. Thus, the fundamental
protection given by this provision is that between person and police must stand the protective
authority of a magistrate clothed with power to issue or refuse to issue search warrants or
warrants of arrest.143
In the Brief Account144 submitted by petitioner David, certain facts are established: first, he was
arrested without warrant; second, the PNP operatives arrested him on the basis of PP
1017; third, he was brought at Camp Karingal, Quezon City where he was fingerprinted,
photographed and booked like a criminal suspect; fourth,he was treated brusquely by policemen
who "held his head and tried to push him" inside an unmarked car; fifth, he was charged with
Violation of Batas Pambansa Bilang No. 880145 and Inciting to Sedition; sixth, he was
detained for seven (7) hours; and seventh,he was eventually released for insufficiency of
evidence.
Section 5, Rule 113 of the Revised Rules on Criminal Procedure provides:
Sec. 5. Arrest without warrant; when lawful. - A peace officer or a private person may,
without a warrant, arrest a person:
(a) When, in his presence, the person to be arrested has committed, is actually committing, or is
attempting to commit an offense.
(b) When an offense has just been committed and he has probable cause to believe based on
personal knowledge of facts or circumstances that the person to be arrested has committed it;
and
x x x.
Neither of the two (2) exceptions mentioned above justifies petitioner Davids warrantless arrest.
During the inquest for the charges of inciting to sedition and violation of BP 880, all that the
arresting officers could invoke was their observation that some rallyists were wearing t-shirts
with the invective "Oust Gloria Now" and their erroneous assumption that petitioner David was
the leader of the rally.146 Consequently, the Inquest Prosecutor ordered his immediate release on
the ground of insufficiency of evidence. He noted that petitioner David was not wearing the
subject t-shirt and even if he was wearing it, such fact is insufficient to charge him with i nciting
to sedition. Further, he also stated that there is insufficient evidence for the charge of violation
of BP 880 as it was not even known whether petitioner David was the leader of the rally. 147
But what made it doubly worse for petitioners David et al. is that not only was their right against
warrantless arrest violated, but also their right to peaceably assemble.
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Section 4 of Article III guarantees:


No law shall be passed abridging the freedom of speech, of expression, or of the press, or the
right of the people peaceably to assemble and petition the government for redress of grievances.
"Assembly" means a right on the part of the citizens to meet peaceably for consultation in
respect to public affairs. It is a necessary consequence of our republican institution and
complements the right of speech. As in the case of freedom of expression, this right is not to be
limited, much less denied, except on a showing of a clear and present danger of a substantive
evil that Congress has a right to prevent. In other words, like other rights embraced in the
freedom of expression, the right to assemble is not subject to previous restraint or censorship. It
may not be conditioned upon the prior issuance of a permit or authorization from the
government authorities except, of course, if the assembly is intended to be held in a public
place, a permit for the use of such place, and not for the assembly itself, may be validly required.
The ringing truth here is that petitioner David, et al. were arrested while they were exercising
their right to peaceful assembly. They were not committing any crime, neither was there a
showing of a clear and present danger that warranted the limitation of that right. As can be
gleaned from circumstances, the charges of inciting to sedition and violation of BP 880 were
mere afterthought. Even the Solicitor General, during the oral argument, failed to justify the
arresting officers conduct. In De Jonge v. Oregon,148 it was held that peaceable assembly cannot
be made a crime, thus:
Peaceable assembly for lawful discussion cannot be made a crime. The holding of meetings for
peaceable political action cannot be proscribed. Those who assist in the conduct of such
meetings cannot be branded as criminals on that score. The question, if the rights of free speech
and peaceful assembly are not to be preserved, is not as to the auspices under which the
meeting was held but as to its purpose; not as to the relations of the speakers, but whether their
utterances transcend the bounds of the freedom of speech which the Constitution protects. If the
persons assembling have committed crimes elsewhere, if they have formed or are engaged in a
conspiracy against the public peace and order, they may be prosecuted for their conspiracy or
other violations of valid laws. But it is a different matter when the State, instead of
prosecuting them for such offenses, seizes upon mere participation in a peaceable
assembly and a lawful public discussion as the basis for a criminal charge.
On the basis of the above principles, the Court likewise considers the dispersal and arrest of the
members of KMU et al. (G.R. No. 171483) unwarranted. Apparently, their dispersal was done
merely on the basis of Malacaangs directive canceling all permits previously issued by local
government units. This is arbitrary. The wholesale cancellation of all permits to rally is a blatant
disregard of the principle that "freedom of assembly is not to be limited, much less
denied, except on a showing of a clear and present danger of a substantive evil that
the State has a right to prevent."149 Tolerance is the rule and limitation is the exception. Only
upon a showing that an assembly presents a clear and present danger that the State may deny
the citizens right to exercise it. Indeed, respondents failed to show or convince the Court that
the rallyists committed acts amounting to lawless violence, invasion or rebellion. With the
blanket revocation of permits, the distinction between protected and unprotected assemblies
was eliminated.
Moreover, under BP 880, the authority to regulate assemblies and rallies is lodged with the local
government units. They have the power to issue permits and to revoke such permits after due
notice and hearing on the determination of the presence of clear and present danger. Here,
petitioners were not even notified and heard on the revocation of their permits. 150 The first time
they learned of it was at the time of the dispersal. Such absence of notice is a fatal defect. When
a persons right is restricted by government action, it behooves a democratic government to see
to it that the restriction is fair, reasonable, and according to procedure.

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G.R. No. 171409, (Cacho-Olivares, et al.) presents another facet of freedom of speech i.e., the
freedom of the press. Petitioners narration of facts, which the Solicitor General failed to refute,
established
the
following: first, the Daily
Tribunes offices
were
searched
without
warrant;second, the police operatives seized several materials for publication; third, the search
was conducted at about 1:00 o clock in the morning of February 25, 2006; fourth, the search
was conducted in the absence of any official of the Daily Tribune except the security guard of the
building; and fifth, policemen stationed themselves at the vicinity of the Daily Tribune offices.
Thereafter, a wave of warning came from government officials. Presidential Chief of Staff Michael
Defensor was quoted as saying that such raid was "meant to show a strong presence, to
tell media outlets not to connive or do anything that would help the rebels in bringing
down this government." Director General Lomibao further stated that "if they do not follow
the standards and the standards are if they would contribute to instability in the
government, or if they do not subscribe to what is in General Order No. 5 and Proc.
No. 1017 we will recommend a takeover." National Telecommunications Commissioner
Ronald Solis urged television and radio networks to "cooperate" with the government for the
duration of the state of national emergency. He warned that his agency will not hesitate to
recommend the closure of any broadcast outfit that violates rules set out for media
coverage during times when the national security is threatened.151
The search is illegal. Rule 126 of The Revised Rules on Criminal Procedure lays down the steps in
the conduct of search and seizure. Section 4 requires that a search warrant be issued upon
probable cause in connection with one specific offence to be determined personally by the judge
after examination under oath or affirmation of the complainant and the witnesses he may
produce. Section 8 mandates that the search of a house, room, or any other premise be
made in the presence of the lawful occupant thereof or any member of his family or in the
absence of the latter, in the presence of two (2) witnesses of sufficient age and discretion
residing in the same locality. And Section 9 states that the warrant must direct that it be served
in the daytime, unless the property is on the person or in the place ordered to be searched, in
which case a direction may be inserted that it be served at any time of the day or night. All these
rules were violated by the CIDG operatives.
Not only that, the search violated petitioners freedom of the press. The best gauge of a free and
democratic society rests in the degree of freedom enjoyed by its media. In the Burgos v. Chief of
Staff152 this Court held that -As heretofore stated, the premises searched were the business and printing offices of the
"Metropolitan Mail" and the "We Forum" newspapers. As a consequence of the search and
seizure, these premises were padlocked and sealed, with the further result that the
printing and publication of said newspapers were discontinued.
Such closure is in the nature of previous restraint or censorship abhorrent to the
freedom of the press guaranteed under the fundamental law, and constitutes a virtual
denial of petitioners' freedom to express themselves in print. This state of being is
patently anathematic to a democratic framework where a free, alert and even militant
press is essential for the political enlightenment and growth of the citizenry.
While admittedly, the Daily Tribune was not padlocked and sealed like the "Metropolitan Mail"
and "We Forum" newspapers in the above case, yet it cannot be denied that the CIDG operatives
exceeded their enforcement duties. The search and seizure of materials for publication, the
stationing of policemen in the vicinity of the The Daily Tribune offices, and the arrogant warning
of government officials to media, are plain censorship. It is that officious functionary of the
repressive government who tells the citizen that he may speak only if allowed to do so, and no
more and no less than what he is permitted to say on pain of punishment should he be so rash as
to disobey.153Undoubtedly, the The Daily Tribune was subjected to these arbitrary intrusions
because of its anti-government sentiments. This Court cannot tolerate the blatant disregard of a
constitutional right even if it involves the most defiant of our citizens. Freedom to comment on
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public affairs is essential to the vitality of a representative democracy. It is the duty of the courts
to be watchful for the constitutional rights of the citizen, and against any stealthy encroachments
thereon. The motto should always be obsta principiis.154
Incidentally, during the oral arguments, the Solicitor General admitted that the search of
the Tribunes offices and the seizure of its materials for publication and other papers are illegal;
and that the same are inadmissible "for any purpose," thus:
JUSTICE CALLEJO:
You made quite a mouthful of admission when you said that the policemen, when inspected the
Tribune for the purpose of gathering evidence and you admitted that the policemen were able to
get the clippings. Is that not in admission of the admissibility of these clippings that were taken
from the Tribune?
SOLICITOR GENERAL BENIPAYO:
Under the law they would seem to be, if they were illegally seized, I think and I know, Your Honor,
and these are inadmissible for any purpose. 155
xxxxxxxxx
SR. ASSO. JUSTICE PUNO:
These have been published in the past issues of the Daily Tribune; all you have to do is to get
those past issues. So why do you have to go there at 1 oclock in the morning and without any
search warrant? Did they become suddenly part of the evidence of rebellion or inciting to
sedition or what?
SOLGEN BENIPAYO:
Well, it was the police that did that, Your Honor. Not upon my instructions.
SR. ASSO. JUSTICE PUNO:
Are you saying that the act of the policeman is illegal, it is not based on any law, and it is not
based on Proclamation 1017.
SOLGEN BENIPAYO:
It is not based on Proclamation 1017, Your Honor, because there is nothing in 1017 which says
that the police could go and inspect and gather clippings from Daily Tribune or any other
newspaper.
SR. ASSO. JUSTICE PUNO:
Is it based on any law?
SOLGEN BENIPAYO:
As far as I know, no, Your Honor, from the facts, no.
SR. ASSO. JUSTICE PUNO:
So, it has no basis, no legal basis whatsoever?
SOLGEN BENIPAYO:
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Maybe so, Your Honor. Maybe so, that is why I said, I dont know if it is premature to say this, we
do not condone this. If the people who have been injured by this would want to sue
them, they can sue and there are remedies for this.156
Likewise, the warrantless arrests and seizures executed by the police were, according to the
Solicitor General, illegal and cannot be condoned, thus:
CHIEF JUSTICE PANGANIBAN:
There seems to be some confusions if not contradiction in your theory.
SOLICITOR GENERAL BENIPAYO:
I dont know whether this will clarify. The acts, the supposed illegal or unlawful acts committed
on the occasion of 1017, as I said, it cannot be condoned. You cannot blame the President for,
as you said, a misapplication of the law. These are acts of the police officers, that is their
responsibility.157
The Dissenting Opinion states that PP 1017 and G.O. No. 5 are constitutional in every aspect and
"should result in no constitutional or statutory breaches if applied according to their letter."
The Court has passed upon the constitutionality of these issuances. Its ratiocination has been
exhaustively presented. At this point, suffice it to reiterate that PP 1017 is limited to the calling
out by the President of the military to prevent or suppress lawless violence, invasion or rebellion.
When in implementing its provisions, pursuant to G.O. No. 5, the military and the police
committed acts which violate the citizens rights under the Constitution, this Court has to declare
such acts unconstitutional and illegal.
In this connection, Chief Justice Artemio V. Panganibans concurring opinion, attached hereto, is
considered an integral part of this ponencia.
SUMMATION
In sum, the lifting of PP 1017 through the issuance of PP 1021 a supervening event would
have normally rendered this case moot and academic. However, while PP 1017 was still
operative, illegal acts were committed allegedly in pursuance thereof. Besides, there is no
guarantee that PP 1017, or one similar to it, may not again be issued. Already, there have been
media reports on April 30, 2006 that allegedly PP 1017 would be reimposed "if the May 1 rallies"
become "unruly and violent." Consequently, the transcendental issues raised by the parties
should not be "evaded;" they must now be resolved to prevent future constitutional aberration.
The Court finds and so holds that PP 1017 is constitutional insofar as it constitutes a call by the
President for the AFP to prevent or suppress lawless violence. The proclamation is sustained by
Section 18, Article VII of the Constitution and the relevant jurisprudence discussed earlier.
However, PP 1017s extraneous provisions giving the President express or implied power (1) to
issue decrees; (2) to direct the AFP to enforce obedience to all laws even those not related to
lawless violence as well as decrees promulgated by the President; and (3) to impose standards
on media or any form of prior restraint on the press, are ultra vires and unconstitutional. The
Court also rules that under Section 17, Article XII of the Constitution, the President, in the
absence of a legislation, cannot take over privately-owned public utility and private business
affected with public interest.
In the same vein, the Court finds G.O. No. 5 valid. It is an Order issued by the President acting
as Commander-in-Chief addressed to subalterns in the AFP to carry out the provisions of PP
1017. Significantly, it also provides a valid standard that the military and the police should take
only the "necessary and appropriate actions and measures to suppress and prevent
acts of lawless violence."But the words "acts of terrorism" found in G.O. No. 5 have not
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been legally defined and made punishable by Congress and should thus be deemed deleted from
the said G.O. While "terrorism" has been denounced generally in media, no law has been enacted
to guide the military, and eventually the courts, to determine the limits of the AFPs authority in
carrying out this portion of G.O. No. 5.
On the basis of the relevant and uncontested facts narrated earlier, it is also pristine clear that
(1) the warrantless arrest of petitioners Randolf S. David and Ronald Llamas; (2) the dispersal of
the rallies and warrantless arrest of the KMU and NAFLU-KMU members; (3) the imposition of
standards on media or any prior restraint on the press; and (4) the warrantless search of
the Tribune offices and the whimsical seizures of some articles for publication and other
materials, are not authorized by the Constitution, the law and jurisprudence. Not even by the
valid provisions of PP 1017 and G.O. No. 5.
Other than this declaration of invalidity, this Court cannot impose any civil, criminal or
administrative sanctions on the individual police officers concerned. They have not been
individually identified and given their day in court. The civil complaints or causes of action and/or
relevant criminal Informations have not been presented before this Court. Elementary due
process bars this Court from making any specific pronouncement of civil, criminal or
administrative liabilities.
It is well to remember that military power is a means to an end and substantive civil
rights are ends in themselves. How to give the military the power it needs to protect
the Republic without unnecessarily trampling individual rights is one of the eternal
balancing tasks of a democratic state.During emergency, governmental action may vary in
breadth and intensity from normal times, yet they should not be arbitrary as to unduly restrain
our peoples liberty.
Perhaps, the vital lesson that we must learn from the theorists who studied the various
competing political philosophies is that, it is possible to grant government the authority to cope
with crises without surrendering the two vital principles of constitutionalism: the maintenance
of legal limits to arbitrary power, and political responsibility of the government to the
governed.158
WHEREFORE, the Petitions are partly granted. The Court rules that PP 1017
is CONSTITUTIONAL insofar as it constitutes a call by President Gloria Macapagal-Arroyo on the
AFP to prevent or suppress lawless violence. However, the provisions of PP 1017
commanding the AFP to enforce laws not related to lawless violence, as well as decrees
promulgated by the President, are declared UNCONSTITUTIONAL. In addition, the provision in
PP 1017 declaring national emergency under Section 17, Article VII of the Constitution
is CONSTITUTIONAL, but such declaration does not authorize the President to take over
privately-owned public utility or business affected with public interest without prior legislation.
G.O. No. 5 is CONSTITUTIONAL since it provides a standard by which the AFP and the PNP
should implement PP 1017, i.e. whatever is "necessary and appropriate actions and
measures to suppress and prevent acts of lawless violence." Considering that "acts of
terrorism" have not yet been defined and made punishable by the Legislature, such portion of
G.O. No. 5 is declared UNCONSTITUTIONAL.
The warrantless arrest of Randolf S. David and Ronald Llamas; the dispersal and warrantless
arrest of the KMU and NAFLU-KMU members during their rallies, in the absence of proof that
these petitioners were committing acts constituting lawless violence, invasion or rebellion and
violating BP 880; the imposition of standards on media or any form of prior restraint on the press,
as well as the warrantless search of the Tribune offices and whimsical seizure of its articles for
publication and other materials, are declared UNCONSTITUTIONAL.
No costs.
359

SO ORDERED.
ANGELINA SANDOVAL-GUTIERREZ
Associate Justice
WE CONCUR:
ARTEMIO V. PANGANIBAN
Chief Justice

(On leave)
REYNATO S. PUNO
Associate Justice

LEONARDO A.
QUISUMBING
Asscociate Justice

CONSUELO YNARESSANTIAGO
Associate Justice

ANTONIO T. CARPIO
Asscociate Justice

MA. ALICIA AUSTRIAMARTINEZ


Associate Justice

RENATO C. CORONA
Asscociate Justice

CONCHITA CARPIO MORALES


Associate Justice

ROMEO J. CALLEJO, SR.


Asscociate Justice

ADOLFO S. AZCUNA
Associate Justice

DANTE O. TINGA
Asscociate Justice

MINITA V. CHICO-NAZARIO
Associate Justice

CANCIO C. GARCIA
Asscociate Justice

PRESBITERO J. VELASCO, JR.


Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions
in the above Decision were reached in consultation before the case was assigned to the writer of
the opinion of the Court.
ARTEMIO V. PANGANIBAN
Chief Justice
Footnotes
3

Articulated in the writings of the Greek philosopher, Heraclitus of Ephesus, 540-480 B.C., who
propounded universal impermanence and that all things, notably opposites are interrelated.
11

Petition in G.R. No. 171396, p. 5.

360

12

Police action in various parts of Metro Manila and the reactions of the huge crowds being
dispersed were broadcast as "breaking news" by the major television stations of this country.
15

The prime duty of the Government is to serve and protect the people. The Government may
call upon the people to defend the State and, in the fulfillment thereof, all citizens may be
required, under conditions provided by law, to render personal military or civil service.
16

No person shall be deprived of life, liberty, or property without due process of law, nor shall
any person be denied the equal protection of the laws.
17

The right of the people to be secure in their persons, houses, papers, and effects against
unreasonable searches and seizures of whatever nature and for any purpose shall be inviolable,
and no search warrant or warrant of arrest shall issue except upon probable cause to be
determined personally by the judge after examination under oath or affirmation of the
complainant and the witnesses he may produce, and particularly describing the place to be
searched and the persons or things to be seized.
18

No law shall be passed abridging the freedom of speech, of expression, or of the press, or the
right of the people peaceably to assemble and petition the Government for redress of
grievances.
19

(1) The Congress, by a vote of two-thirds of both Houses in joint session assembled, voting
separately, shall have the sole power to declare the existence of a state of war.
(2) In times of war or other national emergency, the Congress may, by law, authorize the
President, for a limited period and subject to such restrictions as it may prescribe, to exercise
powers necessary and proper to carry out a declared national policy. Unless sooner withdrawn by
resolution of the Congress, such powers shall cease upon the next adjournment thereof.
20

In times of national emergency, when the public interest so requires, the State may, during the
emergency and under reasonable terms prescribed by it, temporarily take over or direct the
operation of any privately owned public utility or business affected with public interest.
49

84 Phil. 368 (1949) The Court held: "Above all, the transcendental importance to the public of
these cases demands that they be settled promptly and definitely, brushing aside, if we must,
technicalities of
51

Taada v. Tuvera, G.R. No. 63915, April 24, 1985, 136 SCRA 27, where the Court held that
where the question is one of public duty and the enforcement of a public right, the people are
the real party in interest, and it is sufficient that the petitioner is a citizen interested in the
execution of the law;
Legaspi v. Civil Service Commission, G.R. No. 72119, May 29, 1987, 150 SCRA 530, where
the Court held that in cases involving an assertion of a public right, the requirement of personal
interest is satisfied by the mere fact that the petitioner is a citizen and part of the general public
which possesses the right.
Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, L. No. 81311,
June 30, 1988, 163 SCRA 371, where the Court held that objections to taxpayers lack of
personality to sue may be disregarded in determining the validity of the VAT law;
Albano v. Reyes, G.R. No. 83551, July 11, 1989, 175 SCRA 264, where the Court held that while
no expenditure of public funds was involved under the questioned contract, nonetheless
considering its important role in the economic development of the country and the magnitude of
the financial consideration involved, public interest was definitely involved and this clothed
petitioner with the legal personality under the disclosure provision of the Constitution to question
it.
361

Association of Small Landowners in the Philippines, Inc. v. Sec. of Agrarian


Reform, G.R. No. 78742, July 14, 1989, 175 SCRA 343, where the Court ruled that while
petitioners are strictly speaking, not covered by the definition of a "proper party," nonetheless, it
has the discretion to waive the requirement, in determining the validity of the implementation of
the CARP.
Gonzales v. Macaraig, Jr., G.R. No. 87636, November 19, 1990, 191 SCRA 452, where the
Court held that it enjoys the open discretion to entertain taxpayers suit or not and that a
member of the Senate has the requisite personality to bring a suit where a constitutional issue is
raised.
Maceda v. Macaraig, Jr., G.R. No. 88291, May 31, 1991, 197 SCRA 771, where the Court held
that petitioner as a taxpayer, has the personality to file the instant petition, as the issues
involved, pertains to illegal expenditure of public money;
Osmea v. Comelec, G.R. No. 100318, 100308, 100417,100420, July 30, 1991, 199 SCRA 750,
where the Court held that where serious constitutional questions are involved, the
"transcendental importance" to the public of the cases involved demands that they be settled
promptly and definitely, brushing aside technicalities of procedures;
De Guia v. Comelec, G.R. No. 104712, May 6, 1992, 208 SCRA 420, where the Court held that
the importance of the issues involved concerning as it does the political exercise of qualified
voters affected by
67

From the deliberations of the Constitutional Commission, the intent of the framers is clear that
the immunity of the President from suit is concurrent only with his tenure and not his term. (De
Leon, Philippine Constitutional Law, Vol. 2, 2004 Ed., p. 302).
68

Section 1, Article XI of the Constitution provides: Public Office is a public trust. Public officers
and employees must at all times be accountable to the people, serve them with utmost
responsibility, integrity, loyalty and efficiency, act with patriotism and justice, and lead modest
lives.
78

"Five Justices Antonio, Makasiar, Esguerra, Fernandez, and Aquino took the position that the
proclamation of martial law and the arrest and detention orders accompanying the proclamation
posed a "political question" beyond the jurisdiction of the Court. Justice Antonio, in a separate
opinion concurred in by Makasiar, Fernandez, and Aquino, argued that the Constitution had
deliberately set up a strong presidency and had concentrated powers in times of emergency in
the hands of the President and had given him broad authority and discretion which the Court was
bound to respect. He made reference to the decision in Lansang v. Garcia but read it as in effect
upholding the "political question" position. Fernandez, in a separate opinion, also
argued Lansang, even understood as giving a narrow scope of review authority to the Court,
affirmed the impossible task of checking the action taken by the President. Hence, he
advocated a return to Barcelon v. Baker. Similarly, Esguerra advocated the abandonment
of Lansang and a return to Barcelon. And, although Justices Castro, Fernando, Muoz- Palma,
and, implicitly, Teehankee, lined up on the side of justiciability as enunciated in Lansang, x x x
Barredo, however, wanted to have the best of both worlds and opted for the view that "political
questions are not per se beyond the Courts jurisdiction ... but that as a matter of policy implicit
in the Constitution itself the Court should abstain from interfering with the Executives
Proclamation." (Bernas, The 1987 Constitution of the Republic of the Philippines: A Commentary,
1996 Edition, p. 794.)
120

Ironically, even the 7th Whereas Clause of PP 1017 which states that "Article 2, Section 4 of
our Constitution makes the defense and preservation of the democratic institutions and
the State the primary duty of Government" replicates more closely Section 2, Article 2 of the
1973 Constitution than Section 4, Article 2 of the 1987 Constitution which provides that, "[t[he
prime duty of the Government is to serve and protect the people."
362

121

Agpalo, Statutory Construction, Fourth Edition, 1998, p. 1, citing Legaspi v. Ministry of


Finance, 115 SCRA 418 (1982); Garcia-Padilla v. Ponce-Enrile, supra. Aquino v. Commission on
Election, supra.
122

Section 17, Article XIV of the 1973 Constitution reads: "In times of national emergency when
the public interest so requires, the State may temporarily take over or direct the operation of any
privately owned public utility or business affected with public interest."
128

The Federal Emergency Relief Act of 1933 opened with a declaration that the economic
depressioncreated a serious emergency, due to wide-spread unemployment and the
inadequacy of State and local relief funds, . . . making it imperative that the Federal Government
cooperate more effectively with the several States and Territories and the District of Columbia in
furnishing relief to their needy and distressed people. President Roosevelt in declaring a bank
holiday a few days after taking office in 1933 proclaimed that "heavy and unwarranted
withdrawals of gold and currency from banking institutions for the purpose of hoarding; ...
resulting in "sever drains on the Nations stocks of gold have created a national emergency,"
requiring his action. Enacted within months after Japans attack on Pearl Harbor, the Emergency
Price Control Act of 1942was designed to prevent economic dislocations from endangering the
national defense and security and the effective prosecution of the war. (Smith and
Cotter, Powers of the President During Crises, 1972, p.18)
129

The Emergency Appropriation Act for Fiscal 1935 appropriated fund to meet the emergency
and necessity for relief in stricken agricultural areas and in another section referred to " the
present drought emergency."[129] The India Emergency Food Aid Act of 1951 provided for
emergency shipments of food to India to meet famine conditions then ravaging the great Asian
sub-continent. The Communication Act of 1934 and its 1951 amendment grant the President
certain powers in time of "public peril or disaster." The other statutes provide for existing or
anticipated emergencies attributable to earthquake, flood, tornado, cyclone, hurricane,
conflagration an landslides.[129] There is also a Joint Resolution of April 1937. It made "funds
available for the control of incipient or emergency outbreaks of insect pests or plant diseases,
including grasshoppers, Mormon crickets, and chinch bugs. (66 Stat 315, July 1, 1952, Sec. 2
[a]) Supra.
130

National Security may be cataloged under the heads of (1) Neutrality, (2) Defense, (3) Civil
Defense, and (4) Hostilities or War. (p. 22) The Federal Civil Defense Act of 1950 contemplated
an attack or series of attacks by an enemy of the United States which conceivably would cause
substantial damage or injury to civilian property or persons in the United States by any one of
several means; sabotage, the use of bombs, shellfire, or atomic, radiological, chemical,
bacteriological means or other weapons or processes. Such an occurrence would cause a
"National Emergency for Civil Defense Purposes," or "a state of civil defense emergency," during
the term which the Civil Defense Administrator would have recourse to extraordinary powers
outlined in the Act. The New York-New Jersey Civil Defense Compact supplies an illustration in
this context for emergency cooperation. "Emergency" as used in this compact shall mean and
include invasion,
or
other hostile
action, disaster, insurrection or imminent
danger thereof. ( Id., p.15-16)
141

In a Lecture delivered on March 12, 2002 as part of the Supreme Court Centenary Lecture
Series, Hans Koechler, Professor of Philosophy at the University of Innsbruck (Austria) and
President of the International Progress Organization, speaking on "The United Nations, The
International Rule of Law and Terrorism" cited in the Dissenting Opinion of Justice Kapunan in Lim
v. Executive Secretary, G.R. No. 151445, April 11, 2002, 380 SCRA 739.
142

Section 2, Article III of the 1987 Constitution.

143

Bernas, The 1987 Constitution of the Republic of the Philippines, A Reviewer-Primer, p. 51.

144

Annex "A" of the Memorandum in G.R. No. 171396, pp. 271-273.

363

145

An Act Ensuring the Free Exercise by the People of their Right Peaceably to Assemble and
Petition the
150

Section 5. Application requirements - All applications for a permit shall comply with the
following guidelines:
xxxxxx
(c) If the mayor is of the view that there is imminent and grave danger of a substantive evil
warranting the denial or modification of the permit, he shall immediately inform the applicant
who must be heard on the matter.

SUMMARY OF THE VOTING IN THE PP 1017 DECISION


Fourteen of the 15 SC justices participated in the decision. Senior Associate Justice Reynato S.
Puno was on leave.
Justice Angelina Sandoval Gutierrezs 78-page ponencia was concurred in by 10 Justices: Chief
Justice Artemio V. Panganiban and Justices Leonardo A. Quisumbing, Consuelo Ynares Santiago,
Antonio T. Carpio, Ma. Alicia Austria-Martinez, Conchita Carpio Morales, Romeo J. Callejo, Sr.,
Adolfo S. Azcuna, Minita V. Chico-Nazario, and Cancio C. Garcia.
Both the Chief Justice and Justice Ynares-Santiago wrote separate concurring opinions. The Chief
Justices concurring opinion was joined by Justices Carpio, Carpio Morales, and Callejo, Sr.
Justice Dante O. Tingas dissenting opinion was joined by Justices Renato C. Corona and
Presbitero J. Velasco, Jr.
EN BANC
G.R. No. 171396 DAVID et al. v. ARROYO, etc., et al. and related cases (G.R. Nos.
171409, 171483, 171485, 171400, 171424 and 171489)
Promulgated on:
May 3, 2006
x --------------------------------------------------------------------------- x
CONCURRING OPINION
<bpanganiban, CJ:
I was hoping until the last moment of our deliberations on these consolidated cases that the
Court would be unanimous in its Decision. After all, during the last two weeks, it decided with one
voice two equally contentious and nationally significant controversies involving Executive Order
No. 4641 and the so-called Calibrated Preemptive Response policy. 2
However, the distinguished Mr. Justice Dante O. Tingas Dissenting Opinion has made that hope
an impossibility. I now write, not only to express my full concurrence in the thorough and
elegantly written ponencia of the esteemed Mme. Justice Angelina Sandoval-Gutierrez, but more
urgently to express a little comment on Justice Tingas Dissenting Opinion (DO).
The Dissent dismisses all the Petitions, grants no reliefs to petitioners, and finds nothing wrong
with PP 1017. It labels the PP a harmless pronouncement -- "an utter superfluity" -- and
364

denounces the ponencia as an "immodest show of brawn" that "has imprudently placed the
Court in the business of defanging paper tigers."
Under this line of thinking, it would be perfectly legal for the President to reissue PP 1017 under
its present language and nuance. I respectfully disagree.
Let us face it. Even Justice Tinga concedes that under PP 1017, the police -- "to some minds" -"may have flirted with power." With due respect, this is a masterful understatement. PP 1017
may be a paper tiger, but -- to borrow the colorful words of an erstwhile Asian leader -- it has
nuclear teeth that must indeed be defanged.
Some of those who drafted PP 1017 may be testing the outer limits of presidential prerogatives
and the perseverance of this Court in safeguarding the peoples constitutionally enshrined
liberty. They are playing with fire, and unless prudently restrained, they may one day wittingly or
unwittingly burn down the country. History will never forget, much less forgive, this Court if it
allows such misadventure and refuses to strike down abuse at its inception. Worse, our people
will surely condemn the misuse of legal hocus pocus to justify this trifling with constitutional
sanctities.
And even for those who deeply care for the President, it is timely and wise for this Court to set
down the parameters of power and to make known, politely but firmly, its dogged determination
to perform its constitutional duty at all times and against all odds. Perhaps this country would
never have had to experience the wrenching pain of dictatorship; and a past President would not
have fallen into the precipice of authoritarianism, if the Supreme Court then had the moral
courage to remind him steadfastly of his mortality and the inevitable historical damnation of
despots and tyrants. Let not this Court fall into that same rut.
ARTEMIO V. PANGANIBAN
Chief Justice
EN BANC
G.R. No. 171396 --- Professor Randolf S. David, et al., Petitioners, versus Gloria
Macapagal-Arroyo, as President and Commander-in-Chief, et al, Respondents.
G.R. No. 171409 --- Ninez Cacho-Olivares and Tribune Publishing Co., Inc., Petitioners,
versus Honorable Secretary Eduardo Ermita and Honorable Director General Arturo C.
Lomibao, Respondents.
G.R. No. 171485 --- Francis Joseph G. Escudero, et al. Petitioners, versus Eduardo R.
Ermita, et al.,Respondents.
G.R. No. 171483 --- Kilusang Mayo Uno, represented by its Chairperson Elmer C. Labog
and Secretary General Joel Maglunsod, et al., Petitioners, versus Her Excellency
President Gloria Macapagal Arroyo, et al.,Respondents.
G.R. No. 171400 --- Alternative Law Groups, Inc.. (ALG), Petitioners, versus Executive
Secretary, Eduardo Ermita, et al., Respondents.
G.R. No. 171489 Jose Anselmo I. Cadiz, et al., Petitioners,
versus Hon. Executive Secretary Eduardo Ermita, et al., Respondents.
G.R. No. 171424 --- Loren B. Legarda, Petitioner, versus President Gloria MacapagalArroyo, in her capacity as President and Commander-in-Chief, et al., Respondents;
Promulgated:
365

May 3, 2006
x ---------------------------------------------------------------------------------------- x
CONCURRING OPINION
YNARES-SANTIAGO, J.:
The only real security for social well-being is the free exercise of mens minds.
-Harold J. Laski, Professor of Government and Member of the British Labor Party, in his
book, Authority in the Modern State (1919).
The ideals of liberty and equality, the eminent U.S. Supreme Court Justice Benjamin Cardozo
once wrote, are preserved against the assaults of opportunism, the expediency of the passing
hour, the erosion of small encroachments, the scorn and derision of those who have no patience
with general principles.1 In an open and democratic society, freedom of thought and expression
is the matrix, the indispensable condition, of nearly every other form of freedom. 2
I share the view that Presidential Proclamation No. 1017 (PP 1017) under which President Gloria
Macapagal Arroyo declared a state of national emergency, and General Order No. 5 (GO No. 5),
issued by the President pursuant to the same proclamation are both partly unconstitutional.
I fully agree with the pronouncement that PP 1017 is no more than the exercise by the President,
as the Commander-in-Chief of all armed forces of the Philippines, of her power to call out such
armed forces whenever it becomes necessary to prevent or suppress lawless violence,
invasion or rebellion. This is allowed under Section 18, Article VII of the Constitution.
However, such "calling out" power does not authorize the President to direct the armed forces or
the police to enforce laws not related to lawless violence, invasion or rebellion. The same does
not allow the President to promulgate decrees with the force and effect similar or equal to laws
as this power is vested by the Constitution with the legislature. Neither is it a license to conduct
searches and seizures or arrests without warrant except in cases provided in the Rules of Court.
It is not a sanction to impose any form of prior restraint on the freedom of the press or
expression or to curtail the freedom to peaceably assemble or frustrate fundamental
constitutional rights.
In the case of Bayan v. Ermita3 this Court thru Justice Adolfo S. Azcuna emphasized that the right
to peaceably assemble and petition for redress of grievances is, together with freedom of
speech, of expression, and of the press, a right that enjoys primacy in the realm of constitutional
protection. These rights constitute the very basis of a functional democratic polity, without which
all the other rights would be meaningless and unprotected.
On the other hand, the direct reference to Section 17, Article XII of the Constitution as the
constitutional basis for the declaration of a state of national emergency is misplaced. This
provision can be found under the article on National Economy and Patrimony which presupposes
that "national emergency" is of an economic, and not political, nature. Moreover, the said
provision refers to the temporary takeover by the State of any privately-owned public utility or
business affected with public interest in times of national emergency. In such a case, the
takeover is authorized when the public interest so requires and subject to "reasonable terms"
which the State may prescribe.
The use of the word "State" as well as the reference to "reasonable terms" under Section 17,
Article XII can only pertain to Congress. In other words, the said provision is not self-executing as
to be validly invoked by the President without congressional authorization. The provision merely
declares a state economic policy during times of national emergency. As such, it cannot be taken
366

to mean as authorizing the President to exercise "takeover" powers pursuant to a declaration of a


state of national emergency.
The President, with all the powers vested in her by Article VII, cannot arrogate unto herself the
power to take over or direct the operation of any privately owned public utility or business
affected with public interest without Congressional authorization. To do so would constitute
an ultra vires act on the part of the Chief Executive, whose powers are limited to the powers
vested in her by Article VII, and cannot extend to Article XII without the approval of Congress.
Thus, the Presidents authority to act in times of national emergency is still subject to the
limitations expressly prescribed by Congress. This is a featured component of the doctrine of
separation of powers, specifically, the principle of checks and balances as applicable to the
political branches of government, the executive and the legislature.
With regard to GO No. 5, I agree that it is unconstitutional insofar as it mandates the armed
forces and the national police "to prevent and suppress acts of terrorism and lawless violence in
the country." There is presently no law enacted by Congress that defines terrorism, or classifies
what acts are punishable as acts of terrorism. The notion of terrorism, as well as acts constitutive
thereof, is at best fraught with ambiguity. It is therefore subject to different interpretations by the
law enforcement agencies.
As can be gleaned from the facts, the lack of a clear definition of what constitutes "terrorism"
have led the law enforcement officers to necessarily guess at its meaning and differ as to its
application giving rise to unrestrained violations of the fundamental guarantees of freedom of
peaceable assembly and freedom of the press.
In Kolender v. Lawson,4 the United States Supreme Court nullified a state statute requiring
persons who loitered or wandered on streets to provide "credible and reliable" identification and
to account for their presence when requested to do so by a police officer. Writing for the majority,
Justice Sandra Day OConnor noted that the most important aspect of vagueness doctrine was
the imposition of guidelines that prohibited arbitrary, selective enforcement on constitutionally
suspect basis by police officers. This rationale for invocation of that doctrine was of special
concern in this case because of the potential for arbitrary suppression of the fundamental
liberties concerning freedom of speech and expression, as well as restriction on the freedom of
movement.
Thus, while I recognize that the President may declare a state of national emergency as a
statement of a factual conditionpursuant to our ruling in Sanlakas v. Executive Secretary, 5 I wish
to emphasize that the same does not grant her any additional powers. Consequently, while PP
1017 is valid as a declaration of a factual condition, the provisions which purport to vest in the
President additional powers not theretofore vested in her must be struck down. The provision
under GO No. 5 ordering the armed forces to carry out measures to prevent or suppress "acts of
terrorism" must be declared unconstitutional as well.
Finally, it cannot be gainsaid that government action to stifle constitutional liberties guaranteed
under the Bill of Rights cannot be preemptive in meeting any and all perceived or potential
threats to the life of the nation. Such threats must be actual, or at least gravely imminent, to
warrant government to take proper action. To allow government to preempt the happening of any
event would be akin to "putting the cart before the horse," in a manner of speaking. State action
is proper only if there is a clear and present danger of a substantive evil which the state has a
right to prevent. We should bear in mind that in a democracy, constitutional liberties must
always be accorded supreme importance in the conduct of daily life. At the heart of these
liberties lies freedom of speech and thought not merely in the propagation of ideas we love, but
more importantly, in the advocacy of ideas we may oftentimes loathe. As succinctly articulated
by Justice Louis D. Brandeis:

367

Fear of serious injury cannot alone justify suppression of free speech and assembly. x x x It is the
function of speech to free men from the bondage of irrational fears. To justify suppression of free
speech there must be reasonable ground to believe that the danger apprehended is imminent.
There must be reasonable ground to believe that the evil to be prevented is a serious one. x x x
But even advocacy of violation, however reprehensible morally, is not a justification for denying
free speech where the advocacy falls short of incitement and there is nothing to indicate that the
advocacy would be immediately acted on. The wide difference between advocacy and
incitement, between preparation and attempt, between assembling and conspiracy, must be
borne in mind. In order to support a finding of clear and present danger it must be shown either
that immediate serious violence was to be expected or was advocated, or that the past conduct
furnished reason to believe that such advocacy was then contemplated. 6
IN VIEW OF THE FOREGOING, I vote to PARTLY GRANT the petitions.
CONSUELO YNARES-SANTIAGO
Associate Justice

G.R. No. 171396 (Prof. Randolf S. David, Lorenzo Taada III, Ronald Llamas, H. Harry L. Roque,
Jr., Joel Ruiz Butuyan, Roger R. Rayel, Gary S. Mallari, Romel Regalado Bagares, Christopher F.C.
Bolastig, petitioners, v. Gloria Macapagal-Arroyo, as President and Commander-in-Chief,
Executive Secretary Eduardo Ermita, Hon. Avelino Cruz II, Secretary of National Defense, General
Generoso Senga, Chief of Staff, Armed Forces of the Philippines, Director General Arturo Lomibao,
Chief, Philippine National Police, respondents.)
G.R. No. 171409 (Niez Cacho-Olivares and Tribune Publishing Co., Inc., petitioner, v. Honorable
Secretary Eduardo Ermita and Honorable Director General Arturo Lomibao, respondents.)
G.R. No. 171485 (Francis Joseph G. Escudero, Joseph A. Santiago, Teodoro A. Casino, Agapito A.
Aquino, Mario G. Aguja, Satur C. Ocampo, Mujiv S. Hataman, Juan Edgardo Angara, Teofisto DL.
Guingona III, Emmanuel Josel J. Villanueva, Liza L. Maza, Imee R. Marcos, Renato B. Magtubo,
Justin Marc SB. Chipeco, Roilo Golez, Darlene Antonio-Custudio, Loretta Ann P. Rosales, Josel G.
Virador, Rafael V. Mariano, Gilbert C. Remulla, Florencio G. Noel, Ana Theresa HontiverosBaraquel, Imelda C. Nicolas, Marvic M.V.F. Leonenen, Neri Javier Colmenares, Movement of
Concerned Citizens for Civil Liberties, represented by Amado Gat Inciong, petitioners, v. Eduardo
R. Ermita, Executive Secretary, Avelino J. Cruz, Jr., Secretary, DND Ronaldo V. Puno, Secretary,
DILG, Generoso Senga, AFP Chief of Staff, Arturo Lumibao, Chief PNP, respondents.)
G.R. No. 171483 (Kilusang Mayo Uno, represented by its Chairperson Elmer C. Labog and
Secretary General Joel Maglunsod, National Federation of Labor Unions-Kilusang Mayo Uno
(NAFLU-KMU), represented by its National President, Joselito v. Ustarez, Antonio C. Pascual,
Salvador t. Carranza, Emilia P. Dapulang, Martin Custodio, Jr., and Roque M. Tan, petitioners, v.
Her Excellency, President Gloria Macapagal-Arroyo, The Honorable Executive Secretary, Eduardo
Ermita, The Chief of Staff, Armed Forces of the Philippines, Generoso Senga, and the PNP Director
General, Arturo Lomibao, respondents.)
G.R. No. 171400 (Alternative Law Groups, Inc. v. (ALG), petitioner, v. Executive Secretary
Eduardo L. Ermita. Lt. Gen. Generoso Senga, and Director General Arturo Lomibao, respondents.)
G.R. No. 171489 (Jose Anselmo I. Cadiz, Feliciano M. Bautista, Romulo R. Rivera, Jose Amor M.
Amorado, Alicia A. Risos-Vidal, Felimon C. Abelita III, Manuel P. Legaspi, J.B., Jovy C. Bernabe,
Bernard L. Dagcuta, Rogelio V. Garcia and Integrated Bar of the Philippines (IBP), petitioners, v.
Hon. Executive Secretary Eduardo Ermita, General Generoso Senga, in his capacity as AFP Chief
of Staff, and Direcotr General Arturo Lomibao, in his capacity as PNP Chief, respondents.)

368

G.R. No. 171424 (Loren B. Legarda, petitioner, v. Gloria Macapagal-Arroyo, in her capacity as
President and Commander-in-Chief; Arturo Lomibao, in his capacity as Director-General of the
Philippine National Police (PNP); Generoso Senga, in his capacity as Chief of Staff of the Armed
Forces of the Philippine (AFP); and Eduardo Ermita, in his capacity as Executive Secretary,
respondents.)
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DISSENTING OPINION
TINGA, J:
I regret to say that the majority, by its ruling today, has imprudently placed the Court in the
business of defanging paper tigers. The immodest show of brawn unfortunately comes at the
expense of an exhibition by the Court of a fundamental but sophisticated understanding of the
extent and limits of executive powers and prerogatives, as well as those assigned to the judicial
branch. I agree with the majority on some points, but I cannot join the majority opinion, as it
proceeds to rule on non-justiciable issues based on fears that have not materialized, departing as
they do from the plain language of the challenged issuances to the extent of second-guessing
the Chief Executive. I respectfully dissent.
The key perspective from which I view these present petitions is my own ponencia in Sanlakas v.
Executive Secretary,1 which centered on Presidential Proclamation No. 427 (PP 427), declaring a
"state of rebellion" in 2003. The Court therein concluded that while the declaration was
constitutional, such declaration should be regarded as both regarded as "an utter superfluity",
which "only gives notice to the nation that such a state exists and that the armed forces may be
called to prevent or suppress it", and "devoid of any legal significance", and "cannot diminish or
violate constitutionally protected rights." I submit that the same conclusions should be reached
as to Proclamation No. 1017 (PP 1017). Following the cardinal precept that the acts of the
executive are presumed constitutional is the equally important doctrine that to warrant
unconstitutionality, there must be a clear and unequivocal breach of the Constitution, not a
doubtful and argumentative implication. 2 Also well-settled as a rule of construction is that where
thee are two possible constructions of law or executive issuance one of which is in harmony with
the Constitution, that construction should be preferred. 3 The concerns raised by the majority
relating to PP 1017 and General Order Nos. 5 can be easily disquieted by applying this wellsettled principle.
I.
PP 1017Has No Legal Binding Effect; Creates No Rights and
Obligations; and Cannot Be Enforced or Invoked in a Court< Of Law
First, the fundamentals. The President is the Chief of State and Foreign Relations, the chief of the
Executive Branch,4 and the Commander-in-Chief of the Armed Forces. 5 The Constitution vests on
the President the executive power.6 The President derives these constitutional mandates from
direct election from the people. The President stands as the most recognizable representative
symbol of government and of the Philippine state, to the extent that foreign leaders who speak
with the President do so with the understanding that they are speaking to the Philippine state.
Yet no matter the powers and prestige of the presidency, there are significant limitations to the
office of the President. The President does not have the power to make or legislate laws, 7 or
disobey those laws passed by Congress. 8 Neither does the President have to power to create
rights and obligations with binding legal effect on the Filipino citizens, except in the context of
entering into contractual or treaty obligations by virtue of his/her position as the head of State.
The Constitution likewise imposes limitations on certain powers of the President that are normally
inherent in the office. For example, even though the President is the administrative head of the
Executive Department and maintains executive control thereof, 9 the President is precluded from
369

arbitrarily terminating the vast majority of employees in the civil service whose right to security
of tenure is guaranteed by the Constitution. 10
The President has inherent powers, 11 powers expressly vested by the Constitution, and powers
expressly conferred by statutes. The power of the President to make proclamations, while
confirmed by statutory grant, is nonetheless rooted in an inherent power of the presidency and
not expressly subjected to constitutional limitations. But proclamations, as they are, are a
species of issuances of extremely limited efficacy. As defined in the Administrative Code,
proclamations are merely "acts of the President fixing a date or declaring a status or condition of
public moment or interest upon the existence of which the operation of a specific law or
regulation is made to depend".12 A proclamation, on its own, cannot create or suspend any
constitutional or statutory rights or obligations. There would be need of a complementing law or
regulation referred to in the proclamation should such act indeed put into operation any law or
regulation by fixing a date or declaring a status or condition of a public moment or interest
related to such law or regulation. And should the proclamation allow the operationalization of
such law or regulation, all subsequent resultant acts cannot exceed or supersede the law or
regulation that was put into effect.
Under Section 18, Article VII of the Constitution, among the constitutional powers of the
President, as Commander-in-Chief, is to "call out such armed forces to prevent or suppress
lawless violence, invasion or rebellion".13 The existence of invasion or rebellion could allow the
President to either suspend the privilege of the writ of habeas corpus or place the Philippines or
any part thereof under martial law, but there is a fairly elaborate constitutional procedure to be
observed in such a case, including congressional affirmation or revocation of such suspension or
declaration, as well as the availability of judicial review. However, the existence of lawless
violence, invasion or rebellion does not ipso facto cause the "calling out" of the armed forces, the
suspension of habeas corpus or the declaration of martial law it remains within the discretion of
the President to engage in any of these three acts should said conditions arise.
Sanlakas involved PP 427, which declared the existence of a "state of rebellion." Such declaration
could ostensibly predicate the suspension of the privilege of the writ of habeas corpus or the
declaration of martial law, but the President did not do so. Instead, PP 427, and the
accompanying General Order No. 4, invoked the "calling out" of the Armed Forces to prevent
lawless violence, invasion and rebellion. Appreciably, a state of lawless violence, invasion or
rebellion could be variable in scope, magnitude and gravity; and Section 18, Article VII allows for
the President to respond with the appropriate measured and proportional response.
Indeed, the diminution of any constitutional rights through the suspension of the privilege of the
writ or the declaration of martial law is deemed as "strong medicine" to be used sparingly and
only as a last resort, and for as long as only truly necessary. Thus, the mere invocation of the
"calling out" power stands as a balanced means of enabling a heightened alertness in dealing
with the armed threat, but without having to suspend any constitutional or statutory rights or
cause the creation of any new obligations. For the utilization of the "calling out" power alone
cannot vest unto the President any new constitutional or statutory powers, such as the
enactment of new laws. At most, it can only renew emphasis on the duty of the President to
execute already existing laws without extending a corresponding mandate to proceed extraconstitutionally or extra-legally. Indeed, the "calling out" power does not authorize the President
or the members of the Armed Forces to break the law.
These were the premises that ultimately informed the Courts decision in Sanlakas, which
affirmed the declaration of a "state of rebellion" as within the "calling out" power of the
President, but which emphasized that for legal intents and purposes, it should be both regarded
as "an utter superfluity", which "only gives notice to the nation that such a state exists and that
the armed forces may be called to prevent or suppress it," and "devoid of any legal significance,"
as it could not "cannot diminish or violate constitutionally protected rights." The same premises
apply as to PP 1017.
370

A comparative analysis of PP 427 and PP 1017, particularly their operative clauses, is in order.
PP 427 PP 1017

NOW, THEREFORE, I, GLORIA


MACAPAGAL-ARROYO, by virtue of
the powers vested in me by law,
hereby confirm the existence of an
actual and on-going rebellion,
compelling me to declare a state
of rebellion.
In view of the foregoing, I am
issuing General Order No. 4 in
accordance with Section 18,
Article VII of the Constitution,
calling out the Armed Forces of the
Philippines and the Philippine
National Police to immediately
carry out the necessary actions
and measures to suppress and
quell the rebellion with due regard
to constitutional rights.

NOW,
THEREFORE,
I
Gloria
Macapagal-Arroyo, President of the
Republic of the Philippines and
Commander-in-Chief of the Armed
Forces of the Philippines, by virtue
of the powers vested upon me by
Section 18, Article 7 of the
Philippine
Constitution
which
states that: "The President. . .
whenever
it
becomes
necessary, . . . may call out (the)
armed forces to prevent or
suppress. . . rebellion. . .," and in
my capacity as their Commanderin-Chief, do hereby command the
Armed Forces of the Philippines, to
maintain law and order throughout
the
Philippines,
prevent
or
suppress all forms of lawless
violence as well any act of
insurrection or rebellion and to
enforce obedience to all the laws
and to all decrees, orders and
regulations promulgated by me
personally or upon my direction;
and as provided in Section 17,
Article 12 of the Constitution do
hereby declare a State of National
Emergency.

Let us begin with the similarities. Both PP 427 and PP 1017 are characterized by two distinct
phases. The first is the declaration itself of a status or condition, a "state of rebellion" in PP 437,
and a "state of national emergency" under PP 1017. Both "state of rebellion" and "state of
national emergency" are terms within constitutional contemplation. Under Section 18, Article VII,
the existence of a "state of rebellion" is sufficient premise for either the suspension of the
privilege of the writ of habeas corpus or the declaration of martial law, though in accordance with
the strict guidelines under the same provision. Under Section 17, Article XII, the existence of a
state of national emergency is sufficient ground for the State, during the emergency, under
reasonable terms prescribed by it, and when the public interest so requires, to temporarily take
over or direct the operation of any privately-owned public utility or business affected with public
interest. Under Section 23(2), Article VI, the existence of a state of national emergency may also
allow Congress to authorize the President, for a limited period and subject to such restrictions as
it may prescribe, to exercise powers necessary and proper to carry out a declared national policy.
Certainly, the declaration could stand as the first step towards constitutional authorization for
the exercise by the President, the Congress or the State of extraordinary powers and
prerogatives. However, the declaration alone cannot put into operation these extraordinary
powers and prerogatives, as the declaration must be followed through with a separate act
providing for the actual utilization of such powers. In the case of the "state of rebellion," such act
involves the suspension of the writ or declaration of martial law. In the case of the "state of
national emergency," such act involves either an order for the takeover or actual takeover by the
371

State of public utilities or businesses imbued with public interest or the authorization by
Congress for the President to exercise emergency powers.
In PP 427, the declaration of a "state of rebellion" did not lead to the suspension of the writ or the
declaration of martial law. In PP 1017, the declaration of a "state of national emergency" did not
lead to an authorization for the takeover or actual takeover of any utility or business, or the grant
by Congress to the President of emergency powers. Instead, both declarations led to the
invocation of the calling out power of the President under Section 18, Article VII, which the
majority correctly characterizes as involving only "ordinary police action."
I agree with the ponencias holding that PP 1017 involves the exercise by the President of the
"calling out" power under Section 18, Article VII. In Integrated Bar v. Zamora, 14 the Court was
beseeched upon to review an order of President Estrada commanding the deployment of the
Marines in patrols around Metro Manila, in view of an increase in crime. 15 The Court, speaking
through Justice Santiago Kapunan, affirmed the Presidents order, asserting that "it is the
unclouded intent of the Constitution to vest upon the President, as Commander-in-Chief of the
Armed Forces, full discretion to call forth the military when in his judgment it is necessary to do
so in order to prevent or suppress lawless violence, invasion or rebellion. Unless the petitioner
can show that the exercise of such discretion was gravely abused, the Presidents exercise of
judgment deserves to be accorded respect from this Court." 16 Tellingly, the order of deployment
by President Estrada was affirmed by the Court even though we held the view that the power
then involved was not the "calling out" power, but "the power involved may be no more than the
maintenance of peace and order and promotion of the general welfare." 17
It was also maintained in Integrated Bar that while Section 18, Article VII mandated two
conditions actual rebellion or invasion and the requirement of public safety before the
suspension of the privilege of the writ of habeas corpus or the declaration of martial law could be
declared, "these conditions are not required in the case of the power to call out the armed forces.
The only criterion is that whenever it becomes necessary, the President may call the armed
forces to suppress lawless violence, invasion or rebellion." 18 The Court concluded that the
implication was "that the President is given full discretion and wide latitude in the exercise of the
power to call as compared to the two other powers." 19
These propositions were affirmed in Sanlakas, wherein the invocation of the calling out power
was expressly made by President Arroyo. The Court noted that for the purpose of exercising the
calling out power, the Constitution did not require the President to make a declaration of a state
of rebellion.20 At the same time, the Court in Sanlakas acknowledged that "the Presidents
authority to declare a state of rebellion springs in the main from her powers as chief
executive and, at the same time, draws strength from her Commander-in-Chief
powers."21
For still unclear reasons, the majority attempts to draw a distinction between Sanlakas and the
present petitions by that the statutory authority to declare a "state of rebellion" emanates from
the Administrative Code of 1987, particularly the provision authorizing the President to make
proclamations. As such, the declaration of a "state of rebellion," pursuant to statutory authority,
"was merely an act declaring a status or condition of public moment or interest." The majority
grossly misreads Sanlakas, which expressly roots the declaration of a state of rebellion from the
wedded powers of the Chief Executive, under Section 1, Article VII, and as Commander-in-Chief,
under Section 18, Article VII.
Insofar as PP 1017 is concerned, the calling out power is definitely involved, in view of the
directive to the Armed Forces of the Philippines to "suppress all forms of lawless violence". But
there are nuances to the calling out power invoked in PP 1017 which the majority does not
discuss. The directive "to suppress all forms of lawless violence" is addressed not only to the
Armed Forces but to the police as well. The "calling out" of the police does not derive from
Section 17, Article VII, or the commander-in-chief clause, our national police being civilian in
character. Instead, the calling out of the police is sourced from the power of the President as
372

Chief Executive under Section 1, Article VII, and the power of executive control under Section 18,
Article VII. Moreover, while the permissible scope of military action is limited to acts in
furtherance of suppressing lawless violence, rebellion, invasion, the police can be commanded by
the President to execute all laws without distinction in light of the presidential duty to execute all
laws.22
Still, insofar as Section 17, Article VII is concerned, wide latitude is accorded to the discretion of
the Chief Executive in the exercise of the "calling out" power due to a recognition that the said
power is of limited import, directed only to the Armed Forces of the Philippines, and incapable of
imposing any binding legal effect on the citizens and other branches of the Philippines. Indeed,
PP 1017 does not purport otherwise. Nothing in its operative provisions authorize the President,
the Armed Forces of the Philippines, or any officer of the law, to perform any extra-constitutional
or extra-legal acts. PP 1017 does not dictate the suspension of any of the peoples guarantees
under the Bill of Rights.
If it cannot be made more clear, neither the declaration of a state of emergency under
PP 1017 nor the invocation of the calling out power therein authorizes warrantless
arrests, searches or seizures; the infringement of the right to free expression,
peaceable assembly and association and other constitutional or statutory rights. Any
public officer who nonetheless engaged or is engaging in such extra-constitutional or
extra-legal acts in the name of PP 1017 may be subjected to the appropriate civil,
criminal or administrative liability.
To prove this point, let us now compare PP 1017 with a different presidential issuance, one that
was intended to diminish constitutional and civil rights of the people. The said issuance,
Presidential Proclamation No. 1081, was issued by President Marcos in 1972 as the instrument of
declaring martial law. The operative provisions read:
PD. 1081 PP 1017

Now, thereof, I, Ferdinand E.


Marcos,
President
Of
the
Philippines, by virtue of the
powers vested upon me by article
VII, Section 10, Paragraph (2) of
the Constitution, do hereby place
the entire Philippines as defined in
the article I, Section 1, of the
Constitution under martial law,
and in my capacity as their
commander-in-chief, do hereby
command the arned forces of the
Philippines, to maintain law and
order throughout the Philippines,
prevent or suppress all forms of
lawless violence as well as any act
of insurrection or rebellion and to
enforce obedience to all the laws
and
decrees,
orders
and
regulations promulgated by me
personally or upon my direction.
In addition, I do hereby order that
all persons presently detained, as
well as others who may hereafter
373

NOW,
THEREFORE,
I
Gloria
Macapagal-Arroyo, President of the
Republic of the Philippines and
Commander-in-Chief of the Armed
Forces of the Philippines, by virtue
of the powers vested upon me by
Section 18, Article 7 of the
Philippine
Constitution
which
states that: "The President. . .
whenever
it
becomes
necessary, . . . may call out (the)
armed forces to prevent or
suppress. . . rebellion. . .," and in
my capacity as their Commanderin-Chief, do hereby command the
Armed Forces of the Philippines, to
maintain law and order throughout
the
Philippines,
prevent
or
suppress all forms of lawless
violence as well any act of
insurrection or rebellion and to
enforce obedience to all the laws
and to all decrees, orders and
regulations promulgated by me
personally or upon my direction;

be similarly detained for the


crimes of insurrection or rebellion,
and all other crimes and offenses
committed in furtherance or on
the occasion thereof, or incident
thereto,
or
in
connection
therewith, for crimes against
national security and the law of
nations,
crimes,
against
the
fundamental laws of the state,
crimes
against
public
order,
crimes involving usurpation of
authority, rank, title and improper
use of names, uniforms and
insignia, crimes committed by
public officers, and for such other
crimes as will be enumerated in
Orders that I shall subsequently
promulgate, as well as crimes as a
consequence of any violation of
any decree, order or regulation
promulgated by me personally or
promulgated upon my direction
shall be kept under detention until
otherwise ordered released by me
or
by
my
duly
designated
representative.
(emphasis
supplied)

and as provided in Section 17,


Article 12 of the Constitution do
hereby declare a State of National
Emergency.

Let us examine the differences between PP No. 1081 and PP 1017. First, while PP 1017 merely
declared the existence of a state of rebellion, an act ultimately observational in character, PP
1081 "placed the entire Philippines under martial law," an active implement 23 that, by itself,
substituted civilian governmental authority with military authority. Unlike in the 1986
Constitution, which was appropriately crafted with an aversion to the excesses of Marcosian
martial rule, the 1935 Constitution under which PP 1081 was issued left no intervening
safeguards that tempered or limited the declaration of martial law. Even the contrast in the verbs
used, "place" as opposed to "declare," betrays some significance. To declare may be simply to
acknowledge the existence of a particular condition, while to place ineluctably goes beyond mere
acknowledgement, and signifies the imposition of the actual condition even if it did not exist
before.
Both PP 1081 and PP 1017 expressly invoke the calling out power. However, the contexts of such
power are wildly distaff in light of PP 1081s accompanying declaration of martial law. Since
martial law involves the substitution of the military in the civilian functions of government, the
calling out power involved in PP 1081 is significantly greater than the one involved in PP 1017,
which could only contemplate the enforcement of existing laws in relation to the suppression of
lawless violence, rebellion or invasion and the maintenance of general peace and order.
Further proof that PP 1081 intended a wholesale suspension of civil liberties in the manner that
PP 1017 does not even ponder upon is the subsequent paragraph cited, which authorizes the
detention and continued detention of persons for a plethora of crimes not only directly related to
the rebellion or lawless violence, but of broader range such as those "against national security,"
or "public order." The order of detention under PP 1081 arguably includes every crime in the
statute book. And most alarmingly, any person detained by virtue of PP 1081 could remain in
374

perpetual detention unless otherwise released upon order of President Marcos or his duly
authorized representative.
Another worthy point of contrast concerns how the Supreme Court, during the martial law era,
dealt with the challenges raised before it to martial law rule and its effects on civil liberties. While
martial law stood as a valid presidential prerogative under the 1935 Constitution, a ruling
committed to safeguard civil rights and liberties could have stood ground against even the most
fundamental of human rights abuses ostensibly protected under the 1935 and 1973 constitutions
and under international declarations and conventions. Yet a perusal of Aquino v. Enrile, 24 the case
that decisively affirmed the validity of martial law rule, shows that most of the Justices then
sitting exhibited diffidence guised though as deference towards the declaration of martial law.
Note these few excerpts from the several opinions submitted in that case which stand as typical
for those times:
The present state of martial law in the Philippines is peculiarly Filipino and fits into no traditional
patterns or judicial precedents. xxx In the first place I am convinced (as are the other Justices),
without need of receiving evidence as in an ordinary adversary court proceeding, that a state of
rebellion existed in the country when Proclamation No. 1081 was issued. It was a matter of
contemporary history within the cognizance not only of the courts but of all observant people
residing here at that time. xxx The state of rebellion continues up to the present. The argument
that while armed hostilities go on in several provinces in Mindanao there are none in other
regions except in isolated pockets in Luzon, and that therefore there is no need to maintain
martial law all over the country, ignores the sophisticated nature and ramifications of rebellion in
a modern setting. It does not consist simply of armed clashes between organized and identifiable
groups on fields of their own choosing. It includes subversion of the most subtle kind, necessarily
clandestine and operating precisely where there is no actual fighting. Underground propaganda,
through printed newssheets or rumors disseminated in whispers; recruiting of armed and
ideological adherents, raising of funds, procurement of arms and materiel, fifth-column activities
including sabotage and intelligence all these are part of the rebellion which by their nature are
usually conducted far from the battle fronts. They cannot be counteracted effectively unless
recognized and dealt with in that context. 25
xxx
[T]he fact that courts are open cannot be accepted as proof that the rebellion and insurrection,
which compellingly called for the declaration of martial law, no longer imperil the public safety.
Nor are the many surface indicia adverted to by the petitioners (the increase in the number of
tourists, the choice of Manila as the site of international conferences and of an international
beauty contest) to be regarded as evidence that the threat to public safety has abated. There is
actual armed combat, attended by the somber panoply of war, raging in Sulu and Cotabato, not
to mention the Bicol region and Cagayan Valley. I am hard put to say, therefore, that the
Governments claim is baseless.
I am not insensitive to the plea made here in the name of individual liberty. But to paraphrase Ex
parte Moyer, if it were the liberty alone of the petitioner Diokno that is in issue we would
probably resolve the doubt in his favor and grant his application. But the Solicitor General, who
must be deemed to represent the President and the Executive Department in this case, has
manifested that in the Presidents judgment peace and tranquility cannot be speedily restored in
the country unless the petitioners and others like them meantime remain in military custody. For,
indeed, the central matter involved is not merely the liberty of isolated individuals, but the
collective peace, tranquility and security of the entire nation. 26
xxx
It may be that the existence or non-existence or imminence of a rebellion of the magnitude that
would justify the imposition of martial law is an objective fact capable of judicial notice, for a
rebellion that is not of general knowledge to the public cannot conceivably be dangerous to
375

public safety. But precisely because it is capable of judicial notice, no inquiry is needed to
determine the propriety of the Executives action.
Again, while the existence of a rebellion may be widely known, its real extent and the dangers it
may actually pose to the public safety are not always easily perceptible to the unpracticed eye.
In the present day practices of rebellion, its inseparable subversion aspect has proven to be more
effective and important than "the rising (of persons) publicly and taking arms against the
Government" by which the Revised Penal Code characterizes rebellion as a crime under its
sanction. Subversion is such a covert kind of anti-government activity that it is very difficult even
for army intelligence to determine its exact area of influence and effect, not ot mention the
details of its forces and resources. By subversion, the rebels can extend their field of action
unnoticed even up to the highest levels of the government, where no one can always be certain
of the political complexion of the man next to him, and this does not exclude the courts. Arms,
ammunition and all kinds of war equipment travel and are transferred in deep secrecy to
strategic locations, which can be ones neighborhood without him having any idea of what is
going on. There are so many insidious ways in which subversives act, in fact too many to
enumerate, but the point that immediately suggests itself is that they are mostly incapable of
being proven in court, so how are We to make a judicial inquiry about them that can satisfy our
judicial conscience.
The Constitution definitely commits it to the Executive to determine the factual bases and to
forthwith act as promptly as possible to meet the emergencies of rebellion and invasion which
may be crucial to the life of the nation. He must do this with unwavering conviction, or any
hesitancy or indecision on his part will surely detract from the needed precision in his choice of
the means he would employ to repel the aggression. The apprehension that his decision might be
held by the Supreme Court to be a transgression of the fundamental law he has sworn to defend
and preserve would deter him from acting when precisely it is most urgent and critical that he
should act, since the enemy is about to strike the mortal blow. 27
xxx
To start with, Congress was not unaware of the worsening conditions of peace and order and of,
at least, evident insurgency, what with the numerous easily verifiable reports of open rebellious
activities in different parts of the country and the series of rallies and demonstrations, often
bloody, in Manila itself and other centers of population, including those that reached not only the
portals but even the session hall of the legislature, but the legislators seemed not to be
sufficiently alarmed or they either were indifferent or did not know what to do under the
circumstances. Instead of taking immediate measures to alleviate the conditions denounced and
decried by the rebels and the activists, they debated and argued long on palliatives without
coming out with anything substantial much less satisfactory in the eyes of those who were
seditiously shouting for reforms. In any event, in the face of the inability of Congress to meet the
situation, and prompted by his appraisal of a critical situation that urgently called for immediate
action, the only alternative open to the President was to resort to the other constitutional source
of extraordinary powers, the Constitution itself.28
xxx
Proclamation 1081 is in no sense any more constitutionally offensive. In fact, in ordering
detention of persons, the Proclamation pointedly limits arrests and detention only to those
"presently detained, as well as others who may hereafter be similarly detained for the crimes of
insurrection or rebellion, and all other crimes and offences committed in furtherance or on the
occasion thereof, or incident thereto, or in connection therewith, for crimes against national
security and the law of nations, crimes, against the fundamental laws of the state, crimes against
public order, crimes involving usurpation of authority, rank, title and improper use of names,
uniforms and insignia, crimes committed by public officers, and for such other crimes as will be
enumerated in Orders that I shall subsequently promulgate, as well as crimes as a consequence
of any violation of any decree, order or regulation promulgated by me personally or promulgated
376

upon my direction." Indeed, even in the affected areas, the Constitution has not been really
suspended much less discarded. As contemplated in the fundamental law itself, it is merely in a
state of anaesthesia, to the end that the much needed major surgery to save the nations life
may be successfully undertaken.29
xxx
The quoted lines of reasoning can no longer be sustained, on many levels, in these more
enlightened times. For one, as a direct reaction to the philosophy of judicial inhibition so
frequently exhibited during the Marcos dictatorship, our present Constitution has explicitly
mandated judicial review of the acts of government as part of the judicial function. As if to rebuff
Aquino, the 1987 Constitution expressly allows the Supreme Court to review the sufficiency of
the factual basis of the proclamation of martial law and decide the same within 30 days from the
filing of the appropriate case.30 The Constitution also emphasizes that a state of martial law did
not suspend the operation of the Constitution or supplant the functioning of the judicial and
legislative branches.31 The expediency of hiding behind the political question doctrine can no
longer be resorted to.
For another, the renewed emphasis within domestic and international society on the rights of
people, as can be seen in worldwide democratic movements beginning with our own in 1986,
makes it more difficult for a government established and governed under a democratic
constitution, to engage in official acts that run contrary to the basic tenets of democracy and
civil rights. If a government insists on proceeding otherwise, the courts will stand in defense of
the basic constitutional rights of the people.
Still, the restoration of rule under law, the establishment of national governmental
instrumentalities, and the principle of republicanism all ensure that the constitutional
government retains significant powers and prerogatives, for it is through such measures that it
can exercise sovereign will in behalf of the people. Concession to those presidential privileges
and prerogatives should be made if due. The abuses of past executive governments should not
detract from these basic governmental powers, even as they may warrant a greater degree of
wariness from those institutions that balance power and the people themselves. And the rule of
law should prevail above all. The damage done by martial rule was not merely personal but
institutional, and the proper rebuke to the caprices and whims of the iniquitous past is to respect
the confines of the restored rule of law.32
Nothing in PP 1017, or any issuance by any President since Aquino, comes even close to
matching PP 1081. It is a rank insult to those of us who suffered or stood by those
oppressed under PP 1081 to even suggest that the innocuous PP 1017 is of equivalent
import.
PP 1017 Does Not Purport or Pretend that the President Has The Power to Issue Decrees
There is one seeming similarity though in the language of PP 1017 and PP 1081, harped upon by
some of the petitioners and alluded to by the majority. PP 1017 contains a command to the
Armed Forces "to enforce obedience to all the laws and to all decrees, orders and regulations by
[the President]". A similar command was made under PP 1081. That in itself should not be a
cause of surprise, since both PP 1017 and PP 1081 expressly invoked the "calling out" power,
albeit in different contexts.
The majority however considers that since the President does not have the power to issue
decrees, PP 1017 is unconstitutional insofar as it enforces obedience "to all decrees." For one, it
should be made clear that the President currently has no power to issue decrees, and PP 1017 by
no measure seeks to restore such power to the President. Certainly, not even a single decree was
issued by President Arroyo during the several days PP 1017 was in effect, or during her term thus
far for that matter.
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At the same time, such power did once belong to the President during the Marcos era and was
extensively utilized by President Marcos. It has to be remembered that chafed as we may have
under some of the Marcos decrees, per the 1987 Constitution they still remain as part of the law
of the land unless particularly stricken down or repealed by subsequent enactments. Indeed,
when the President calls upon the Armed Forces to enforce the laws, those subsisting presidential
decrees issued by President Marcos in the exercise of his legislative powers are included in the
equation.
This view is supported by the rules of statutory construction. The particular passage in PP 1017
reads ""to enforce obedience to all the laws and to all decrees, orders and regulations," with the
phrases "all the laws and to all decrees" separated by a comma from "orders and regulations
promulgated by me." Inherently, laws and those decrees issued by President Marcos in the
exercise of his legislative powers, and even those executive issuances of President Aquino in the
exercise of her legislative powers, belong to the same class, superior in the hierarchy of laws
than "orders and regulations." The use of the conjunction "and" denotes a joinder or union,
"relating the one to the other." 33 The use of "and" establishes an association between laws and
decrees distinct from orders and regulations, thus permitting the application of the doctrine of
noscitur a sociis to construe "decrees" as those decrees which at present have the force of law.
The dividing comma further signifies the segregation of concepts between "laws and decrees" on
one hand, and "orders and regulations" on the other.
Further proof that "laws and decrees" stand as a class distinct from "orders and regulations" is
the qualifying phrase "promulgated by me," which necessarily refers only to orders and
regulations. Otherwise, PP 1017 would be ridiculous in the sense that the obedience to be
enforced only relates to laws promulgated by President Arroyo since she assumed office in 2001.
"Laws and decrees" do not relate only to those promulgated by President Arroyo, but other laws
enacted by past sovereigns, whether they be in the form of the Marcos presidential decrees, or
acts enacted by the American Governor-General such as the Revised Penal Code. Certainly then,
such a qualification sufficiently addresses the fears of the majority that PP 1017 somehow
empowers or recognizes the ability of the current President to promulgate decrees. Instead, the
majority pushes an interpretation that, if pursued to its logical end, suggests that the President
by virtue of PP 1017 is also arrogating unto herself, the power to promulgate laws, which are in
the mold of enactments from Congress. Again, in this respect, the grouping of "laws" and
"decrees" separately from "orders" and "regulations" signifies that the President has not
arrogated unto herself the power to issue decrees in the mold of the infamous Marcos decrees.
Moreover, even assuming that PP 1017 was intended to apply to decrees which the current
President could not very well issue, such intention is of no consequence, since the proclamation
does not intend or pretend to grant the President such power in the first place. By no measure of
contemplation could PP 1017 be interpreted as reinstating to the President the power to issue
decrees.
I cannot see how the phrase "enforce obedience to decrees" can be the source of constitutional
mischief, since the implementation of PP 1017 will not vest on the President the power to issue
such decrees. If the Court truly feels the need to clarify this point, it can do so with the
expediency of one sentence or even a footnote. A solemn declaration that the phrase is
unconstitutional would be like killing a flea with dynamite when insect powder would do.
PP 1017 A Valid Exercise of Prerogatives
Inherent and Traditional in the Office of The Presidency
Thus far, I have dwelt on the legal effects of PP 1017, non-existent as they may be in relation to
the citizenry, the courts or on Congress. Still, there is another purpose and dimension behind PP
1017 that fall within the valid prerogatives of the President.

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The President, as head of state, is cast in a unique role in our polity matched by no other
individual or institution. Apart from the constitutional powers vested on the President lie those
powers rooted in the symbolic functions of the office. There is the common expectation that the
President should stand as the political, moral and social leader of the nation, an expectation not
referred to in of the oath of office, but expected as a matter of tradition. In fact, a President may
be cast in crisis even if the Chief Executive has broken no law, and faithfully executed those laws
that exist, simply because the President has failed to win over the hearts and minds of the
citizens. As a Princeton academic, Woodrow Wilson once observed that with the People, the
President is everything, and without them nothing, and the sad decline of his own eventual
presidency is no better proof of the maxim. Such are among the vagaries of the political office,
and generally beyond judicial relief or remedy.
Justice Robert Jacksons astute observation in Youngstown Sheet & Tube Co. v. Sawyer 34 on the
unique nature of the presidency, has been widely quoted:
Executive power has the advantage of concentration in a single head in whose choice the whole
Nation has a part, making him the focus of public hopes and expectations. In drama, magnitude,
and finality, his decisions so far overshadow any others that almost alone he fills the public eye
and ear. No other personality in public life can begin to compete with him in access to the public
mind through modern methods of communications. By his prestige as head of state and his
influence upon public opinion he exerts a leverage upon those who are supposed to check and
balance his power which often cancels their effectiveness. 35
Correspondingly, the unique nature of the office affords the President the opportunity to
profoundly influence the public discourse, not necessarily through the enactment or enforcement
of laws, but specially by the mere expediency of taking a stand on the issues of the day. Indeed,
the President is expected to exercise leadership not merely through the proposal and enactment
of laws, but by making such vital stands. U.S. President Theodore Roosevelt popularized the
notion of the presidency as a "bully pulpit", in line with his belief that the President was the
steward of the people limited only by the specific restrictions and prohibitions appearing in the
Constitution, or impleaded by Congress under its constitutional powers.
Many times, the President exercises such prerogative as a responsive measure, as after a mass
tragedy or calamity. Indeed, when the President issues a declaration or proclamation of a state of
national mourning after a disaster with massive casualties, while perhaps de rigeur, is not the
formalistic exercise of tradition, but a statement that the President, as the representative of the
Filipino people, grieves over the loss of life and extends condolences in behalf of the people to
the bereaved. This is leadership at its most solemn.
Yet the President is not precluded, in the exercise of such role, to be merely responsive. The
popular expectation in fact is of a pro-active, dynamic chief executive with an ability to identify
problems or concerns at their incipience and to respond to them with all legal means at the
earliest possible time. The President, as head of state, very well has the capacity to use the office
to garner support for those great national quests that define a civilization, as President Kennedy
did when by a mere congressional address, he put America on track to the goal of placing a man
on the moon. Those memorable presidential speeches memorized by schoolchildren may have
not, by themselves, made operative any law, but they served not only merely symbolic functions,
but help profoundly influence towards the right direction, the public opinion in the discourse of
the times. Perhaps there was no more dramatic example of the use of the "bully pulpit" for such
noble purposes than in 1964, when an American President from Texas stood before a Congress
populated by many powerful bigots, and fully committed himself as no other President before to
the cause of civil rights with his intonation of those lines from the civil rights anthem, "we shall
overcome."
From an earlier era in American history, Lincolns Emancipation Proclamation stands out as a
presidential declaration which clearly staked American polity on the side of the democratic ideal,
even though the proclamation itself was of dubitable legal value. The proclamation, in short
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form, "freed the slaves", but was not itself free of legal questions. For one, the notion that the
President could, by himself, alter the civil and legal status of an entire class of persons was
dubious then and now, although President Lincoln did justify his action as in the exercise of his
powers as commander-in-chief during wartime, "as a fit and necessary war measure for
suppressing [the] rebellion." Moreover, it has been pointed out that the Proclamation only freed
those slaves in those states which were then in rebellion, and it eventually took the enactment of
the Thirteenth Amendment of the U.S. Constitution to legally abolish involuntary
servitude.36 Notwithstanding the legal haze surrounding it, the Emancipation Proclamation still
stands as a defining example not only of the Lincoln Presidency, but of American democratic
principles. It may be remembered to this day not exactly as an operational means by which
slaves were actually freed, but as a clear rhetorical statement that slavery could no longer
thenceforth stand.
The President as Chief Government Spokesperson of the democratic ideals is entrusted with a
heady but comfortable pursuit. But no less vital, if somewhat graver, is the role of the President
as the Chief Defender of the democratic way of life. The "calling out" power assures the President
such capability to a great extent, yet it will not fully suffice as a defense of democracy. There is a
need for the President to rally the people to defend the Constitution which guarantees the
democratic way of life, through means other than coercive. I assert that the declaration of a state
of emergency, on premises of a looming armed threat which have hardly been disputed, falls
within such proper functions of the President as the defender of the Constitution. It was designed
to inform the people of the existence of such a threat, with the expectation that the citizenry
would not aid or abet those who would overturn through force the democratic government. At
the same time, the Proclamation itself does not violate the Constitution as it does not call for or
put into operation the suspension or withdrawal of any constitutional rights, or even create or
diminish any substantive rights.
I submit that it would be proper for the Court to recognize that PP 1017 strikes a commendable
balance between the Constitution, the "calling out" power, and the inherent function of the
Presidency as defender of the democratic constitution. PP 1017 keeps within the scope and
limitations of these three standards. It asserts the primacy of the democratic order, civilian
control over the armed forces, yet respects constitutional and statutory guarantees of the
people.
II.
Section 17, Article XII of the Constitution In Relation to PP 1017
My next issue with the majority pertains to the assertion that the President does not have the
power to take over public utilities or businesses impressed with public interest under Section 17,
Article XII of the Constitution without prior congressional authorization. I agree that the power of
the State to take over such utilities and businesses is highly limited, and should be viewed with
suspicion if actually enforced.
Yet qualifications are in order with regard to how Section 17, Article XII actually relates of PP
1017.
I agree with the majority that a distinction should be asserted as between the power of the
President to declare a state of emergency, and the exercise of emergency powers under Section
17, Article XII. The President would have the power to declare a state of emergency even without
Section 17, Article XII.
At the same time, it should be recognized that PP 1017, on its face and as applied, did not
involve the actual takeover of any public utility or business impressed with public interest. To
some minds, the police action in relation to the Daily Tribune may have flirted with such power,
yet ultimately the newspaper was able to independently publish without police interference or
court injunction. It may be so that since PP 1017 did make express reference to Section 17,
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Article XII, but it should be remembered that the constitutional provision refers to a two-fold
power of the State to declare a national emergency and to take over such utilities and
enterprises. The first power under Section 17, Article XII is not distinct from the power of the
President, derived from other constitutional sources, to declare a state of national emergency.
Reference to Section 17, Article XII in relation to the power to declare a state of national
emergency is ultimately superfluous. A different situation would obtain though if PP 1017 were
invoked in the actual takeover of a utility or business, and in such case, full consideration of the
import of Section 17, Article XII would be warranted. But no such situation obtains in this case,
and any discussion relating to the power of the State to take over a utility or business under
Section 17, Article XII would ultimately be obiter dictum.
I respectfully submit that the Court, in these petitions, need not have engaged this potentially
contentious issue, especially as it extends to whether under constitutional contemplation, the
President may act in behalf of the State in exercising the powers under Section 17, Article XII.
Nonetheless, considering that the majority has chosen to speak out anyway, I will express
agreement that as a general rule, the President may exercise such powers under Section 17,
Article XII only under the grant of congressional approval. Certainly, the notion that
congressional authority is required under Section 17, Article XII is not evident from the provision.
Even Fr. Bernas notes that Section 17 does not require, as does Article VI, Section 23(2), that the
authorization be "by law", thus leaving the impression that the authorization can come from the
President.37
After the 1989 coup detat, President Aquino issued issued Proclamation No. 503 on 6 December
1989, declaring a state of national emergency, and referring therein to Section 17, Article XII by
citing the entire provision. The declaration was subsequently reaffirmed by Congress when two
weeks after, it enacted Republic Act No. 6826. Notably, Section 3(3) of the law authorized the
President "to temporarily takeover or direct the operation of any privately-owned public utility or
business affected with public interest that violates the herein declared national policy". Tellingly,
however, such authority was granted by Congress expressly "pursuant to Article VI, Section 23(2)
of the Constitution", and not the take-over provision in Section 17, Article XII. Evidently, the view
that Section 17, Article XII requires prior congressional authority has some novelty to it.
Still, I concede that it is fundamentally sound to construe Section 17 as requiring congressional
authority or approval before the takeover under the provision may be effected. After all, the
taking over of a privately owned public utility or business affected with public interest would
involve an infringement on the right of private enterprise to profit; or perhaps even expropriation
for a limited period. Constitutionally, the taking of property can only be accomplished with due
process of law,38 and the enactment of appropriate legislation prescribing the terms and
conditions under which the President may exercise the powers of the State under Section 17
stands as the best assurance that due process of law would be observed.
The fact that Section 17 is purposely ambivalent as to whether the President may exercise the
power therein with or without congressional approval leads me to conclude that it is
constitutionally permissible to recognize exceptions, such as in extreme situations wherein
obtention of congressional authority is impossible or inexpedient considering the emergency. I
thus dissent to any proposition that such requirement is absolute under all circumstances. I
maintain that in such extreme situations, the President may exercise such authority subject to
judicial review.
It should be admitted that some emergencies are graver and more imminent than others. It is
not within the realm of impossibility that by reason of a particularly sudden and grave
emergency, Congress may not be able to convene to grant the necessary congressional authority
to the President. Certainly, if bombs from a foreign invader are falling over Manila skies, it may
be difficult, not to mention unnecessarily onerous, to require convening Congress before the
President may exercise the functions under Section 17, Article XII. The proposition of the majority
may be desirable as the general rule, but the correct rule that should be adopted by the Court
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should not be so absolute so as to preclude the exercise by the President of such power under
extreme situations.
In response to this argument, the majority cites portions of Araneta v. Dinglasan,39 most
pertinent of which reads: "The point is, under this framework of government, legislation is
preserved for Congress all the time, not excepting periods of crisis no matter how serious."
For one, Araneta did not involve a situation wherein the President attempted to exercise
emergency powers without congressional authority; concerning as it did the exercise by
President Quirino of those emergency powers conferred several years earlier by Congress to
President Quezon at the onset of the Pacific phase of World War II. The Court therein ruled that
the emergency that justified then the extraordinary grant of powers had since expired, and that
there no longer existed any authority on the part of the President to exercise such powers,
notwithstanding that the law, Commonwealth Act No. 671, "did not in term fix the duration of its
effectiveness".
Clearly, the context in which the Court made that observation in Araneta is not the same context
within which my own observations oscillate. My own submission is premised on the extreme
situation wherein Congress may be physically unable to convene, an exceptional circumstance
which the hard-line stance of the majority makes no concessions for.
Indeed, even the factual milieu recounted in Araneta conceded that such extreme circumstance
could occur, when it noted President Quezons claim that he was impelled to call for a special
session of the National Assembly after foreseeing that "it was most unlikely that the Philippine
Legislature would hold its next regular session which was to open on January 1, 1942." 40 That the
National Assembly then was able to convene and pass Commonwealth Act No. 671 was
fortunate, but somewhat a luxury nonetheless. Indeed, it is not beyond the realm of possibility
that the emergency contemplated would be so grave that a sufficient number of members of
Congress would be physically unable to convene and meet the quorum requirement.
Ultimately though, considering that the authorized or actual takeover under Section 17, Article
XII, is not presented as a properly justiciable issue. Nonetheless, and consistent with the general
tenor, the majority has undertaken to decide this non-justiciable issue, and to even place their
view in the dispositive portion in a bid to enshrine it as doctrine. In truth, the Courts
pronouncement on this point is actually obiter. It is hoped that should the issue become ripe for
adjudication before this Court, the obiter is not adopted as a precedent without the qualification
that in extreme situations wherein congressional approval is impossible or highly impractical to
obtain, the powers under Section 17, Article XII may be authorized by the President.
III.
Overbreadth and "Void for Vagueness" Doctrines Applicable Not Only To Free Speech Cases
The majority states that "the overbreadth doctrine is an analytical tool developed for testing on
their faces statutes in free speech cases" 41, and may thus be entertained "in cases involving
statutes which, by their terms, seek to regulate only spoken words, and not conduct. A similar
characterization is made as to the "void for vagueness" doctrine, which according to the
majority, is "subject to the same principles governing overbreadth doctrine also an analytical
tool for testing on their faces statutes in free speech cases." 42
As I noted in my Separate Opinion in Romualdez v. Sandiganbayan, 43 citing Justice Kapunan,
there is a viable distinction between "void for vagueness" and "overbreadth" which the majority
sadly ignores.
A view has been proferred that "vagueness and overbreadth doctrines are not applicable to penal
laws." These two concepts, while related, are distinct from each other. On one hand, the
doctrine of overbreadth applies generally to statutes that infringe upon freedom of
382

speech. On the other hand, the "void-for-vagueness" doctrine applies to criminal laws,
not merely those that regulate speech or other fundamental constitutional right. (not
merely those that regulate speech or other fundamental constitutional rights.) The fact
that a particular criminal statute does not infringe upon free speech does not mean that a facial
challenge to the statute on vagueness grounds cannot succeed. 44
The distinction may prove especially crucial since there has been a long line of cases in American
Supreme Court jurisprudence wherein penal statutes have been invalidated on the ground that
they were "void for vagueness." As I cited in Romualdez v. Sandiganbayan, 45 these cases
are Connally v. General Construction Co,. 46 Lanzetta v. State of New Jersey, 47 Bouie v. City of
Columbia,48 Papachristou v. City of Jacksonville, 49 Kolender v. Lawson,50 and City of Chicago v.
Morales.51
Granting that perhaps as a general rule, overbreadth may find application only in "free
speech"52 cases, it is on the other hand very settled doctrine that a penal statute regulating
conduct, not speech, may be invalidated on the ground of "void for vagueness". In Romualdez, I
decried the elevation of the suspect and radical new doctrine that the "void for vagueness"
challenge cannot apply other than in free speech cases. My view on this point has not changed,
and insofar as the ponencia would hold otherwise, I thus dissent.
Moreover, even though the argument that an overbreadth challenge can be maintained only in
free speech cases has more jurisprudential moorings, the rejection of the challenge on that basis
alone may prove unnecessarily simplistic. I maintain that there is an even stronger ground on
which the overbreadth and "void for vagueness" arguments can be refuted that Presidential
Proclamation 1017 (PP 1017) neither creates nor diminishes any rights or obligations whatsoever.
In fact, I submit again that this proposition is the key perspective from which the petitions should
be examined.
IV.
General Order No. 5
Suffers No Constitutional Infirmity
The majority correctly concludes that General Order No. 5 is generally constitutional. However,
they make an unnecessary distinction with regard to "acts of terrorism", pointing out that
Congress has not yet passed a law defining and punishing terrorism or acts of terrorism.
That may be the case, but does the majority seriously suggest that the President or the State is
powerless to suppress acts of terrorism until the word "terrorism" is defined by law? Terrorism
has a widely accepted meaning that encompasses many acts already punishable by our general
penal laws. There are several United Nations and multilateral conventions on terrorism 53, as well
as declarations made by the United Nations General Assembly denouncing and seeking to
combat terrorism.54 There is a general sense in international law as to what constitutes terrorism,
even if no precise definition has been adopted as binding on all nations. Even without an
operative law specifically defining terrorism, the State already has the power to suppress and
punish such acts of terrorism, insofar as such acts are already punishable, as they almost always
are, in our extant general penal laws. The President, tasked with the execution of all existing
laws, already has a sufficient mandate to order the Armed Forces to combat those acts of
terrorism that are already punishable in our Revised Penal Code, such as rebellion, coup detat,
murder, homicide, arson, physical injuries, grave threats, and the like. Indeed, those acts which
under normal contemplation would constitute terrorism are associated anyway with or subsumed
under lawless violence, which is a term found in the Constitution itself. Thus long ago, the State
has already seen it fit to punish such acts.
Moreover, General Order No. 5 cannot redefine statutory crimes or create new penal acts, since
such power belongs to the legislative alone. Fortunately, General Order No. 5 does not assume to
383

make such redefinitions. It may have been a different matter had General Order No. 5 attempted
to define "acts of terrorism" in a manner that would include such acts that are not punished
under our statute books, but the order is not comported in such a way. The proper course of
action should be to construe "terrorism" not in any legally defined sense, but in its general sense.
So long as it is understood that "acts of terrorism" encompasses only those acts which are
already punishable under our laws, the reference is not constitutionally infirm.
The majority cites a theoretical example wherein a group of persons engaged in a drinking spree
may be arrested by the military or police in the belief that they were committing acts of terrorism
pursuant to General Order No. 5. Under the same logical framework that group of persons
engaged in a drinking spree could very well be arrested by the military or police in the belief that
they are committing acts of lawless violence pursuant to General Order No. 5, instead of acts of
terrorism. Obviously such act would be "abuse and oppression" on the part of the military and
the police, whether justified under "lawless violence" or "acts of terrorism". Yet following the logic
of the majority, the directive to prevent acts of "lawless violence" should be nullified as well.
If the point of the majority is that there are no justiciable standards on what constitutes acts of
terrorism, it should be pointed out that only the following scenarios could ensue. For one, a
person would actually be arrested and charged with "acts of terrorism", and such arrest or
charge would be thrown out of the courts, since our statute books do not criminalize the specific
crime of terrorism. More probably, a person will be arrested and charged for acts that may under
the laypersons contemplation constitutes acts of terrorism, but would be categorized in the
information and charge sheet as actual crimes under our Revised Penal Code. I simply cannot see
how General Order No. 5 could validate arrests and convictions for non-existent crimes.
Interestingly, the majority, by taking issue with the lack of definition and possible broad context
of "acts of terrorism", seems to be positively applying the arguments of "overbreadth" or "void
for vagueness", arguments which they earlier rejected as applicable only in the context of free
expression cases. The inconsistency is breath-taking. While I disagree with the majority-imposed
limitations on the applicability of the "overbreadth" or "void for vagueness" doctrines, I likewise
cannot accede to the application of those doctrines in the context of General Order No. 5, for the
same reason that they should not apply to PP 1017. Neither General Order No. 5 nor PP 1017 is a
penal statute, or have an operative legal effect of infringing upon liberty, expression or property.
As such, neither General Order No. 5 nor PP 1017 can cause the deprivation of life, liberty or
property, thus divorcing those issuances from the context of the due process clause. The same
absence of any binding legal effect of these two issuances correspondingly disassociates them
from the constitutional infringement of free expression or association. Neither "void for
vagueness" nor "overbreadth" therefore lie.
Another point. The majority concludes from General Order No. 5 that the military or police is
limited in authority to perform those acts that are "necessary and appropriate actions and
measures to suppress and prevent acts of terrorism and lawless violence," and such acts
committed beyond such authority are considered illegal. I do not dispute such conclusion, but it
must be emphasized that "necessary and appropriate actions and measures" precisely do not
authorize the military or police to commit unlawful and unconstitutional acts themselves, even if
they be geared towards suppressing acts of terrorism or lawless violence. Indeed, with the
emphasis that PP 1017 does not create new rights or obligations, or diminish existing
ones, it necessarily follows that General Order No. 5, even if premised on a state of
emergency, cannot authorize the military or police to ignore or violate constitutional
or statutory rights, or enforce laws completely alien to the suppression of lawless
violence. Again, following the cardinal principle of legal hermeneutics earlier adverted to,
General Order No. 5 should be viewed in harmony with the Constitution, and only if it the Order
irreconcilably deviates from the fundamental law should it be struck down.
V.

384

Court Should Refrain Making Any Further Declaration, For Now,


Relating to the Individual Grievances Raised by the Petitioners in Relation To PP 1017
I respectfully disagree with the manner by which the majority would treat the "void as applied"
argument presented by the petitioners. The majority adopts the tack of citing three particular
injuries alleged by the petitioners as inflicted with the implementation of PP 1017. The majority
analyzes the alleged injuries, correlates them to particular violations of the Bill of Rights, and
ultimately concludes that such violations were illegal.
The problem with this approach is that it would forever deem the Court as a trier or reviewer at
first instance over questions involving the validity of warrantless arrests, searches, seizures and
the dispersal of rallies, all of which entail a substantial level of factual determination. I agree that
PP 1017 does not expand the grounds for warrantless arrests, searches and seizures or dispersal
of rallies, and that the proclamation cannot be invoked before any court to assert the validity of
such unauthorized actions. Yet the problem with directly adjudicating that the injuries inflicted on
David, et al., as illegal, would be that such would have been done with undue haste, through an
improper legal avenue, without the appropriate trial of facts, and without even impleading the
particular officers who effected the arrests/searches/seizures.
I understand that the injurious acts complained of by the petitioners upon the implementation of
PP 1017 are a source of grave concern. Indubitably, any person whose statutory or constitutional
rights were violated in the name of PP 1017 or General Order No. 5 deserves redress in the
appropriate civil or criminal proceeding, and even the minority wishes to makes this point as
emphatically clear, if not moreso, as the majority. Yet a ruling from this Court, without the
proper factual basis or prayer for remuneration for the injury sustained, would
ultimately be merely symbolic. While the Court will not be harmed by a symbolic
reaffirmation of commitment to the principles in the Bill of Rights, it will be harmed by
a ruling that unduly and inappropriately expands the very limited function of the
Court as a trier of facts on first instance.
In my dissent in Teves v. Sandiganbayan,55 I alluded to the fact that our legal system may run
counter-intuitive in the sense that the seemingly or obviously guilty may still, after trial, be
properly acquitted or exonerated; to the extent that even an accused who murders another
person in front of live television cameras broadcast to millions of sets is not yet necessarily guilty
of the crime of murder or homicide. 56 Hence, the necessity of a proper trial so as to allow the
entire factual milieu to be presented, tested and evaluated before the court. In my theoretical
example, the said accused should nonetheless be acquitted if the presence of exempting
circumstances is established. The same principle applies in these cases. Certainly, we in the
Court can all agree that PP 1017 cannot be invoked to justify acts by the police or military
officers that go beyond the Constitution and the laws. But the course of prudence dictates that
the pronouncement of such a doctrine, while enforceable in a court of law, should not yet extend
itself to specific examples that have not yet been properly litigated. The function of this Court
is to make legal pronouncements not based on "obvious" facts, but on proven facts.
A haphazard declaration by the Court that the arrests or seizures were "illegal" would likewise
preclude any meaningful review or reevaluation of pertinent legal doctrines that otherwise could
have been reexamined had these acts been properly challenged in regular order. For example,
the matter of the warrantless arrests in these cases could have most certainly compelled the
Court to again consider the doctrine laid down in Umil v. Ramos on warrantless arrests and
rebellion as a continuing crime, a doctrine that may merit renewed evaluation. Yet any healthy
reexamination of Umil, or other precedents for that matter, require the presentation and trial of
the proper factual predicates, a course which the majority unfortunately "short-cuts" in this
present decision.
Of course, despite the grandiloquent pronouncement by the majority that the acts complained of
by the petitioners and implemented pursuant to General Order No. 5 are illegal, it could
nonetheless impose civil, criminal or administrative sanctions on the individual police officers
385

concerned, as these officers had not been "individually identified and given their day in court". Of
course, the Court would be left with pie on its face if these persons, once "given their day in
court", would be able to indubitably establish that their acts were actually justified under law.
Perhaps worse, the pronouncement of the majority would have had the effect of prejudging these
cases, if ever lodged, even before trial on the merits.
Certainly, a declaration by the majority that PP 1017 or General Order No. 5 cannot justify
violation of statutory or constitutional rights (a declaration which the minority would have no
qualms assenting to) would sufficiently arm those petitioners and other persons whose rights
may have been injured in the implementation of PP 1017, with an impeccable cause of action
which they could pursue against the violators before the appropriate courts. At the same time, if
the officers or officials concerned have basis to contend that no such rights were violated, for
justifications independent of PP 1017 or General Order No. 5, such claims could receive due
consideration before the courts. Such a declaration would squarely entrench the Court as a
defender of the Bill of Rights, foster enforceable means by which the injured could seek actual
redress for the injury sustained, and preserve the integrity and order of our procedural law.
VI.
Conclusion
The country-wide attention that the instant petitions have drawn should not make the Court lose
focus on its principal mission, which is to settle the law of the case. On the contrary, the highly
political nature of these petitions should serve as forewarning for the Court to proceed ex
abundante cautelam, lest the institution be unduly dragged into the partisan mud. The credibility
of the Court is ensured by making decisions in accordance with the Constitution without regard
to the individual personalities involved; with sights set on posterity, oblivious of the popular
flavor of the day.
By deciding non-justiciable issues and prejudging cases and controversies without a proper trial
on the merits, the majority has diminished the potency of this Courts constitutional power in
favor of rhetorical statements that afford no quantifiable relief. It is for the poet and the politician
to pen beautiful paeans to the peoples rights and liberties, it is for the Court to provide for viable
legal means to enforce and safeguard these rights and liberties. When the passions of these
times die down, and sober retrospect accedes, the decision of this Court in these cases will be
looked upon as an extended advisory opinion.
Yes, PP 1017 and General Order No. 5 warrant circumspect scrutiny from those interested and
tasked with preserving our civil liberties. They may even stand, in the appropriate contexts, as
viable partisan political issues. But the plain fact remains that, under legal contemplation, these
issuances are valid on their face, and should result in no constitutional or statutory breaches if
applied according to their letter.
I vote to DISMISS all the petitions.
DANTE O. TINGA
Associate Justice

"When a statute is reasonably susceptible of two constructions, one constitutional and the other
unconstitutional, that construction in favor of its constitutionality shall be adopted and the
construction that will render it invalid rejected." See R. Agpalo, id., at 266; citing Mutuc v.
COMELEC, G.R. No. 32717, Nov. 26, 1970, 36 SCRA 228; J.M. Tuason & Co., Inc. v. Land Tenure
Adm., G.R. No. 21064, Feb. 18, 1970, 31 SCRA 413; American Bible Society v. City of Manila, 101
Phil. 386 (1957); Alba v. Evangelista, 100 Phil. 683 (1957); Maddumba v. Ozaeta, 82 Phil. 345
(1948); Benguet Exploration, Inc. v. Department of Agriculture and Natural Resources, G.R. No.
386

29534, Fe. 28, 1977, 75 SCRA 285 (1977); De la Cruz v. Paras, G.R. No. 42591, July 25, 1983, 123
SCRA 569.

29

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

RAMON A. GONZALES, petitioner,


vs.
IMELDA R. MARCOS, as Chairman of the Cultural Center of the Philippines, Father
HORACIO DE LA COSTA, I. P. SOLIONGCO, ERNESTO RUFINO, ANTONIO MADRIGAL, and
ANDRES SORIANO, as Members thereof,respondents.
Ramon A. Gonzales in his own behalf.
Acting Solicitor General Hugo E. Gutierrez; Jr. and Assistant Solicitor General Reynato S. Puno for
respondent Imelda R. Marcos.
Siguion Reyna, Montecillo, Beto and Ongsiako for respondents.

FERNANDO, J.:
It was the novelty of the constitutional question raised, there being an imputation by petitioner
Ramon A. Gonzales of an impermissible encroachment by the President of the Philippines on the
legislative prerogative, that led this Tribunal to give due course to an appeal by certiorari from an
order of dismissal by the Court of First Instance of Manila. 1 More specifically, the issue centered
on the validity of the creation in Executive Order No. 30 of a trust for the benefit of the Filipino
people under the name and style of the Cultural Center of the Philippines entrusted with the task
to construct a national theatre, a national music hall, an arts building and facilities, to awaken
our people's consciousness in the nation's cultural heritage and to encourage its assistance in
the preservation, promotion, enhancement and development thereof, with the Board of Trustees
to be appointed by the President, the Center having as its estate the real and personal property
vested in it as well as donations received, financial commitments that could thereafter be
collected, and gifts that may be forthcoming in the future. 2 It was likewise alleged that the Board
of Trustees did accept donations from the private sector and did secure from the Chemical Bank
of New York a loan of $5 million guaranteed by the National Investment & Development
Corporation as well as $3.5 million received from President Johnson of the United States in the
concept of war damage funds, all intended for the construction of the Cultural Center building
estimated to cost P48 million. The Board of Trustees has as its Chairman the First Lady, Imelda
Romualdez Marcos, who is named as the principal respondent. 3 In an order of dismissal by the
then Judge, now Justice of the Court of Appeals, Jose G. Bautista of a suit for prohibition filed in
the Court of First Instance of Manila, stress was laid on the funds administered by the Center as
coming from donations and contributions, with not a single centavo raised by taxation, and the
absence of any pecuniary or monetary interest of petitioner that could in any wise be prejudiced
distinct from those of the general public. Moreover, reference was made to the admission by
petitioner of the desirability of the objective of Executive Order No. 30, his objection arising from
the alleged illegality of its issuance. 4
There was a motion of respondents to file a motion to dismiss this appeal by certiorari, and it was
granted in a resolution of March 5, 1970. Such a pleading was submitted to this Court twelve
days later, where it was contended that Executive Order No. 30 represented the legitimate
exercise of executive power, there being no invasion of the legislative domain and that it was
supplementary to rather than a disregard of Republic Act No. 4165 creating the National
Commission on Culture. In this exhaustive motion to dismiss, the point was likewise raised that
petitioner did not have the requisite personality to contest as a taxpayer the validity of the
387

executive order in question, as the funds held by the Cultural Center came from donations and
contributions, not one centavo being raised by taxation. 5 Thereafter, a manifestation was filed by
the then Solicitor General, now Associate Justice, Felix Q. Antonio, adopting "the Motion to
Dismiss the Petition dated February 25, 1970, filed by respondents with this Honorable
Court." 6 There was an opposition to such motion to dismiss on the part of petitioner. 7 That was
the status of the case, there being no further pleadings filed except two motions for extension of
time to file answer submitted by the Solicitor General and granted by this Court, when on July 22,
1975, there was a second motion to dismiss on the part of respondents through the Acting
Solicitor General Hugo E. Gutierrez Jr. and Assistant Solicitor General Reynato S. Puno. It is
therein set forth: "(1) As stated in the petition itself its undeniable quintessence is [the allegation
of] "an executive usurpation of legislative powers, hence, respondents in enforcing the same, are
acting without jurisdiction, hence, are restrainable by prohibition." ... (2) On October 5, 1972,
Presidential Decree No. 15 ... was promulgated creating the Cultural Center of the Philippines,
defining its objectives, powers and functions and other purposes. Section 4, thereof was
amended by Presidential Decree No. 179 ... enacted on April 26, 1973. It is submitted that it is
now moot and academic to discuss the constitutionality of Executive Order No. 30 considering
the promulgation of PD Nos. 15 and 179, done by the President in the exercise of legislative
powers under martial law. Executive Order No. 30 has ceased to exist while PD Nos. 15 and 179
meet all the constitutional arguments raised in the petition at bar." 8
It would thus appear that the petition cannot succeed. There is no justification for setting aside
the order of dismissal. Notwithstanding the exhaustive and scholarly pleadings submitted by
petitioner on his own behalf, the burden of persuasion to warrant a reversal of the action of the
lower court was not met. Both on procedural and substantive grounds, a case for prohibition was
not made out, notwithstanding the valiant efforts of petitioner. With this latest manifestation,
that Executive Order No. 30 had been superseded by Presidential Decree Nos. 15 and 179, the
moot and academic character of this appeal by certiorari became rather obvious. To repeat, the
petition must fail.
1. It may not be amiss though to consider briefly both the procedural and substantive grounds
that led to the lower court's order of dismissal. It was therein pointed out as "one more valid
reason" why such an outcome was unavoidable that "the funds administered by the President of
the Philippines came from donations [and] contributions [not] by taxation." Accordingly, there
was that absence of the "requisite pecuniary or monetary interest." 9 The stand of the lower
court finds support in judicial precedents. 10 This is not to retreat from the liberal approach
followed in Pascual v. Secretary of Public Works, 11 foreshadowed by People v. Vera, 12 where the
doctrine of standing was first fully discussed. It is only to make clear that petitioner, judged by
orthodox legal learning, has not satisfied the elemental requisite for a taxpayer's suit. Moreover,
even on the assumption that public funds raised by taxation were involved, it does not
necessarily follow that such kind of an action to assail the validity of a legislative or executive act
has to be passed upon. This Court, as held in the recent case of Tan v. Macapagal, 13 "is not
devoid of discretion as to whether or not it should be entertained." 14 The lower court thus did
not err in so viewing the situation.
2. Nor was the lower court any more impressed by the contention that there was an
encroachment on the legislative prerogative discernible in the issuance of Executive Order No.
30. It first took note of the exchange of diplomatic notes between the Republic of the Philippines
and the United States as to the use of a special fund coming from the latter for a Philippine
cultural development project. Then, as set forth in the order of dismissal, it explained why no
constitutional objection could be validly interposed. Thus: "When the President, therefore, acted
by disposing of a matter of general concern (Section 63, Rev. Adm. Code) in accord with the
constitutional injunction to promote arts and letters (Section 4, Article XIV, Constitution of the
Philippines) and issued Executive Order No. 30, he simply carried out the purpose of the trust in
establishing the Cultural Center of the Philippines as the instrumentality through which this
agreement between the two governments would be realized. Needless to state, the President
alone cannot and need not personally handle the duties of a trustee for and in behalf of the
Filipino people in relation with this trust. He can do this by means of an executive order by
388

creating as he did, a group of persons, who would receive and administer the trust estate,
responsible to the President. As head of the State, as chief executive, as spokesman in domestic
and foreign affairs, in behalf of the estate as parens patriae, it cannot be successfully questioned
that the President has authority to implement for the benefit of the Filipino people by creating
the Cultural Center consisting of private citizens to administer the private contributions and
donations given not only by the United States government but also by private persons." 15
There is impressive juridical support for the stand taken by the lower court. Justice Malcolm
in Government of the Philippine Islands v. Springer 16 took pains to emphasize: "Just as surely as
the duty of caring for governmental property is neither judicial nor legislative in character is it as
surely executive." 17 It Would be an unduly narrow or restrictive view of such a principle if the
public funds that accrued by way of donation from the United States and financial contributions
for the Cultural Center project could not be legally considered as "governmental property." They
may be acquired under the concept of dominium, the state as a persona in law not being
deprived of such an attribute, thereafter to be administered by virtue of its prerogative
of imperium. 18 What is a more appropriate agency for assuring that they be not wasted or
frittered away than the Executive, the department precisely entrusted with management
functions? It would thus appear that for the President to refrain from taking positive steps and
await the action of the then Congress could be tantamount to dereliction of duty. He had to act;
time was of the essence. Delay was far from conducive to public interest. It was as simple as
that. Certainly then, it could be only under the most strained construction of executive power to
conclude that in taking the step he took, he transgressed on terrain constitutionally reserved for
Congress.
This is not to preclude legislative action in the premises. While to the Presidency under the 1935
Constitution was entrusted the responsibility for administering public property, the then
Congress could provide guidelines for such a task. Relevant in this connection is the excerpt from
an opinion of Justice Jackson in Youngstown Sheet & Tube Co. v. Sawyer: 19 "When the President
acts in absence of either a congressional grant or denial of authority, he can only rely upon his
own independent powers, but there is a zone of twilight in which he and Congress may have
concurrent authority, or in which its distribution is uncertain. Therefore, congressional inertia,
indifference or quiescence may sometimes, at least as a practical matter, enable, if not invite,
measures on independent presidential responsibility. In this area, any actual test of power is
likely to depend on the imperative of events and contemporary imponderables rather than on
abstract theories of law." 20 To vary the phraseology, to recall Thomas Reed Powell, if Congress
would continue to keep its peace notwithstanding the action taken by the executive department,
it may be considered as silently vocal. In plainer language, it could be an instance of silence
meaning consent. The Executive Order assailed was issued on June 25, 1966. Congress until the
time of the filing of the petition on August 26, 1969 remained quiescent. Parenthetically, it may
be observed that petitioner waited until almost the day of inaugurating the Cultural Center on
September 11, 1969 before filing his petition in the lower court. However worthy of
commendation was his resolute determination to keep the Presidency within the bounds of its
competence, it cannot be denied that the remedy, if any, could be supplied by Congress
asserting itself in the premises. Instead, there was apparent conformity on its part to the way the
President saw fit to administer such governmental property.
3. The futility of this appeal by certiorari becomes even more apparent with the issuance of
Presidential Decree No. 15 on October 5, 1972. As contended by the Solicitor General, the
matter, as of that date, became moot and academic. Executive Order No. 30 was thus
superseded. The institution known as the Cultural Center is other than that assailed in this suit.
In that sense a coup de grace was administered to this proceeding. The labored attempt of
petitioner could thus be set at rest. This particular litigation is at an end. There is, too, relevance
in the observation that the aforesaid decree is part of the law of the land. So the Constitution
provides. 21
4. It only remains to be added that respondents as trustees lived up fully to the weighty
responsibility entrusted to them. The task imposed on them was performed with competence,
389

fidelity, and dedication. That was to be expected. From the inception of the Marcos
Administration, the First Lady has given unsparingly of herself in the encouragement and support
of literary, musical, and artistic endeavors and in the appreciation of our rich and diverse cultural
heritage. The rest of the then Board of Trustees, named as the other respondents, were equally
deserving of their being chosen for this worthy project. One of them, the late I.P Soliongco, was
in his lifetime one of the most gifted men of letters. Father Horacio de la Costa is a historian and
scholar of international repute. Respondents Ernesto Rufino, Antonio Madrigal and Andres
Soriano, all men of substance, have contributed in time and money to civic efforts. It is not
surprising then that the Cultural Center became a reality, the massive and imposing structure
constructed at a shorter period and at a lower cost than at first thought possible. What is of even
greater significance, with a portion thereof being accessible at modest admission prices, musical
and artistic performances of all kinds are within reach of the lower-income groups. Only thus may
meaning be imparted to the Constitutional provision that arts and letters shall be under State
patronage. 22 For equally important as the encouragement and support for talented Filipinos with
a creative spark is the diffusion of the opportunity for the rest of their countrymen to savour the
finer things in life. Who knows, if state efforts along these lines are diligently pursued, that what
was said by Justice Holmes about France could apply to the Philippines. Thus: "We have not that
respect for art that is one of the glories of France." 23 In justice to petitioner Gonzales, it may be
noted that he did not question the wisdom or soundness of the goal of having a Cultural Center
or the disbursement of the funds by respondents. It is the absence of statutory authority that
bothered him. The lower court did not see things in the same light. It is easily understandable
why, as the preceding discussion has made clear, it cannot be said that such a conclusion
suffered from legal infirmity. What is more, with the issuance of Presidential Decree No. 15, the
suit, to repeat, has assumed a moot and academic character.
WHEREFORE, this appeal by certiorari to review the lower court's order of dismissal dated
December 4, 1969 is dismissed.
No costs.
Makalintal, C.J., Barredo, Esguerra, Muoz Palma, Aquino, Concepcion Jr. and Martin JJ., concur.
Castro and Makasiar, JJ., took no part.
Teehankee and Antonio, JJ., are on leave.
21 According to Article XVII, Section 3, par. (2) of the 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, legal, 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."
22 According to Article XIV, Section 4 of the 1935 Constitution: "Arts and letters shall be under
[the State's] patronage." Such a provision is now found in Article XV, Section 9, par. (2) of the
present Charter and reads: "Filipino culture shall be preserved and developed for national
identity. Arts and letters shall be under the patronage of the State."

30

G.R. No. 141309

June 19, 2007

LIWAYWAY VINZONS-CHATO, petitioner,


vs.
FORTUNE TOBACCO CORPORATION, respondent.
390

DECISION
YNARES-SANTIAGO, J.:
Petitioner assails the May 7, 1999 Decision1 of the Court of Appeals in CA-G.R. SP No. 47167,
which affirmed the September 29, 1997 Order 2 of the Regional Trial Court (RTC) of Marikina,
Branch 272, in Civil Case No. 97-341-MK, denying petitioners motion to dismiss. The complaint
filed by respondent sought to recover damages for the alleged violation of its constitutional
rights arising from petitioners issuance of Revenue Memorandum Circular No. 37-93 (RMC 3793), which the Court declared invalid in Commissioner of Internal Revenue v. Court of Appeals.3
Petitioner Liwayway Vinzons-Chato was then the Commissioner of Internal Revenue while
respondent Fortune Tobacco Corporation is an entity engaged in the manufacture of different
brands of cigarettes, among which are "Champion," "Hope," and "More" cigarettes.
On June 10, 1993, the legislature enacted Republic Act No. 7654 (RA 7654), which took effect on
July 3, 1993. Prior to its effectivity, cigarette brands Champion," "Hope," and "More" were
considered local brands subjected to an ad valorem tax at the rate of 20-45%. However, on July
1, 1993, or two days before RA 7654 took effect, petitioner issued RMC 37-93 reclassifying
"Champion," "Hope," and "More" as locally manufactured cigarettes bearing a foreign
brand subject to the 55% ad valorem tax.4 RMC 37-93 in effect subjected "Hope," "More,"
and "Champion" cigarettes to the provisions of RA 7654, specifically, to Sec. 142, 5 (c)(1) on
locally manufactured cigarettes which are currently classified and taxed at 55%, and which
imposes an ad valorem tax of "55% provided that the minimum tax shall not be less than Five
Pesos (P5.00) per pack."6
On July 2, 1993, at about 5:50 p.m., BIR Deputy Commissioner Victor A. Deoferio, Jr.
sent via telefax a copy of RMC 37-93 to Fortune Tobacco but it was addressed to no one in
particular. On July 15, 1993, Fortune Tobacco received, by ordinary mail, a certified xerox copy of
RMC 37-93. On July 20, 1993, respondent filed a motion for reconsideration requesting the recall
of RMC 37-93, but was denied in a letter dated July 30, 1993. 7 The same letter assessed
respondent for ad valorem tax deficiency amounting to P9,598,334.00 (computed on the basis of
RMC 37-93) and demanded payment within 10 days from receipt thereof. 8 On August 3, 1993,
respondent filed a petition for review with the Court of Tax Appeals (CTA), which on September
30, 1993, issued an injunction enjoining the implementation of RMC 37-93. 9 In its decision dated
August 10, 1994, the CTA ruled that RMC 37-93 is defective, invalid, and unenforceable and
further enjoined petitioner from collecting the deficiency tax assessment issued pursuant to RMC
No. 37-93. This ruling was affirmed by the Court of Appeals, and finally by this Court
in Commissioner of Internal Revenue v. Court of Appeals.10 It was held, among others, that RMC
37-93, has fallen short of the requirements for a valid administrative issuance.
On April 10, 1997, respondent filed before the RTC a complaint 11 for damages against petitioner
in her private capacity. Respondent contended that the latter should be held liable for damages
under Article 32 of the Civil Code considering that the issuance of RMC 37-93 violated its
constitutional right against deprivation of property without due process of law and the right to
equal protection of the laws.
Petitioner filed a motion to dismiss12 contending that: (1) respondent has no cause of action
against her because she issued RMC 37-93 in the performance of her official function and within
the scope of her authority. She claimed that she acted merely as an agent of the Republic and
therefore the latter is the one responsible for her acts; (2) the complaint states no cause of
action for lack of allegation of malice or bad faith; and (3) the certification against forum
shopping was signed by respondents counsel in violation of the rule that it is the plaintiff or the
principal party who should sign the same.
On September 29, 1997, the RTC denied petitioners motion to dismiss holding that to rule on the
allegations of petitioner would be to prematurely decide the merits of the case without allowing
391

the parties to present evidence. It further held that the defect in the certification against forum
shopping was cured by respondents submission of the corporate secretarys certificate
authorizing its counsel to execute the certification against forum shopping. The dispositive
portion thereof, states:
WHEREFORE, foregoing premises considered, the motion to dismiss filed by the defendant
Liwayway Vinzons-Chato and the motion to strike out and expunge from the record the said
motion to dismiss filed by plaintiff Fortune Tobacco Corporation are both denied on the grounds
aforecited. The defendant is ordered to file her answer to the complaint within ten (10) days from
receipt of this Order.
SO ORDERED.13
The case was elevated to the Court of Appeals via a petition for certiorari under Rule 65.
However, same was dismissed on the ground that under Article 32 of the Civil Code, liability may
arise even if the defendant did not act with malice or bad faith. The appellate court ratiocinated
that Section 38, Book I of the Administrative Code is the general law on the civil liability of public
officers while Article 32 of the Civil Code is the special law that governs the instant case.
Consequently, malice or bad faith need not be alleged in the complaint for damages. It also
sustained the ruling of the RTC that the defect of the certification against forum shopping was
cured by the submission of the corporate secretarys certificate giving authority to its counsel to
execute the same.
Undaunted, petitioner filed the instant recourse contending that the suit is grounded on her acts
done in the performance of her functions as a public officer, hence, it is Section 38, Book I of the
Administrative Code which should be applied. Under this provision, liability will attach only when
there is a clear showing of bad faith, malice, or gross negligence. She further averred that the
Civil Code, specifically, Article 32 which allows recovery of damages for violation of constitutional
rights, is a general law on the liability of public officers; while Section 38, Book I of the
Administrative Code is a special law on the superior public officers liability, such that, if the
complaint, as in the instant case, does not allege bad faith, malice, or gross negligence, the
same is dismissible for failure to state a cause of action. As to the defect of the certification
against forum shopping, she urged the Court to strictly construe the rules and to dismiss the
complaint.
Conversely, respondent argued that Section 38 which treats in general the public officers "acts"
from which civil liability may arise, is a general law; while Article 32 which deals specifically with
the public officers violation of constitutional rights, is a special provision which should determine
whether the complaint states a cause of action or not. Citing the case of Lim v. Ponce de
Leon,14 respondent alleged that under Article 32 of the Civil Code, it is enough that there was a
violation of the constitutional rights of the plaintiff and it is not required that said public officer
should have acted with malice or in bad faith. Hence, it concluded that even granting that the
complaint failed to allege bad faith or malice, the motion to dismiss for failure to state a cause of
action should be denied inasmuch as bad faith or malice are not necessary to hold petitioner
liable.
The issues for resolution are as follows:
(1) May a public officer be validly sued in his/her private capacity for acts done in connection
with the discharge of the functions of his/her office?
(2) Which as between Article 32 of the Civil Code and Section 38, Book I of the Administrative
Code should govern in determining whether the instant complaint states a cause of action?
(3) Should the complaint be dismissed for failure to comply with the rule on certification against
forum shopping?
392

(4) May petitioner be held liable for damages?


On the first issue, the general rule is that a public officer is not liable for damages which a person
may suffer arising from the just performance of his official duties and within the scope of his
assigned tasks.15 An officer who acts within his authority to administer the affairs of the office
which he/she heads is not liable for damages that may have been caused to another, as it would
virtually be a charge against the Republic, which is not amenable to judgment for monetary
claims without its consent.16 However, a public officer is by law not immune from damages in
his/her personal capacity for acts done in bad faith which, being outside the scope of his
authority, are no longer protected by the mantle of immunity for official actions. 17
Specifically, under Section 38, Book I of the Administrative Code, civil liability may arise where
there is bad faith, malice, or gross negligence on the part of a superior public officer. And, under
Section 39 of the same Book, civil liability may arise where the subordinate public officers act is
characterized by willfulness or negligence. Thus
Sec. 38. Liability of Superior Officers. (1) A public officer shall not be civilly liable for acts
done in the performance of his official duties, unless there is a clear showing of bad faith, malice
or gross negligence.
xxxx
Section 39. Liability of Subordinate Officers. No subordinate officer or employee shall be
civilly liable for acts done by him in good faith in the performance of his duties. However, he shall
be liable for willful or negligent acts done by him which are contrary to law, morals, public policy
and good customs even if he acts under orders or instructions of his superior.
In addition, the Court held in Cojuangco, Jr. v. Court of Appeals,18 that a public officer who directly
or indirectly violates the constitutional rights of another, may be validly sued for damages under
Article 32 of the Civil Code even if his acts were not so tainted with malice or bad faith.
Thus, the rule in this jurisdiction is that a public officer may be validly sued in his/her private
capacity for acts done in the course of the performance of the functions of the office, where said
public officer: (1) acted with malice, bad faith, or negligence; or (2) where the public officer
violated a constitutional right of the plaintiff.
Anent the second issue, we hold that the complaint filed by respondent stated a cause of action
and that the decisive provision thereon is Article 32 of the Civil Code.
A general statute is one which embraces a class of subjects or places and does not omit any
subject or place naturally belonging to such class. A special statute, as the term is generally
understood, is one which relates to particular persons or things of a class or to a particular
portion or section of the state only.19
A general law and a special law on the same subject are statutes in pari materia and should,
accordingly, be read together and harmonized, if possible, with a view to giving effect to both.
The rule is that where there are two acts, one of which is special and particular and the other
general which, if standing alone, would include the same matter and thus conflict with the
special act, the special law must prevail since it evinces the legislative intent more clearly than
that of a general statute and must not be taken as intended to affect the more particular and
specific provisions of the earlier act, unless it is absolutely necessary so to construe it in order to
give its words any meaning at all.20
The circumstance that the special law is passed before or after the general act does not change
the principle. Where the special law is later, it will be regarded as an exception to, or a
qualification of, the prior general act; and where the general act is later, the special statute will
393

be construed as remaining an exception to its terms, unless repealed expressly or by necessary


implication.21
Thus, in City of Manila v. Teotico,22 the Court held that Article 2189 of the Civil Code which holds
provinces, cities, and municipalities civilly liable for death or injuries by reason of defective
conditions of roads and other public works, is a special provision and should prevail over Section
4 of Republic Act No. 409, the Charter of Manila, in determining the liability for defective street
conditions. Under said Charter, the city shall not be held for damages or injuries arising from the
failure of the local officials to enforce the provision of the charter, law, or ordinance, or from
negligence while enforcing or attempting to enforce the same. As explained by the Court:
Manila maintains that the former provision should prevail over the latter, because Republic Act
409 is a special law, intended exclusively for the City of Manila, whereas the Civil Code is a
general law, applicable to the entire Philippines.
The Court of Appeals, however, applied the Civil Code, and, we think, correctly. It is true that,
insofar as its territorial application is concerned, Republic Act No. 409 is a special law and the
Civil Code a general legislation; but, as regards the subject matter of the provisions above
quoted, Section 4 of Republic Act 409 establishes a general rule regulating the liability of the City
of Manila for "damages or injury to persons or property arising from the failure of" city officers "to
enforce the provisions of" said Act "or any other law or ordinance, or from negligence" of the city
"Mayor, Municipal Board, or other officers while enforcing or attempting to enforce said
provisions." Upon the other hand, Article 2189 of the Civil Code constitutes a particular
prescription making "provinces, cities and municipalities . . . liable for damages for the death of,
or injury suffered by, any person by reason" specifically "of the defective condition of roads,
streets, bridges, public buildings, and other public works under their control or supervision." In
other words, said section 4 refers to liability arising from negligence, in general,
regardless of the object thereof, whereas Article 2189 governs liability due to
"defective streets," in particular. Since the present action is based upon the alleged
defective condition of a road, said Article 2189 is decisive thereon.23
In the case of Bagatsing v. Ramirez,24 the issue was which law should govern the publication of a
tax ordinance, the City Charter of Manila, a special act which treats ordinances in general and
which requires their publication before enactment and after approval, or the Tax Code, a general
law, which deals in particular with "ordinances levying or imposing taxes, fees or other charges,"
and which demands publication only after approval. In holding that it is the Tax Code which
should prevail, the Court elucidated that:
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.
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. 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. Th[is] 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. Special provision governs.
394

Let us examine the provisions involved in the case at bar. Article 32 of the Civil Code provides:
ART. 32. Any public officer or employee, or any private individual, who directly or indirectly
obstructs, defeats, violates, or in any manner impedes or impairs any of the following rights and
liberties of another person shall be liable to the latter for damages:
xxxx
(6) The right against deprivation of property without due process of law;
xxxx
(8) The right to the equal protection of the laws;
xxxx
The rationale for its enactment was explained by Dean Bocobo of the Code Commission, as
follows:
"DEAN BOCOBO. Article 32, regarding individual rights, Attorney Cirilo Paredes proposes that
Article 32 be so amended as to make a public official liable for violation of another persons
constitutional rights only if the public official acted maliciously or in bad faith. The Code
Commission opposes this suggestion for these reasons:
"The very nature of Article 32 is that the wrong may be civil or criminal. It is not necessary
therefore that there should be malice or bad faith. To make such a requisite would defeat the
main purpose of Article 32 which is the effective protection of individual rights. Public officials in
the past have abused their powers on the pretext of justifiable motives or good faith in the
performance of their duties. Precisely, the object of the Article is to put an end to official abuse
by the plea of good faith. In the United States this remedy is in the nature of a tort.
"Mr. Chairman, this article is firmly one of the fundamental articles introduced in the New Civil
Code to implement democracy. There is no real democracy if a public official is abusing and we
made the article so strong and so comprehensive that it concludes an abuse of individual rights
even if done in good faith, that official is liable. As a matter of fact, we know that there are very
few public officials who openly and definitely abuse the individual rights of the citizens. In most
cases, the abuse is justified on a plea of desire to enforce the law to comply with ones duty. And
so, if we should limit the scope of this article, that would practically nullify the object of the
article. Precisely, the opening object of the article is to put an end to abuses which are justified
by a plea of good faith, which is in most cases the plea of officials abusing individual rights." 25
The Code Commission deemed it necessary to hold not only public officers but also private
individuals civilly liable for violation of the rights enumerated in Article 32 of the Civil Code. It is
not necessary that the defendant under this Article should have acted with malice or bad faith,
otherwise, it would defeat its main purpose, which is the effective protection of individual rights.
It suffices that there is a violation of the constitutional right of the plaintiff. 26
Article 32 was patterned after the "tort" in American law. 27 A tort is a wrong, a tortious act which
has been defined as the commission or omission of an act by one, without right, whereby
another receives some injury, directly or indirectly, in person, property, or reputation. 28 There are
cases in which it has been stated that civil liability in tort is determined by the conduct and not
by the mental state of the tortfeasor, and there are circumstances under which the motive of the
defendant has been rendered immaterial. The reason sometimes given for the rule is that
otherwise, the mental attitude of the alleged wrongdoer, and not the act itself, would determine
whether the act was wrongful. 29 Presence of good motive, or rather, the absence of an evil
motive, does not render lawful an act which is otherwise an invasion of anothers legal right; that
is, liability in tort is not precluded by the fact that defendant acted without evil intent. 30
395

The clear intention therefore of the legislature was to create a distinct cause of action in the
nature of tort for violation of constitutional rights, irrespective of the motive or intent of the
defendant.31 This is a fundamental innovation in the Civil Code, and in enacting the
Administrative Code pursuant to the exercise of legislative powers, then President Corazon C.
Aquino, could not have intended to obliterate this constitutional protection on civil liberties.
In Aberca v. Ver,32 it was held that with the enactment of Article 32, the principle of
accountability of public officials under the Constitution acquires added meaning and assumes a
larger dimension. No longer may a superior official relax his vigilance or abdicate his duty to
supervise his subordinates, secure in the thought that he does not have to answer for the
transgressions committed by the latter against the constitutionally protected rights and liberties
of the citizen. Part of the factors that propelled people power in February 1986 was the widely
held perception that the government was callous or indifferent to, if not actually responsible for,
the rampant violations of human rights. While it would certainly be too naive to expect that
violators of human rights would easily be deterred by the prospect of facing damage suits, it
should nonetheless be made clear in no uncertain terms that Article 32 of the Civil Code makes
the persons who are directly, as well as indirectly, responsible for the transgression, joint
tortfeasors.
On the other hand, Sections 38 and 39, Book I of the Administrative Code, laid down the rule on
the civil liability of superior and subordinate public officers for acts done in the performance of
their duties. For both superior and subordinate public officers, the presence of bad faith, malice,
and negligence are vital elements that will make them liable for damages. Note that while said
provisions deal in particular with the liability of government officials, the subject thereof is
general, i.e., "acts" done in the performance of official duties, without specifying the action or
omission that may give rise to a civil suit against the official concerned.
Contrarily, Article 32 of the Civil Code specifies in clear and unequivocal terms a particular specie
of an "act" that may give rise to an action for damages against a public officer, and that is, a tort
for impairment of rights and liberties. Indeed, Article 32 is the special provision that deals
specifically with violation of constitutional rights by public officers. All other actionable acts of
public officers are governed by Sections 38 and 39 of the Administrative Code. While the Civil
Code, specifically, the Chapter on Human Relations is a general law, Article 32 of the same
Chapter is a special and specific provision that holds a public officer liable for and allows redress
from a particular class of wrongful acts that may be committed by public officers. Compared thus
with Section 38 of the Administrative Code, which broadly deals with civil liability arising from
errors in the performance of duties, Article 32 of the Civil Code is the specific provision which
must be applied in the instant case precisely filed to seek damages for violation of constitutional
rights.
The complaint in the instant case was brought under Article 32 of the Civil Code. Considering
that bad faith and malice are not necessary in an action based on Article 32 of the Civil Code, the
failure to specifically allege the same will not amount to failure to state a cause of action. The
courts below therefore correctly denied the motion to dismiss on the ground of failure to state a
cause of action, since it is enough that the complaint avers a violation of a constitutional right of
the plaintiff.
Anent the issue on non-compliance with the rule against forum shopping, the subsequent
submission of the secretarys certificate authorizing the counsel to sign and execute the
certification against forum shopping cured the defect of respondents complaint. Besides, the
merits of the instant case justify the liberal application of the rules. 33
WHEREFORE, in view of the foregoing, the petition is DENIED. The Decision of the Court of
Appeals dated May 7, 1999 which affirmed the Order of the Regional Trial Court of Marikina,
Branch 272, denying petitioners motion to dismiss, is AFFIRMED. The Presiding Judge, Regional
Trial Court of Marikina, Branch 272, is hereby DIRECTED to continue with the proceedings in Civil
Case No. 97-341-MK with dispatch.
396

With costs.
SO ORDERED.
Austria-Martinez, Chico-Nazario, Nachura, JJ., concur.
4

Prior to its amendment by RA 7654, Section 142(c)(1) of the National Internal Revenue Code,
(as amended by R.A. No. 6956), provides:
"On locally manufactured cigarettes bearing a foreign brand, fifty-five percent
(55%) Provided, That this rate shall apply regardless of whether or not the right to use or title to
the foreign brand was sold or transferred by its owner to the local manufacturer. Whenever it has
to be determined whether or not a cigarette bears a foreign brand, the listing of brands
manufactured in foreign countries appearing in the current World Tobacco Directory shall
govern."
5

Pertinent portion thereof, states:

SEC. 142. Cigars and Cigarettes.


xxxx
(c) Cigarettes packed by machine. - There shall be levied, assessed and collected on cigarettes
packed by machine a tax at the rates prescribed below based on the constructive manufacturers
wholesale price or the actual manufacturers wholesale price, whichever is higher:
(1) On locally manufactured cigarettes which are currently classified and taxed at fiftyfive percent (55%) or the exportation of which is not authorized by contract or otherwise, fiftyfive (55%) provided that the minimum tax shall not be less than Five Pesos (P5.00) per pack.
(2) On other locally manufactured cigarettes, forty-five percent (45%) provided that the
minimum tax shall not be less than Three Pesos (P3.00) per pack.
25

Report of the Special Joint Committee of the Congress on the Amendments to the New Civil
Code, XVI The Lawyers Journal, No. 5, May 31, 1951, 258. Cited in Lim v. Ponce de Leon, supra
note 14 at 309. Article 32 of the Civil Code was also applied in the following cases: Aberca v. Ver,
G.R. No. L-69866, April 15, 1988, 160 SCRA 590; MHP Garments, Inc. v. Court of Appeals, G.R. No.
86720, September 2, 1994, 236 SCRA 227; Cojuangco, Jr. v. Court of Appeals, supra note
18; Obra v. Court of Appeals, G.R. No. 120852, October 28, 1999, 317 SCRA 594; Lui v.
Matillano, G.R. No. 141176, May 27, 2004, 429 SCRA 449; Silahis International Hotel, Inc. v.
Soluta, G.R. No. 163087, February 20, 2006, 482 SCRA 660.
31

In the report on the Special Joint Committee of the Congress on the Amendments to the New
Civil Code, Dean Bocobo expressed that while the defendant may not be exonerated on the basis
solely of good faith, the inherent justifiability of his/her act, which is up to the courts to decide
under the peculiar circumstance of each case, may be the basis of absolution. Thus:
CONGRESSMAN DE LEON. So that Mr. Justice, under the provisions [Article 32] of the new Civil
Code, there is no more plea of acting in good faith?
DEAN BOCOBO. It would not be good faith but it would be inherent justifiability of the act, which
is up to our courts to decide under the peculiar circumstance of each case, because we had back
in our minds the old saying that "Hell is paved with good intentions." (Lawyers Journal, No. 5,
May 31, 1951, p. 259.)

397

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