[G.R. No. 132988.

July 19, 2000]

AQUILINO Q. PIMENTEL JR., petitioner, vs. Hon. ALEXANDER AGUIRRE in his capacity as
Executive Secretary, Hon. EMILIA BONCODIN in her capacity as Secretary of the
Department of Budget and Management, respondents.
ROBERTO PAGDANGANAN, intervenor.

DECISION
PANGANIBAN, J.:
The Constitution vests the President with the power of supervision, not control, over local
government units (LGUs). Such power enables him to see to it that LGUs and their officials execute their
tasks in accordance with law. While he may issue advisories and seek their cooperation in solving
economic difficulties, he cannot prevent them from performing their tasks and using available resources to
achieve their goals. He may not withhold or alter any authority or power given them by the law. Thus, the
withholding of a portion of internal revenue allotments legally due them cannot be directed by
administrative fiat.

The Case

Before us is an original Petition for Certiorari and Prohibition seeking (1) to annul Section 1 of
Administrative Order (AO) No. 372, insofar as it requires local government units to reduce their
expenditures by 25 percent of their authorized regular appropriations for non-personal services; and (2) to
enjoin respondents from implementing Section 4 of the Order, which withholds a portion of their internal
revenue allotments.
On November 17, 1998, Roberto Pagdanganan, through Counsel Alberto C. Agra, filed a Motion for
Intervention/Motion to Admit Petition for Intervention, [1] attaching thereto his Petition in
Intervention[2] joining petitioner in the reliefs sought. At the time, intervenor was the provincial governor of
Bulacan, national president of the League of Provinces of the Philippines and chairman of the League of
Leagues of Local Governments. In a Resolution dated December 15, 1998, the Court noted said Motion
and Petition.

The Facts and the Arguments

On December 27, 1997, the President of the Philippines issued AO 372. Its full text, with emphasis
on the assailed provisions, is as follows:

"ADMINISTRATIVE ORDER NO. 372

ADOPTION OF ECONOMY MEASURES IN GOVERNMENT FOR FY 1998

WHEREAS, the current economic difficulties brought about by the peso depreciation requires continued
prudence in government fiscal management to maintain economic stability and sustain the country's
growth momentum;

WHEREAS, it is imperative that all government agencies adopt cash management measures to match
expenditures with available resources;
NOW, THEREFORE, I, FIDEL V. RAMOS, President of the Republic of the Philippines, by virtue of the
powers vested in me by the Constitution, do hereby order and direct:

SECTION 1. All government departments and agencies, including state universities and colleges,
government-owned and controlled corporations and local governments units will identify and
implement measures in FY 1998 that will reduce total expenditures for the year by at least 25% of
authorized regular appropriations for non-personal services items, along the following suggested
areas:
1. Continued implementation of the streamlining policy on organization and staffing by deferring
action on the following:

a. Operationalization of new agencies;

b. Expansion of organizational units and/or creation of positions;

c. Filling of positions; and

d. Hiring of additional/new consultants, contractual and casual personnel, regardless of funding source.
2. Suspension of the following activities:

a. Implementation of new capital/infrastructure projects, except those which have already been
contracted out;

b. Acquisition of new equipment and motor vehicles;

c. All foreign travels of government personnel, except those associated with scholarships and
trainings funded by grants;

d. Attendance in conferences abroad where the cost is charged to the government except those
clearly essential to Philippine commitments in the international field as may be
determined by the Cabinet;

e. Conduct of trainings/workshops/seminars, except those conducted by government training

institutions and agencies in the performance of their regular functions and those that are
funded by grants;

f. Conduct of cultural and social celebrations and sports activities, except those associated with
the Philippine Centennial celebration and those involving regular competitions/events;

g. Grant of honoraria, except in cases where it constitutes the only source of compensation from
government received by the person concerned;

h. Publications, media advertisements and related items, except those required by law or those
already being undertaken on a regular basis;

i. Grant of new/additional benefits to employees, except those expressly and specifically

authorized by law; and

j. Donations, contributions, grants and gifts, except those given by institutions to victims of
calamities.
3. Suspension of all tax expenditure subsidies to all GOCCs and LGUs
 4. Reduction in the volume of consumption of fuel, water, office supplies, electricity and other
utilities
5. Deferment of projects that are encountering significant implementation problems
6. Suspension of all realignment of funds and the use of savings and reserves

SECTION 2. Agencies are given the flexibility to identify the specific sources of cost-savings, provided the
25% minimum savings under Section 1 is complied with.

SECTION 3. A report on the estimated savings generated from these measures shall be submitted to the
Office of the President, through the Department of Budget and Management, on a quarterly basis using
the attached format.
SECTION 4. Pending the assessment and evaluation by the Development Budget
Coordinating Committee of the emerging fiscal situation, the amount equivalent to
10% of the internal revenue allotment to local government units shall be withheld.
SECTION 5. The Development Budget Coordination Committee shall conduct a monthly review
of the fiscal position of the National Government and if necessary, shall recommend to the
President the imposition of additional reserves or the lifting of previously imposed reserves.
SECTION 6. This Administrative Order shall take effect January 1, 1998 and shall remain valid
for the entire year unless otherwise lifted.

DONE in the City of Manila, this 27 th day of December, in the year of our Lord, nineteen hundred and
ninety-seven."
Subsequently, on December 10, 1998, President Joseph E. Estrada issued AO 43, amending
Section 4 of AO 372, by reducing to five percent (5%) the amount of internal revenue allotment (IRA) to
be withheld from the LGUs.
Petitioner contends that the President, in issuing AO 372, was in effect exercising the power
of control over LGUs. The Constitution vests in the President, however, only the power of
general supervision over LGUs, consistent with the principle of local autonomy. Petitioner further argues
that the directive to withhold ten percent (10%) of their IRA is in contravention of Section 286 of the Local
Government Code and of Section 6, Article X of the Constitution, providing for the automatic release to
each of these units its share in the national internal revenue.
The solicitor general, on behalf of the respondents, claims on the other hand that AO 372 was issued
to alleviate the "economic difficulties brought about by the peso devaluation" and constituted merely an
exercise of the President's power of supervision over LGUs. It allegedly does not violate local fiscal
autonomy, because it merely directs local governments to identify measures that will reduce their total
expenditures for non-personal services by at least 25 percent. Likewise, the withholding of 10 percent of
the LGUs IRA does not violate the statutory prohibition on the imposition of any lien or holdback on their
revenue shares, because such withholding is "temporary in nature pending the assessment and
evaluation by the Development Coordination Committee of the emerging fiscal situation."

The Issues

The Petition[3] submits the following issues for the Court's resolution:

"A. Whether or not the president committed grave abuse of discretion [in] ordering all LGUS to adopt a
25% cost reduction program in violation of the LGU[']S fiscal autonomy

"B. Whether or not the president committed grave abuse of discretion in ordering the withholding of 10%
of the LGU[']S IRA"
 In sum, the main issue is whether (a) Section 1 of AO 372, insofar as it "directs" LGUs to reduce their
expenditures by 25 percent; and (b) Section 4 of the same issuance, which withholds 10 percent of their
internal revenue allotments, are valid exercises of the President's power of general supervision over local
governments.
Additionally, the Court deliberated on the question whether petitioner had the locus standi to bring
this suit, despite respondents' failure to raise the issue. [4] However, the intervention of Roberto
Pagdanganan has rendered academic any further discussion on this matter.

The Court's Ruling

The Petition is partly meritorious.

Main Issue:
Validity of AO 372
Insofar as LGUs Are Concerned

Before resolving the main issue, we deem it important and appropriate to define certain crucial
concepts: (1) the scope of the President's power of general supervision over local governments and (2)
the extent of the local governments' autonomy.

Scope of President's Power of Supervision Over LGUs

Section 4 of Article X of the Constitution confines the President's power over local governments to
one of general supervision. It reads as follows:

"Sec. 4. The President of the Philippines shall exercise general supervision over local governments. x x x"
This provision has been interpreted to exclude the power of control. In Mondano v. Silvosa,[5] the
Court contrasted the President's power of supervision over local government officials with that of his
power of control over executive officials of the national government. It was emphasized that the two terms
-- supervision and control -- differed in meaning and extent. The Court distinguished them as follows:

"x x x In administrative law, supervision means overseeing or the power or authority of an officer to see
that subordinate officers perform their duties. If the latter fail or neglect to fulfill them, the former may take
such action or step as prescribed by law to make them perform their duties. Control, on the other hand,
means the power of an officer to alter or modify or nullify or set aside what a subordinate officer ha[s]
done in the performance of his duties and to substitute the judgment of the former for that of the latter." [6]
In Taule v. Santos,[7] we further stated that the Chief Executive wielded no more authority than that of
checking whether local governments or their officials were performing their duties as provided by the
fundamental law and by statutes. He cannot interfere with local governments, so long as they act within
the scope of their authority. "Supervisory power, when contrasted with control, is the power of mere
oversight over an inferior body; it does not include any restraining authority over such body," [8] we said.
In a more recent case, Drilon v. Lim,[9] the difference between control and supervision was further
delineated. Officers in control lay down the rules in the performance or accomplishment of an act. If these
rules are not followed, they may, in their discretion, order the act undone or redone by their subordinates
or even decide to do it themselves. On the other hand, supervision does not cover such
authority. Supervising officials merely see to it that the rules are followed, but they themselves do not lay
down such rules, nor do they have the discretion to modify or replace them. If the rules are not observed,
they may order the work done or redone, but only to conform to such rules. They may not prescribe their
own manner of execution of the act. They have no discretion on this matter except to see to it that the
rules are followed.
 Under our present system of government, executive power is vested in the President. [10] The
members of the Cabinet and other executive officials are merely alter egos. As such, they are subject to
the power of control of the President, at whose will and behest they can be removed from office; or their
actions and decisions changed, suspended or reversed. [11] In contrast, the heads of political subdivisions
are elected by the people. Their sovereign powers emanate from the electorate, to whom they are directly
accountable. By constitutional fiat, they are subject to the Presidents supervision only, not control, so long
as their acts are exercised within the sphere of their legitimate powers. By the same token, the President
may not withhold or alter any authority or power given them by the Constitution and the law.

Extent of Local Autonomy

Hand in hand with the constitutional restraint on the President's power over local governments is the
state policy of ensuring local autonomy.[12]
In Ganzon v. Court of Appeals,[13] we said that local autonomy signified "a more responsive and
accountable local government structure instituted through a system of decentralization."The grant of
autonomy is intended to "break up the monopoly of the national government over the affairs of local
governments, x x x not x x x to end the relation of partnership and interdependence between the central
administration and local government units x x x." Paradoxically, local governments are still subject to
regulation, however limited, for the purpose of enhancing self-government. [14]
Decentralization simply means the devolution of national administration, not power, to local
governments. Local officials remain accountable to the central government as the law may provide. [15] The
difference between decentralization of administration and that of power was explained in detail
in Limbona v. Mangelin[16] as follows:

"Now, autonomy is either decentralization of administration or decentralization of power. There is

decentralization of administration when the central government delegates administrative powers to
political subdivisions in order to broaden the base of government power and in the process to make local
governments 'more responsive and accountable,'[17] and 'ensure their fullest development as self-reliant
communities and make them more effective partners in the pursuit of national development and social
progress.'[18] At the same time, it relieves the central government of the burden of managing local affairs
and enables it to concentrate on national concerns. The President exercises 'general supervision'[19] over
them, but only to 'ensure that local affairs are administered according to law.' [20] He has no control over
their acts in the sense that he can substitute their judgments with his own. [21]

Decentralization of power, on the other hand, involves an abdication of political power in the favor of local
government units declared to be autonomous. In that case, the autonomous government is free to chart
its own destiny and shape its future with minimum intervention from central authorities. According to a
constitutional author, decentralization of power amounts to 'self-immolation,' since in that event, the
autonomous government becomes accountable not to the central authorities but to its constituency." [22]
Under the Philippine concept of local autonomy, the national government has not completely
relinquished all its powers over local governments, including autonomous regions. Only administrative
powers over local affairs are delegated to political subdivisions. The purpose of the delegation is to make
governance more directly responsive and effective at the local levels. In turn, economic, political and
social development at the smaller political units are expected to propel social and economic growth and
development. But to enable the country to develop as a whole, the programs and policies effected locally
must be integrated and coordinated towards a common national goal. Thus, policy-setting for the entire
country still lies in the President and Congress. As we stated in Magtajas v. Pryce Properties Corp.,
Inc., municipal governments are still agents of the national government. [23]

The Nature of AO 372

 Consistent with the foregoing jurisprudential precepts, let us now look into the nature of AO 372. As
its preambular clauses declare, the Order was a "cash management measure" adopted by the
government "to match expenditures with available resources," which were presumably depleted at the
time due to "economic difficulties brought about by the peso depreciation." Because of a looming financial
crisis, the President deemed it necessary to "direct all government agencies, state universities and
colleges, government-owned and controlled corporations as well as local governments to reduce their
total expenditures by at least 25 percent along suggested areas mentioned in AO 372.
Under existing law, local government units, in addition to having administrative autonomy in the
exercise of their functions, enjoy fiscal autonomy as well. Fiscal autonomy means that local governments
have the power to create their own sources of revenue in addition to their equitable share in the national
taxes released by the national government, as well as the power to allocate their resources in accordance
with their own priorities. It extends to the preparation of their budgets, and local officials in turn have to
work within the constraints thereof. They are not formulated at the national level and imposed on local
governments, whether they are relevant to local needs and resources or not. Hence, the necessity of a
balancing of viewpoints and the harmonization of proposals from both local and national officials, [24] who in
any case are partners in the attainment of national goals.
Local fiscal autonomy does not however rule out any manner of national government intervention by
way of supervision, in order to ensure that local programs, fiscal and otherwise, are consistent with
national goals. Significantly, the President, by constitutional fiat, is the head of the economic and planning
agency of the government,[25] primarily responsible for formulating and implementing continuing,
coordinated and integrated social and economic policies, plans and programs [26] for the entire
country. However, under the Constitution, the formulation and the implementation of such policies and
programs are subject to "consultations with the appropriate public agencies, various private sectors, and
local government units." The President cannot do so unilaterally.
Consequently, the Local Government Code provides:[27]

"x x x [I]n the event the national government incurs an unmanaged public sector deficit, the President of
the Philippines is hereby authorized, upon the recommendation of [the] Secretary of Finance, Secretary of
the Interior and Local Government and Secretary of Budget and Management, and subject to consultation
with the presiding officers of both Houses of Congress and the presidents of the liga, to make the
necessary adjustments in the internal revenue allotment of local government units but in no case shall the
allotment be less than thirty percent (30%) of the collection of national internal revenue taxes of the third
fiscal year preceding the current fiscal year x x x."
There are therefore several requisites before the President may interfere in local fiscal matters: (1)
an unmanaged public sector deficit of the national government; (2) consultations with the presiding
officers of the Senate and the House of Representatives and the presidents of the various local
leagues; and (3) the corresponding recommendation of the secretaries of the Department of Finance,
Interior and Local Government, and Budget and Management. Furthermore, any adjustment in the
allotment shall in no case be less than thirty percent (30%) of the collection of national internal revenue
taxes of the third fiscal year preceding the current one.
Petitioner points out that respondents failed to comply with these requisites before the issuance and
the implementation of AO 372. At the very least, they did not even try to show that the national
government was suffering from an unmanageable public sector deficit. Neither did they claim having
conducted consultations with the different leagues of local governments.Without these requisites, the
President has no authority to adjust, much less to reduce, unilaterally the LGU's internal revenue
allotment.
The solicitor general insists, however, that AO 372 is merely directory and has been issued by the
President consistent with his power of supervision over local governments. It is intended only to advise all
government agencies and instrumentalities to undertake cost-reduction measures that will help maintain
economic stability in the country, which is facing economic difficulties. Besides, it does not contain any
sanction in case of noncompliance. Being merely an advisory, therefore, Section 1 of AO 372 is well
within the powers of the President. Since it is not a mandatory imposition, the directive cannot be
characterized as an exercise of the power of control.
While the wordings of Section 1 of AO 372 have a rather commanding tone, and while we agree with
petitioner that the requirements of Section 284 of the Local Government Code have not been satisfied, we
are prepared to accept the solicitor general's assurance that the directive to "identify and implement
measures x x x that will reduce total expenditures x x x by at least 25% of authorized regular
appropriation" is merely advisory in character, and does not constitute a mandatory or binding order that
interferes with local autonomy. The language used, while authoritative, does not amount to a command
that emanates from a boss to a subaltern.
Rather, the provision is merely an advisory to prevail upon local executives to recognize the need for
fiscal restraint in a period of economic difficulty. Indeed, all concerned would do well to heed the
President's call to unity, solidarity and teamwork to help alleviate the crisis. It is understood, however, that
no legal sanction may be imposed upon LGUs and their officials who do not follow such advice. It is in this
light that we sustain the solicitor general's contention in regard to Section 1.

Withholding a Part of LGUs' IRA

Section 4 of AO 372 cannot, however, be upheld. A basic feature of local fiscal autonomy is
the automatic release of the shares of LGUs in the national internal revenue. This is mandated by no less
than the Constitution.[28] The Local Government Code[29] specifies further that the release shall be made
directly to the LGU concerned within five (5) days after every quarter of the year and " shall not be subject
to any lien or holdback that may be imposed by the national government for whatever purpose."[30] As a
rule, the term "shall" is a word of command that must be given a compulsory meaning. [31] The provision is,
therefore, imperative.
Section 4 of AO 372, however, orders the withholding, effective January 1, 1998, of 10 percent of the
LGUs' IRA "pending the assessment and evaluation by the Development Budget Coordinating Committee
of the emerging fiscal situation" in the country. Such withholding clearly contravenes the Constitution and
the law. Although temporary, it is equivalent to a holdback, which means "something held back or
withheld, often temporarily."[32] Hence, the "temporary" nature of the retention by the national government
does not matter. Any retention is prohibited.
In sum, while Section 1 of AO 372 may be upheld as an advisory effected in times of national crisis,
Section 4 thereof has no color of validity at all. The latter provision effectively encroaches on the fiscal
autonomy of local governments. Concededly, the President was well-intentioned in issuing his Order to
withhold the LGUs IRA, but the rule of law requires that even the best intentions must be carried out
within the parameters of the Constitution and the law. Verily, laudable purposes must be carried out by
legal methods.

Refutation of Justice Kapunan's Dissent

Mr. Justice Santiago M. Kapunan dissents from our Decision on the grounds that, allegedly, (1) the
Petition is premature; (2) AO 372 falls within the powers of the President as chief fiscal officer; and (3) the
withholding of the LGUs IRA is implied in the President's authority to adjust it in case of an unmanageable
public sector deficit.
First, on prematurity. According to the Dissent, when "the conduct has not yet occurred and the
challenged construction has not yet been adopted by the agency charged with administering the
administrative order, the determination of the scope and constitutionality of the executive action in
advance of its immediate adverse effect involves too remote and abstract an inquiry for the proper
exercise of judicial function."
This is a rather novel theory -- that people should await the implementing evil to befall on them
before they can question acts that are illegal or unconstitutional. Be it remembered that the real issue
here is whether the Constitution and the law are contravened by Section 4 of AO 372, not whether they
are violated by the acts implementing it. In the unanimous en banc case Taada v. Angara, [33] this Court
held that when an act of the legislative department is seriously alleged to have infringed the Constitution,
settling the controversy becomes the duty of this Court. By the mere enactment of the questioned law or
the approval of the challenged action, the dispute is said to have ripened into a judicial controversy even
without any other overt act. Indeed, even a singular violation of the Constitution and/or the law is enough
to awaken judicial duty. Said the Court:

"In seeking to nullify an act of the Philippine Senate on the ground that it contravenes the Constitution, the
petition no doubt raises a justiciable controversy. Where an action of the legislative branch is seriously
alleged to have infringed the Constitution, it becomes not only the right but in fact the duty of the judiciary
to settle the dispute. 'The question thus posed is judicial rather than political. The duty (to adjudicate)
remains to assure that the supremacy of the Constitution is upheld.' [34] Once a 'controversy as to the
application or interpretation of a constitutional provision is raised before this Court x x x , it becomes a
legal issue which the Court is bound by constitutional mandate to decide.' [35]
xxxxxxxxx

"As this Court has repeatedly and firmly emphasized in many cases, [36] it will not shirk, digress from or
abandon its sacred duty and authority to uphold the Constitution in matters that involve grave abuse of
discretion brought before it in appropriate cases, committed by any officer, agency, instrumentality or
department of the government."
In the same vein, the Court also held in Tatad v. Secretary of the Department of Energy:[37]

"x x x Judicial power includes not only the duty of the courts to settle actual controversies involving rights
which are legally demandable and enforceable, but also the duty to determine whether or not there has
been grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of government. The courts, as guardians of the Constitution, have the inherent authority to
determine whether a statute enacted by the legislature transcends the limit imposed by the fundamental
law. Where the statute violates the Constitution, it is not only the right but the duty of the judiciary to
declare such act unconstitutional and void."
By the same token, when an act of the President, who in our constitutional scheme is a coequal of
Congress, is seriously alleged to have infringed the Constitution and the laws, as in the present case,
settling the dispute becomes the duty and the responsibility of the courts.
Besides, the issue that the Petition is premature has not been raised by the parties; hence it is
deemed waived. Considerations of due process really prevents its use against a party that has not been
given sufficient notice of its presentation, and thus has not been given the opportunity to refute it. [38]
Second, on the President's power as chief fiscal officer of the country. Justice Kapunan posits that
Section 4 of AO 372 conforms with the President's role as chief fiscal officer, who allegedly "is clothed by
law with certain powers to ensure the observance of safeguards and auditing requirements, as well as the
legal prerequisites in the release and use of IRAs, taking into account the constitutional and statutory
mandates."[39] He cites instances when the President may lawfully intervene in the fiscal affairs of LGUs.
Precisely, such powers referred to in the Dissent have specifically been authorized by law and have
not been challenged as violative of the Constitution. On the other hand, Section 4 of AO 372, as
explained earlier, contravenes explicit provisions of the Local Government Code (LGC) and the
Constitution. In other words, the acts alluded to in the Dissent are indeed authorized by law; but, quite the
opposite, Section 4 of AO 372 is bereft of any legal or constitutional basis.
Third, on the President's authority to adjust the IRA of LGUs in case of an unmanageable public
sector deficit. It must be emphasized that in striking down Section 4 of AO 372, this Court is not ruling out
any form of reduction in the IRAs of LGUs. Indeed, as the President may make necessary adjustments in
case of an unmanageable public sector deficit, as stated in the main part of this Decision, and in line with
Section 284 of the LGC, which Justice Kapunan cites. He, however, merely glances over a specific
requirement in the same provision -- that such reduction is subject to consultation with the presiding
officers of both Houses of Congress and, more importantly, with the presidents of the leagues of local
governments.
Notably, Justice Kapunan recognizes the need for "interaction between the national government and
the LGUs at the planning level," in order to ensure that "local development plans x x x hew to national
policies and standards." The problem is that no such interaction or consultation was ever held prior to the
issuance of AO 372. This is why the petitioner and the intervenor (who was a provincial governor and at
the same time president of the League of Provinces of the Philippines and chairman of the League of
Leagues of Local Governments) have protested and instituted this action. Significantly, respondents do
not deny the lack of consultation.
In addition, Justice Kapunan cites Section 287 [40] of the LGC as impliedly authorizing the President to
withhold the IRA of an LGU, pending its compliance with certain requirements.Even a cursory reading of
the provision reveals that it is totally inapplicable to the issue at bar. It directs LGUs to appropriate in their
annual budgets 20 percent of their respective IRAs for development projects. It speaks of no positive
power granted the President to priorly withhold any amount. Not at all.
WHEREFORE, the Petition is GRANTED. Respondents and their successors are hereby
permanently PROHIBITED from implementing Administrative Order Nos. 372 and 43, respectively dated
December 27, 1997 and December 10, 1998, insofar as local government units are concerned.
SO ORDERED.
[G.R. No. 152774. May 27, 2004]
THE PROVINCE OF BATANGAS, represented by its Governor, HERMILANDO I.
MANDANAS, petitioner, vs. HON. ALBERTO G. ROMULO, Executive Secretary and
Chairman of the Oversight Committee on Devolution; HON. EMILIA BONCODIN, Secretary,
Department of Budget and Management; HON. JOSE D. LINA, JR., Secretary, Department
of Interior and Local Government, respondents.

DECISION
CALLEJO, SR., J.:
The Province of Batangas, represented by its Governor, Hermilando I. Mandanas, filed the present
petition for certiorari, prohibition and mandamus under Rule 65 of the Rules of Court, as amended, to
declare as unconstitutional and void certain provisos contained in the General Appropriations Acts (GAA)
of 1999, 2000 and 2001, insofar as they uniformly earmarked for each corresponding year the amount of
five billion pesos (P5,000,000,000.00) of the Internal Revenue Allotment (IRA) for the Local Government
Service Equalization Fund (LGSEF) and imposed conditions for the release thereof.
Named as respondents are Executive Secretary Alberto G. Romulo, in his capacity as Chairman of
the Oversight Committee on Devolution, Secretary Emilia Boncodin of the Department of Budget and
Management (DBM) and Secretary Jose Lina of the Department of Interior and Local Government (DILG).

Background
On December 7, 1998, then President Joseph Ejercito Estrada issued Executive Order (E.O.) No. 48
entitled ESTABLISHING A PROGRAM FOR DEVOLUTION ADJUSTMENT AND EQUALIZATION. The
program was established to facilitate the process of enhancing the capacities of local government units
(LGUs) in the discharge of the functions and services devolved to them by the National Government
Agencies concerned pursuant to the Local Government Code. [1] The Oversight Committee (referred to as
the Devolution Committee in E.O. No. 48) constituted under Section 533(b) of Republic Act No. 7160 (The
Local Government Code of 1991) has been tasked to formulate and issue the appropriate rules and
regulations necessary for its effective implementation. [2] Further, to address the funding shortfalls of
functions and services devolved to the LGUs and other funding requirements of the program, the
Devolution Adjustment and Equalization Fund was created. [3] For 1998, the DBM was directed to set aside
an amount to be determined by the Oversight Committee based on the devolution status appraisal
surveys undertaken by the DILG.[4] The initial fund was to be sourced from the available savings of the
national government for CY 1998. [5] For 1999 and the succeeding years, the corresponding amount
required to sustain the program was to be incorporated in the annual GAA. [6] The Oversight Committee
has been authorized to issue the implementing rules and regulations governing the equitable allocation
and distribution of said fund to the LGUs.[7]

The LGSEF in the GAA of 1999

In Republic Act No. 8745, otherwise known as the GAA of 1999, the program was renamed as the
LOCAL GOVERNMENT SERVICE EQUALIZATION FUND (LGSEF). Under said appropriations law, the
amount of P96,780,000,000 was allotted as the share of the LGUs in the internal revenue taxes. Item No.
1, Special Provisions, Title XXXVI A. Internal Revenue Allotment of Rep. Act No. 8745 contained the
following proviso:

... PROVIDED, That the amount of FIVE BILLION PESOS (P5,000,000,000) shall be earmarked for the
Local Government Service Equalization Fund for the funding requirements of projects and activities
arising from the full and efficient implementation of devolved functions and services of local government
units pursuant to R.A. No. 7160, otherwise known as the Local Government Code of 1991: PROVIDED,
FURTHER, That such amount shall be released to the local government units subject to the implementing
rules and regulations, including such mechanisms and guidelines for the equitable allocations and
distribution of said fund among local government units subject to the guidelines that may be prescribed by
the Oversight Committee on Devolution as constituted pursuant to Book IV, Title III, Section 533(b) of R.A.
No. 7160. The Internal Revenue Allotment shall be released directly by the Department of Budget and
Management to the Local Government Units concerned.
On July 28, 1999, the Oversight Committee (with then Executive Secretary Ronaldo B. Zamora as
Chairman) passed Resolution Nos. OCD-99-003, OCD-99-005 and OCD-99-006 entitled as follows:

OCD-99-005
RESOLUTION ADOPTING THE ALLOCATION SCHEME FOR THE PhP5 BILLION CY 1999
LOCAL GOVERNMENT SERVICE EQUALIZATION FUND (LGSEF) AND REQUESTING
HIS EXCELLENCY PRESIDENT JOSEPH EJERCITO ESTRADA TO APPROVE SAID
ALLOCATION SCHEME.

OCD-99-006
RESOLUTION ADOPTING THE ALLOCATION SCHEME FOR THE PhP4.0 BILLION OF
THE 1999 LOCAL GOVERNMENT SERVICE EQUALIZATION FUND AND ITS
CONCOMITANT GENERAL FRAMEWORK, IMPLEMENTING GUIDELINES AND
MECHANICS FOR ITS IMPLEMENTATION AND RELEASE, AS PROMULGATED BY THE
OVERSIGHT COMMITTEE ON DEVOLUTION.

OCD-99-003
RESOLUTION REQUESTING HIS EXCELLENCY PRESIDENT JOSEPH EJERCITO
ESTRADA TO APPROVE THE REQUEST OF THE OVERSIGHT COMMITTEE ON
DEVOLUTION TO SET ASIDE TWENTY PERCENT (20%) OF THE LOCAL GOVERNMENT
SERVICE EQUALIZATION FUND (LGSEF) FOR LOCAL AFFIRMATIVE ACTION
PROJECTS AND OTHER PRIORITY INITIATIVES FOR LGUs INSTITUTIONAL AND
CAPABILITY BUILDING IN ACCORDANCE WITH THE IMPLEMENTING GUIDELINES AND
MECHANICS AS PROMULGATED BY THE COMMITTEE.
These OCD resolutions were approved by then President Estrada on October 6, 1999.
Under the allocation scheme adopted pursuant to Resolution No. OCD-99-005, the five billion pesos
LGSEF was to be allocated as follows:
1. The PhP4 Billion of the LGSEF shall be allocated in accordance with the allocation scheme
and implementing guidelines and mechanics promulgated and adopted by the OCD. To wit:

a. The first PhP2 Billion of the LGSEF shall be allocated in accordance with the codal formula
sharing scheme as prescribed under the 1991 Local Government Code;

b. The second PhP2 Billion of the LGSEF shall be allocated in accordance with a modified 1992
cost of devolution fund (CODEF) sharing scheme, as recommended by the respective
leagues of provinces, cities and municipalities to the OCD. The modified CODEF sharing
formula is as follows:

Province : 40%
Cities : 20%
Municipalities : 40%
This is applied to the P2 Billion after the approved amounts granted to individual provinces,
cities and municipalities as assistance to cover decrease in 1999 IRA share due to
reduction in land area have been taken out.
 2. The remaining PhP1 Billion of the LGSEF shall be earmarked to support local affirmative
action projects and other priority initiatives submitted by LGUs to the Oversight Committee
on Devolution for approval in accordance with its prescribed guidelines as promulgated and
adopted by the OCD.
In Resolution No. OCD-99-003, the Oversight Committee set aside the one billion pesos or 20% of
the LGSEF to support Local Affirmative Action Projects (LAAPs) of LGUs. This remaining amount was
intended to respond to the urgent need for additional funds assistance, otherwise not available within the
parameters of other existing fund sources. For LGUs to be eligible for funding under the one-billion-peso
portion of the LGSEF, the OCD promulgated the following:

III. CRITERIA FOR ELIGIBILITY:

1. LGUs (province, city, municipality, or barangay), individually or by group or multi-LGUs or

leagues of LGUs, especially those belonging to the 5 th and 6th class, may access the fund
to support any projects or activities that satisfy any of the aforecited purposes. A
barangay may also access this fund directly or through their respective municipality or
city.

2. The proposed project/activity should be need-based, a local priority, with high development
impact and are congruent with the socio-cultural, economic and development agenda of
the Estrada Administration, such as food security, poverty alleviation, electrification, and
peace and order, among others.

3. Eligible for funding under this fund are projects arising from, but not limited to, the following
areas of concern:

a. delivery of local health and sanitation services, hospital services and other tertiary
services;

b. delivery of social welfare services;

c. provision of socio-cultural services and facilities for youth and community development;

d. provision of agricultural and on-site related research;

e. improvement of community-based forestry projects and other local projects on

environment and natural resources protection and conservation;

f. improvement of tourism facilities and promotion of tourism;

g. peace and order and public safety;

h. construction, repair and maintenance of public works and infrastructure, including

public buildings and facilities for public use, especially those destroyed or
damaged by man-made or natural calamities and disaster as well as facilities for
water supply, flood control and river dikes;

i. provision of local electrification facilities;

j. livelihood and food production services, facilities and equipment;

 k. other projects that may be authorized by the OCD consistent with the aforementioned
objectives and guidelines;

4. Except on extremely meritorious cases, as may be determined by the Oversight Committee

on Devolution, this portion of the LGSEF shall not be used in expenditures for personal
costs or benefits under existing laws applicable to governments. Generally, this fund shall
cover the following objects of expenditures for programs, projects and activities arising
from the implementation of devolved and regular functions and services:

a. acquisition/procurement of supplies and materials critical to the full and effective

implementation of devolved programs, projects and activities;

b. repair and/or improvement of facilities;

c. repair and/or upgrading of equipment;

d. acquisition of basic equipment;

e. construction of additional or new facilities;

f. counterpart contribution to joint arrangements or collective projects among groups of

municipalities, cities and/or provinces related to devolution and delivery of basic
services.

5. To be eligible for funding, an LGU or group of LGU shall submit to the Oversight Committee
on Devolution through the Department of Interior and Local Governments, within the
prescribed schedule and timeframe, a Letter Request for Funding Support from the
Affirmative Action Program under the LGSEF, duly signed by the concerned LGU(s) and
endorsed by cooperators and/or beneficiaries, as well as the duly signed Resolution of
Endorsement by the respective Sanggunian(s) of the LGUs concerned. The LGU-
proponent shall also be required to submit the Project Request (PR), using OCD Project
Request Form No. 99-02, that details the following:

(a) general description or brief of the project;

(b) objectives and justifications for undertaking the project, which should highlight the
benefits to the locality and the expected impact to the local program/project
arising from the full and efficient implementation of social services and facilities,
at the local levels;

(c) target outputs or key result areas;

(d) schedule of activities and details of requirements;

(e) total cost requirement of the project;

(f) proponents counterpart funding share, if any, and identified source(s) of counterpart
funds for the full implementation of the project;

(g) requested amount of project cost to be covered by the LGSEF.

Further, under the guidelines formulated by the Oversight Committee as contained in Attachment -
Resolution No. OCD-99-003, the LGUs were required to identify the projects eligible for funding under the
one-billion-peso portion of the LGSEF and submit the project proposals thereof and other documentary
requirements to the DILG for appraisal. The project proposals that passed the DILGs appraisal would
then be submitted to the Oversight Committee for review, evaluation and approval. Upon its approval, the
Oversight Committee would then serve notice to the DBM for the preparation of the Special Allotment
Release Order (SARO) and Notice of Cash Allocation (NCA) to effect the release of funds to the said
LGUs.

The LGSEF in the GAA of 2000

Under Rep. Act No. 8760, otherwise known as the GAA of 2000, the amount of P111,778,000,000
was allotted as the share of the LGUs in the internal revenue taxes. As in the GAA of 1999, the GAA of
2000 contained a proviso earmarking five billion pesos of the IRA for the LGSEF. This proviso, found in
Item No. 1, Special Provisions, Title XXXVII A. Internal Revenue Allotment, was similarly worded as that
contained in the GAA of 1999.
The Oversight Committee, in its Resolution No. OCD-2000-023 dated June 22, 2000, adopted the
following allocation scheme governing the five billion pesos LGSEF for 2000:

1. The PhP3.5 Billion of the CY 2000 LGSEF shall be allocated to and shared by the four levels
of LGUs, i.e., provinces, cities, municipalities, and barangays, using the following
percentage-sharing formula agreed upon and jointly endorsed by the various Leagues of
LGUs:
For Provinces 26% or P 910,000,000
For Cities 23% or 805,000,000
For Municipalities 35% or 1,225,000,000
For Barangays 16% or 560,000,000

Provided that the respective Leagues representing the provinces, cities, municipalities
and barangays shall draw up and adopt the horizontal distribution/sharing schemes
among the member LGUs whereby the Leagues concerned may opt to adopt direct
financial assistance or project-based arrangement, such that the LGSEF allocation for
individual LGU shall be released directly to the LGU concerned;

Provided further that the individual LGSEF shares to LGUs are used in accordance with
the general purposes and guidelines promulgated by the OCD for the implementation of
the LGSEF at the local levels pursuant to Res. No. OCD-99-006 dated October 7, 1999
and pursuant to the Leagues guidelines and mechanism as approved by the OCD;

Provided further that each of the Leagues shall submit to the OCD for its approval their
respective allocation scheme, the list of LGUs with the corresponding LGSEF shares and
the corresponding project categories if project-based;

Provided further that upon approval by the OCD, the lists of LGUs shall be endorsed to
the DBM as the basis for the preparation of the corresponding NCAs, SAROs, and
related budget/release documents.

2. The remaining P1,500,000,000 of the CY 2000 LGSEF shall be earmarked to support the
following initiatives and local affirmative action projects, to be endorsed to and approved
by the Oversight Committee on Devolution in accordance with the OCD agreements,
guidelines, procedures and documentary requirements:
On July 5, 2000, then President Estrada issued a Memorandum authorizing then Executive
Secretary Zamora and the DBM to implement and release the 2.5 billion pesos LGSEF for 2000 in
accordance with Resolution No. OCD-2000-023.
 Thereafter, the Oversight Committee, now under the administration of President Gloria Macapagal-
Arroyo, promulgated Resolution No. OCD-2001-29 entitled ADOPTING RESOLUTION NO. OCD-2000-
023 IN THE ALLOCATION, IMPLEMENTATION AND RELEASE OF THE REMAINING P2.5 BILLION
LGSEF FOR CY 2000. Under this resolution, the amount of one billion pesos of the LGSEF was to be
released in accordance with paragraph 1 of Resolution No. OCD-2000-23, to complete the 3.5 billion
pesos allocated to the LGUs, while the amount of 1.5 billion pesos was allocated for the LAAP. However,
out of the latter amount, P400,000,000 was to be allocated and released as follows: P50,000,000 as
financial assistance to the LAAPs of LGUs; P275,360,227 as financial assistance to cover the decrease in
the IRA of LGUs concerned due to reduction in land area; and P74,639,773 for the LGSEF Capability-
Building Fund.

The LGSEF in the GAA of 2001

In view of the failure of Congress to enact the general appropriations law for 2001, the GAA of 2000
was deemed re-enacted, together with the IRA of the LGUs therein and the proviso earmarking five billion
pesos thereof for the LGSEF.
On January 9, 2002, the Oversight Committee adopted Resolution No. OCD-2002-001 allocating the
five billion pesos LGSEF for 2001 as follows:

Modified Codal Formula P 3.000 billion

Priority Projects 1.900 billion
Capability Building Fund .100 billion
P 5.000 billion

RESOLVED FURTHER, that the P3.0 B of the CY 2001 LGSEF which is to be allocated according to the
modified codal formula shall be released to the four levels of LGUs, i.e., provinces, cities, municipalities
and barangays, as follows:

LGUs Percentage Amount

Provinces 25 P 0.750 billion

Cities 25 0.750

Municipalities 35 1.050

Barangays 15 0.450

100 P 3.000 billion

RESOLVED FURTHER, that the P1.9 B earmarked for priority projects shall be distributed according to
the following criteria:

1.0 For projects of the 4th, 5th and 6th class LGUs; or

2.0 Projects in consonance with the Presidents State of the Nation Address (SONA)/summit
commitments.

RESOLVED FURTHER, that the remaining P100 million LGSEF capability building fund shall be
distributed in accordance with the recommendation of the Leagues of Provinces, Cities, Municipalities and
Barangays, and approved by the OCD.
 Upon receipt of a copy of the above resolution, Gov. Mandanas wrote to the individual members of
the Oversight Committee seeking the reconsideration of Resolution No. OCD-2002-001. He also wrote to
Pres. Macapagal-Arroyo urging her to disapprove said resolution as it violates the Constitution and the
Local Government Code of 1991.
On January 25, 2002, Pres. Macapagal-Arroyo approved Resolution No. OCD-2002-001.

The Petitioners Case

The petitioner now comes to this Court assailing as unconstitutional and void the provisos in the
GAAs of 1999, 2000 and 2001, relating to the LGSEF. Similarly assailed are the Oversight Committees
Resolutions Nos. OCD-99-003, OCD-99-005, OCD-99-006, OCD-2000-023, OCD-2001-029 and OCD-
2002-001 issued pursuant thereto. The petitioner submits that the assailed provisos in the GAAs and the
OCD resolutions, insofar as they earmarked the amount of five billion pesos of the IRA of the LGUs for
1999, 2000 and 2001 for the LGSEF and imposed conditions for the release thereof, violate the
Constitution and the Local Government Code of 1991.
Section 6, Article X of the Constitution is invoked as it mandates that the just share of the LGUs shall
be automatically released to them. Sections 18 and 286 of the Local Government Code of 1991, which
enjoin that the just share of the LGUs shall be automatically and directly released to them without need of
further action are, likewise, cited.
The petitioner posits that to subject the distribution and release of the five-billion-peso portion of the
IRA, classified as the LGSEF, to compliance by the LGUs with the implementing rules and regulations,
including the mechanisms and guidelines prescribed by the Oversight Committee, contravenes the
explicit directive of the Constitution that the LGUs share in the national taxes shall be automatically
released to them. The petitioner maintains that the use of the word shall must be given a compulsory
meaning.
To further buttress this argument, the petitioner contends that to vest the Oversight Committee with
the authority to determine the distribution and release of the LGSEF, which is a part of the IRA of the
LGUs, is an anathema to the principle of local autonomy as embodied in the Constitution and the Local
Government Code of 1991. The petitioner cites as an example the experience in 2001 when the release
of the LGSEF was long delayed because the Oversight Committee was not able to convene that year and
no guidelines were issued therefor. Further, the possible disapproval by the Oversight Committee of the
project proposals of the LGUs would result in the diminution of the latters share in the IRA.
Another infringement alleged to be occasioned by the assailed OCD resolutions is the improper
amendment to Section 285 of the Local Government Code of 1991 on the percentage sharing of the IRA
among the LGUs. Said provision allocates the IRA as follows: Provinces 23%; Cities 23%; Municipalities
34%; and Barangays 20%.[8] This formula has been improperly amended or modified, with respect to the
five-billion-peso portion of the IRA allotted for the LGSEF, by the assailed OCD resolutions as they
invariably provided for a different sharing scheme.
The modifications allegedly constitute an illegal amendment by the executive branch of a substantive
law. Moreover, the petitioner mentions that in the Letter dated December 5, 2001 of respondent Executive
Secretary Romulo addressed to respondent Secretary Boncodin, the former endorsed to the latter the
release of funds to certain LGUs from the LGSEF in accordance with the handwritten instructions of
President Arroyo. Thus, the LGUs are at a loss as to how a portion of the LGSEF is actually
allocated. Further, there are still portions of the LGSEF that, to date, have not been received by the
petitioner; hence, resulting in damage and injury to the petitioner.
The petitioner prays that the Court declare as unconstitutional and void the assailed provisos relating
to the LGSEF in the GAAs of 1999, 2000 and 2001 and the assailed OCD resolutions (Resolutions Nos.
OCD-99-003, OCD-99-005, OCD-99-006, OCD-2000-023, OCD-2001-029 and OCD-2002-001) issued by
the Oversight Committee pursuant thereto. The petitioner, likewise, prays that the Court direct the
respondents to rectify the unlawful and illegal distribution and releases of the LGSEF for the
aforementioned years and release the same in accordance with the sharing formula under Section 285 of
the Local Government Code of 1991. Finally, the petitioner urges the Court to declare that the entire IRA
should be released automatically without further action by the LGUs as required by the Constitution and
the Local Government Code of 1991.

The Respondents Arguments

The respondents, through the Office of the Solicitor General, urge the Court to dismiss the petition
on procedural and substantive grounds. On the latter, the respondents contend that the assailed provisos
in the GAAs of 1999, 2000 and 2001 and the assailed resolutions issued by the Oversight Committee are
not constitutionally infirm. The respondents advance the view that Section 6, Article X of the Constitution
does not specify that the just share of the LGUs shall be determined solely by the Local Government
Code of 1991. Moreover, the phrase as determined by law in the same constitutional provision means that
there exists no limitation on the power of Congress to determine what is the just share of the LGUs in the
national taxes.In other words, Congress is the arbiter of what should be the just share of the LGUs in the
national taxes.
The respondents further theorize that Section 285 of the Local Government Code of 1991, which
provides for the percentage sharing of the IRA among the LGUs, was not intended to be a fixed
determination of their just share in the national taxes. Congress may enact other laws, including
appropriations laws such as the GAAs of 1999, 2000 and 2001, providing for a different sharing
formula. Section 285 of the Local Government Code of 1991 was merely intended to be the default share
of the LGUs to do away with the need to determine annually by law their just share. However, the LGUs
have no vested right in a permanent or fixed percentage as Congress may increase or decrease the just
share of the LGUs in accordance with what it believes is appropriate for their operation. There is nothing
in the Constitution which prohibits Congress from making such determination through the appropriations
laws. If the provisions of a particular statute, the GAA in this case, are within the constitutional power of
the legislature to enact, they should be sustained whether the courts agree or not in the wisdom of their
enactment.
On procedural grounds, the respondents urge the Court to dismiss the petition outright as the same
is defective. The petition allegedly raises factual issues which should be properly threshed out in the
lower courts, not this Court, not being a trier of facts. Specifically, the petitioners allegation that there are
portions of the LGSEF that it has not, to date, received, thereby causing it (the petitioner) injury and
damage, is subject to proof and must be substantiated in the proper venue, i.e., the lower courts.
Further, according to the respondents, the petition has already been rendered moot and academic as
it no longer presents a justiciable controversy. The IRAs for the years 1999, 2000 and 2001, have already
been released and the government is now operating under the 2003 budget. In support of this, the
respondents submitted certifications issued by officers of the DBM attesting to the release of the
allocation or shares of the petitioner in the LGSEF for 1999, 2000 and 2001. There is, therefore, nothing
more to prohibit.
Finally, the petitioner allegedly has no legal standing to bring the suit because it has not suffered any
injury. In fact, the petitioners just share has even increased. Pursuant to Section 285 of the Local
Government Code of 1991, the share of the provinces is 23%. OCD Nos. 99-005, 99-006 and 99-003
gave the provinces 40% of P2 billion of the LGSEF. OCD Nos. 2000-023 and 2001-029 apportioned 26%
of P3.5 billion to the provinces. On the other hand, OCD No. 2001-001 allocated 25% of P3 billion to the
provinces. Thus, the petitioner has not suffered any injury in the implementation of the assailed provisos
in the GAAs of 1999, 2000 and 2001 and the OCD resolutions.

The Ruling of the Court

Procedural Issues
Before resolving the petition on its merits, the Court shall first rule on the following procedural issues
raised by the respondents: (1) whether the petitioner has legal standing or locus standi to file the present
suit; (2) whether the petition involves factual questions that are properly cognizable by the lower courts;
and (3) whether the issue had been rendered moot and academic.

The petitioner has locus standi

to maintain the present suit
The gist of the question of standing is whether a party has alleged such a personal stake in the
outcome of the controversy as to assure that concrete adverseness which sharpens the presentation of
issues upon which the court so largely depends for illumination of difficult constitutional questions.
[9]
Accordingly, it has been held that the interest of a party assailing the constitutionality of a statute must
be direct and personal. Such party must be able to show, not only that the law or any government act is
invalid, but also that he has sustained or is in imminent danger of sustaining some direct injury as a result
of its enforcement, and not merely that he suffers thereby in some indefinite way. It must appear that the
person complaining 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 or act
complained of.[10]
The Court holds that the petitioner possesses the requisite standing to maintain the present suit. The
petitioner, a local government unit, seeks relief in order to protect or vindicate an interest of its own, and
of the other LGUs. This interest pertains to the LGUs share in the national taxes or the IRA. The
petitioners constitutional claim is, in substance, that the assailed provisos in the GAAs of 1999, 2000 and
2001, and the OCD resolutions contravene Section 6, Article X of the Constitution, mandating the
automatic release to the LGUs of their share in the national taxes. Further, the injury that the petitioner
claims to suffer is the diminution of its share in the IRA, as provided under Section 285 of the Local
Government Code of 1991, occasioned by the implementation of the assailed measures. These
allegations are sufficient to grant the petitioner standing to question the validity of the assailed provisos in
the GAAs of 1999, 2000 and 2001, and the OCD resolutions as the petitioner clearly has a plain, direct
and adequate interest in the manner and distribution of the IRA among the LGUs.

The petition involves a significant

legal issue
The crux of the instant controversy is whether the assailed provisos contained in the GAAs of 1999,
2000 and 2001, and the OCD resolutions infringe the Constitution and the Local Government Code of
1991. This is undoubtedly a legal question. On the other hand, the following facts are not disputed:
1. The earmarking of five billion pesos of the IRA for the LGSEF in the assailed provisos in the
GAAs of 1999, 2000 and re-enacted budget for 2001;
2. The promulgation of the assailed OCD resolutions providing for the allocation schemes
covering the said five billion pesos and the implementing rules and regulations therefor; and
3. The release of the LGSEF to the LGUs only upon their compliance with the implementing
rules and regulations, including the guidelines and mechanisms, prescribed by the Oversight
Committee.
Considering that these facts, which are necessary to resolve the legal question now before this
Court, are no longer in issue, the same need not be determined by a trial court. [11] In any case, the rule on
hierarchy of courts will not prevent this Court from assuming jurisdiction over the petition. The said rule
may be relaxed when the redress desired cannot be obtained in the appropriate courts or where
exceptional and compelling circumstances justify availment of a remedy within and calling for the exercise
of this Courts primary jurisdiction.[12]
 The crucial legal issue submitted for resolution of this Court entails the proper legal interpretation of
constitutional and statutory provisions. Moreover, the transcendental importance of the case, as it
necessarily involves the application of the constitutional principle on local autonomy, cannot be
gainsaid. The nature of the present controversy, therefore, warrants the relaxation by this Court of
procedural rules in order to resolve the case forthwith.

The substantive issue needs to be resolved

notwithstanding the supervening events
Granting arguendo that, as contended by the respondents, the resolution of the case had already
been overtaken by supervening events as the IRA, including the LGSEF, for 1999, 2000 and 2001, had
already been released and the government is now operating under a new appropriations law, still, there is
compelling reason for this Court to resolve the substantive issue raised by the instant
petition. Supervening events, whether intended or accidental, cannot prevent the Court from rendering a
decision if there is a grave violation of the Constitution. [13] Even in cases where supervening events had
made the cases moot, the Court did not hesitate to resolve the legal or constitutional issues raised to
formulate controlling principles to guide the bench, bar and public. [14]
Another reason justifying the resolution by this Court of the substantive issue now before it is the rule
that courts will decide a question otherwise moot and academic if it is capable of repetition, yet evading
review.[15] For the GAAs in the coming years may contain provisos similar to those now being sought to be
invalidated, and yet, the question may not be decided before another GAA is enacted. It, thus, behooves
this Court to make a categorical ruling on the substantive issue now.

Substantive Issue
As earlier intimated, the resolution of the substantive legal issue in this case calls for the application
of a most important constitutional policy and principle, that of local autonomy.[16] In Article II of the
Constitution, the State has expressly adopted as a policy that:

Section 25. The State shall ensure the autonomy of local governments.
An entire article (Article X) of the Constitution has been devoted to guaranteeing and promoting the
autonomy of LGUs. Section 2 thereof reiterates the State policy in this wise:

Section 2. The territorial and political subdivisions shall enjoy local autonomy.
Consistent with the principle of local autonomy, the Constitution confines the Presidents power over
the LGUs to one of general supervision. [17] This provision has been interpreted to exclude the power of
control. The distinction between the two powers was enunciated in Drilon v. Lim:[18]

An officer in control lays down the rules in the doing of an act. If they are not followed, he may, in his
discretion, order the act undone or re-done by his subordinate or he may even decide to do it
himself.Supervision does not cover such authority. The supervisor or superintendent merely sees to it that
the rules are followed, but he himself does not lay down such rules, nor does he have the discretion to
modify or replace them. If the rules are not observed, he may order the work done or re-done but only to
conform to the prescribed rules. He may not prescribe his own manner for doing the act. He has no
judgment on this matter except to see to it that the rules are followed. [19]
The Local Government Code of 1991 [20] was enacted to flesh out the mandate of the Constitution.
[21]
The State policy on local autonomy is amplified in Section 2 thereof:

Sec. 2. Declaration of Policy. (a) It is hereby declared the policy of the State that the territorial and political
subdivisions of the State shall enjoy genuine and meaningful local autonomy to enable them to attain their
fullest development as self-reliant communities and make them more effective partners in the attainment
of national goals. Toward this end, the State shall provide for a more responsive and accountable local
government structure instituted through a system of decentralization whereby local government units shall
be given more powers, authority, responsibilities, and resources. The process of decentralization shall
proceed from the National Government to the local government units.
Guided by these precepts, the Court shall now determine whether the assailed provisos in the GAAs
of 1999, 2000 and 2001, earmarking for each corresponding year the amount of five billion pesos of the
IRA for the LGSEF and the OCD resolutions promulgated pursuant thereto, transgress the Constitution
and the Local Government Code of 1991.

The assailed provisos in the GAAs of 1999, 2000

and 2001 and the OCD resolutions violate the
constitutional precept on local autonomy
Section 6, Article X of the Constitution reads:

Sec. 6. Local government units shall have a just share, as determined by law, in the national taxes
which shall be automatically released to them.
When parsed, it would be readily seen that this provision mandates that (1) the LGUs shall have a
just share in the national taxes; (2) the just share shall be determined by law; and (3) the just share shall
be automatically released to the LGUs.
The Local Government Code of 1991, among its salient provisions, underscores the automatic
release of the LGUs just share in this wise:

Sec. 18. Power to Generate and Apply Resources. Local government units shall have the power and
authority to establish an organization that shall be responsible for the efficient and effective
implementation of their development plans, program objectives and priorities; to create their own sources
of revenue and to levy taxes, fees, and charges which shall accrue exclusively for their use and
disposition and which shall be retained by them; to have a just share in national taxes which shall be
automatically and directly released to them without need of further action;

...

Sec. 286. Automatic Release of Shares. (a) The share of each local government unit shall be released,
without need of any further action, directly to the provincial, city, municipal or barangay treasurer, as the
case may be, on a quarterly basis within five (5) days after the end of each quarter, and which shall not be
subject to any lien or holdback that may be imposed by the national government for whatever purpose.

(b) Nothing in this Chapter shall be understood to diminish the share of local government units under
existing laws.
Websters Third New International Dictionary defines automatic as involuntary either wholly or to a
major extent so that any activity of the will is largely negligible; of a reflex nature; without volition;
mechanical; like or suggestive of an automaton. Further, the word automatically is defined as in an
automatic manner: without thought or conscious intention. Being automatic, thus, connotes something
mechanical, spontaneous and perfunctory. As such, the LGUs are not required to perform any act to
receive the just share accruing to them from the national coffers. As emphasized by the Local
Government Code of 1991, the just share of the LGUs shall be released to them without need of further
action. Construing Section 286 of the LGC, we held in Pimentel, Jr. v. Aguirre,[22] viz:

Section 4 of AO 372 cannot, however, be upheld. A basic feature of local fiscal autonomy is
the automatic release of the shares of LGUs in the National internal revenue. This is mandated by no less
than the Constitution. The Local Government Code specifies further that the release shall be made
directly to the LGU concerned within five (5) days after every quarter of the year and shall not be subject
to any lien or holdback that may be imposed by the national government for whatever purpose. As a rule,
the term SHALL is a word of command that must be given a compulsory meaning. The provision is,
therefore, IMPERATIVE.

Section 4 of AO 372, however, orders the withholding, effective January 1, 1998, of 10 percent of the
LGUs IRA pending the assessment and evaluation by the Development Budget Coordinating Committee
of the emerging fiscal situation in the country. Such withholding clearly contravenes the Constitution and
the law. Although temporary, it is equivalent to a holdback, which means something held back or withheld,
often temporarily. Hence, the temporary nature of the retention by the national government does not
matter. Any retention is prohibited.

In sum, while Section 1 of AO 372 may be upheld as an advisory effected in times of national crisis,
Section 4 thereof has no color of validity at all. The latter provision effectively encroaches on the fiscal
autonomy of local governments. Concededly, the President was well-intentioned in issuing his Order to
withhold the LGUs IRA, but the rule of law requires that even the best intentions must be carried out
within the parameters of the Constitution and the law. Verily, laudable purposes must be carried out by
legal methods.[23]
The just share of the LGUs is incorporated as the IRA in the appropriations law or GAA enacted by
Congress annually. Under the assailed provisos in the GAAs of 1999, 2000 and 2001, a portion of the IRA
in the amount of five billion pesos was earmarked for the LGSEF, and these provisos imposed the
condition that such amount shall be released to the local government units subject to the implementing
rules and regulations, including such mechanisms and guidelines for the equitable allocations and
distribution of said fund among local government units subject to the guidelines that may be prescribed by
the Oversight Committee on Devolution. Pursuant thereto, the Oversight Committee, through the assailed
OCD resolutions, apportioned the five billion pesos LGSEF such that:

For 1999

P2 billion - allocated according to Sec. 285 LGC

P2 billion - Modified Sharing Formula (Provinces 40%;
Cities 20%; Municipalities 40%)
P1 billion projects (LAAP) approved by OCD.[24]

For 2000

P3.5 billion Modified Sharing Formula (Provinces 26%;

Cities 23%; Municipalities 35%; Barangays 16%);
P1.5 billion projects (LAAP) approved by the OCD.[25]

For 2001

P3 billion Modified Sharing Formula (Provinces 25%;

Cities 25%; Municipalities 35%; Barangays 15%)
P1.9 billion priority projects
P100 million capability building fund.[26]
Significantly, the LGSEF could not be released to the LGUs without the Oversight Committees prior
approval. Further, with respect to the portion of the LGSEF allocated for various projects of the LGUs ( P1
billion for 1999; P1.5 billion for 2000 and P2 billion for 2001), the Oversight Committee, through the
assailed OCD resolutions, laid down guidelines and mechanisms that the LGUs had to comply with before
they could avail of funds from this portion of the LGSEF. The guidelines required (a) the LGUs to identify
the projects eligible for funding based on the criteria laid down by the Oversight Committee; (b) the LGUs
to submit their project proposals to the DILG for appraisal; (c) the project proposals that passed the
appraisal of the DILG to be submitted to the Oversight Committee for review, evaluation and approval. It
was only upon approval thereof that the Oversight Committee would direct the DBM to release the funds
for the projects.
To the Courts mind, the entire process involving the distribution and release of the LGSEF is
constitutionally impermissible. The LGSEF is part of the IRA or just share of the LGUs in the national
taxes. To subject its distribution and release to the vagaries of the implementing rules and regulations,
including the guidelines and mechanisms unilaterally prescribed by the Oversight Committee from time to
time, as sanctioned by the assailed provisos in the GAAs of 1999, 2000 and 2001 and the OCD
resolutions, makes the release not automatic, a flagrant violation of the constitutional and statutory
mandate that the just share of the LGUs shall be automatically released to them. The LGUs are, thus,
placed at the mercy of the Oversight Committee.
Where the law, the Constitution in this case, 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. [27] Moreover,
as correctly posited by the petitioner, 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. [28]
Indeed, the Oversight Committee exercising discretion, even control, over the distribution and
release of a portion of the IRA, the LGSEF, is an anathema to and subversive of the principle of local
autonomy as embodied in the Constitution. Moreover, it finds no statutory basis at all as the Oversight
Committee was created merely to formulate the rules and regulations for the efficient and effective
implementation of the Local Government Code of 1991 to ensure compliance with the principles of local
autonomy as defined under the Constitution. [29] In fact, its creation was placed under the title of Transitory
Provisions, signifying its ad hoc character. According to Senator Aquilino Q. Pimentel, the principal author
and sponsor of the bill that eventually became Rep. Act No. 7160, the Committees work was supposed to
be done a year from the approval of the Code, or on October 10, 1992. [30] The Oversight Committees
authority is undoubtedly limited to the implementation of the Local Government Code of 1991, not to
supplant or subvert the same. Neither can it exercise control over the IRA, or even a portion thereof, of
the LGUs.
That the automatic release of the IRA was precisely intended to guarantee and promote local
autonomy can be gleaned from the discussion below between Messrs. Jose N. Nolledo and Regalado M.
Maambong, then members of the 1986 Constitutional Commission, to wit:

MR. MAAMBONG. Unfortunately, under Section 198 of the Local Government Code, the existence of
subprovinces is still acknowledged by the law, but the statement of the Gentleman on this point will have
to be taken up probably by the Committee on Legislation. A second point, Mr. Presiding Officer, is that
under Article 2, Section 10 of the 1973 Constitution, we have a provision which states:

The State shall guarantee and promote the autonomy of local government units, especially the
barrio, to insure their fullest development as self-reliant communities.

This provision no longer appears in the present configuration; does this mean that the concept
of giving local autonomy to local governments is no longer adopted as far as this Article is
concerned?

MR. NOLLEDO. No. In the report of the Committee on Preamble, National Territory, and Declaration of
Principles, that concept is included and widened upon the initiative of Commissioner Bennagen.

MR. MAAMBONG. Thank you for that.

With regard to Section 6, sources of revenue, the creation of sources as provided by previous law was
subject to limitations as may be provided by law, but now, we are using the term subject to such
guidelines as may be fixed by law. In Section 7, mention is made about the unique, distinct and exclusive
charges and contributions, and in Section 8, we talk about exclusivity of local taxes and the share in the
national wealth. Incidentally, I was one of the authors of this provision, and I am very thankful. Does this
indicate local autonomy, or was the wording of the law changed to give more autonomy to the local
government units?[31]

MR. NOLLEDO. Yes. In effect, those words indicate also decentralization because local political units can
collect taxes, fees and charges subject merely to guidelines, as recommended by the league of governors
and city mayors, with whom I had a dialogue for almost two hours. They told me that limitations may be
questionable in the sense that Congress may limit and in effect deny the right later on.

MR. MAAMBONG. Also, this provision on automatic release of national tax share points to more local
autonomy. Is this the intention?

MR. NOLLEDO. Yes, the Commissioner is perfectly right.[32]

The concept of local autonomy was explained in Ganzon v. Court of Appeals[33] in this wise:

As the Constitution itself declares, local autonomy means a more responsive and accountable local
government structure instituted through a system of decentralization. The Constitution, as we observed,
does nothing more than to break up the monopoly of the national government over the affairs of local
governments and as put by political adherents, to liberate the local governments from the imperialism of
Manila. Autonomy, however, is not meant to end the relation of partnership and interdependence between
the central administration and local government units, or otherwise, to usher in a regime of
federalism. The Charter has not taken such a radical step. Local governments, under the Constitution, are
subject to regulation, however limited, and for no other purpose than precisely, albeit paradoxically, to
enhance self-government.

As we observed in one case, decentralization means devolution of national administration but not power
to the local levels. Thus:

Now, autonomy is either decentralization of administration or decentralization of power. There is

decentralization of administration when the central government delegates administrative powers to
political subdivisions in order to broaden the base of government power and in the process to make local
governments more responsive and accountable and ensure their fullest development as self-reliant
communities and make them more effective partners in the pursuit of national development and social
progress. At the same time, it relieves the central government of the burden of managing local affairs and
enables it to concentrate on national concerns. The President exercises general supervision over them,
but only to ensure that local affairs are administered according to law. He has no control over their acts in
the sense that he can substitute their judgments with his own.

Decentralization of power, on the other hand, involves an abdication of political power in the [sic] favor of
local governments [sic] units declared to be autonomous. In that case, the autonomous government is
free to chart its own destiny and shape its future with minimum intervention from central
authorities. According to a constitutional author, decentralization of power amounts to self-immolation,
since in that event, the autonomous government becomes accountable not to the central authorities but to
its constituency.[34]
Local autonomy includes both administrative and fiscal autonomy. The fairly recent case of Pimentel
v. Aguirre[35] is particularly instructive. The Court declared therein that local fiscal autonomy includes the
power of the LGUs to, inter alia, allocate their resources in accordance with their own priorities:

Under existing law, local government units, in addition to having administrative autonomy in the exercise
of their functions, enjoy fiscal autonomy as well. Fiscal autonomy means that local governments have the
power to create their own sources of revenue in addition to their equitable share in the national taxes
released by the national government, as well as the power to allocate their resources in accordance with
their own priorities. It extends to the preparation of their budgets, and local officials in turn have to work
within the constraints thereof. They are not formulated at the national level and imposed on local
governments, whether they are relevant to local needs and resources or not ... [36]
Further, a basic feature of local fiscal autonomy is the constitutionally mandated automatic release of
the shares of LGUs in the national internal revenue. [37]
Following this ratiocination, the Court in Pimentel struck down as unconstitutional Section 4 of
Administrative Order (A.O.) No. 372 which ordered the withholding, effective January 1, 1998, of ten
percent of the LGUs IRA pending the assessment and evaluation by the Development Budget
Coordinating Committee of the emerging fiscal situation.
In like manner, the assailed provisos in the GAAs of 1999, 2000 and 2001, and the OCD resolutions
constitute a withholding of a portion of the IRA. They put on hold the distribution and release of the five
billion pesos LGSEF and subject the same to the implementing rules and regulations, including the
guidelines and mechanisms prescribed by the Oversight Committee from time to time. Like Section 4 of
A.O. 372, the assailed provisos in the GAAs of 1999, 2000 and 2001 and the OCD resolutions effectively
encroach on the fiscal autonomy enjoyed by the LGUs and must be struck down. They cannot, therefore,
be upheld.

The assailed provisos in the GAAs of 1999, 2000

and 2001 and the OCD resolutions cannot amend
Section 285 of the Local Government Code of 1991
Section 284[38] of the Local Government Code provides that, beginning the third year of its effectivity,
the LGUs share in the national internal revenue taxes shall be 40%. This percentage is fixed and may not
be reduced except in the event the national government incurs an unmanageable public sector deficit"
and only upon compliance with stringent requirements set forth in the same section:

Sec. 284. ...

Provided, That in the event that the national government incurs an unmanageable public sector deficit,
the President of the Philippines is hereby authorized, upon recommendation of Secretary of Finance,
Secretary of Interior and Local Government and Secretary of Budget and Management, and subject to
consultation with the presiding officers of both Houses of Congress and the presidents of the liga, to make
the necessary adjustments in the internal revenue allotment of local government units but in no case shall
the allotment be less than thirty percent (30%) of the collection of the national internal revenue taxes of
the third fiscal year preceding the current fiscal year; Provided, further That in the first year of the
effectivity of this Code, the local government units shall, in addition to the thirty percent (30%) internal
revenue allotment which shall include the cost of devolved functions for essential public services, be
entitled to receive the amount equivalent to the cost of devolved personnel services.
Thus, from the above provision, the only possible exception to the mandatory automatic release of
the LGUs IRA is if the national internal revenue collections for the current fiscal year is less than 40
percent of the collections of the preceding third fiscal year, in which case what should be automatically
released shall be a proportionate amount of the collections for the current fiscal year. The adjustment may
even be made on a quarterly basis depending on the actual collections of national internal revenue taxes
for the quarter of the current fiscal year. In the instant case, however, there is no allegation that the
national internal revenue tax collections for the fiscal years 1999, 2000 and 2001 have fallen compared to
the preceding three fiscal years.
Section 285 then specifies how the IRA shall be allocated among the LGUs:

Sec. 285. Allocation to Local Government Units. The share of local government units in the internal
revenue allotment shall be allocated in the following manner:
(a) Provinces Twenty-three (23%)
(b) Cities Twenty-three percent (23%);
(c) Municipalities Thirty-four (34%); and
(d) Barangays Twenty percent (20%).
However, this percentage sharing is not followed with respect to the five billion pesos LGSEF as the
assailed OCD resolutions, implementing the assailed provisos in the GAAs of 1999, 2000 and 2001,
provided for a different sharing scheme. For example, for 1999, P2 billion of the LGSEF was allocated as
follows: Provinces 40%; Cities 20%; Municipalities 40%. [39] For 2000, P3.5 billion of the LGSEF was
allocated in this manner: Provinces 26%; Cities 23%; Municipalities 35%; Barangays 26%. [40] For
2001, P3 billion of the LGSEF was allocated, thus: Provinces 25%; Cities 25%; Municipalities 35%;
Barangays 15%.[41]
The respondents argue that this modification is allowed since the Constitution does not specify that
the just share of the LGUs shall only be determined by the Local Government Code of 1991. That it is
within the power of Congress to enact other laws, including the GAAs, to increase or decrease the just
share of the LGUs. This contention is untenable. The Local Government Code of 1991 is a substantive
law. And while it is conceded that Congress may amend any of the provisions therein, it may not do so
through appropriations laws or GAAs. Any amendment to the Local Government Code of 1991 should be
done in a separate law, not in the appropriations law, because Congress cannot include in a general
appropriation bill matters that should be more properly enacted in a separate legislation. [42]
A general appropriations bill is a special type of legislation, whose content is limited to specified
sums of money dedicated to a specific purpose or a separate fiscal unit. [43] Any provision therein which is
intended to amend another law is considered an inappropriate provision. The category of inappropriate
provisions includes unconstitutional provisions and provisions which are intended to amend other laws,
because clearly these kinds of laws have no place in an appropriations bill. [44]
Increasing or decreasing the IRA of the LGUs or modifying their percentage sharing therein, which
are fixed in the Local Government Code of 1991, are matters of general and substantive law. To permit
Congress to undertake these amendments through the GAAs, as the respondents contend, would be to
give Congress the unbridled authority to unduly infringe the fiscal autonomy of the LGUs, and thus put the
same in jeopardy every year. This, the Court cannot sanction.
It is relevant to point out at this juncture that, unlike those of 1999, 2000 and 2001, the GAAs of 2002
and 2003 do not contain provisos similar to the herein assailed provisos. In other words, the GAAs of
2002 and 2003 have not earmarked any amount of the IRA for the LGSEF. Congress had perhaps seen fit
to discontinue the practice as it recognizes its infirmity.Nonetheless, as earlier mentioned, this Court has
deemed it necessary to make a definitive ruling on the matter in order to prevent its recurrence in future
appropriations laws and that the principles enunciated herein would serve to guide the bench, bar and
public.

Conclusion
In closing, it is well to note that the principle of local autonomy, while concededly expounded in
greater detail in the present Constitution, dates back to the turn of the century when President William
McKinley, in his Instructions to the Second Philippine Commission dated April 7, 1900, ordered the new
Government to devote their attention in the first instance to the establishment of municipal governments in
which the natives of the Islands, both in the cities and in the rural communities, shall be afforded the
opportunity to manage their own affairs to the fullest extent of which they are capable, and subject to the
least degree of supervision and control in which a careful study of their capacities and observation of the
workings of native control show to be consistent with the maintenance of law, order and loyalty. [45] While
the 1935 Constitution had no specific article on local autonomy, nonetheless, it limited the executive
power over local governments to general supervision ... as may be provided by law. [46] Subsequently, the
1973 Constitution explicitly stated that [t]he State shall guarantee and promote the autonomy of local
government units, especially the barangay to ensure their fullest development as self-reliant communities.
[47]
An entire article on Local Government was incorporated therein. The present Constitution, as earlier
opined, has broadened the principle of local autonomy. The 14 sections in Article X thereof markedly
increased the powers of the local governments in order to accomplish the goal of a more meaningful local
autonomy.
Indeed, the value of local governments as institutions of democracy is measured by the degree of
autonomy that they enjoy.[48] As eloquently put by M. De Tocqueville, a distinguished French political
writer, [l]ocal assemblies of citizens constitute the strength of free nations. Township meetings are to
liberty what primary schools are to science; they bring it within the peoples reach; they teach men how to
use and enjoy it. A nation may establish a system of free governments but without the spirit of municipal
institutions, it cannot have the spirit of liberty.[49]
Our national officials should not only comply with the constitutional provisions on local autonomy but
should also appreciate the spirit and liberty upon which these provisions are based. [50]
WHEREFORE, the petition is GRANTED. The assailed provisos in the General Appropriations Acts
of 1999, 2000 and 2001, and the assailed OCD Resolutions, are declared UNCONSTITUTIONAL.
SO ORDERED.
LEPANTO CONSOLIDATED G.R. No. 180639
MINING COMPANY,
Petitioner, Present:
CARPIO, J., Chairperson,
- versus - NACHURA,
PERALTA,
ABAD, and
MENDOZA, JJ.
HON. MAURICIO B. AMBANLOC,
in his capacity as the Provincial Promulgated:
Treasurer of Benguet,
Respondent. June 29, 2010

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

DECISION

ABAD, J.:

This case is about the liability of a mining corporation for taxes imposed by a province for the

extraction of sand and gravel from areas covered by its mining lease with the national government and

used exclusively in its mining operations.

The Facts and the Case

The national government issued to petitioner Lepanto Consolidated Mining Company (Lepanto) a

mining lease contract covering, among others, its TIKEM leased mining claim at Sitio Nayak, Barrio

Palasan (Suyoc), Municipality of Mankayan, Benguet. The contract granted Lepanto the right to extract

and use for its purposes all mineral deposits within the boundary lines of its mining claim. Upon inquiry,

the Mines and Geo-sciences Bureau of the Department of Environment and Natural Resources (DENR)

advised Lepanto that, under its contract, it did not have to get a permit to extract and use sand and gravel

from within the mining claim for its operational and infrastructure needs. Based on this advice, Lepanto

proceeded to extract and remove sand, gravel, and other earth materials from the mining site.

Lepanto used the quarried materials to back-fill stopesportions of the earth excavated as a result

of miningreplacing what had been mined to maintain the integrity of the ground. It also used sand and

gravel to construct and maintain concrete structures needed in its mining operation, such as a tailings
dam, access roads, and offices. Its use of quarry resources, readily available within its mining claim, was

more practical and cheaper than having to outsource them.

Respondent Mauricio Ambanloc, the provincial treasurer of Benguet, sent a demand letter to

Lepanto, asking it to pay the province P1,901,893.22 as sand and gravel tax, for the quarry materials that

it extracted from its mining site from 1997 to 2000. Lepanto sent a letter-protest to the provincial treasurer,

but the latter denied the same, insisting on payment.

Lepanto filed a petition with the Regional Trial Court (RTC) of Benguet to question the

assessment.[1] The RTC ruled that Lepanto was liable for the amount assessed, with interest at the rate of

2 percent per month from the time the tax should have been paid. Lepanto appealed the RTC decision to

the Court of Tax Appeals (CTA) where it was raffled to its Second Division. [2] The Second Division affirmed

the ruling of the RTC with the modification that the interest of 2 percent per month shall not exceed 36

months.[3]

Lepanto appealed the decision of the Second Division to the CTA En Banc.[4] Three justices of the

CTA voted to affirm the decision but three justices dissented. Because the needed vote of four members

could not be obtained, the En Banc dismissed the appeal, resulting in the affirmance of the decision of the

Second Division. Lepantos motion for reconsideration met the same fate, hence, this appeal.

The Issue Presented

The sole issue presented in this case is whether or not Lepanto is liable for the tax imposed by

the Province of Benguet on the sand and gravel that it extracted from within the area of its mining claim

and used exclusively in its mining operations.

The Courts Rulings

One. Lepanto claims that the tax on sand and gravel applied only to commercial extractions. In its

case, it extracted these materials for use solely in its mining operations.Lepanto did not supply other
users for some profit. Thus, its extractions were not commercial and should not be subject to provincial

tax.

The CTAs Second Division held, however, that sand and gravel taxes may be imposed even on

non-commercial extractions. Since Section 138 of the Local Government Code (Republic Act 7160)

authorized provinces to impose a tax on the extraction of sand and gravel from public lands, without

distinguishing between personal and commercial uses, then the tax should be deemed to cover

extractions for both purposes. The provision reads:

Sec. 138. Tax on Sand, Gravel and Other Quarry Resources. The province
may levy and collect not more than ten percent (10%) fair market value in the
locality per cubic meter of ordinary stones, sand gravel, earth, and other quarry
resources, as defined under the National Internal Revenue Code, as amended,
extracted from public lands or from the beds of seas, lakes, rivers, streams,
creeks, and other public waters within its territorial jurisdiction.

But the CTA Second Division ruling overlooks the fact that Republic Act 7160 is not the provincial

governments basis for taxing Lepantos extraction. It is but the general law that delegates to provinces the

power to impose taxes on the extraction of quarry resources. As it happens, the scope and validity of

such delegation is not the issue in this case. The question of Lepantos liability for tax should be

determined based on the revenue measure itself, which in this case, was the Revised Benguet Revenue

Code (the revenue code).[5] The relevant provisions of this provincial revenue code reads:

Article D. Tax on Sand, Gravel and Other Quarry Resources.

xxxx

SECTION 3. Imposition of Tax. There shall be levied a tax of ten (10) percent
of fair market value in the locality per cubic meter of ordinary stones, sand, gravel,
earth, and other quarry resources, x x x applied for and expected to be extracted or
removed from public lands x x x within the territorial jurisdiction of Benguet
Province.

This provision may not apply in case of gratuitous permits for government
projects within Benguet Province.

SECTION 4. Conditions for the Issuance of Permit.

xxxx
 (g) The permittee shall within ten (10) days after the end of each month
submit to the Provincial Treasurer, the Municipal Treasurer and Barangay
Treasurer where the materials are extracted, copies of sworn statement stating the
quantity in terms of cubic meter and kind of materials extracted or removed by
him; the amount of tax or fees paid; the quantity and kind of materials sold or
disposed of during the period covered by said report; the selling price per cubic
meter; the names and addresses of the buyers; and the quantity and kind of
materials left in stock.

xxxx

SECTION 5. Mode, Time and Place of Payment. The tax shall be paid to the
Provincial Treasurer or his duly authorized representative before the approval by
the Provincial Governor of the permit to extract or remove the materials applied for
and before the said materials are extracted or removed. x x x

SECTION 6. Surcharges and Interests. Failure to pay the tax as provided

herein shall subject the permittee to a surcharge of Twenty-five (25%) percent of
the original amount of tax due plus Two (2%) percent per month of the unpaid
amount including the surcharges until such amount is fully paid, but in no case
shall the total amount or portion thereof exceed thirty-six (36) months. x x x

Lepanto insists that the subject tax intended to cover only commercial extractions since the

provincial revenue code referred to fair market value of the resources, quantity sold or disposed, amount

left in stock, selling price, and buyers information.

Not necessarily. The provincial revenue code provides that the subject tax had to be paid prior to

the issuance of the permit to extract sand and gravel. Its Article D, Section 2, enumerates four kinds of

permits: commercial, industrial, special, and gratuitous. Special permits covered only personal use of the

extracted materials and did not allow the permitees to sell materials coming from his concession. [6] Among

applicants for permits, however, only gratuitous permits were exempt from the sand and gravel tax. It

follows that persons who applied for special permits needed to pay the tax, even though they did not

extract materials for commercial purposes. Thus, the tax needed to be paid regardless of the applicability

of the administrative and reportorial requirements of that revenue code.

Two. Lepanto claims that the tax can only be levied against extractions by persons or entities

required to apply for permits to remove quarry resources. Since the mining lease contract with the

national government granted it the right to extract and utilize all mineral deposits from within its mining
claim, Lepanto claims that it did not need to apply for a separate permit from the local

government. Paragraph 9 of its Mining Lease Contract provides that:

This Lease hereby grants unto the LESSEE, his successors or assigns, the
right to extract and utilize for their own benefit all mineral deposits within the
boundary lines of the mining claim/s covered by this Lease continued vertically
downward.

But this merely declares that Lepantos extraction and use of mineral deposits bears the consent

of the national government, in line with the principle that exploration of natural resources can only be

done under the control and supervision of the State. The contract makes no mention of any exemption

from securing government permits.

Lepanto invokes the Bureau of Mines and Geo-Sciences view that the mining company did not

require it to get any of the permits that Mines Administrative Order MRD-27 might require. [7] But that

Bureaus view applied only to permits under MRD-27. The Bureau has no authority to determine the

applicability of local ordinances. Besides, even the Bureau itself states that the exemption from MRD-27

is not absolute as it shall not apply if the sand and gravel were to be disposed of commercially. An

exemption from the requirements of the provincial government should have a clear basis, whether in law,

ordinance, or even from the contract itself. Unfortunately for Lepanto, it failed to show its entitlement to

such exemption.

Three. Lepanto relies on the principle that when a company is taxed on its main business, it is no

longer taxable for engaging in an activity that is but a part of, incidental to, and necessary to such main

business. Lepanto points out that, since it did not extract and use sand and gravel as independent

activities but as integral parts of its mining operations, it should not be subjected to a separate tax on the

same.

But in the cases where this principle has been applied, the taxes which were stricken down were

in the nature of business taxes. The reasoning behind those cases was that the incidental activity could

not be treated as a business separate and distinct from the main business of the taxpayer. Here the tax is
an excise tax imposed on the privilege of extracting sand and gravel. And it is settled that provincial

governments can levy excise taxes on quarry resources independently from the national government. [8]

WHEREFORE, the Court DENIES the petition and AFFIRMS the decision of the Court of Tax

Appeals En Banc in CTA EB 201 dated May 17, 2007.

SO ORDERED.
LUZ R. YAMANE, in her G.R. No. 154993
capacity as the CITY
TREASURER OF MAKATI Present:
CITY,
Petitioner, PUNO, J.,
Chairman,
AUSTRIA-MARTINEZ,
CALLEJO, SR.,
- versus - TINGA, and
CHICO-NAZARIO, JJ.
BA LEPANTO CONDOMINUM Promulgated:
CORPORATION,
Respondent. October 25, 2005

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

DECISION

TINGA, J.:

Petitioner City Treasurer of Makati, Luz Yamane (City Treasurer), presents for resolution of this

Court two novel questions: one procedural, the other substantive, yet both of obvious significance. The

first pertains to the proper mode of judicial review undertaken from decisions of the regional trial courts

resolving the denial of tax protests made by local government treasurers, pursuant to the Local

Government Code. The second is whether a local government unit can, under the Local Government

Code, impel a condominium corporation to pay business taxes. [1]

While we agree with the City Treasurers position on the first issue, there ultimately is sufficient

justification for the Court to overlook what is essentially a procedural error. We uphold respondents on the

second issue. Indeed, there are disturbing aspects in both procedure and substance that attend the

attempts by the City of Makati to flex its taxing muscle. Considering that the tax imposition now in

question has utterly no basis in law, judicial relief is imperative. There are fewer indisputable causes for
the exercise of judicial review over the exercise of the taxing power than when the tax is based on whim,

and not on law.

The facts, as culled from the record, follow.

Respondent BA-Lepanto Condominium Corporation (the Corporation) is a duly organized condominium

corporation constituted in accordance with the Condominium Act, [2] which owns and holds title to the

common and limited common areas of the BA-Lepanto Condominium (the Condominium), situated in

Paseo de Roxas, Makati City. Its membership comprises the various unit owners of the Condominium.

The Corporation is authorized, under Article V of its Amended By-Laws, to collect regular assessments

from its members for operating expenses, capital expenditures on the common areas, and other special

assessments as provided for in the Master Deed with Declaration of Restrictions of the Condominium.

On 15 December 1998, the Corporation received a Notice of Assessment dated 14 December 1998

signed by the City Treasurer. The Notice of Assessment stated that the Corporation is liable to pay the

correct city business taxes, fees and charges, computed as totaling P1,601,013.77 for the years 1995 to

1997.[3] The Notice of Assessment was silent as to the statutory basis of the business taxes assessed.

Through counsel, the Corporation responded with a written tax protest dated 12 February 1999,

addressed to the City Treasurer. It was evident in the protest that the Corporation was perplexed on the

statutory basis of the tax assessment.

With due respect, we submit that the Assessment has no basis as the Corporation
is not liable for business taxes and surcharges and interest thereon, under the Makati
[Revenue] Code or even under the [Local Government] Code.

The Makati [Revenue] Code and the [Local Government] Code do not contain any
provisions on which the Assessment could be based. One might argue that Sec. 3A.02(m)
of the Makati [Revenue] Code imposes business tax on owners or operators of any
business not specified in the said code. We submit, however, that this is not applicable to
 the Corporation as the Corporation is not an owner or operator of any business in the
contemplation of the Makati [Revenue] Code and even the [Local Government] Code. [4]

Proceeding from the premise that its tax liability arose from Section 3A.02(m) of the Makati

Revenue Code, the Corporation proceeded to argue that under both the Makati Code and the Local

Government Code, business is defined as trade or commercial activity regularly engaged in as a means

of livelihood or with a view to profit. It was submitted that the Corporation, as a condominium corporation,

was organized not for profit, but to hold title over the common areas of the Condominium, to manage the

Condominium for the unit owners, and to hold title to the parcels of land on which the Condominium was

located. Neither was the Corporation authorized, under its articles of incorporation or by-laws to engage in

profit-making activities. The assessments it did collect from the unit owners were for capital expenditures

and operating expenses.[5]

The protest was rejected by the City Treasurer in a letter dated 4 March 1999. She insisted that

the collection of dues from the unit owners was effected primarily to sustain and maintain the expenses of

the common areas, with the end in view [sic] of getting full appreciative living values [sic] for the individual

condominium occupants and to command better marketable [sic] prices for those occupants who would in

the future sell their respective units. [6] Thus, she concluded since the chances of getting higher prices for

well-managed common areas of any condominium are better and more effective that condominiums with

poor [sic] managed common areas, the corporation activity is a profit venture making [sic]. [7]

From the denial of the protest, the Corporation filed an Appeal with the Regional Trial Court (RTC) of

Makati.[8] On 1 March 2000, the Makati RTC Branch 57 rendered a Decision[9] dismissing the appeal for
lack of merit. Accepting the premise laid by the City Treasurer, the RTC acknowledged, in sadly risible

language:

Herein appellant, to defray the improvements and beautification of the common areas, collect
[sic] assessments from its members. Its end view is to get appreciate living rules for the unit
owners [sic], to give an impression to outsides [sic] of the quality of service the condominium
offers, so as to allow present owners to command better prices in the event of sale. [10]

With this, the RTC concluded that the activities of the Corporation fell squarely under the definition of

business under Section 13(b) of the Local Government Code, and thus subject to local business taxation.

[11]

From this Decision of the RTC, the Corporation filed a Petition for Review under Rule 42 of the Rules of

Civil Procedure with the Court of Appeals. Initially, the petition was dismissed outright [12] on the ground that

only decisions of the RTC brought on appeal from a first level court could be elevated for review under the

mode of review prescribed under Rule 42. [13] However, the Corporation pointed out in its Motion for

Reconsiderationthat under Section 195 of the Local Government Code, the remedy of the taxpayer on the

denial of the protest filed with the local treasurer is to appeal the denial with the court of competent

jurisdiction.[14] Persuaded by this contention, the Court of Appeals reinstated the petition. [15]

On 7 June 2002, the Court of Appeals Special Sixteenth Division rendered the Decision[16] now

assailed before this Court. The appellate court reversed the RTC and declared that the Corporation was

not liable to pay business taxes to the City of Makati. [17] In doing so, the Court of Appeals delved into

jurisprudential definitions of profit, [18] and concluded that the Corporation was not engaged in profit. For

one, it was held that the very statutory concept of a condominium corporation showed that it was not a
juridical entity intended to make profit, as its sole purpose was to hold title to the common areas in the

condominium and to maintain the condominium.[19]

The Court of Appeals likewise cited provisions from the Corporations Amended Articles of

Incorporation and Amended By-Laws that, to its estimation, established that the Corporation was not

engaged in business and the assessment collected from unit owners limited to those necessary to defray

the expenses in the maintenance of the common areas and management the condominium. [20]

Upon denial of her Motion for Reconsideration,[21] the City Treasurer elevated the present Petition

for Review under Rule 45. It is argued that the Corporation is engaged in business, for the dues collected

from the different unit owners is utilized towards the beautification and maintenance of the Condominium,

resulting in full appreciative living values for the condominium units which would command better market

prices should they be sold in the future. The City Treasurer likewise avers that the rationale for business

taxes is not on the income received or profit earned by the business, but the privilege to engage in

business. The fact that the

Corporation is empowered to acquire, own, hold, enjoy, lease, operate and maintain, and to convey sell,

transfer or otherwise dispose of real or personal property allegedly qualifies as incident to the fact of [the

Corporations] act of engaging in business.[22]

The City Treasurer also claims that the Corporation had filed the wrong mode of appeal before the

Court of Appeals when the latter filed its Petition for Review under Rule 42. It is reasoned that the decision

of the Makati RTC was rendered in the exercise of original jurisdiction, it being the first court which took
cognizance of the case. Accordingly, with the Corporation having pursued an erroneous mode of appeal,

the RTC Decision is deemed to have become final and executory.

First, we dispose of the procedural issue, which essentially boils down to whether the RTC, in

deciding an appeal taken from a denial of a protest by a local treasurer under Section 195 of the Local

Government Code, exercises original jurisdiction or appellate jurisdiction. The question assumes a

measure of importance to this petition, for the adoption of the position of the City Treasurer that the mode

of review of the decision taken by the RTC is governed by Rule 41 of the Rules of Civil Procedure means

that the decision of the RTC would have long become final and executory by reason of the failure of the

Corporation to file a notice of appeal.[23]

There are discernible conflicting views on the issue. The first, as expressed by the Court of

Appeals, holds that the RTC, in reviewing denials of protests by local treasurers, exercises appellate

jurisdiction. This position is anchored on the language of Section 195 of the Local Government Code

which states that the remedy of the taxpayer whose protest is denied by the local treasurer is to

appeal with the court of competent jurisdiction. [24] Apparently though, the Local Government Code does

not elaborate on how such appeal should be undertaken.

The other view, as maintained by the City Treasurer, is that the jurisdiction exercised by the RTC

is original in character. This is the first time that the position has been presented to the court for

adjudication. Still, this argument does find jurisprudential mooring in our ruling in Garcia v. De Jesus,

[25]
where the Court proffered the following distinction between original jurisdiction and appellate

jurisdiction: Original jurisdiction is the power of the Court to take judicial cognizance of a case instituted for

judicial action for the first time under conditions provided by law. Appellate jurisdiction is the authority of a
Court higher in rank to re-examine the final order or judgment of a lower Court which tried the case now

elevated for judicial review.[26]

The quoted definitions were taken from the commentaries of the esteemed Justice Florenz

Regalado. With the definitions as beacon, the review taken by the RTC over the denial of the protest by

the local treasurer would fall within that courts original jurisdiction. In short, the review is the initial judicial

cognizance of the matter. Moreover, labeling the said review as an exercise of appellate jurisdiction is

inappropriate, since the denial of the protest is not the judgment or order of a lower court, but of a local

government official.

The stringent concept of original jurisdiction may seemingly be neutered by Rule 43 of the 1997

Rules of Civil Procedure, Section 1 of which lists a slew of administrative agencies and quasi-judicial

tribunals or their officers whose decisions may be reviewed by the Court of Appeals in the exercise of its

appellate jurisdiction. However, the basic law of jurisdiction, Batas Pambansa Blg. 129 (B.P. 129),

[27]
ineluctably confers appellate jurisdiction on the Court of Appeals over final rulings of quasi-judicial

agencies, instrumentalities, boards or commission, by explicitly using the phrase appellate jurisdiction.

[28]
The power to create or characterize jurisdiction of courts belongs to the legislature. While the traditional

notion of appellate jurisdiction connotes judicial review over lower court decisions, it has to yield to

statutory redefinitions that clearly expand its breadth to encompass even review of decisions of officers in

the executive branches of government.

Yet significantly, the Local Government Code, or any other statute for that matter, does not

expressly confer appellate jurisdiction on the part of regional trial courts from the denial of a tax protest by

a local treasurer. On the other hand, Section 22 of B.P. 129 expressly delineates the appellate jurisdiction

of the Regional Trial Courts, confining as it does said appellate jurisdiction to cases decided by
Metropolitan, Municipal, and Municipal Circuit Trial Courts. Unlike in the case of the Court of Appeals, B.P.

129 does not confer appellate jurisdiction on Regional Trial Courts over rulings made by non-judicial

entities.

From these premises, it is evident that the stance of the City Treasurer is correct as a matter of

law, and that the proper remedy of the Corporation from the RTC judgment is an ordinary appeal under

Rule 41 to the Court of Appeals. However, we make this pronouncement subject to two important

qualifications. First, in this particular case there are nonetheless significant reasons for the Court to

overlook the procedural error and ultimately uphold the adjudication of the jurisdiction exercised by the

Court of Appeals in this case. Second, the doctrinal weight of the pronouncement is confined to cases and

controversies that emerged prior to the enactment of Republic Act No. 9282, the law which expanded the

jurisdiction of the Court of Tax Appeals (CTA).

Republic Act No. 9282 definitively proves in its Section 7(a)(3) that the CTA exercises exclusive

appellate jurisdiction to review on appeal decisions, orders or resolutions of the Regional Trial Courts in

local tax cases original decided or resolved by them in the exercise of their originally or appellate

jurisdiction. Moreover, the provision also states that the review is triggered by filing a petition for review

under a procedure analogous to that provided for under Rule 42 of the 1997 Rules of Civil Procedure. [29]

Republic Act No. 9282, however, would not apply to this case simply because it arose prior to the

effectivity of that law. To declare otherwise would be to institute a jurisdictional rule derived not from

express statutory grant, but from implication. The jurisdiction of a court to take cognizance of a case

should be clearly conferred and should not be deemed to exist on mere implications, [30] and this settled

rule would be needlessly emasculated should we declare that the Corporations position is correct in law.
 Be that as it may, characteristic of all procedural rules is adherence to the precept that they should

not be enforced blindly, especially if mechanical application would defeat the higher ends that animates

our civil procedurethe just, speedy and inexpensive disposition of every action and proceeding. [31] Indeed,

we have repeatedly upheldand utilized ourselvesthe discretion of courts to nonetheless take cognizance of

petitions raised on an erroneous mode of appeal and instead treat these petitions in the manner as they

should have appropriately been filed.[32] The Court of Appeals could very well have treated the

Corporations petition for review as an ordinary appeal.

Moreover, we recognize that the Corporations error in elevating the RTC decision for review via

Rule 42 actually worked to the benefit of the City Treasurer. There is wider latitude on the part of the Court

of Appeals to refuse cognizance over a petition for review under Rule 42 than it would have over an

ordinary appeal under Rule 41. Under Section 13, Rule 41, the stated grounds for the dismissal of an

ordinary appeal prior to the transmission of the case records are when the appeal was taken out of time or

when the docket fees were not paid. [33] On the other hand, Section 6, Rule 42 provides that in order that

the Court of Appeals may allow due course to the petition for review, it must first make a prima

facie finding that the lower court has committed an error that would warrant the reversal or modification of

the decision under review.[34] There is no similar requirement of a prima facie determination of error in the

case of ordinary appeal, which is perfected upon the filing of the notice of appeal in due time. [35]

Evidently, by employing the Rule 42 mode of review, the Corporation faced a greater risk of having

its petition rejected by the Court of Appeals as compared to having filed an ordinary appeal under Rule 41.

This was not an error that worked to the prejudice of the City Treasurer.

We now proceed to the substantive issue, on whether the City of Makati may collect business

taxes on condominium corporations.

We begin with an overview of the power of a local government unit to impose business taxes.

The power of local government units to impose taxes within its territorial jurisdiction derives from the

Constitution itself, which recognizes the power of these units to create its own sources of revenue and to

levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide,

consistent with the basic policy of local autonomy.[36] These guidelines and limitations as provided by

Congress are in main contained in the Local Government Code of 1991 (the Code), which provides for

comprehensive instances when and how local government units may impose taxes. The significant

limitations are enumerated primarily in Section 133 of the Code, which include among others, a prohibition

on the imposition of income taxes except when levied on banks and other financial institutions. [37] None of

the other general limitations under Section 133 find application to the case at bar.

The most well-known mode of local government taxation is perhaps the real property tax, which is

governed by Title II, Book II of the Code, and which bears no application in this case. A different set of

provisions, found under Title I of Book II, governs other taxes imposable by local government units,

including business taxes. Under Section 151 of the Code, cities such as Makati are authorized to levy the

same taxes fees and charges as provinces and municipalities. It is in Article II, Title II, Book II of the Code,

governing municipal taxes, where the provisions on business taxation relevant to this petition may be

found.[38]
Section 143 of the Code specifically enumerates several types of business on which municipalities and

cities may impose taxes. These include manufacturers, wholesalers, distributors, dealers of any article of

commerce of whatever nature; those engaged in the export or commerce of essential commodities;

contractors and other independent contractors; banks and financial institutions; and peddlers engaged in

the sale of any merchandise or article of commerce. Moreover, the local sanggunian is also authorized to

impose taxes on any other businesses not otherwise specified under Section 143 which

the sanggunian concerned may deem proper to tax.

The coverage of business taxation particular to the City of Makati is provided by the Makati

Revenue Code (Revenue Code), enacted through Municipal Ordinance No. 92-072. The Revenue Code

remains in effect as of this

writing. Article A, Chapter III of the Revenue Code governs business taxes in Makati, and it is quite

specific as to the particular businesses which are covered by business taxes. To give a sample of the

specified businesses under the Revenue Code which are not enumerated under the Local Government

Code, we cite Section 3A.02(f) of the Code, which levies a gross receipt tax :

(f) On contractors and other independent contractors defined in Sec. 3A.01(q) of

Chapter III of this Code, and on owners or operators of business establishments
rendering or offering services such as: advertising agencies; animal hospitals; assaying
laboratories; belt and buckle shops; blacksmith shops; bookbinders; booking officers
for film exchange; booking offices for transportation on commission basis; breeding of
game cocks and other sporting animals belonging to others; business management
services; collecting agencies; escort services; feasibility studies; consultancy services;
garages; garbage disposal contractors; gold and silversmith shops; inspection services
for incoming and outgoing cargoes; interior decorating services; janitorial services; job
placement or recruitment agencies; landscaping contractors; lathe machine shops;
management consultants not subject to professional tax; medical and dental
laboratories; mercantile agencies; messsengerial services; operators of shoe shine
stands; painting shops; perma press establishments; rent-a-plant services; polo
players; school for and/or horse-back riding academy; real estate appraisers; real
estate brokerages; photostatic, white/blue printing, Xerox, typing, and mimeographing
services; rental of bicycles and/or tricycles, furniture, shoes, watches, household
appliances, boats, typewriters, etc.; roasting of pigs, fowls, etc.; shipping agencies;
shipyard for repairing ships for others; shops for shearing animals; silkscreen or T-shirt
printing shops; stables; travel agencies; vaciador shops; veterinary clinics; video
 rentals and/or coverage services; dancing schools/speed reading/EDP; nursery,
vocational and other schools not regulated by the Department of Education, Culture
and Sports, (DECS), day care centers; etc.[39]

Other provisions of the Revenue Code likewise subject hotel and restaurant owners and

operators[40], real estate dealers, and lessors of real estate[41] to business taxes.

Should the comprehensive listing not prove encompassing enough, there is also a catch-all

provision similar to that under the Local Government Code. This is found in Section 3A.02(m) of the

Revenue Code, which provides:

(m) On owners or operators of any business not specified above shall pay the tax at
the rate of two percent (2%) for 1993, two and one-half percent (2 %) for 1994 and 1995, and
three percent (3%) for 1996 and the years thereafter of the gross receipts during the
preceding year.[42]

The initial inquiry is what provision of the Makati Revenue Code does the City Treasurer rely on to

make the Corporation liable for business taxes. Even at this point, there already stands a problem with the

City Treasurers cause of action.

Our careful examination of the record reveals a highly disconcerting fact. At no point has the City

Treasurer been candid enough to inform the Corporation, the RTC, the Court of Appeals, or this Court for

that matter, as to what exactly is the precise statutory basis under the Makati Revenue Code for the

levying of the business tax on petitioner. We have examined all of the pleadings submitted by the City

Treasurer in all the antecedent judicial proceedings, as well as in this present petition, and also the

communications by the City Treasurer to the Corporation which form part of the record. Nowhere therein is

there any citation made by the City Treasurer of any provision of the Revenue Code which would serve as

the legal authority for the collection of business taxes from condominiums in Makati.
 Ostensibly, the notice of assessment, which stands as the first instance the taxpayer is officially

made aware of the pending tax liability, should be sufficiently informative to apprise the taxpayer the legal

basis of the tax. Section 195 of the Local Government Code does not go as far as to expressly require that

the notice of assessment specifically cite the provision of the ordinance involved but it does require that it

state the nature of the tax, fee or charge, the amount of deficiency, surcharges, interests and penalties. In

this case, the notice of assessment sent to the Corporation did state that the assessment was for business

taxes, as well as the amount of the assessment. There may have been prima facie compliance with the

requirement under Section 195. However in this case, the Revenue Code provides multiple provisions on

business taxes, and at varying rates. Hence, we could appreciate the Corporations confusion, as

expressed in its protest, as to the exact legal basis for the tax. [43]Reference to the local tax ordinance is

vital, for the power of local government units to impose local taxes is exercised through the appropriate

ordinance enacted by the sanggunian, and not by the Local Government Code alone. [44] What determines

tax liability is the tax ordinance, the Local Government Code being the enabling law for the local legislative

body.

Moreover, a careful examination of the Revenue Code shows that while Section 3A.02(m) seems

designed as a catch-all provision, Section 3A.02(f), which provides for a different tax rate from that of the

former provision, may be construed to be of similar import. While Section 3A.02(f) is quite exhaustive in

enumerating the class of businesses taxed under the provision, the listing, while it does not include

condominium-related enterprises, ends with the abbreviation etc., or et cetera.

We do note our discomfort with the unlimited breadth and the dangerous uncertainty which are the

twin hallmarks of the words et cetera. Certainly, we cannot be disposed to uphold any tax imposition that

derives its authority from enigmatic and uncertain words such as et cetera. Yet we cannot even say with
definiteness whether the tax imposed on the Corporation in this case is based on et cetera, or on Section

3A.02(m), or on any other provision of the Revenue Code. Assuming that the assessment made on the

Corporation is on a provision other than Section 3A.02(m), the main legal issue takes on a different

complexion. For example, if it is based on et cetera under Section 3A.02(f), we would have to examine

whether the Corporation faces analogous comparison with the other businesses listed under that

provision.

Certainly, the City Treasurer has not been helpful in that regard, as she has been silent all through

out as to the exact basis for the tax imposition which she wishes that this Court uphold. Indeed, there is

only one thing that prevents this Court from ruling that there has been a due process violation on account

of the City Treasurers failure to disclose on paper the statutory basis of the taxthat the Corporation itself

does not allege injury arising from such failure on the part of the City Treasurer.

We do not know why the Corporation chose not to put this issue into litigation, though we can

ultimately presume that no injury was sustained because the City Treasurer failed to cite the specific

statutory basis of the tax. What is essential though is that the local treasurer be required to explain to the

taxpayer with sufficient particularity the basis of the tax, so as to leave no doubt in the mind of the

taxpayer as to the specific tax involved.

In this case, the Corporation seems confident enough in litigating despite the failure of the City

Treasurer to admit on what exact provision of the Revenue Code the tax liability ensued. This is perhaps

because the Corporation has anchored its central argument on the position that the Local Government

Code itself does not sanction the imposition of business taxes against it. This position was sustained by

the Court of Appeals, and now merits our analysis.

 As stated earlier, local tax on businesses is authorized under Section 143 of the Local

Government Code. The word business itself is defined under Section 131(d) of the Code as trade or

commercial activity regularly engaged in as a means of livelihood or with a view to profit. [45] This definition

of business takes on importance, since Section 143 allows local government units to impose local taxes

on businesses other than those specified under the provision. Moreover, even those business activities

specifically named in Section 143 are themselves susceptible to broad interpretation. For example,

Section 143(b) authorizes the imposition of business taxes on wholesalers, distributors, or dealers in any

article of commerce of whatever kind or nature.

It is thus imperative that in order that the Corporation may be subjected to business taxes, its

activities must fall within the definition of business as provided in the Local Government Code. And to hold

that they do is to ignore the very statutory nature of a condominium corporation.

The creation of the condominium corporation is sanctioned by Republic Act No. 4726, otherwise

known as the Condominium Act. Under the law, a condominium is an interest in real property consisting of

a separate interest in a unit in a residential, industrial or commercial building and an undivided interest in

common, directly or indirectly, in the land on which it is located and in other common areas of the building.

[46]
To enable the orderly administration over these common areas which are jointly owned by the various

unit owners, the Condominium Act permits the creation of a condominium corporation, which is specially

formed for the purpose of holding title to the common area, in which the holders of separate interests shall

automatically be members or shareholders, to the exclusion of others, in proportion to the appurtenant

interest of their respective

units.[47] The necessity of a condominium corporation has not gained widespread acceptance [48], and even

is merely permissible under the Condominium Act. [49] Nonetheless, the condominium corporation has been

resorted to by many condominium projects, such as the Corporation in this case.

 In line with the authority of the condominium corporation to manage the condominium project, it

may be authorized, in the deed of restrictions, to make reasonable assessments to meet authorized

expenditures, each condominium unit to be assessed separately for its share of such expenses in

proportion (unless otherwise provided) to its owners fractional interest in any common areas. [50] It is the

collection of these assessments from unit owners that form the basis of the City Treasurers claim that the

Corporation is doing business.

The Condominium Act imposes several limitations on the condominium corporation that prove

crucial to the disposition of this case. Under Section 10 of the law, the

corporate purposes of a condominium corporation are limited to the holding of the common areas, either in

ownership or any other interest in real property recognized by law; to the management of the project; and

to such other purposes as may be necessary, incidental or convenient to the accomplishment of such

purpose.[51] Further, the same provision prohibits the articles of incorporation or by-laws of the

condominium corporation from containing any provisions which are contrary to the provisions of the

Condominium Act, the enabling or master deed, or the declaration of restrictions of the condominium

project.[52]

We can elicit from the Condominium Act that a condominium corporation is precluded by statute

from engaging in corporate activities other than the holding of the common areas, the administration of the

condominium project, and other acts necessary, incidental or convenient to the accomplishment of such

purposes. Neither the maintenance of livelihood, nor the procurement of profit, fall within the scope of

permissible corporate purposes of a condominium corporation under the Condominium Act.

The Court has examined the particular Articles of Incorporation and By-Laws of the Corporation,

and these documents unmistakably hew to the limitations contained in the Condominium Act. Per the

Articles of Incorporation, the Corporations corporate purposes are limited to: (a) owning and holding title to
the common and limited common areas in the Condominium Project; (b) adopting such necessary

measures for the protection and safeguard of the unit owners and their property, including the power to

contract for security services and for insurance coverage on the entire project; (c) making and adopting

needful rules and regulations concerning the use, enjoyment and occupancy of the units and common

areas, including the power to fix penalties and assessments for violation of such rules; (d) to provide for

the maintenance, repair, sanitation, and cleanliness of the common and limited common areas; (e) to

provide and contract for public utilities and other services to the common areas; (f) to contract for the

services of persons or firms to assist in the management and operation of the Condominium Project; (g) to

discharge any lien or encumbrances upon the Condominium Project; (h) to enforce the terms contained in

the Master Deed with Declaration of Restrictions of the Project; (i) to levy and

collect those assessments as provided in the Master Deed, in order to defray the costs, expenses and

losses of the condominium; (j) to acquire, own, hold, enjoy, lease operate and maintain, and to convey, sell

transfer, mortgage or otherwise dispose of real or personal property in connection with the purposes and

activities of the corporation; and (k) to exercise and perform such other powers reasonably necessary,

incidental or convenient to accomplish the foregoing purposes. [53]

Obviously, none of these stated corporate purposes are geared towards maintaining a livelihood

or the obtention of profit. Even though the Corporation is empowered to levy assessments or dues from

the unit owners, these amounts collected are not intended for the incurrence of profit by the Corporation or

its members, but to shoulder the multitude of necessary expenses that arise from the maintenance of the

Condominium Project. Just as much is confirmed by Section 1, Article V of the Amended By-Laws, which

enumerate the particular expenses to be defrayed by the regular assessments collected from the unit

owners. These would include the salaries of the employees of the Corporation, and the cost of

maintenance and ordinary repairs of the common areas. [54]

 The City Treasurer nonetheless contends that the collection of these assessments and dues are

with the end view of getting full appreciative living values for the condominium units, and as a result, profit

is obtained once these units are sold at higher prices. The Court cites with approval the two counterpoints

raised by the Court of Appeals in rejecting this contention. First, if any profit is obtained by the sale of the

units, it accrues not to the corporation but to the unit owner. Second, if the unit owner does obtain profit

from the sale of the corporation, the owner is already required to pay capital gains tax on the appreciated

value of the condominium unit.[55]

Moreover, the logic on this point of the City Treasurer is baffling. By this rationale, every Makati

City car owner may be considered as being engaged in business, since the repairs or improvements on

the car may be deemed oriented towards appreciating the value of the car upon resale. There is an

evident distinction between persons who spend on repairs and improvements on their personal and real

property for the purpose of increasing its resale value, and those who defray such expenses for the

purpose of preserving the property. The vast majority of persons fall under the second category, and it

would be highly specious to subject these persons to local business taxes. The profit motive in such cases

is hardly the driving factor behind such improvements, if it were contemplated at all. Any profit that would

be derived under such circumstances would merely be incidental, if not accidental.

Besides, we shudder at the thought of upholding tax liability on the basis of the standard of full

appreciative living values, a phrase that defies statutory explication, commonsensical meaning, the

English language, or even definition from Google. The exercise of the power of taxation constitutes a

deprivation of property under the

due process clause,[56] and the taxpayers right to due process is violated when arbitrary or oppressive

methods are used in assessing and collecting taxes. [57] The fact that the Corporation did not fall within the

enumerated classes of taxable businesses under either the Local Government Code or the Makati

Revenue Code already forewarns that a clear demonstration is essential on the part of the City Treasurer

on why the Corporation should be taxed anyway. Full appreciative living values is nothing but blather in

search of meaning, and to impose a tax hinged on that standard is both arbitrary and oppressive.

The City Treasurer also contends that the fact that the Corporation is engaged in business is

evinced by the Articles of Incorporation, which specifically empowers the Corporation to acquire, own,

hold, enjoy, lease, operate and maintain, and to convey, sell, transfer mortgage or otherwise dispose of

real or personal property.[58] What the City Treasurer fails to add is that every corporation

organized under the Corporation Code [59] is so specifically empowered. Section 36(7) of the Corporation

Code states that every corporation incorporated under the Code has the power and capacity to purchase,

receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real and

personal property . . . as the transaction of the lawful business of the corporation may reasonably and

necessarily require . . . .[60] Without this power, corporations, as juridical persons, would be deprived of the

capacity to engage in most meaningful legal relations.

Again, whatever capacity the Corporation may have pursuant to its power to exercise acts of

ownership over personal and real property is limited by its stated corporate purposes, which are by
themselves further limited by the Condominium Act. A condominium corporation, while enjoying such

powers of ownership, is prohibited by law from transacting its properties for the purpose of gainful profit.

Accordingly, and with a significant degree of comfort, we hold that condominium corporations are

generally exempt from local business taxation under the Local Government Code, irrespective of any local

ordinance that seeks to declare otherwise.

Still, we can note a possible exception to the rule. It is not unthinkable that the unit owners of a

condominium would band together to engage in activities for profit under the shelter of the condominium

corporation.[61] Such activity would be prohibited under the Condominium Act, but if the fact is established,

we see no reason why the condominium corporation may be made liable by the local government unit for

business taxes. Even though such activities would be considered as ultra vires, since they are engaged in

beyond the legal capacity of the condominium corporation [62], the principle of estoppel would preclude the

corporation or its officers and members from invoking the void nature of its undertakings for profit as a

means of acquitting itself of tax liability.

Still, the City Treasurer has not posited the claim that the Corporation is engaged in business

activities beyond the statutory purposes of a condominium corporation. The assessment appears to be

based solely on the Corporations collection of assessments from unit owners, such assessments being

utilized to defray the necessary expenses for the Condominium Project and the common areas. There is

no contemplation of business, no orientation towards profit in this case. Hence, the assailed tax

assessment has no basis under the Local Government Code or the Makati Revenue Code, and the

insistence of the city in its collection of the void tax constitutes an attempt at deprivation of property

without due process of law.

WHEREFORE, the petition is DENIED. No costs.SO ORDERED.

G.R. No. L-31156 February 27, 1976

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

vs.
MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET AL., defendant appellees.

Sabido, Sabido & Associates for appellant.

Provincial Fiscal Zoila M. Redona & Assistant Provincial Fiscal Bonifacio R Matol and Assistant Solicitor
General Conrado T. Limcaoco & Solicitor Enrique M. Reyes for appellees.

MARTIN, J.:

This is an appeal from the decision of the Court of First Instance of Leyte in its Civil Case No. 3294, which
was certified to Us by the Court of Appeals on October 6, 1969, as involving only pure questions of law,
challenging the power of taxation delegated to municipalities under the Local Autonomy Act (Republic Act
No. 2264, as amended, June 19, 1959).

On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company of the Philippines, Inc.,
commenced a complaint with preliminary injunction before the Court of First Instance of Leyte for that
court to declare Section 2 of Republic Act No. 2264. 1 otherwise known as the Local Autonomy Act,
unconstitutional as an undue delegation of taxing authority as well as to declare Ordinances Nos. 23 and
27, series of 1962, of the municipality of Tanauan, Leyte, null and void.

On July 23, 1963, the parties entered into a Stipulation of Facts, the material portions of which state
that, first, both Ordinances Nos. 23 and 27 embrace or cover the same subject matter and the production
tax rates imposed therein are practically the same, and second, that on January 17, 1963, the acting
Municipal Treasurer of Tanauan, Leyte, as per his letter addressed to the Manager of the Pepsi-Cola
Bottling Plant in said municipality, sought to enforce compliance by the latter of the provisions of said
Ordinance No. 27, series of 1962.

Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on September 25, 1962, levies and
collects "from soft drinks producers and manufacturers a tai of one-sixteenth (1/16) of a centavo for every
bottle of soft drink corked." 2 For the purpose of computing the taxes due, the person, firm, company or
corporation producing soft drinks shall submit to the Municipal Treasurer a monthly report, of the total
number of bottles produced and corked during the month. 3

On the other hand, Municipal Ordinance No. 27, which was approved on October 28, 1962, levies and
collects "on soft drinks produced or manufactured within the territorial jurisdiction of this municipality a tax
of ONE CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity." 4 For the purpose
of computing the taxes due, the person, fun company, partnership, corporation or plant producing soft
drinks shall submit to the Municipal Treasurer a monthly report of the total number of gallons produced or
manufactured during the month. 5

The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal production tax.'
On October 7, 1963, the Court of First Instance of Leyte rendered judgment "dismissing the complaint
and upholding the constitutionality of [Section 2, Republic Act No. 2264] declaring Ordinance Nos. 23 and
27 legal and constitutional; ordering the plaintiff to pay the taxes due under the oft the said Ordinances;
and to pay the costs."

From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to the Court of Appeals, which, in
turn, elevated the case to Us pursuant to Section 31 of the Judiciary Act of 1948, as amended.

There are three capital questions raised in this appeal:

1. Is Section 2, Republic Act No. 2264 an undue delegation of power, confiscatory and
oppressive?

2. Do Ordinances Nos. 23 and 27 constitute double taxation and impose percentage

or specific taxes?

3. Are Ordinances Nos. 23 and 27 unjust and unfair?

1. The power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter of
right to every independent government, without being expressly conferred by the people. 6 It is a power
that is purely legislative and which the central legislative body cannot delegate either to the executive or
judicial department of the government without infringing upon the theory of separation of powers. The
exception, however, lies in the case of municipal corporations, to which, said theory does not apply.
Legislative powers may be delegated to local governments in respect of matters of local concern. 7 This is
sanctioned by immemorial practice. 8 By necessary implication, the legislative power to create political
corporations for purposes of local self-government carries with it the power to confer on such local
governmental agencies the power to tax. 9 Under the New Constitution, local governments are granted
the autonomous authority to create their own sources of revenue and to levy taxes. Section 5, Article XI
provides: "Each local government unit shall have the power to create its sources of revenue and to levy
taxes, subject to such limitations as may be provided by law." Withal, it cannot be said that Section 2 of
Republic Act No. 2264 emanated from beyond the sphere of the legislative power to enact and vest in
local governments the power of local taxation.

The plenary nature of the taxing power thus delegated, contrary to plaintiff-appellant's pretense, would not
suffice to invalidate the said law as confiscatory and oppressive. In delegating the authority, the State is
not limited 6 the exact measure of that which is exercised by itself. When it is said that the taxing power
may be delegated to municipalities and the like, it is meant that there may be delegated such measure of
power to impose and collect taxes as the legislature may deem expedient. Thus, municipalities may be
permitted to tax subjects which for reasons of public policy the State has not deemed wise to tax for more
general purposes. 10 This is not to say though that the constitutional injunction against deprivation of
property without due process of law may be passed over under the guise of the taxing power, except
when the taking of the property is in the lawful exercise of the taxing power, as when (1) the tax is for a
public purpose; (2) the rule on uniformity of taxation is observed; (3) either the person or property taxed is
within the jurisdiction of the government levying the tax; and (4) in the assessment and collection of
certain kinds of taxes notice and opportunity for hearing are provided. 11 Due process is usually violated
where the tax imposed is for a private as distinguished from a public purpose; a tax is imposed on
property outside the State, i.e., extraterritorial taxation; and arbitrary or oppressive methods are used in
assessing and collecting taxes. But, a tax does not violate the due process clause, as applied to a
particular taxpayer, although the purpose of the tax will result in an injury rather than a benefit to such
taxpayer. Due process does not require that the property subject to the tax or the amount of tax to be
raised should be determined by judicial inquiry, and a notice and hearing as to the amount of the tax and
the manner in which it shall be apportioned are generally not necessary to due process of law. 12

There is no validity to the assertion that the delegated authority can be declared unconstitutional on the
theory of double taxation. It must be observed that the delegating authority specifies the limitations and
enumerates the taxes over which local taxation may not be exercised. 13 The reason is that the State has
exclusively reserved the same for its own prerogative. Moreover, double taxation, in general, is not
forbidden by our fundamental law, since We have not adopted as part thereof the injunction against
double taxation found in the Constitution of the United States and some states of the Union. 14 Double
taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit of the same
governmental entity 15 or by the same jurisdiction for the same purpose, 16 but not in a case where one tax
is imposed by the State and the other by the city or municipality. 17

2. The plaintiff-appellant submits that Ordinance No. 23 and 27 constitute double taxation, because these
two ordinances cover the same subject matter and impose practically the same tax rate. The thesis
proceeds from its assumption that both ordinances are valid and legally enforceable. This is not so. As
earlier quoted, Ordinance No. 23, which was approved on September 25, 1962, levies or collects from
soft drinks producers or manufacturers a tax of one-sixteen (1/16) of a centavo for .every bottle corked,
irrespective of the volume contents of the bottle used. When it was discovered that the producer or
manufacturer could increase the volume contents of the bottle and still pay the same tax rate, the
Municipality of Tanauan enacted Ordinance No. 27, approved on October 28, 1962, imposing a tax of one
centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The difference between the
two ordinances clearly lies in the tax rate of the soft drinks produced: in Ordinance No. 23, it was 1/16 of a
centavo for every bottle corked; in Ordinance No. 27, it is one centavo (P0.01) on each gallon (128 fluid
ounces, U.S.) of volume capacity. The intention of the Municipal Council of Tanauan in enacting
Ordinance No. 27 is thus clear: it was intended as a plain substitute for the prior Ordinance No. 23, and
operates as a repeal of the latter, even without words to that effect. 18 Plaintiff-appellant in its brief
admitted that defendants-appellees are only seeking to enforce Ordinance No. 27, series of 1962. Even
the stipulation of facts confirms the fact that the Acting Municipal Treasurer of Tanauan, Leyte sought t6
compel compliance by the plaintiff-appellant of the provisions of said Ordinance No. 27, series of 1962.
The aforementioned admission shows that only Ordinance No. 27, series of 1962 is being enforced by
defendants-appellees. Even the Provincial Fiscal, counsel for defendants-appellees admits in his brief
"that Section 7 of Ordinance No. 27, series of 1962 clearly repeals Ordinance No. 23 as the provisions of
the latter are inconsistent with the provisions of the former."

That brings Us to the question of whether the remaining Ordinance No. 27 imposes a percentage or a
specific tax. Undoubtedly, the taxing authority conferred on local governments under Section 2, Republic
Act No. 2264, is broad enough as to extend to almost "everything, accepting those which are mentioned
therein." As long as the text levied under the authority of a city or municipal ordinance is not within the
exceptions and limitations in the law, the same comes within the ambit of the general rule, pursuant to the
rules of exclucion attehus and exceptio firmat regulum in cabisus non excepti 19 The limitation applies,
particularly, to the prohibition against municipalities and municipal districts to impose "any percentage tax
or other taxes in any form based thereon nor impose taxes on articles subject to specific tax except
gasoline, under the provisions of the National Internal Revenue Code." For purposes of this particular
limitation, a municipal ordinance which prescribes a set ratio between the amount of the tax and the
volume of sale of the taxpayer imposes a sales tax and is null and void for being outside the power of the
municipality to enact. 20But, the imposition of "a tax of one centavo (P0.01) on each gallon (128 fluid
ounces, U.S.) of volume capacity" on all soft drinks produced or manufactured under Ordinance No. 27
does not partake of the nature of a percentage tax on sales, or other taxes in any form based thereon.
The tax is levied on the produce (whether sold or not) and not on the sales. The volume capacity of the
taxpayer's production of soft drinks is considered solely for purposes of determining the tax rate on the
products, but there is not set ratio between the volume of sales and the amount of the tax. 21

Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed on specified articles,
such as distilled spirits, wines, fermented liquors, products of tobacco other than cigars and cigarettes,
matches firecrackers, manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel oil,
cinematographic films, playing cards, saccharine, opium and other habit-forming drugs. 22 Soft drink is not
one of those specified.

3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on all softdrinks,
produced or manufactured, or an equivalent of 1- centavos per case, 23 cannot be considered unjust
and unfair. 24 an increase in the tax alone would not support the claim that the tax is oppressive, unjust
and confiscatory. Municipal corporations are allowed much discretion in determining the reates of
imposable taxes. 25 This is in line with the constutional policy of according the widest possible autonomy
to local governments in matters of local taxation, an aspect that is given expression in the Local Tax Code
(PD No. 231, July 1, 1973). 26 Unless the amount is so excessive as to be prohibitive, courts will go slow
in writing off an ordinance as unreasonable. 27 Reluctance should not deter compliance with an
ordinance such as Ordinance No. 27 if the purpose of the law to further strengthen local autonomy were
to be realized. 28

Finally, the municipal license tax of P1,000.00 per corking machine with five but not more than ten
crowners or P2,000.00 with ten but not more than twenty crowners imposed on manufacturers, producers,
importers and dealers of soft drinks and/or mineral waters under Ordinance No. 54, series of 1964, as
amended by Ordinance No. 41, series of 1968, of defendant Municipality, 29 appears not to affect the
resolution of the validity of Ordinance No. 27. Municipalities are empowered to impose, not only municipal
license taxes upon persons engaged in any business or occupation but also to levy for public purposes,
just and uniform taxes. The ordinance in question (Ordinance No. 27) comes within the second power of a
municipality.

ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264, otherwise known as the Local
Autonomy Act, as amended, is hereby upheld and Municipal Ordinance No. 27 of the Municipality of
Tanauan, Leyte, series of 1962, re-pealing Municipal Ordinance No. 23, same series, is hereby declared
of valid and legal effect. Costs against petitioner-appellant.

SO ORDERED.
 [G.R. No. 131359. May 5, 1999]

MANILA ELECTRIC COMPANY, petitioner vs. PROVINCE OF LAGUNA and BENITO R. BALAZO, in
his capacity as Provincial Treasurer of Laguna, respondents.

DECISION

VITUG, J.:

On various dates, certain municipalities of the Province of Laguna including, Bian, Sta Rosa, San
Pedro, Luisiana, Calauan and Cabuyao, by virtue of existing laws then in effect, issued resolutions
through their respective municipal councils granting franchise in favor of petitioner Manila Electric
Company (MERALCO) for the supply of electric light, heat and power within their concerned areas. On 19
January 1983, MERALCO was likewise granted a franchise by the National Electrification Administration
to operate an electric light and power service in the Municipality of Calamba, Laguna.

On 12 September 1991, Republic Act No. 7160, otherwise known as the Local Government Code of
1991, was enacted to take effect on 01 January 1992 enjoining local government units to create their own
sources of revenue and to levy taxes, fees and charges, subject to the limitations expressed therein,
consistent with the basic policy of local autonomy. Pursuant to the provisions of the Code, respondent
province enacted Laguna Provincial Ordinance No. 01-92, effective 01 January 1993, providing, in part,
as follows:

Sec. 2.09. Franchise Tax. There is hereby imposed a tax on businesses enjoying a franchise, at a rate of
fifty percent (50%) of one percent (1%) of the gross annual receipts, which shall include both cash sales
and sales on account realized during the preceding calendar year within this province, including the
territorial limits on any city located in the province[1]

On the basis of the above ordinance, respondent Provincial Treasurer sent a demand letter to
MERALCO for the corresponding tax payment. Petitioner MERALCO paid the tax, which then amounted
to P19,520,628.42, under protest. A formal claim for refund was thereafter sent by MERALCO to the
Provincial Treasurer of Laguna claiming that the franchise tax it had paid and continued to pay to the
National Government pursuant to P.D. 551 already included the franchise tax imposed by the Provincial
Tax Ordinance. MERALCO contended that the imposition of a franchise tax under Section 2.09 of Laguna
Provincial Ordinance No. 01-92, insofar as it concerned MERALCO, contravened the provisions of
Section 1 of P.D. 551 which read:

Any provision of law or local ordinance to the contrary notwithstanding, the franchise tax payable by all
grantees of franchises to generate, distribute and sell electric current for light, heat and power shall be
two per cent (2%) of their gross receipts received from the sale of electric current and from transactions
incident to the generation, distribution and sale of electric current.

Such franchise tax shall be payable to the Commissioner of Internal Revenue or his duly authorized
representative on or before the twentieth day of the month following the end of each calendar quarter or
month, as may be provided in the respective franchise or pertinent municipal regulation and shall, any
provision of the Local Tax Code or any other law to the contrary notwithstanding, be in lieu of all taxes and
assessments of whatever nature imposed by any national or local authority on earnings, receipts, income
and privilege of generation, distribution and sale of electric current.

On 28 August 1995, the claim for refund of petitioner was denied in a letter signed by Governor Jose
D. Lina. In denying the claim, respondents relied on a more recent law, i.e., Republic Act No. 7160 or the
Local Government Code of 1991, than the old decree invoked by petitioner.

On 14 February 1996, petitioner MERALCO filed with the Regional Trial Court of Sta Cruz, Laguna, a
complaint for refund, with a prayer for the issuance of a writ of preliminary injunction and/or temporary
restraining order, against the Province of Laguna and also Benito R. Balazo in his capacity as the
Provincial Treasurer of Laguna. Aside from the amount of P19,520,628.42 for which petitioner MERALCO
had priority made a formal request for refund, petitioner thereafter likewise made additional payments
under protest on various dates totaling P27,669,566.91.

The trial court, in its assailed decision of 30 September 1997, dismissed the complaint and
concluded:

WHEREFORE, IN THE LIGHT OF ALL THE FOREGOING CONSIDERATIONS, JUDGMENT is hereby

rendered in favor of the defendants and against the plaintiff, by:

1. Ordering the dismissal of the Complaint; and

2. Declaring Laguna Provincial Tax Ordinance No. 01-92 as valid, binding, reasonable and enforceable. [2]

In the instant petition, MERALCO assails the above ruling and brings up the following issues; viz:

1. Whether the imposition of a franchise tax under Section 2.09 of Laguna Provincial Ordinance No. 01-
92, insofar as petitioner is concerned, is violative of the non-impairment clause of the Constitution and
Section 1 of Presidential Decree No. 551.

2. Whether Republic Act. No. 7160, otherwise known as the Local Government Code of 1991, has
repealed, amended or modified Presidential Decree No. 551.
3. Whether the doctrine of exhaustion of administrative remedies is applicable in this case. [3]

The petition lacks merit.

Prefatorily, it might be well to recall that local governments do not have the inherent power to
[4]
tax except to the extent that such power might be delegated to them either by the basic law or by
statute.Presently, under Article X of the 1987 Constitution, a general delegation of that power has been
given in favor of local government units. Thus:

Sec. 3. The Congress shall enact a local government code which shall provide for a more responsive and
accountable local government structure instituted through a system of decentralization with effective
mechanisms of recall, initiative, and referendum, allocate among the different local government units their
powers, responsibilities, and resources, and provide for the qualifications, election, appointment and
removal, term, salaries, powers and functions, and duties of local officials, and all other matters relating to
the organization and operation of the local units.

xxxxxxxxx

Sec. 5. Each local government shall have the power to create its own sources of revenues and to levy
taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide,
consistent with the basic policy of local autonomy. Such taxes, fees and charges shall accrue exclusively
to the local governments.

The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a
similar delegation of revenue making powers to local governments. [5]

Under the regime of the 1935 Constitution no similar delegation of tax powers was provided, and
local government units instead derived their tax powers under a limited statutory authority. Whereas, then,
the delegation of tax powers granted at that time by statute to local governments was confined and
defined (outside of which the power was deemed withheld), the present constitutional rule (starting with
the 1973 Constitution), however, would broadly confer such tax powers subject only to specific exceptions
that the law might prescribe.

Under the now prevailing Constitution, where there is neither a grant nor a prohibition by statute,
the tax power must be deemed to exist although Congress may provide statutory limitations and
guidelines. The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local
government units by directly granting them general and broad tax powers. Nevertheless, the fundamental
law did not intend the delegation to be absolute and unconditional; the constitutional objective obviously is
to ensure that, while the local government units are being strengthened and made more autonomous,
[6]
the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple
and unreasonable impositions; (b) each local government unit will have its fair share of available
resources; (c) the resources of the national government will not be unduly disturbed; and (d) local taxation
will be fair, uniform, and just.

The Local Government Code of 1991 has incorporated and adopted, by and large the provisions of
the now repealed Local Tax Code, which had been in effect since 01 July 1973, promulgated into law by
Presidential Decree No. 231[7] pursuant to the then provisions of Section 2, Article XI, of the 1973
Constitution. The 1991 Code explicitly authorizes provincial governments, notwithstanding any exemption
granted by any law or other special law, x x x (to) impose a tax on businesses enjoying a
franchise. Section 137 thereof provides:

Sec. 137. Franchise Tax Notwithstanding any exemption granted by any law or other special law, the
province may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty percent
(50%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the
incoming receipt, or realized, within its territorial jurisdiction. In the case of a newly started business, the
tax shall not exceed one-twentieth (1/20) of one percent (1%) of the capital investment. In the succeeding
calendar year, regardless of when the business started to operate, the tax shall be based on the gross
receipts for the preceding calendar year, or any fraction thereof, as provided herein. (Underscoring
supplied for emphasis)

Indicative of the legislative intent to carry out the Constitutional mandate of vesting broad tax powers
to local government units, the Local Government Code has effectively withdrawn under Section 193
thereof, tax exemptions or incentives theretofore enjoyed by certain entities. This law states:

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

The Code, in addition, contains a general repealing clause in its Section 534; thus:

Section 534. Repealing Clause. x x x.

(f) All general and special laws, acts, city charters, decrees, executive orders, proclamations and
administrative regulations, or part or parts thereof which are inconsistent with any of the provisions of this
Code are hereby repealed or modified accordingly. (Underscoring supplied for emphasis)[8]

To exemplify, in Mactan Cebu International Airport Authority vs. Marcos,[9] the Court upheld the
withdrawal of the real estate tax exemption previously enjoyed by Mactan Cebu International Airport
Authority. The Court ratiocinated:

x x x These policy considerations are consistent with the State policy to ensure autonomy to local
governments and the objective of the LGC that they enjoy genuine and meaningful local autonomy to
enable them to attain their fullest development as self-reliant communities and make them effective
partners in the attainment of national goals. The power to tax is the most effective instrument to raise
needed revenues to finance and support myriad activities of local government units for the delivery of
basic service essential to the promotion of the general welfare and the enhancement of peace, progress,
and prosperity of the people. It may also be relevant to recall that the original reasons for the withdrawal
of tax exemption privileges granted to government-owned and controlled corporations and all other units
of government were that such privilege resulted in serious tax base erosion and distortions in the tax
treatment of similarly situated enterprises, and there was a need for these entities to share in the
requirements of development, fiscal or otherwise, by paying the taxes and other charges due from them.
[10]
 Petitioner in its complaint before the Regional Trial Court cited the ruling of this Court in Province of
Misamis Oriental vs. Cagayan Electric Power and Light Company, Inc.;[11] thus:

In an earlier case, the phrase shall be in lieu of all taxes and at any time levied, established by, or
collected by any authority found in the franchise of the Visayan Electric Company was held to exempt the
company from payment of the 5% tax on corporate franchise provided in Section 259 of the Internal
Revenue Code (Visayan Electric Co. vs. David, 49 O.G. [No. 4] 1385)

Similarly, we ruled that the provision: shall be in lieu of all taxes of every name and nature in the franchise
of the Manila Railroad (Subsection 12, Section 1, Act No. 1510) exempts the Manila Railroad from
payment of internal revenue tax for its importations of coal and oil under Act No. 2432 and the
Amendatory Acts of the Philippine Legislature (Manila Railroad vs. Rafferty, 40 Phil. 224).

The same phrase found in the franchise of the Philippine Railway Co. (Sec. 13, Act No. 1497) justified the
exemption of the Philippine Railway Company from payment of the tax on its corporate franchise under
Section 259 of the Internal Revenue Code, as amended by R.A. No. 39 (Philippine Railway Co vs.
Collector of Internal Revenue, 91 Phil. 35).

Those magic words, shall be in lieu of all taxes also excused the Cotabato Light and Ice Plant Company
from the payment of the tax imposed by Ordinance No. 7 of the City of Cotabato (Cotabato Light and
Power Co. vs. City of Cotabato, 32 SCRA 231).

So was the exemption upheld in favor of the Carcar Electric and Ice Plant Company when it was required
to pay the corporate franchise tax under Section 259 of the Internal Revenue Code as amended by R.A.
No. 39 (Carcar Electric & Ice Plant vs. Collector of Internal Revenue, 53 O.G. [No. 4] 1068). This Court
pointed out that such exemption is part of the inducement for the acceptance of the franchise and the
rendition of public service by the grantee.[12]

In the recent case of the City Government of San Pablo, etc., et al. vs. Hon. Bienvenido V. Reyes, et
[13]
al., the Court has held that the phrase in lieu of all taxes have to give way to the peremptory language
of the Local Government Code specifically providing for the withdrawal of such exemptions, privileges,
and that upon the effectivity of the Local Government Code all exemptions except only as provided
therein can no longer be invoked by MERALCO to disclaim liability for the local tax. In fine, the Court
has viewed its previous rulings as laying stress more on the legislative intent of the amendatory
law whether the tax exemption privilege is to be withdrawn or not rather than on whether the law
can withdraw, without violating the Constitution, the tax exemption or not.

While the Court has, not too infrequently, referred to tax exemptions contained in special franchises
as being in the nature of contracts and a part of the inducement for carrying on the franchise, these
exemptions, nevertheless, are far from being strictly contractual in nature. Contractual tax exemptions,
in the real sense of the term and where the non-impairment clause of the Constitution can rightly
be invoked, are those agreed to by the taxing authority in contracts, such as those contained in
government bonds or debentures, lawfully entered into by them under enabling laws in which the
government, acting in its private capacity, sheds its cloak of authority and waives its
governmental immunity. Truly, tax exemptions of this kind may not be revoked without impairing the
obligations of contracts.[14] These contractual tax exemptions, however, are not to be confused with tax
exemptions granted under franchises. A franchise partakes the nature of a grant which is beyond the
purview of the non-impairment clause of the Constitution. [15] Indeed, Article XII, Section 11, of the 1987
Constitution, like its precursor provisions in the 1935 and the 1973 Constitutions, is explicit that no
franchise for the operation of a public utility shall be granted except under the condition that such privilege
shall be subject to amendment, alteration or repeal by Congress as and when the common good so
requires.WHEREFORE, the instant petition is hereby DISMISSED. No costs.SO ORDERED.

[G.R. No. 137621. February 6, 2002]

HAGONOY MARKET VENDOR ASSOCIATION, petitioner, vs. MUNICIPALITY OF HAGONOY,

BULACAN, respondent.

DECISION

PUNO, J.:

Laws are of two (2) kinds: substantive and procedural. Substantive laws, insofar as their provisions
are unambiguous, are rigorously applied to resolve legal issues on the merits. In contrast, courts
generally frown upon an uncompromising application of procedural laws so as not to subvert substantial
justice. Nonetheless, it is not totally uncommon for courts to decide cases based on a rigid application of
the so-called technical rules of procedure as these rules exist for the orderly administration of
justice. Interestingly, the case at bar singularly illustrates both instances, i.e., when procedural rules are
unbendingly applied and when their rigid application may be relaxed.

This is a petition for review of the Resolution [1] of the Court of Appeals, dated February 15, 1999,
dismissing the appeal of petitioner Hagonoy Market Vendor Association from the Resolutions of the
Secretary of Justice for being formally deficient.

The facts: On October 1, 1996, the Sangguniang Bayan of Hagonoy, Bulacan, enacted an
ordinance, Kautusan Blg. 28,[2] which increased the stall rentals of the market vendors in Hagonoy. Article
3 provided that it shall take effect upon approval. The subject ordinance was posted from November 4-25,
1996.[3]

In the last week of November, 1997, the petitioners members were personally given copies of the
approved Ordinance and were informed that it shall be enforced in January, 1998. On December 8, 1997,
the petitioners President filed an appeal with the Secretary of Justice assailing the constitutionality of the
tax ordinance. Petitioner claimed it was unaware of the posting of the ordinance.

Respondent opposed the appeal. It contended that the ordinance took effect on October 6, 1996 and
that the ordinance, as approved, was posted as required by law. Hence, it was pointed out that petitioners
appeal, made over a year later, was already time-barred.

The Secretary of Justice dismissed the appeal on the ground that it was filed out of time, i.e., beyond
thirty (30) days from the effectivity of the Ordinance on October 1, 1996, as prescribed under Section 187
of the 1991 Local Government Code. Citing the case of Taada vs. Tuvera,[4] the Secretary of Justice held
that the date of effectivity of the subject ordinance retroacted to the date of its approval in October 1996,
after the required publication or posting has been complied with, pursuant to Section 3 of said ordinance.
[5]
 After its motion for reconsideration was denied, petitioner appealed to the Court of
Appeals. Petitioner did not assail the finding of the Secretary of Justice that their appeal was filed
beyond the reglementary period. Instead, it urged that the Secretary of Justice should have overlooked
this mere technicality and ruled on its petition on the merits. Unfortunately, its petition for review was
dismissed by the Court of Appeals for being formally deficient as it was not accompanied by certified true
copies of the assailed Resolutions of the Secretary of Justice. [6]

Undaunted, the petitioner moved for reconsideration but it was denied. [7]

Hence, this appeal, where petitioner contends that:

THE HONORABLE COURT OF APPEALS, WITH DUE RESPECT, ERRED IN ITS STRICT, RIGID AND
TECHNICAL ADHERENCE TO SECTION 6, RULE 43 OF THE 1997 RULES OF COURT AND THIS, IN
EFFECT, FRUSTRATED THE VALID LEGAL ISSUES RAISED BY THE PETITIONER THAT
ORDINANCE (KAUTUSAN) NO. 28 WAS NOT VALIDLY ENACTED, IS CONTRARY TO LAW AND IS
UNCONSTITUTIONAL, TANTAMOUNT TO AN ILLEGAL EXACTION IF ENFORCED RETROACTIVELY
FROM THE DATE OF ITS APPROVAL ON OCTOBER 1, 1996.

II

THE HONORABLE COURT OF APPEALS, WITH DUE RESPECT, ERRED IN DENYING THE MOTION
FOR RECONSIDERATION NOTWITHSTANDING PETITIONERS EXPLANATION THAT ITS FAILURE
TO SECURE THE CERTIFIED TRUE COPIES OF THE RESOLUTIONS OF THE DEPARTMENT OF
JUSTICE WAS DUE TO THE INTERVENTION OF AN ACT OF GOD TYPHOON LOLENG, AND THAT
THE ACTUAL COPIES RECEIVED BY THE PETITIONER MAY BE CONSIDERED AS SUBSTANTIAL
COMPLIANCE WITH THE RULES.

III

PETITIONER WILL SUFFER IRREPARABLE DAMAGE IF ORDINANCE/KAUTUSAN NO. 28 BE NOT

DECLARED NULL AND VOID AND IS ALLOWED TO BE ENFORCED RETROACTIVELY FROM
OCTOBER 1, 1996, CONTRARY TO THE GENERAL RULE, ARTICLE 4 OF THE CIVIL CODE, THAT NO
LAW SHALL HAVE RETROACTIVE EFFECT.

The first and second assigned errors impugn the dismissal by the Court of Appeals of its petition for
review for petitioners failure to attach certified true copies of the assailed Resolutions of the Secretary of
Justice. The petitioner insists that it had good reasons for its failure to comply with the rule and the Court
of Appeals erred in refusing to accept its explanation.

We agree.

In its Motion for Reconsideration before the Court of Appeals, [8] the petitioner satisfactorily explained
the circumstances relative to its failure to attach to its appeal certified true copies of the assailed
Resolutions of the Secretary of Justice, thus:
x x x (D)uring the preparation of the petition on October 21, 1998, it was raining very hard due to
(t)yphoon Loleng. When the petition was completed, copy was served on the Department of Justice at
about (sic) past 4:00 p.m. of October 21, 1998, with (the) instruction to have the Resolutions of the
Department of Justice be stamped as certified true copies. However, due to bad weather, the person in
charge (at the Department of Justice) was no longer available to certify to (sic) the Resolutions.

The following day, October 22, 1998, was declared a non-working holiday because of (t)yphoon
Loleng. Thus, petitioner was again unable to have the Resolutions of the Department of Justice stamped
certified true copies. In the morning of October 23, 1998, due to time constraint(s), herein counsel served
a copy by personal service on (r)espondents lawyer at (sic) Malolos, Bulacan, despite the flooded roads
and heavy rains. However, as the herein counsel went back to Manila, (official business in) government
offices were suspended in the afternoon and the personnel of the Department of Justice tasked with
issuing or stamping certified true copies of their Resolutions were no longer available.

To avoid being time-barred in the filing of the (p)etition, the same was filed with the Court of Appeals as is.

We find that the Court of Appeals erred in dismissing petitioners appeal on the ground that it
was formally deficient. It is clear from the records that the petitioner exerted due diligence to get the
copies of its appealed Resolutions certified by the Department of Justice, but failed to do so on account of
typhoon Loleng. Under the circumstances, respondent appellate court should have tempered its strict
application of procedural rules in view of the fortuitous event considering that litigation is not a game of
technicalities.[9]

Nonetheless, we hold that the petition should be dismissed as the appeal of the petitioner with the
Secretary of Justice is already time-barred. The applicable law is Section 187 of the 1991 Local
Government Code which provides:

SEC. 187. Procedure for Approval and Effectivity of Tax Ordinances and Revenue Measures;
Mandatory Public Hearings. - The procedure for the approval of local tax ordinances and revenue
measures shall be in accordance with the provisions of this Code: Provided, That public hearings shall be
conducted for the purpose prior to the enactment thereof: Provided, further, That any question on the
constitutionality or legality of tax ordinances or revenue measures may be raised on appeal within
thirty (30) days from the effectivity thereof to the Secretary of Justice who shall render a decision
within sixty (60) days from the receipt of the appeal: Provided, however, That such appeal shall not
have the effect of suspending the effectivity of the ordinance and accrual and payment of the tax,
fee or charge levied therein: Provided, finally, That within thirty (30) days after receipt of the
decision or the lapse of the sixty-day period without the Secretary of Justice acting upon the
appeal, the aggrieved party may file appropriate proceedings.

The aforecited law requires that an appeal of a tax ordinance or revenue measure should be
made to the Secretary of Justice within thirty (30) days from effectivity of the ordinance and even
during its pendency, the effectivity of the assailed ordinance shall not be suspended. In the case at
bar, Municipal Ordinance No. 28 took effect in October 1996. Petitioner filed its appeal only in
December 1997, more than a year after the effectivity of the ordinance in 1996. Clearly, the
Secretary of Justice correctly dismissed it for being time-barred. At this point, it is apropos to state
that the timeframe fixed by law for parties to avail of their legal remedies before competent courts is not a
mere technicality that can be easily brushed aside. The periods stated in Section 187 of the Local
Government Code are mandatory.[10] Ordinance No. 28 is a revenue measure adopted by
the municipality of Hagonoy to fix and collect public market stall rentals. Being its lifeblood, collection of
revenues by the government is of paramount importance. The funds for the operation of its agencies and
provision of basic services to its inhabitants are largely derived from its revenues and collections. Thus, it
is essential that the validity of revenue measures is not left uncertain for a considerable length of
time.[11] Hence, the law provided a time limit for an aggrieved party to assail the legality of revenue
measures and tax ordinances.

In a last ditch effort to justify its failure to file a timely appeal with the Secretary of Justice, the
petitioner contends that its period to appeal should be counted not from the time the ordinance took effect
in 1996 but from the time its members were personally given copies of the approved ordinance in
November 1997. It insists that it was unaware of the approval and effectivity of the subject ordinance in
1996 on two (2) grounds: first, no public hearing was conducted prior to the passage of the ordinance
and, second, the approved ordinance was not posted.

We do not agree.

Petitioners bold assertion that there was no public hearing conducted prior to the passage
of Kautusan Blg. 28 is belied by its own evidence. In petitioners two (2) communications with the
Secretary of Justice,[12] it enumerated the various objections raised by its members before the passage of
the ordinance in several meetings called by the Sanggunian for the purpose. These show beyond doubt
that petitioner was aware of the proposed increase and in fact participated in the public hearings
therefor. The respondent municipality likewise submitted the Minutes and Report of the public hearings
conducted by the Sangguniang Bayans Committee on Appropriations and Market on February 6, July 15
and August 19, all in 1996, for the proposed increase in the stall rentals. [13]

Petitioner cannot gripe that there was practically no public hearing conducted as its objections to the
proposed measure were not considered by the Sangguniang Bayan. To be sure, public hearings are
conducted by legislative bodies to allow interested parties to ventilate their views on a proposed law or
ordinance. These views, however, are not binding on the legislative body and it is not compelled by law to
adopt the same. Sanggunian members are elected by the people to make laws that will promote the
general interest of their constituents.They are mandated to use their discretion and best judgment in
serving the people. Parties who participate in public hearings to give their opinions on a proposed
ordinance should not expect that their views would be patronized by their lawmakers.

On the issue of publication or posting, Section 188 of the Local Government Code provides:

Section 188. Publication of Tax Ordinance and Revenue Measures. Within ten (10) days after their
approval, certified true copies of all provincial, city, and municipal tax ordinances or revenue measures
shall be published in full for three (3) consecutive days in a newspaper of local circulation; Provided,
however, That in provinces, cities and municipalities where there are no newspapers of local
circulation, the same may be posted in at least two (2) conspicuous and publicly accessible
places. (emphasis supplied)

The records is bereft of any evidence to prove petitioners negative allegation that the subject
ordinance was not posted as required by law. In contrast, the respondent Sangguniang Bayan of
the Municipality of Hagonoy, Bulacan, presented evidence which clearly shows that the procedure
for the enactment of the assailed ordinance was complied with.Municipal Ordinance No. 28 was
enacted by the Sangguniang Bayan of Hagonoy on October 1, 1996. Then Acting Municipal Mayor Maria
Garcia Santos approved the Ordinance on October 7, 1996. After its approval, copies of the Ordinance
were given to the Municipal Treasurer on the same day. On November 9, 1996, the Ordinance was
approved by the Sangguniang Panlalawigan. The Ordinance was posted during the period
from November 4 - 25, 1996 in three (3) public places, viz: in front of the municipal building, at the
bulletin board of the Sta. Ana Parish Church and on the front door of the Office of the Market Master in
the public market.[14] Posting was validly made in lieu of publication as there was no newspaper of
local circulation in the municipality of Hagonoy. This fact was known to and admitted by petitioner.
Thus, petitioners ambiguous and unsupported claim that it was only sometime in November 1997 that the
Provincial Board approved Municipal Ordinance No. 28 and so the posting could not have been made in
November 1996[15] was sufficiently disproved by the positive evidence of respondent municipality. Given
the foregoing circumstances, petitioner cannot validly claim lack of knowledge of the approved ordinance.
The filing of its appeal a year after the effectivity of the subject ordinance is fatal to its cause.

Finally, even on the substantive points raised, the petition must fail. Section 6c.04 of the 1993
Municipal Revenue Code and Section 191 of the Local Government Code limiting the percentage of
increase that can be imposed apply to tax rates, not rentals. Neither can it be said that the rates were not
uniformly imposed or that the public markets included in the Ordinance were unreasonably determined or
classified. To be sure, the Ordinance covered the three (3) concrete public markets: the two-
storey Bagong Palengke, the burnt but reconstructed Lumang Palengke and the more recent Lumang
Palengke with wet market. However, the Palengkeng Bagong Munisipyo or Gabaldon was excluded from
the increase in rentals as it is only a makeshift, dilapidated place, with no doors or protection for security,
intended for transient peddlers who used to sell their goods along the sidewalk. [16]

IN VIEW WHEREOF, the petition is DISMISSED for lack of merit. No pronouncement as to costs.

SO ORDERED.