Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 125704 August 28, 1998

PHILEX MINING CORPORATION, petitioner,

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

ROMERO, J.:

Petitioner Philex Mining Corp. assails the decision of the Court of Appeals promulgated on April 8,
1996 in CA-G.R. SP No. 36975 1 affirming the Court of Tax Appeals decision in CTA Case No. 4872
dated March 16, 1995 2 ordering it to pay the amount of P110,677,668.52 as excise tax liability for
the period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from
August 6, 1994 until fully paid pursuant to Sections 248 and 249 of the Tax Code of 1977.

The facts show that on August 5, 1992, the BIR sent a letter to Philex asking it to settle its tax
liabilities for the 2nd, 3rd and 4th quarter of 1991 as well as the 1st and 2nd quarter of 1992 in the
total amount of P123,821.982.52 computed as follows:

PERIOD COVERED BASIC TAX 25% SURCHARGE INTEREST TOTAL EXCISE

TAX DUE

2nd Qtr., 1991 12,911,124.60 3,227,781.15 3,378,116.16 19,517,021.91

3rd Qtr., 1991 14,994,749.21 3,748,687.30 2,978,409.09 21,721,845.60

4th Qtr., 1991 19,406,480.13 4,851,620.03 2,631,837.72 26,889,937.88

47,312,353.94 11,828,088.48 8,988,362.97 68,128,805.39

1st Qtr., 1992 23,341,849.94 5,835,462.49 1,710,669.82 30,887,982.25

2nd Qtr., 1992 19,671,691.76 4,917,922.94 215,580.18 24,805,194.88



43,013,541.70 10,753,385.43 1,926,250.00 55,693,177.13

90,325,895.64 22,581,473.91 10,914,612.97 123,821,982.52 3

========= ========= ========= =========

In a letter dated August 20, 1992, 4 Philex protested the demand for payment of the tax liabilities
stating that it has pending claims for VAT input credit/refund for the taxes it paid for the years 1989
to 1991 in the amount of P119,977,037.02 plus interest. Therefore these claims for tax credit/refund
should be applied against the tax liabilities, citing our ruling in Commissioner of Internal Revenue v.
Itogon-Suyoc Mines, Inc. 5

In reply, the BIR, in a letter dated September 7, 1992, 6 found no merit in Philex's position. Since
these pending claims have not yet been established or determined with certainty, it follows that no
legal compensation can take place. Hence, the BIR reiterated its demand that Philex settle the
amount plus interest within 30 days from the receipt of the letter.

In view of the BIR's denial of the offsetting of Philex's claim for VAT input credit/refund against its
excise tax obligation, Philex raised the issue to the Court of Tax Appeals on November 6, 1992. 7 In
the course of the proceedings, the BIR issued Tax Credit Certificate SN 001795 in the amount of
P13,144,313.88 which, applied to the total tax liabilities of Philex of P123,821,982.52; effectively
lowered the latter's tax obligation to P110,677,688.52.

Despite the reduction of its tax liabilities, the CTA still ordered Philex to pay the remaining balance of
P110,677,688.52 plus interest, elucidating its reason, to wit:

Thus, for legal compensation to take place, both obligations must be liquidated and
demandable. "Liquidated" debts are those where the exact amount has already been
determined (PARAS, Civil Code of the Philippines, Annotated, Vol. IV, Ninth Edition,
p. 259). In the instant case, the claims of the Petitioner for VAT refund is still pending
litigation, and still has to be determined by this Court (C.T.A. Case No. 4707). A
fortiori, the liquidated debt of the Petitioner to the government cannot, therefore, be
set-off against the unliquidated claim which Petitioner conceived to exist in its favor
(see Compaia General de Tabacos vs. French and Unson, No. 14027, November 8,
1918, 39 Phil. 34). 8

Moreover, the Court of Tax Appeals ruled that "taxes cannot be subject to set-off on compensation
since claim for taxes is not a debt or contract." 9 The dispositive portion of the CTA
decision 10 provides:

In all the foregoing, this Petition for Review is hereby DENIED for lack of merit and
Petitioner is hereby ORDERED to PAY the Respondent the amount of
P110,677,668.52 representing excise tax liability for the period from the 2nd quarter
of 1991 to the 2nd quarter of 1992 plus 20% annual interest from August 6, 1994
until fully paid pursuant to Section 248 and 249 of the Tax Code, as amended.
Aggrieved with the decision, Philex appealed the case before the Court of Appeals docketed as CA-
GR. CV No. 36975. 11 Nonetheless, on April 8, 1996, the Court of Appeals a Affirmed the Court of
Tax Appeals observation. The pertinent portion of which reads: 12

WHEREFORE, the appeal by way of petition for review is hereby DISMISSED and
the decision dated March 16, 1995 is AFFIRMED.

Philex filed a motion for reconsideration which was, nevertheless, denied in a Resolution dated July
11, 1996. 13

However, a few days after the denial of its motion for reconsideration, Philex was able to obtain its
VAT input credit/refund not only for the taxable year 1989 to 1991 but also for 1992 and 1994,
computed as follows: 14

Period Covered Tax Credit Date

By Claims For Certificate of

VAT refund/credit Number Issue Amount

1994 (2nd Quarter) 007730 11 July 1996 P25,317,534.01

1994 (4th Quarter) 007731 11 July 1996 P21,791,020.61

1989 007732 11 July 1996 P37,322,799.19

1990-1991 007751 16 July 1996 P84,662,787.46

1992 (1st-3rd Quarter) 007755 23 July 1996 P36,501,147.95

In view of the grant of its VAT input credit/refund, Philex now contends that the same should, ipso
jure, off-set its excise tax liabilities 15 since both had already become "due and demandable, as well
as fully liquidated;" 16 hence, legal compensation can properly take place.

We see no merit in this contention.

In several instances prior to the instant case, we have already made the pronouncement that taxes
cannot be subject to compensation for the simple reason that the government and the taxpayer are
not creditors and debtors of each other. 17 There is a material distinction between a tax and debt.
Debts are due to the Government in its corporate capacity, while taxes are due to the Government in
its sovereign capacity. 18 We find no cogent reason to deviate from the aforementioned distinction.

Prescinding from this premise, in Francia v. Intermediate Appellate Court, 19 we categorically held
that taxes cannot be subject to set-off or compensation, thus:

We have consistently ruled that there can be no off-setting of taxes against the
claims that the taxpayer may have against the government. A person cannot refuse
to pay a tax on the ground that the government owes him an amount equal to or
greater than the tax being collected. The collection of a tax cannot await the results
of a lawsuit against the government.
The ruling in Francia has been applied to the subsequent case of Caltex Philippines, Inc. v.
Commission on Audit, 20which reiterated that:

. . . a taxpayer may not offset taxes due from the claims that he may have against the
government. Taxes cannot be the subject of compensation because the government
and taxpayer are not mutually creditors and debtors of each other and a claim for
taxes is not such a debt, demand, contract or judgment as is allowed to be set-off.

Further, Philex's reliance on our holding in Commissioner of Internal Revenue v. Itogon-Suyoc Mines
Inc., wherein we ruled that a pending refund may be set off against an existing tax liability even
though the refund has not yet been approved by the Commissioner, 21 is no longer without any
support in statutory law.

It is important to note, that the premise of our ruling in the aforementioned case was anchored on
Section 51 (d) of the National Revenue Code of 1939. However, when the National Internal Revenue
Code of 1977 was enacted, the same provision upon which the Itogon-Suyoc pronouncement was
based was omitted. 22 Accordingly, the doctrine enunciated in Itogon-Suyoc cannot be invoked by
Philex.

Despite the foregoing rulings clearly adverse to Philex's position, it asserts that the imposition of
surcharge and interest for the non-payment of the excise taxes within the time prescribed was
unjustified. Philex posits the theory that it had no obligation to pay the excise tax liabilities within the
prescribed period since, after all, it still has pending claims for VAT input credit/refund with BIR. 23

We fail to see the logic of Philex's claim for this is an outright disregard of the basic principle in tax
law that taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. 24 Evidently, to countenance Philex's whimsical reason would render ineffective our tax
collection system. Too simplistic, it finds no support in law or in jurisprudence.

To be sure, we cannot allow Philex to refuse the payment of its tax liabilities on the ground that it has
a pending tax claim for refund or credit against the government which has not yet been granted. It
must be noted that a distinguishing feature of a tax is that it is compulsory rather than a matter of
bargain. 25 Hence, a tax does not depend upon the consent of the taxpayer. 26 If any taxpayer can
defer the payment of taxes by raising the defense that it still has a pending claim for refund or credit,
this would adversely affect the government revenue system. A taxpayer cannot refuse to pay his
taxes when they fall due simply because he has a claim against the government or that the
collection of the tax is contingent on the result of the lawsuit it filed against the
government. 27 Moreover, Philex's theory that would automatically apply its VAT input credit/refund
against its tax liabilities can easily give rise to confusion and abuse, depriving the government of
authority over the manner by which taxpayers credit and offset their tax liabilities.

Corollarily, the fact that Philex has pending claims for VAT input claim/refund with the government is
immaterial for the imposition of charges and penalties prescribed under Section 248 and 249 of the
Tax Code of 1977. The payment of the surcharge is mandatory and the BIR is not vested with any
authority to waive the collection thereof. 28 The same cannot be condoned for flimsy
reasons, 29 similar to the one advanced by Philex in justifying its non-payment of its tax liabilities.

Finally, Philex asserts that the BIR violated Section 106 (e) 30 of the National Internal Revenue Code
of 1977, which requires the refund of input taxes within 60 days, 31 when it took five years for the
latter to grant its tax claim for VAT input credit/refund. 32
In this regard, we agree with Philex. While there is no dispute that a claimant has the burden of proof
to establish the factual basis of his or her claim for tax credit or refund, 33 however, once the claimant
has submitted all the required documents it is the function of the BIR to assess these documents
with purposeful dispatch. After all, since taxpayers owe honestly to government it is but just that
government render fair service to the taxpayers. 34

In the instant case, the VAT input taxes were paid between 1989 to 1991 but the refund of these
erroneously paid taxes was only granted in 1996. Obviously, had the BIR been more diligent and
judicious with their duty, it could have granted the refund earlier. We need not remind the BIR that
simple justice requires the speedy refund of wrongly-held taxes. 35 Fair dealing and nothing less, is
expected by the taxpayer from the BIR in the latter's discharge of its function. As aptly held in Roxas
v. Court of Tax Appeals: 36

The power of taxation is sometimes called also the power to destroy. Therefore it
should be exercised with caution to minimize injury to the proprietary rights of a
taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill
the "hen that lays the golden egg" And, in order to maintain the general public's trust
and confidence in the Government this power must be used justly and not
treacherously.

Despite our concern with the lethargic manner by which the BIR handled Philex's tax claim, it is a
settled rule that in the performance of governmental function, the State is not bound by the neglect
of its agents and officers. Nowhere is this more true than in the field of taxation. 37 Again, while we
understand Philex's predicament, it must be stressed that the same is not a valid reason for the non-
payment of its tax liabilities.

To be sure, this is not to state that the taxpayer is devoid of remedy against public servants or
employees, especially BIR examiners who, in investigating tax claims are seen to drag their feet
needlessly. First, if the BIR takes time in acting upon the taxpayer's claim for refund, the latter can
seek judicial remedy before the Court of Tax Appeals in the manner prescribed by law. 38 Second, if
the inaction can be characterized as willful neglect of duty, then recourse under the Civil Code and
the Tax Code can also be availed of.

Art. 27 of the Civil Code provides:

Art. 27. Any person suffering material or moral loss because a public servant or
employee refuses or neglects, without just cause, to perform his official duty may file
an action for damages and other relief against the latter, without prejudice to any
disciplinary action that may be taken.

More importantly, Section 269 (c) of the National Internal Revenue Act of 1997 states:

xxx xxx xxx

(c) Wilfully neglecting to give receipts, as by law required for any sum collected in the
performance of duty or wilfully neglecting to perform, any other duties enjoyed by
law.

Simply put, both provisions abhor official inaction, willful neglect and unreasonable delay in the
performance of official duties. 39 In no uncertain terms must we stress that every public employee or
servant must strive to render service to the people with utmost diligence and efficiency. Insolence
and delay have no place in government service. The BIR, being the government collecting arm, must
and should do no less. It simply cannot be apathetic and laggard in rendering service to the taxpayer
if it wishes to remain true to its mission of hastening the country's development. We take judicial
notice of the taxpayer's generally negative perception towards the BIR; hence, it is up to the latter to
prove its detractors wrong.

In sum, while we can never condone the BIR's apparent callousness in performing its duties, still, the
same cannot justify Philex's non-payment of its tax liabilities. The adage "no one should take the law
into his own hands" should have guided Philex's action.

WHEREFORE, in view of the foregoing, the instant petition is hereby DISMISSED. The assailed
decision of the Court of Appeals dated April 8, 1996 is hereby AFFIRMED.

SO ORDERED.

Narvasa, C.J., Kapunan and Purisima, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-18994 June 29, 1963

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

vs.
HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First Instance of
Leyte,
and SIMEONA K. PRICE, as Administratrix of the Intestate Estate of the late Walter Scott
Price, respondents.

Office of the Solicitor General and Atty. G. H. Mantolino for petitioner.

Benedicto and Martinez for respondents.

LABRADOR, J.:

This is a petition for certiorari and mandamus against the Judge of the Court of First Instance of
Leyte, Ron. Lorenzo C. Garlitos, presiding, seeking to annul certain orders of the court and for an
order in this Court directing the respondent court below to execute the judgment in favor of the
Government against the estate of Walter Scott Price for internal revenue taxes.

It appears that in Melecio R. Domingo vs. Hon. Judge S. C. Moscoso, G.R. No. L-14674, January
30, 1960, this Court declared as final and executory the order for the payment by the estate of the
estate and inheritance taxes, charges and penalties, amounting to P40,058.55, issued by the Court
of First Instance of Leyte in, special proceedings No. 14 entitled "In the matter of the Intestate Estate
of the Late Walter Scott Price." In order to enforce the claims against the estate the fiscal presented
a petition dated June 21, 1961, to the court below for the execution of the judgment. The petition
was, however, denied by the court which held that the execution is not justifiable as the Government
is indebted to the estate under administration in the amount of P262,200. The orders of the court
below dated August 20, 1960 and September 28, 1960, respectively, are as follows:

Atty. Benedicto submitted a copy of the contract between Mrs. Simeona K. Price,
Administratrix of the estate of her late husband Walter Scott Price and Director Zoilo Castrillo
of the Bureau of Lands dated September 19, 1956 and acknowledged before Notary Public
Salvador V. Esguerra, legal adviser in Malacaang to Executive Secretary De Leon dated
December 14, 1956, the note of His Excellency, Pres. Carlos P. Garcia, to Director Castrillo
dated August 2, 1958, directing the latter to pay to Mrs. Price the sum ofP368,140.00, and an
extract of page 765 of Republic Act No. 2700 appropriating the sum of P262.200.00 for the
payment to the Leyte Cadastral Survey, Inc., represented by the administratrix Simeona K.
Price, as directed in the above note of the President. Considering these facts, the Court
orders that the payment of inheritance taxes in the sum of P40,058.55 due the Collector of
Internal Revenue as ordered paid by this Court on July 5, 1960 in accordance with the order
of the Supreme Court promulgated July 30, 1960 in G.R. No. L-14674, be deducted from the
amount of P262,200.00 due and payable to the Administratrix Simeona K. Price, in this
estate, the balance to be paid by the Government to her without further delay. (Order of
August 20, 1960)

The Court has nothing further to add to its order dated August 20, 1960 and it orders that the
payment of the claim of the Collector of Internal Revenue be deferred until the Government
shall have paid its accounts to the administratrix herein amounting to P262,200.00. It may
not be amiss to repeat that it is only fair for the Government, as a debtor, to its accounts to
its citizens-creditors before it can insist in the prompt payment of the latter's account to it,
specially taking into consideration that the amount due to the Government draws interests
while the credit due to the present state does not accrue any interest. (Order of September
28, 1960)

The petition to set aside the above orders of the court below and for the execution of the claim of the
Government against the estate must be denied for lack of merit. The ordinary procedure by which to
settle claims of indebtedness against the estate of a deceased person, as an inheritance tax, is for
the claimant to present a claim before the probate court so that said court may order the
administrator to pay the amount thereof. To such effect is the decision of this Court in Aldamiz vs.
Judge of the Court of First Instance of Mindoro, G.R. No. L-2360, Dec. 29, 1949, thus:

. . . a writ of execution is not the proper procedure allowed by the Rules of Court for the
payment of debts and expenses of administration. The proper procedure is for the court to
order the sale of personal estate or the sale or mortgage of real property of the deceased
and all debts or expenses of administrator and with the written notice to all the heirs legatees
and devisees residing in the Philippines, according to Rule 89, section 3, and Rule 90,
section 2. And when sale or mortgage of real estate is to be made, the regulations contained
in Rule 90, section 7, should be complied with. 1wph1.t

Execution may issue only where the devisees, legatees or heirs have entered into
possession of their respective portions in the estate prior to settlement and payment of the
debts and expenses of administration and it is later ascertained that there are such debts
and expenses to be paid, in which case "the court having jurisdiction of the estate may, by
order for that purpose, after hearing, settle the amount of their several liabilities, and order
how much and in what manner each person shall contribute, and may issue execution if
circumstances require" (Rule 89, section 6; see also Rule 74, Section 4; Emphasis supplied.)
And this is not the instant case.
The legal basis for such a procedure is the fact that in the testate or intestate proceedings to settle
the estate of a deceased person, the properties belonging to the estate are under the jurisdiction of
the court and such jurisdiction continues until said properties have been distributed among the heirs
entitled thereto. During the pendency of the proceedings all the estate is in custodia legis and the
proper procedure is not to allow the sheriff, in case of the court judgment, to seize the properties but
to ask the court for an order to require the administrator to pay the amount due from the estate and
required to be paid.

Another ground for denying the petition of the provincial fiscal is the fact that the court having
jurisdiction of the estate had found that the claim of the estate against the Government has been
recognized and an amount of P262,200 has already been appropriated for the purpose by a
corresponding law (Rep. Act No. 2700). Under the above circumstances, both the claim of the
Government for inheritance taxes and the claim of the intestate for services rendered have already
become overdue and demandable is well as fully liquidated. Compensation, therefore, takes place
by operation of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil Code,
and both debts are extinguished to the concurrent amount, thus:

ART. 1200. When all the requisites mentioned in article 1279 are present, compensation
takes effect by operation of law, and extinguished both debts to the concurrent amount,
eventhough the creditors and debtors are not aware of the compensation.

It is clear, therefore, that the petitioner has no clear right to execute the judgment for taxes against
the estate of the deceased Walter Scott Price. Furthermore, the petition
for certiorari and mandamus is not the proper remedy for the petitioner. Appeal is the remedy.

The petition is, therefore, dismissed, without costs.

Padilla, Bautista Angelo, Concepcion, Barrera, Paredes, Dizon, Regala and Makalintal, JJ., concur.
Bengzon, C.J., took no part.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-28896 February 17, 1988

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.

CRUZ, J.:

Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On the other hand, such collection
should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to
reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion
of the common good, may be achieved.
The main issue in this case is whether or not the Collector of Internal Revenue correctly disallowed
the P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in
its income tax returns. The corollary issue is whether or not the appeal of the private respondent
from the decision of the Collector of Internal Revenue was made on time and in accordance with
law.

We deal first with the procedural question.

The record shows that on January 14, 1965, the private respondent, a domestic corporation
engaged in engineering, construction and other allied activities, received a letter from the petitioner
assessing it in the total amount of P83,183.85 as delinquency income taxes for the years 1958 and
1959.1 On January 18, 1965, Algue flied a letter of protest or request for reconsideration, which letter
was stamp received on the same day in the office of the petitioner. 2 On March 12, 1965, a warrant of
distraint and levy was presented to the private respondent, through its counsel, Atty. Alberto
Guevara, Jr., who refused to receive it on the ground of the pending protest. 3 A search of the protest
in the dockets of the case proved fruitless. Atty. Guevara produced his file copy and gave a
photostat to BIR agent Ramon Reyes, who deferred service of the warrant. 4 On April 7, 1965, Atty.
Guevara was finally informed that the BIR was not taking any action on the protest and it was only
then that he accepted the warrant of distraint and levy earlier sought to be served.5 Sixteen days
later, on April 23, 1965, Algue filed a petition for review of the decision of the Commissioner of
Internal Revenue with the Court of Tax Appeals.6

The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125,
the appeal may be made within thirty days after receipt of the decision or ruling challenged.7 It is true
that as a rule the warrant of distraint and levy is "proof of the finality of the assessment" 8 and
renders hopeless a request for reconsideration," 9 being "tantamount to an outright denial thereof
and makes the said request deemed rejected." 10 But there is a special circumstance in the case at
bar that prevents application of this accepted doctrine.

The proven fact is that four days after the private respondent received the petitioner's notice of
assessment, it filed its letter of protest. This was apparently not taken into account before the
warrant of distraint and levy was issued; indeed, such protest could not be located in the office of the
petitioner. It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all,
considered by the tax authorities. During the intervening period, the warrant was premature and
could therefore not be served.

As the Court of Tax Appeals correctly noted," 11 the protest filed by private respondent was not pro
forma and was based on strong legal considerations. It thus had the effect of suspending on January
18, 1965, when it was filed, the reglementary period which started on the date the assessment was
received, viz., January 14, 1965. The period started running again only on April 7, 1965, when the
private respondent was definitely informed of the implied rejection of the said protest and the warrant
was finally served on it. Hence, when the appeal was filed on April 23, 1965, only 20 days of the
reglementary period had been consumed.

Now for the substantive question.

The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because
it was not an ordinary reasonable or necessary business expense. The Court of Tax Appeals had
seen it differently. Agreeing with Algue, it held that the said amount had been legitimately paid by the
private respondent for actual services rendered. The payment was in the form of promotional fees.
These were collected by the Payees for their work in the creation of the Vegetable Oil Investment
Corporation of the Philippines and its subsequent purchase of the properties of the Philippine Sugar
Estate Development Company.

Parenthetically, it may be observed that the petitioner had Originally claimed these promotional fees
to be personal holding company income 12 but later conformed to the decision of the respondent
court rejecting this assertion.13 In fact, as the said court found, the amount was earned through the
joint efforts of the persons among whom it was distributed It has been established that the Philippine
Sugar Estate Development Company had earlier appointed Algue as its agent, authorizing it to sell
its land, factories and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr.,
Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of
the Vegetable Oil Investment Corporation, inducing other persons to invest in it.14 Ultimately, after its
incorporation largely through the promotion of the said persons, this new corporation purchased the
PSEDC properties.15 For this sale, Algue received as agent a commission of P126,000.00, and it was
from this commission that the P75,000.00 promotional fees were paid to the aforenamed
individuals.16

There is no dispute that the payees duly reported their respective shares of the fees in their income
tax returns and paid the corresponding taxes thereon.17 The Court of Tax Appeals also found, after
examining the evidence, that no distribution of dividends was involved.18

The petitioner claims that these payments are fictitious because most of the payees are members of
the same family in control of Algue. It is argued that no indication was made as to how such
payments were made, whether by check or in cash, and there is not enough substantiation of such
payments. In short, the petitioner suggests a tax dodge, an attempt to evade a legitimate
assessment by involving an imaginary deduction.

We find that these suspicions were adequately met by the private respondent when its President,
Alberto Guevara, and the accountant, Cecilia V. de Jesus, testified that the payments were not made
in one lump sum but periodically and in different amounts as each payee's need arose. 19 It should be
remembered that this was a family corporation where strict business procedures were not applied
and immediate issuance of receipts was not required. Even so, at the end of the year, when the
books were to be closed, each payee made an accounting of all of the fees received by him or her,
to make up the total of P75,000.00. 20 Admittedly, everything seemed to be informal. This
arrangement was understandable, however, in view of the close relationship among the persons in
the family corporation.

We agree with the respondent court that the amount of the promotional fees was not excessive. The
total commission paid by the Philippine Sugar Estate Development Co. to the private respondent
was P125,000.00. 21After deducting the said fees, Algue still had a balance of P50,000.00 as clear
profit from the transaction. The amount of P75,000.00 was 60% of the total commission. This was a
reasonable proportion, considering that it was the payees who did practically everything, from the
formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar
Estate properties. This finding of the respondent court is in accord with the following provision of the
Tax Code:

SEC. 30. Deductions from gross income.--In computing net income there shall be
allowed as deductions

(a) Expenses:
 (1) In general.--All the ordinary and necessary expenses paid or incurred during the
taxable year in carrying on any trade or business, including a reasonable allowance
for salaries or other compensation for personal services actually rendered; ... 22

and Revenue Regulations No. 2, Section 70 (1), reading as follows:

SEC. 70. Compensation for personal services.--Among the ordinary and necessary
expenses paid or incurred in carrying on any trade or business may be included a
reasonable allowance for salaries or other compensation for personal services
actually rendered. The test of deductibility in the case of compensation payments is
whether they are reasonable and are, in fact, payments purely for service. This test
and deductibility in the case of compensation payments is whether they are
reasonable and are, in fact, payments purely for service. This test and its practical
application may be further stated and illustrated as follows:

Any amount paid in the form of compensation, but not in fact as the purchase price of
services, is not deductible. (a) An ostensible salary paid by a corporation may be a
distribution of a dividend on stock. This is likely to occur in the case of a corporation
having few stockholders, Practically all of whom draw salaries. If in such a case the
salaries are in excess of those ordinarily paid for similar services, and the excessive
payment correspond or bear a close relationship to the stockholdings of the officers
of employees, it would seem likely that the salaries are not paid wholly for services
rendered, but the excessive payments are a distribution of earnings upon the stock. .
. . (Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.)

It is worth noting at this point that most of the payees were not in the regular employ of Algue nor
were they its controlling stockholders. 23

The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity
of the claimed deduction. In the present case, however, we find that the onus has been discharged
satisfactorily. The private respondent has proved that the payment of the fees was necessary and
reasonable in the light of the efforts exerted by the payees in inducing investors and prominent
businessmen to venture in an experimental enterprise and involve themselves in a new business
requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently
recompensed.

It is said that taxes are what we pay for civilization society. Without taxes, the government would be
paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one's hard earned income to the taxing authorities, every person who
is able to must contribute his share in the running of the government. The government for its part, is
expected to respond in the form of tangible and intangible benefits intended to improve the lives of
the people and enhance their moral and material values. This symbiotic relationship is the rationale
of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those
in the seat of power.

But even as we concede the inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his
succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the
taxpayer can demonstrate, as it has here, that the law has not been observed.
We hold that the appeal of the private respondent from the decision of the petitioner was filed on
time with the respondent court in accordance with Rep. Act No. 1125. And we also find that the
claimed deduction by the private respondent was permitted under the Internal Revenue Code and
should therefore not have been disallowed by the petitioner.

ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in toto, without
costs.

SO ORDERED.

Teehankee, C.J., Narvasa, Gancayco and Grio-Aquino, JJ., concur.

THIRD DIVISION

G.R. No. 149110 April 9, 2003

NATIONAL POWER CORPORATION, petitioner,

vs.
CITY OF CABANATUAN, respondent.

PUNO, J.:

This is a petition for review1 of the Decision2 and the Resolution3 of the Court of Appeals dated
March 12, 2001 and July 10, 2001, respectively, finding petitioner National Power Corporation (NPC)
liable to pay franchise tax to respondent City of Cabanatuan.

Petitioner is a government-owned and controlled corporation created under Commonwealth Act No.
120, as amended.4 It is tasked to undertake the "development of hydroelectric generations of power
and the production of electricity from nuclear, geothermal and other sources, as well as, the
transmission of electric power on a nationwide basis."5 Concomitant to its mandated duty, petitioner
has, among others, the power to construct, operate and maintain power plants, auxiliary plants,
power stations and substations for the purpose of developing hydraulic power and supplying such
power to the inhabitants.6

For many years now, petitioner sells electric power to the residents of Cabanatuan City, posting a
gross income of P107,814,187.96 in 1992.7 Pursuant to section 37 of Ordinance No. 165-92,8 the
respondent assessed the petitioner a franchise tax amounting to P808,606.41, representing 75% of
1% of the latter's gross receipts for the preceding year.9

Petitioner, whose capital stock was subscribed and paid wholly by the Philippine
Government,10 refused to pay the tax assessment. It argued that the respondent has no authority to
impose tax on government entities. Petitioner also contended that as a non-profit organization, it is
exempted from the payment of all forms of taxes, charges, duties or fees11 in accordance with sec.
13 of Rep. Act No. 6395, as amended, viz:

"Sec.13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties, Fees,
Imposts and Other Charges by Government and Governmental Instrumentalities.- The
Corporation shall be non-profit and shall devote all its return from its capital investment, as
well as excess revenues from its operation, for expansion. To enable the Corporation to pay
its indebtedness and obligations and in furtherance and effective implementation of the
policy enunciated in Section one of this Act, the Corporation is hereby exempt:

(a) From the payment of all taxes, duties, fees, imposts, charges, costs and service fees in
any court or administrative proceedings in which it may be a party, restrictions and duties to
the Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities;

(b) From all income taxes, franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other government agencies and
instrumentalities;

(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees
on import of foreign goods required for its operations and projects; and

(d) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of
the Philippines, its provinces, cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the Corporation in the generation,
transmission, utilization, and sale of electric power."12

The respondent filed a collection suit in the Regional Trial Court of Cabanatuan City, demanding that
petitioner pay the assessed tax due, plus a surcharge equivalent to 25% of the amount of tax, and
2% monthly interest.13Respondent alleged that petitioner's exemption from local taxes has been
repealed by section 193 of Rep. Act No. 7160,14 which reads as follows:

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

On January 25, 1996, the trial court issued an Order15 dismissing the case. It ruled that the tax
exemption privileges granted to petitioner subsist despite the passage of Rep. Act No. 7160 for the
following reasons: (1) Rep. Act No. 6395 is a particular law and it may not be repealed by Rep. Act
No. 7160 which is a general law; (2) section 193 of Rep. Act No. 7160 is in the nature of an implied
repeal which is not favored; and (3) local governments have no power to tax instrumentalities of the
national government. Pertinent portion of the Order reads:

"The question of whether a particular law has been repealed or not by a subsequent law is a
matter of legislative intent. The lawmakers may expressly repeal a law by incorporating
therein repealing provisions which expressly and specifically cite(s) the particular law or
laws, and portions thereof, that are intended to be repealed. A declaration in a statute,
usually in its repealing clause, that a particular and specific law, identified by its number or
title is repealed is an express repeal; all others are implied repeal. Sec. 193 of R.A. No. 7160
 is an implied repealing clause because it fails to identify the act or acts that are intended to
be repealed. It is a well-settled rule of statutory construction that repeals of statutes by
implication are not favored. The presumption is against inconsistency and repugnancy for the
legislative is presumed to know the existing laws on the subject and not to have enacted
inconsistent or conflicting statutes. It is also a well-settled rule that, generally, general law
does not repeal a special law unless it clearly appears that the legislative has intended by
the latter general act to modify or repeal the earlier special law. Thus, despite the passage of
R.A. No. 7160 from which the questioned Ordinance No. 165-92 was based, the tax
exemption privileges of defendant NPC remain.

Another point going against plaintiff in this case is the ruling of the Supreme Court in the
case of Basco vs. Philippine Amusement and Gaming Corporation, 197 SCRA 52, where it
was held that:

'Local governments have no power to tax instrumentalities of the National

Government. PAGCOR is a government owned or controlled corporation with an
original charter, PD 1869. All of its shares of stocks are owned by the National
Government. xxx Being an instrumentality of the government, PAGCOR should be
and actually is exempt from local taxes. Otherwise, its operation might be burdened,
impeded or subjected to control by mere local government.'

Like PAGCOR, NPC, being a government owned and controlled corporation with an original
charter and its shares of stocks owned by the National Government, is beyond the taxing
power of the Local Government. Corollary to this, it should be noted here that in the NPC
Charter's declaration of Policy, Congress declared that: 'xxx (2) the total electrification of the
Philippines through the development of power from all services to meet the needs of
industrial development and dispersal and needs of rural electrification are primary objectives
of the nations which shall be pursued coordinately and supported by all instrumentalities and
agencies of the government, including its financial institutions.' (underscoring supplied). To
allow plaintiff to subject defendant to its tax-ordinance would be to impede the avowed goal
of this government instrumentality.

Unlike the State, a city or municipality has no inherent power of taxation. Its taxing power is
limited to that which is provided for in its charter or other statute. Any grant of taxing power is
to be construed strictly, with doubts resolved against its existence.

From the existing law and the rulings of the Supreme Court itself, it is very clear that the
plaintiff could not impose the subject tax on the defendant."16

On appeal, the Court of Appeals reversed the trial court's Order17 on the ground that section 193, in
relation to sections 137 and 151 of the LGC, expressly withdrew the exemptions granted to the
petitioner.18 It ordered the petitioner to pay the respondent city government the following: (a) the sum
of P808,606.41 representing the franchise tax due based on gross receipts for the year 1992, (b) the
tax due every year thereafter based in the gross receipts earned by NPC, (c) in all cases, to pay a
surcharge of 25% of the tax due and unpaid, and (d) the sum of P 10,000.00 as litigation expense.19

On April 4, 2001, the petitioner filed a Motion for Reconsideration on the Court of Appeal's Decision.
This was denied by the appellate court, viz:

"The Court finds no merit in NPC's motion for reconsideration. Its arguments reiterated
therein that the taxing power of the province under Art. 137 (sic) of the Local Government
Code refers merely to private persons or corporations in which category it (NPC) does not
 belong, and that the LGC (RA 7160) which is a general law may not impliedly repeal the
NPC Charter which is a special lawfinds the answer in Section 193 of the LGC to the effect
that '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 xxx are hereby withdrawn.' The repeal is direct and unequivocal, not implied.

IN VIEW WHEREOF, the motion for reconsideration is hereby DENIED.

SO ORDERED."20

In this petition for review, petitioner raises the following issues:

"A. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC, A PUBLIC
NON-PROFIT CORPORATION, IS LIABLE TO PAY A FRANCHISE TAX AS IT FAILED TO
CONSIDER THAT SECTION 137 OF THE LOCAL GOVERNMENT CODE IN RELATION
TO SECTION 131 APPLIES ONLY TO PRIVATE PERSONS OR CORPORATIONS
ENJOYING A FRANCHISE.

B. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC'S EXEMPTION

FROM ALL FORMS OF TAXES HAS BEEN REPEALED BY THE PROVISION OF THE
LOCAL GOVERNMENT CODE AS THE ENACTMENT OF A LATER LEGISLATION,
WHICH IS A GENERAL LAW, CANNOT BE CONSTRUED TO HAVE REPEALED A
SPECIAL LAW.

C. THE COURT OF APPEALS GRAVELY ERRED IN NOT CONSIDERING THAT AN

EXERCISE OF POLICE POWER THROUGH TAX EXEMPTION SHOULD PREVAIL OVER
THE LOCAL GOVERNMENT CODE."21

It is beyond dispute that the respondent city government has the authority to issue Ordinance No.
165-92 and impose an annual tax on "businesses enjoying a franchise," pursuant to section 151 in
relation to section 137 of the LGC, viz:

"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." (emphasis supplied)

x x x

Sec. 151. Scope of Taxing Powers.- Except as otherwise provided in this Code, the city, may
levy the taxes, fees, and charges which the province or municipality may impose: Provided,
however, That the taxes, fees and charges levied and collected by highly urbanized and
independent component cities shall accrue to them and distributed in accordance with the
provisions of this Code.
 The rates of taxes that the city may levy may exceed the maximum rates allowed for the
province or municipality by not more than fifty percent (50%) except the rates of professional
and amusement taxes."

Petitioner, however, submits that it is not liable to pay an annual franchise tax to the respondent city
government. It contends that sections 137 and 151 of the LGC in relation to section 131, limit the
taxing power of the respondent city government to private entities that are engaged in trade or
occupation for profit.22

Section 131 (m) of the LGC defines a "franchise" as "a right or privilege, affected with public interest
which is conferred upon private persons or corporations, under such terms and conditions as the
government and its political subdivisions may impose in the interest of the public welfare, security
and safety." From the phraseology of this provision, the petitioner claims that the word "private"
modifies the terms "persons" and "corporations." Hence, when the LGC uses the term "franchise,"
petitioner submits that it should refer specifically to franchises granted to private natural persons and
to private corporations.23 Ergo, its charter should not be considered a "franchise" for the purpose of
imposing the franchise tax in question.

On the other hand, section 131 (d) of the LGC defines "business" as "trade or commercial activity
regularly engaged in as means of livelihood or with a view to profit." Petitioner claims that it is not
engaged in an activity for profit, in as much as its charter specifically provides that it is a "non-profit
organization." In any case, petitioner argues that the accumulation of profit is merely incidental to its
operation; all these profits are required by law to be channeled for expansion and improvement of its
facilities and services.24

Petitioner also alleges that it is an instrumentality of the National Government,25 and as such, may
not be taxed by the respondent city government. It cites the doctrine in Basco vs. Philippine
Amusement and Gaming Corporation26where this Court held that local governments have no power
to tax instrumentalities of the National Government, viz:

"Local governments have no power to tax instrumentalities of the National Government.

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

'The states have no power by taxation or otherwise, to retard, impede, burden or in

any manner control the operation of constitutional laws enacted by Congress to carry
into execution the powers vested in the federal government. (MC Culloch v.
Maryland, 4 Wheat 316, 4 L Ed. 579)'

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

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

Otherwise, mere creatures of the State can defeat National policies thru extermination of
what local authorities may perceive to be undesirable activities or enterprise using the power
to tax as ' a tool regulation' (U.S. v. Sanchez, 340 US 42).

The power to tax which was called by Justice Marshall as the 'power to destroy' (Mc Culloch
v. Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very
entity which has the inherent power to wield it."27

Petitioner contends that section 193 of Rep. Act No. 7160, withdrawing the tax privileges of
government-owned or controlled corporations, is in the nature of an implied repeal. A special law, its
charter cannot be amended or modified impliedly by the local government code which is a general
law. Consequently, petitioner claims that its exemption from all taxes, fees or charges under its
charter subsists despite the passage of the LGC, viz:

"It is a well-settled rule of statutory construction that repeals of statutes by implication are not
favored and as much as possible, effect must be given to all enactments of the legislature.
Moreover, it has to be conceded that the charter of the NPC constitutes a special law.
Republic Act No. 7160, is a general law. It is a basic rule in statutory construction that the
enactment of a later legislation which is a general law cannot be construed to have repealed
a special law. Where there is a conflict between a general law and a special statute, the
special statute should prevail since it evinces the legislative intent more clearly than the
general statute."28

Finally, petitioner submits that the charter of the NPC, being a valid exercise of police power, should
prevail over the LGC. It alleges that the power of the local government to impose franchise tax is
subordinate to petitioner's exemption from taxation; "police power being the most pervasive, the
least limitable and most demanding of all powers, including the power of taxation."29

The petition is without merit.

Taxes are the lifeblood of the government,30 for without taxes, the government can neither exist nor
endure. A principal attribute of sovereignty,31 the exercise of taxing power derives its source from the
very existence of the state whose social contract with its citizens obliges it to promote public interest
and common good. The theory behind the exercise of the power to tax emanates from
necessity;32 without taxes, government cannot fulfill its mandate of promoting the general welfare
and well-being of the people.

In recent years, the increasing social challenges of the times expanded the scope of state activity,
and taxation has become a tool to realize social justice and the equitable distribution of wealth,
economic progress and the protection of local industries as well as public welfare and similar
objectives.33 Taxation assumes even greater significance with the ratification of the 1987
Constitution. Thenceforth, the power to tax is no longer vested exclusively on Congress; local
legislative bodies are now given direct authority to levy taxes, fees and other charges34 pursuant to
Article X, section 5 of the 1987 Constitution, viz:

"Section 5.- Each Local Government unit shall have the power to create its own sources of
revenue, 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."
This paradigm shift results from the realization that genuine development can be achieved only by
strengthening local autonomy and promoting decentralization of governance. For a long time, the
country's highly centralized government structure has bred a culture of dependence among local
government leaders upon the national leadership. It has also "dampened the spirit of initiative,
innovation and imaginative resilience in matters of local development on the part of local government
leaders."35 The only way to shatter this culture of dependence is to give the LGUs a wider role in the
delivery of basic services, and confer them sufficient powers to generate their own sources for the
purpose. To achieve this goal, section 3 of Article X of the 1987 Constitution mandates Congress to
enact a local government code that will, consistent with the basic policy of local autonomy, set the
guidelines and limitations to this grant of taxing powers, viz:

"Section 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."

To recall, prior to the enactment of the Rep. Act No. 7160,36 also known as the Local Government
Code of 1991 (LGC), various measures have been enacted to promote local autonomy. These
include the Barrio Charter of 1959,37 the Local Autonomy Act of 1959,38 the Decentralization Act of
196739 and the Local Government Code of 1983.40 Despite these initiatives, however, the shackles of
dependence on the national government remained. Local government units were faced with the
same problems that hamper their capabilities to participate effectively in the national development
efforts, among which are: (a) inadequate tax base, (b) lack of fiscal control over external sources of
income, (c) limited authority to prioritize and approve development projects, (d) heavy dependence
on external sources of income, and (e) limited supervisory control over personnel of national line
agencies.41

Considered as the most revolutionary piece of legislation on local autonomy,42 the LGC effectively
deals with the fiscal constraints faced by LGUs. It widens the tax base of LGUs to include taxes
which were prohibited by previous laws such as the imposition of taxes on forest products, forest
concessionaires, mineral products, mining operations, and the like. The LGC likewise provides
enough flexibility to impose tax rates in accordance with their needs and capabilities. It does not
prescribe graduated fixed rates but merely specifies the minimum and maximum tax rates and
leaves the determination of the actual rates to the respective sanggunian.43

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

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

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

In view of the afore-quoted provision of the LGC, the doctrine in Basco vs. Philippine Amusement
and Gaming Corporation44 relied upon by the petitioner to support its claim no longer applies. To
emphasize, the Basco case was decided prior to the effectivity of the LGC, when no law empowering
the local government units to tax instrumentalities of the National Government was in effect.
However, as this Court ruled in the case of Mactan Cebu International Airport Authority (MCIAA) vs.
Marcos,45 nothing prevents Congress from decreeing that even instrumentalities or agencies of the
government performing governmental functions may be subject to tax.46 In enacting the LGC,
Congress exercised its prerogative to tax instrumentalities and agencies of government as it sees fit.
Thus, after reviewing the specific provisions of the LGC, this Court held that MCIAA, although an
instrumentality of the national government, was subject to real property tax, viz:

"Thus, reading together sections 133, 232, and 234 of the LGC, we conclude that as a
general rule, as laid down in section 133, the taxing power of local governments cannot
extend to the levy of inter alia, 'taxes, fees and charges of any kind on the national
government, its agencies and instrumentalities, and local government units'; however,
pursuant to section 232, provinces, cities and municipalities in the Metropolitan Manila Area
may impose the real property tax except on, inter alia, 'real property owned by the Republic
of the Philippines or any of its political subdivisions except when the beneficial use thereof
has been granted for consideration or otherwise, to a taxable person as provided in the item
(a) of the first paragraph of section 12.'"47

In the case at bar, section 151 in relation to section 137 of the LGC clearly authorizes the
respondent city government to impose on the petitioner the franchise tax in question.

In its general signification, a franchise is a privilege conferred by government authority, which does
not belong to citizens of the country generally as a matter of common right.48 In its specific sense, a
franchise may refer to a general or primary franchise, or to a special or secondary franchise. The
former relates to the right to exist as a corporation, by virtue of duly approved articles of
incorporation, or a charter pursuant to a special law creating the corporation.49 The right under a
primary or general franchise is vested in the individuals who compose the corporation and not in the
corporation itself.50 On the other hand, the latter refers to the right or privileges conferred upon an
existing corporation such as the right to use the streets of a municipality to lay pipes of tracks, erect
poles or string wires.51 The rights under a secondary or special franchise are vested in the
corporation and may ordinarily be conveyed or mortgaged under a general power granted to a
corporation to dispose of its property, except such special or secondary franchises as are charged
with a public use.52

In section 131 (m) of the LGC, Congress unmistakably defined a franchise in the sense of a
secondary or special franchise. This is to avoid any confusion when the word franchise is used in the
context of taxation. As commonly used, a franchise tax is "a tax on the privilege of transacting
business in the state and exercising corporate franchises granted by the state."53 It is not levied on
the corporation simply for existing as a corporation, upon its property54 or its income,55 but on its
exercise of the rights or privileges granted to it by the government. Hence, a corporation need not
pay franchise tax from the time it ceased to do business and exercise its franchise.56 It is within this
context that the phrase "tax on businesses enjoying a franchise" in section 137 of the LGC should be
interpreted and understood. Verily, to determine whether the petitioner is covered by the franchise
tax in question, the following requisites should concur: (1) that petitioner has a "franchise" in the
sense of a secondary or special franchise; and (2) that it is exercising its rights or privileges under
this franchise within the territory of the respondent city government.
Petitioner fulfills the first requisite. Commonwealth Act No. 120, as amended by Rep. Act No. 7395,
constitutes petitioner's primary and secondary franchises. It serves as the petitioner's charter,
defining its composition, capitalization, the appointment and the specific duties of its corporate
officers, and its corporate life span.57 As its secondary franchise, Commonwealth Act No. 120, as
amended, vests the petitioner the following powers which are not available to ordinary
corporations, viz:

"x x x

(e) To conduct investigations and surveys for the development of water power in any part of
the Philippines;

(f) To take water from any public stream, river, creek, lake, spring or waterfall in the
Philippines, for the purposes specified in this Act; to intercept and divert the flow of waters
from lands of riparian owners and from persons owning or interested in waters which are or
may be necessary for said purposes, upon payment of just compensation therefor; to alter,
straighten, obstruct or increase the flow of water in streams or water channels intersecting or
connecting therewith or contiguous to its works or any part thereof: Provided, That just
compensation shall be paid to any person or persons whose property is, directly or indirectly,
adversely affected or damaged thereby;

(g) To construct, operate and maintain power plants, auxiliary plants, dams, reservoirs,
pipes, mains, transmission lines, power stations and substations, and other works for the
purpose of developing hydraulic power from any river, creek, lake, spring and waterfall in the
Philippines and supplying such power to the inhabitants thereof; to acquire, construct, install,
maintain, operate, and improve gas, oil, or steam engines, and/or other prime movers,
generators and machinery in plants and/or auxiliary plants for the production of electric
power; to establish, develop, operate, maintain and administer power and lighting systems
for the transmission and utilization of its power generation; to sell electric power in bulk to (1)
industrial enterprises, (2) city, municipal or provincial systems and other government
institutions, (3) electric cooperatives, (4) franchise holders, and (5) real estate subdivisions x
x x;

(h) To acquire, promote, hold, transfer, sell, lease, rent, mortgage, encumber and otherwise
dispose of property incident to, or necessary, convenient or proper to carry out the purposes
for which the Corporation was created: Provided, That in case a right of way is necessary for
its transmission lines, easement of right of way shall only be sought: Provided, however,
That in case the property itself shall be acquired by purchase, the cost thereof shall be the
fair market value at the time of the taking of such property;

(i) To construct works across, or otherwise, any stream, watercourse, canal, ditch, flume,
street, avenue, highway or railway of private and public ownership, as the location of said
works may require xxx;

(j) To exercise the right of eminent domain for the purpose of this Act in the manner provided
by law for instituting condemnation proceedings by the national, provincial and municipal
governments;

x x x

(m) To cooperate with, and to coordinate its operations with those of the National
Electrification Administration and public service entities;
 (n) To exercise complete jurisdiction and control over watersheds surrounding the reservoirs
of plants and/or projects constructed or proposed to be constructed by the Corporation. Upon
determination by the Corporation of the areas required for watersheds for a specific project,
the Bureau of Forestry, the Reforestation Administration and the Bureau of Lands shall, upon
written advice by the Corporation, forthwith surrender jurisdiction to the Corporation of all
areas embraced within the watersheds, subject to existing private rights, the needs of
waterworks systems, and the requirements of domestic water supply;

(o) In the prosecution and maintenance of its projects, the Corporation shall adopt measures
to prevent environmental pollution and promote the conservation, development and
maximum utilization of natural resources xxx "58

With these powers, petitioner eventually had the monopoly in the generation and distribution of
electricity. This monopoly was strengthened with the issuance of Pres. Decree No. 40,59 nationalizing
the electric power industry. Although Exec. Order No. 21560 thereafter allowed private sector
participation in the generation of electricity, the transmission of electricity remains the monopoly of
the petitioner.

Petitioner also fulfills the second requisite. It is operating within the respondent city government's
territorial jurisdiction pursuant to the powers granted to it by Commonwealth Act No. 120, as
amended. From its operations in the City of Cabanatuan, petitioner realized a gross income of
P107,814,187.96 in 1992. Fulfilling both requisites, petitioner is, and ought to be, subject of the
franchise tax in question.

Petitioner, however, insists that it is excluded from the coverage of the franchise tax simply because
its stocks are wholly owned by the National Government, and its charter characterized it as a "non-
profit" organization.

These contentions must necessarily fail.

To stress, a franchise tax is imposed based not on the ownership but on the exercise by the
corporation of a privilege to do business. The taxable entity is the corporation which exercises the
franchise, and not the individual stockholders. By virtue of its charter, petitioner was created as a
separate and distinct entity from the National Government. It can sue and be sued under its own
name,61 and can exercise all the powers of a corporation under the Corporation Code.62

To be sure, the ownership by the National Government of its entire capital stock does not
necessarily imply that petitioner is not engaged in business. Section 2 of Pres. Decree No.
202963 classifies government-owned or controlled corporations (GOCCs) into those performing
governmental functions and those performing proprietary functions, viz:

"A government-owned or controlled corporation is a stock or a non-stock

corporation, whether performing governmental or proprietary functions, which is directly
chartered by special law or if organized under the general corporation law is owned or
controlled by the government directly, or indirectly through a parent corporation or subsidiary
corporation, to the extent of at least a majority of its outstanding voting capital stock x x x."
(emphases supplied)

Governmental functions are those pertaining to the administration of government, and as such, are
treated as absolute obligation on the part of the state to perform while proprietary functions are those
that are undertaken only by way of advancing the general interest of society, and are merely optional
on the government.64 Included in the class of GOCCs performing proprietary functions are "business-
like" entities such as the National Steel Corporation (NSC), the National Development Corporation
(NDC), the Social Security System (SSS), the Government Service Insurance System (GSIS), and
the National Water Sewerage Authority (NAWASA),65 among others.

Petitioner was created to "undertake the development of hydroelectric generation of power and the
production of electricity from nuclear, geothermal and other sources, as well as the transmission of
electric power on a nationwide basis."66 Pursuant to this mandate, petitioner generates power and
sells electricity in bulk. Certainly, these activities do not partake of the sovereign functions of the
government. They are purely private and commercial undertakings, albeit imbued with public
interest. The public interest involved in its activities, however, does not distract from the true nature
of the petitioner as a commercial enterprise, in the same league with similar public utilities like
telephone and telegraph companies, railroad companies, water supply and irrigation companies,
gas, coal or light companies, power plants, ice plant among others; all of which are declared by this
Court as ministrant or proprietary functions of government aimed at advancing the general interest of
society.67

A closer reading of its charter reveals that even the legislature treats the character of the petitioner's
enterprise as a "business," although it limits petitioner's profits to twelve percent (12%), viz:68

"(n) When essential to the proper administration of its corporate affairs or necessary for the
proper transaction of its business or to carry out the purposes for which it was organized, to
contract indebtedness and issue bonds subject to approval of the President upon
recommendation of the Secretary of Finance;

(o) To exercise such powers and do such things as may be reasonably necessary to carry
out the business and purposes for which it was organized, or which, from time to time, may
be declared by the Board to be necessary, useful, incidental or auxiliary to accomplish the
said purpose xxx."(emphases supplied)

It is worthy to note that all other private franchise holders receiving at least sixty percent (60%) of its
electricity requirement from the petitioner are likewise imposed the cap of twelve percent (12%) on
profits.69 The main difference is that the petitioner is mandated to devote "all its returns from its
capital investment, as well as excess revenues from its operation, for expansion"70 while other
franchise holders have the option to distribute their profits to its stockholders by declaring dividends.
We do not see why this fact can be a source of difference in tax treatment. In both instances, the
taxable entity is the corporation, which exercises the franchise, and not the individual stockholders.

We also do not find merit in the petitioner's contention that its tax exemptions under its charter
subsist despite the passage of the LGC.

As a rule, tax exemptions are construed strongly against the claimant. Exemptions must be shown to
exist clearly and categorically, and supported by clear legal provisions.71 In the case at bar, the
petitioner's sole refuge is section 13 of Rep. Act No. 6395 exempting from, among others, "all
income taxes, franchise taxes and realty taxes to be paid to the National Government, its provinces,
cities, municipalities and other government agencies and instrumentalities." However, section 193 of
the LGC withdrew, subject to limited exceptions, the sweeping tax privileges previously enjoyed by
private and public corporations. Contrary to the contention of petitioner, section 193 of the LGC is an
express, albeit general, repeal of all statutes granting tax exemptions from local taxes.72 It reads:

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

It is a basic precept of statutory construction that the express mention of one person, thing, act, or
consequence excludes all others as expressed in the familiar maxim expressio unius est exclusio
alterius.73 Not being a local water district, a cooperative registered under R.A. No. 6938, or a non-
stock and non-profit hospital or educational institution, petitioner clearly does not belong to the
exception. It is therefore incumbent upon the petitioner to point to some provisions of the LGC that
expressly grant it exemption from local taxes.

But this would be an exercise in futility. Section 137 of the LGC clearly states that the LGUs can
impose franchise tax "notwithstanding any exemption granted by any law or other special law." This
particular provision of the LGC does not admit any exception. In City Government of San Pablo,
Laguna v. Reyes,74 MERALCO's exemption from the payment of franchise taxes was brought as an
issue before this Court. The same issue was involved in the subsequent case of Manila Electric
Company v. Province of Laguna.75 Ruling in favor of the local government in both instances, we
ruled that the franchise tax in question is imposable despite any exemption enjoyed by MERALCO
under special laws, viz:

"It is our view that petitioners correctly rely on provisions of Sections 137 and 193 of the LGC
to support their position that MERALCO's tax exemption has been withdrawn. The explicit
language of section 137 which authorizes the province to impose franchise tax
'notwithstanding any exemption granted by any law or other special law' is all-encompassing
and clear. The franchise tax is imposable despite any exemption enjoyed under special laws.

Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating that
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 (1) local water districts, (2) cooperatives duly registered under
R.A. 6938, (3) non-stock and non-profit hospitals and educational institutions, are withdrawn
upon the effectivity of this code, the obvious import is to limit the exemptions to the three
enumerated entities. It is a basic precept of statutory construction that the express mention
of one person, thing, act, or consequence excludes all others as expressed in the familiar
maxim expressio unius est exclusio alterius. In the absence of any provision of the Code to
the contrary, and we find no other provision in point, any existing tax exemption or incentive
enjoyed by MERALCO under existing law was clearly intended to be withdrawn.

Reading together sections 137 and 193 of the LGC, we conclude that under the LGC the
local government unit may now impose a local tax at a rate not exceeding 50% of 1% of the
gross annual receipts for the preceding calendar based on the incoming receipts realized
within its territorial jurisdiction. The legislative purpose to withdraw tax privileges enjoyed
under existing law or charter is clearly manifested by the language used on (sic) Sections
137 and 193 categorically withdrawing such exemption subject only to the exceptions
enumerated. Since it would be not only tedious and impractical to attempt to enumerate all
the existing statutes providing for special tax exemptions or privileges, the LGC provided for
an express, albeit general, withdrawal of such exemptions or privileges. No more
unequivocal language could have been used."76(emphases supplied).

It is worth mentioning that section 192 of the LGC empowers the LGUs, through ordinances duly
approved, to grant tax exemptions, initiatives or reliefs.77 But in enacting section 37 of Ordinance No.
165-92 which imposes an annual franchise tax "notwithstanding any exemption granted by law or
other special law," the respondent city government clearly did not intend to exempt the petitioner
from the coverage thereof.

Doubtless, the power to tax is the most effective instrument to raise needed revenues to finance and
support myriad activities of the local government units for the delivery of basic services essential to
the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the
people. As this Court observed in the Mactan case, "the original reasons for the withdrawal of tax
exemption privileges granted to government-owned or 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."78 With the added burden of devolution, it is even more
imperative for government entities to share in the requirements of development, fiscal or otherwise,
by paying taxes or other charges due from them.

IN VIEW WHEREOF, the instant petition is DENIED and the assailed Decision and Resolution of the
Court of Appeals dated March 12, 2001 and July 10, 2001, respectively, are hereby AFFIRMED.

SO ORDERED.

Panganiban, Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-43082 June 18, 1937

PABLO LORENZO, as trustee of the estate of Thomas Hanley, deceased, plaintiff-appellant,

vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.

Pablo Lorenzo and Delfin Joven for plaintiff-appellant.

Office of the Solicitor-General Hilado for defendant-appellant.

LAUREL, J.:

On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity as trustee of the estate of Thomas
Hanley, deceased, brought this action in the Court of First Instance of Zamboanga against the
defendant, Juan Posadas, Jr., then the Collector of Internal Revenue, for the refund of the amount of
P2,052.74, paid by the plaintiff as inheritance tax on the estate of the deceased, and for the
collection of interst thereon at the rate of 6 per cent per annum, computed from September 15, 1932,
the date when the aforesaid tax was [paid under protest. The defendant set up a counterclaim for
P1,191.27 alleged to be interest due on the tax in question and which was not included in the
original assessment. From the decision of the Court of First Instance of Zamboanga dismissing both
the plaintiff's complaint and the defendant's counterclaim, both parties appealed to this court.

It appears that on May 27, 1922, one Thomas Hanley died in Zamboanga, Zamboanga, leaving a
will (Exhibit 5) and considerable amount of real and personal properties. On june 14, 1922,
proceedings for the probate of his will and the settlement and distribution of his estate were begun in
the Court of First Instance of Zamboanga. The will was admitted to probate. Said will provides,
among other things, as follows:

4. I direct that any money left by me be given to my nephew Matthew Hanley.

5. I direct that all real estate owned by me at the time of my death be not sold or otherwise
disposed of for a period of ten (10) years after my death, and that the same be handled and
managed by the executors, and proceeds thereof to be given to my nephew, Matthew
Hanley, at Castlemore, Ballaghaderine, County of Rosecommon, Ireland, and that he be
directed that the same be used only for the education of my brother's children and their
descendants.

6. I direct that ten (10) years after my death my property be given to the above mentioned
Matthew Hanley to be disposed of in the way he thinks most advantageous.

xxx xxx xxx

8. I state at this time I have one brother living, named Malachi Hanley, and that my nephew,
Matthew Hanley, is a son of my said brother, Malachi Hanley.

The Court of First Instance of Zamboanga considered it proper for the best interests of ther estate to
appoint a trustee to administer the real properties which, under the will, were to pass to Matthew
Hanley ten years after the two executors named in the will, was, on March 8, 1924, appointed
trustee. Moore took his oath of office and gave bond on March 10, 1924. He acted as trustee until
February 29, 1932, when he resigned and the plaintiff herein was appointed in his stead.

During the incumbency of the plaintiff as trustee, the defendant Collector of Internal Revenue,
alleging that the estate left by the deceased at the time of his death consisted of realty valued at
P27,920 and personalty valued at P1,465, and allowing a deduction of P480.81, assessed against
the estate an inheritance tax in the amount of P1,434.24 which, together with the penalties for
deliquency in payment consisting of a 1 per cent monthly interest from July 1, 1931 to the date of
payment and a surcharge of 25 per cent on the tax, amounted to P2,052.74. On March 15, 1932, the
defendant filed a motion in the testamentary proceedings pending before the Court of First Instance
of Zamboanga (Special proceedings No. 302) praying that the trustee, plaintiff herein, be ordered to
pay to the Government the said sum of P2,052.74. The motion was granted. On September 15,
1932, the plaintiff paid said amount under protest, notifying the defendant at the same time that
unless the amount was promptly refunded suit would be brought for its recovery. The defendant
overruled the plaintiff's protest and refused to refund the said amount hausted, plaintiff went to court
with the result herein above indicated.

In his appeal, plaintiff contends that the lower court erred:

I. In holding that the real property of Thomas Hanley, deceased, passed to his instituted heir,
Matthew Hanley, from the moment of the death of the former, and that from the time, the
latter became the owner thereof.

II. In holding, in effect, that there was deliquency in the payment of inheritance tax due on the
estate of said deceased.
 III. In holding that the inheritance tax in question be based upon the value of the estate upon
the death of the testator, and not, as it should have been held, upon the value thereof at the
expiration of the period of ten years after which, according to the testator's will, the property
could be and was to be delivered to the instituted heir.

IV. In not allowing as lawful deductions, in the determination of the net amount of the estate
subject to said tax, the amounts allowed by the court as compensation to the "trustees" and
paid to them from the decedent's estate.

V. In not rendering judgment in favor of the plaintiff and in denying his motion for new trial.

The defendant-appellant contradicts the theories of the plaintiff and assigns the following error
besides:

The lower court erred in not ordering the plaintiff to pay to the defendant the sum of
P1,191.27, representing part of the interest at the rate of 1 per cent per month from April 10,
1924, to June 30, 1931, which the plaintiff had failed to pay on the inheritance tax assessed
by the defendant against the estate of Thomas Hanley.

The following are the principal questions to be decided by this court in this appeal: (a) When does
the inheritance tax accrue and when must it be satisfied? (b) Should the inheritance tax be
computed on the basis of the value of the estate at the time of the testator's death, or on its value ten
years later? (c) In determining the net value of the estate subject to tax, is it proper to deduct the
compensation due to trustees? (d) What law governs the case at bar? Should the provisions of Act
No. 3606 favorable to the tax-payer be given retroactive effect? (e) Has there been deliquency in the
payment of the inheritance tax? If so, should the additional interest claimed by the defendant in his
appeal be paid by the estate? Other points of incidental importance, raised by the parties in their
briefs, will be touched upon in the course of this opinion.

(a) The accrual of the inheritance tax is distinct from the obligation to pay the same. Section 1536 as
amended, of the Administrative Code, imposes the tax upon "every transmission by virtue of
inheritance, devise, bequest, gift mortis causa, or advance in anticipation of inheritance,devise, or
bequest." The tax therefore is upon transmission or the transfer or devolution of property of a
decedent, made effective by his death. (61 C. J., p. 1592.) It is in reality an excise or privilege tax
imposed on the right to succeed to, receive, or take property by or under a will or the intestacy law,
or deed, grant, or gift to become operative at or after death. Acording to article 657 of the Civil Code,
"the rights to the succession of a person are transmitted from the moment of his death." "In other
words", said Arellano, C. J., ". . . the heirs succeed immediately to all of the property of the deceased
ancestor. The property belongs to the heirs at the moment of the death of the ancestor as
completely as if the ancestor had executed and delivered to them a deed for the same before his
death." (Bondad vs. Bondad, 34 Phil., 232. See also, Mijares vs. Nery, 3 Phil., 195; Suilong & Co.,
vs. Chio-Taysan, 12 Phil., 13; Lubrico vs. Arbado, 12 Phil., 391; Innocencio vs. Gat-Pandan, 14
Phil., 491; Aliasas vs.Alcantara, 16 Phil., 489; Ilustre vs. Alaras Frondosa, 17 Phil., 321; Malahacan
vs. Ignacio, 19 Phil., 434; Bowa vs. Briones, 38 Phil., 27; Osario vs. Osario & Yuchausti Steamship
Co., 41 Phil., 531; Fule vs. Fule, 46 Phil., 317; Dais vs. Court of First Instance of Capiz, 51 Phil.,
396; Baun vs. Heirs of Baun, 53 Phil., 654.) Plaintiff, however, asserts that while article 657 of the
Civil Code is applicable to testate as well as intestate succession, it operates only in so far as forced
heirs are concerned. But the language of article 657 of the Civil Code is broad and makes no
distinction between different classes of heirs. That article does not speak of forced heirs; it does not
even use the word "heir". It speaks of the rights of succession and the transmission thereof from the
moment of death. The provision of section 625 of the Code of Civil Procedure regarding the
authentication and probate of a will as a necessary condition to effect transmission of property does
not affect the general rule laid down in article 657 of the Civil Code. The authentication of a will
implies its due execution but once probated and allowed the transmission is effective as of the death
of the testator in accordance with article 657 of the Civil Code. Whatever may be the time when
actual transmission of the inheritance takes place, succession takes place in any event at the
moment of the decedent's death. The time when the heirs legally succeed to the inheritance may
differ from the time when the heirs actually receive such inheritance. "Poco importa", says Manresa
commenting on article 657 of the Civil Code, "que desde el falleimiento del causante, hasta que el
heredero o legatario entre en posesion de los bienes de la herencia o del legado, transcurra mucho
o poco tiempo, pues la adquisicion ha de retrotraerse al momento de la muerte, y asi lo ordena el
articulo 989, que debe considerarse como complemento del presente." (5 Manresa, 305; see also,
art. 440, par. 1, Civil Code.) Thomas Hanley having died on May 27, 1922, the inheritance tax
accrued as of the date.

From the fact, however, that Thomas Hanley died on May 27, 1922, it does not follow that the
obligation to pay the tax arose as of the date. The time for the payment on inheritance tax is clearly
fixed by section 1544 of the Revised Administrative Code as amended by Act No. 3031, in relation to
section 1543 of the same Code. The two sections follow:

SEC. 1543. Exemption of certain acquisitions and transmissions. The following shall not
be taxed:

(a) The merger of the usufruct in the owner of the naked title.

(b) The transmission or delivery of the inheritance or legacy by the fiduciary heir or
legatee to the trustees.

(c) The transmission from the first heir, legatee, or donee in favor of another
beneficiary, in accordance with the desire of the predecessor.

In the last two cases, if the scale of taxation appropriate to the new beneficiary is greater
than that paid by the first, the former must pay the difference.

SEC. 1544. When tax to be paid. The tax fixed in this article shall be paid:

(a) In the second and third cases of the next preceding section, before entrance into
possession of the property.

(b) In other cases, within the six months subsequent to the death of the predecessor;
but if judicial testamentary or intestate proceedings shall be instituted prior to the
expiration of said period, the payment shall be made by the executor or administrator
before delivering to each beneficiary his share.

If the tax is not paid within the time hereinbefore prescribed, interest at the rate of twelve per
centum per annum shall be added as part of the tax; and to the tax and interest due and
unpaid within ten days after the date of notice and demand thereof by the collector, there
shall be further added a surcharge of twenty-five per centum.

A certified of all letters testamentary or of admisitration shall be furnished the Collector of

Internal Revenue by the Clerk of Court within thirty days after their issuance.
It should be observed in passing that the word "trustee", appearing in subsection (b) of section 1543,
should read "fideicommissary" or "cestui que trust". There was an obvious mistake in translation
from the Spanish to the English version.

The instant case does fall under subsection (a), but under subsection (b), of section 1544 above-
quoted, as there is here no fiduciary heirs, first heirs, legatee or donee. Under the subsection, the
tax should have been paid before the delivery of the properties in question to P. J. M. Moore as
trustee on March 10, 1924.

(b) The plaintiff contends that the estate of Thomas Hanley, in so far as the real properties are
concerned, did not and could not legally pass to the instituted heir, Matthew Hanley, until after the
expiration of ten years from the death of the testator on May 27, 1922 and, that the inheritance tax
should be based on the value of the estate in 1932, or ten years after the testator's death. The
plaintiff introduced evidence tending to show that in 1932 the real properties in question had a
reasonable value of only P5,787. This amount added to the value of the personal property left by the
deceased, which the plaintiff admits is P1,465, would generate an inheritance tax which, excluding
deductions, interest and surcharge, would amount only to about P169.52.

If death is the generating source from which the power of the estate to impose inheritance taxes
takes its being and if, upon the death of the decedent, succession takes place and the right of the
estate to tax vests instantly, the tax should be measured by the vlaue of the estate as it stood at the
time of the decedent's death, regardless of any subsequent contingency value of any subsequent
increase or decrease in value. (61 C. J., pp. 1692, 1693; 26 R. C. L., p. 232; Blakemore and
Bancroft, Inheritance Taxes, p. 137. See also Knowlton vs. Moore, 178 U.S., 41; 20 Sup. Ct. Rep.,
747; 44 Law. ed., 969.) "The right of the state to an inheritance tax accrues at the moment of death,
and hence is ordinarily measured as to any beneficiary by the value at that time of such property as
passes to him. Subsequent appreciation or depriciation is immaterial." (Ross, Inheritance Taxation,
p. 72.)

Our attention is directed to the statement of the rule in Cyclopedia of Law of and Procedure (vol. 37,
pp. 1574, 1575) that, in the case of contingent remainders, taxation is postponed until the estate
vests in possession or the contingency is settled. This rule was formerly followed in New York and
has been adopted in Illinois, Minnesota, Massachusetts, Ohio, Pennsylvania and Wisconsin. This
rule, horever, is by no means entirely satisfactory either to the estate or to those interested in the
property (26 R. C. L., p. 231.). Realizing, perhaps, the defects of its anterior system, we find upon
examination of cases and authorities that New York has varied and now requires the immediate
appraisal of the postponed estate at its clear market value and the payment forthwith of the tax on its
out of the corpus of the estate transferred. (In re Vanderbilt, 172 N. Y., 69; 69 N. E., 782; In
re Huber, 86 N. Y. App. Div., 458; 83 N. Y. Supp., 769; Estate of Tracy, 179 N. Y., 501; 72 N. Y.,
519; Estate of Brez, 172 N. Y., 609; 64 N. E., 958; Estate of Post, 85 App. Div., 611; 82 N. Y. Supp.,
1079. Vide also, Saltoun vs. Lord Advocate, 1 Peter. Sc. App., 970; 3 Macq. H. L., 659; 23 Eng. Rul.
Cas., 888.) California adheres to this new rule (Stats. 1905, sec. 5, p. 343).

But whatever may be the rule in other jurisdictions, we hold that a transmission by inheritance is
taxable at the time of the predecessor's death, notwithstanding the postponement of the actual
possession or enjoyment of the estate by the beneficiary, and the tax measured by the value of the
property transmitted at that time regardless of its appreciation or depreciation.

(c) Certain items are required by law to be deducted from the appraised gross in arriving at the net
value of the estate on which the inheritance tax is to be computed (sec. 1539, Revised
Administrative Code). In the case at bar, the defendant and the trial court allowed a deduction of
only P480.81. This sum represents the expenses and disbursements of the executors until March
10, 1924, among which were their fees and the proven debts of the deceased. The plaintiff contends
that the compensation and fees of the trustees, which aggregate P1,187.28 (Exhibits C, AA, EE, PP,
HH, JJ, LL, NN, OO), should also be deducted under section 1539 of the Revised Administrative
Code which provides, in part, as follows: "In order to determine the net sum which must bear the tax,
when an inheritance is concerned, there shall be deducted, in case of a resident, . . . the judicial
expenses of the testamentary or intestate proceedings, . . . ."

A trustee, no doubt, is entitled to receive a fair compensation for his services (Barney vs. Saunders,
16 How., 535; 14 Law. ed., 1047). But from this it does not follow that the compensation due him
may lawfully be deducted in arriving at the net value of the estate subject to tax. There is no statute
in the Philippines which requires trustees' commissions to be deducted in determining the net value
of the estate subject to inheritance tax (61 C. J., p. 1705). Furthermore, though a testamentary trust
has been created, it does not appear that the testator intended that the duties of his executors and
trustees should be separated. (Ibid.; In re Vanneck's Estate, 161 N. Y. Supp., 893; 175 App. Div.,
363; In re Collard's Estate, 161 N. Y. Supp., 455.) On the contrary, in paragraph 5 of his will, the
testator expressed the desire that his real estate be handled and managed by his executors until the
expiration of the period of ten years therein provided. Judicial expenses are expenses of
administration (61 C. J., p. 1705) but, in State vs. Hennepin County Probate Court (112 N. W., 878;
101 Minn., 485), it was said: ". . . The compensation of a trustee, earned, not in the administration of
the estate, but in the management thereof for the benefit of the legatees or devises, does not come
properly within the class or reason for exempting administration expenses. . . . Service rendered in
that behalf have no reference to closing the estate for the purpose of a distribution thereof to those
entitled to it, and are not required or essential to the perfection of the rights of the heirs or legatees. .
. . Trusts . . . of the character of that here before the court, are created for the the benefit of those to
whom the property ultimately passes, are of voluntary creation, and intended for the preservation of
the estate. No sound reason is given to support the contention that such expenses should be taken
into consideration in fixing the value of the estate for the purpose of this tax."

(d) The defendant levied and assessed the inheritance tax due from the estate of Thomas Hanley
under the provisions of section 1544 of the Revised Administrative Code, as amended by section 3
of Act No. 3606. But Act No. 3606 went into effect on January 1, 1930. It, therefore, was not the law
in force when the testator died on May 27, 1922. The law at the time was section 1544 above-
mentioned, as amended by Act No. 3031, which took effect on March 9, 1922.

It is well-settled that inheritance taxation is governed by the statute in force at the time of the death
of the decedent (26 R. C. L., p. 206; 4 Cooley on Taxation, 4th ed., p. 3461). The taxpayer can not
foresee and ought not to be required to guess the outcome of pending measures. Of course, a tax
statute may be made retroactive in its operation. Liability for taxes under retroactive legislation has
been "one of the incidents of social life." (Seattle vs. Kelleher, 195 U. S., 360; 49 Law. ed., 232 Sup.
Ct. Rep., 44.) But legislative intent that a tax statute should operate retroactively should be perfectly
clear. (Scwab vs. Doyle, 42 Sup. Ct. Rep., 491; Smietanka vs. First Trust & Savings Bank, 257 U.
S., 602; Stockdale vs. Insurance Co., 20 Wall., 323; Lunch vs. Turrish, 247 U. S., 221.) "A statute
should be considered as prospective in its operation, whether it enacts, amends, or repeals an
inheritance tax, unless the language of the statute clearly demands or expresses that it shall have a
retroactive effect, . . . ." (61 C. J., P. 1602.) Though the last paragraph of section 5 of Regulations
No. 65 of the Department of Finance makes section 3 of Act No. 3606, amending section 1544 of the
Revised Administrative Code, applicable to all estates the inheritance taxes due from which have not
been paid, Act No. 3606 itself contains no provisions indicating legislative intent to give it retroactive
effect. No such effect can begiven the statute by this court.

The defendant Collector of Internal Revenue maintains, however, that certain provisions of Act No.
3606 are more favorable to the taxpayer than those of Act No. 3031, that said provisions are penal in
nature and, therefore, should operate retroactively in conformity with the provisions of article 22 of
the Revised Penal Code. This is the reason why he applied Act No. 3606 instead of Act No. 3031.
Indeed, under Act No. 3606, (1) the surcharge of 25 per cent is based on the tax only, instead of on
both the tax and the interest, as provided for in Act No. 3031, and (2) the taxpayer is allowed twenty
days from notice and demand by rthe Collector of Internal Revenue within which to pay the tax,
instead of ten days only as required by the old law.

Properly speaking, a statute is penal when it imposes punishment for an offense committed against
the state which, under the Constitution, the Executive has the power to pardon. In common use,
however, this sense has been enlarged to include within the term "penal statutes" all status which
command or prohibit certain acts, and establish penalties for their violation, and even those which,
without expressly prohibiting certain acts, impose a penalty upon their commission (59 C. J., p.
1110). Revenue laws, generally, which impose taxes collected by the means ordinarily resorted to
for the collection of taxes are not classed as penal laws, although there are authorities to the
contrary. (See Sutherland, Statutory Construction, 361; Twine Co. vs. Worthington, 141 U. S., 468;
12 Sup. Ct., 55; Rice vs. U. S., 4 C. C. A., 104; 53 Fed., 910; Com. vs. Standard Oil Co., 101 Pa. St.,
150; State vs. Wheeler, 44 P., 430; 25 Nev. 143.) Article 22 of the Revised Penal Code is not
applicable to the case at bar, and in the absence of clear legislative intent, we cannot give Act No.
3606 a retroactive effect.

(e) The plaintiff correctly states that the liability to pay a tax may arise at a certain time and the tax
may be paid within another given time. As stated by this court, "the mere failure to pay one's tax
does not render one delinqent until and unless the entire period has eplased within which the
taxpayer is authorized by law to make such payment without being subjected to the payment of
penalties for fasilure to pay his taxes within the prescribed period." (U. S. vs. Labadan, 26 Phil.,
239.)

The defendant maintains that it was the duty of the executor to pay the inheritance tax before the
delivery of the decedent's property to the trustee. Stated otherwise, the defendant contends that
delivery to the trustee was delivery to the cestui que trust, the beneficiery in this case, within the
meaning of the first paragraph of subsection (b) of section 1544 of the Revised Administrative Code.
This contention is well taken and is sustained. The appointment of P. J. M. Moore as trustee was
made by the trial court in conformity with the wishes of the testator as expressed in his will. It is true
that the word "trust" is not mentioned or used in the will but the intention to create one is clear. No
particular or technical words are required to create a testamentary trust (69 C. J., p. 711). The words
"trust" and "trustee", though apt for the purpose, are not necessary. In fact, the use of these two
words is not conclusive on the question that a trust is created (69 C. J., p. 714). "To create a trust by
will the testator must indicate in the will his intention so to do by using language sufficient to
separate the legal from the equitable estate, and with sufficient certainty designate the beneficiaries,
their interest in the ttrust, the purpose or object of the trust, and the property or subject matter
thereof. Stated otherwise, to constitute a valid testamentary trust there must be a concurrence of
three circumstances: (1) Sufficient words to raise a trust; (2) a definite subject; (3) a certain or
ascertain object; statutes in some jurisdictions expressly or in effect so providing." (69 C. J., pp.
705,706.) There is no doubt that the testator intended to create a trust. He ordered in his will that
certain of his properties be kept together undisposed during a fixed period, for a stated purpose. The
probate court certainly exercised sound judgment in appointment a trustee to carry into effect the
provisions of the will (see sec. 582, Code of Civil Procedure).

P. J. M. Moore became trustee on March 10, 1924. On that date trust estate vested in him (sec. 582
in relation to sec. 590, Code of Civil Procedure). The mere fact that the estate of the deceased was
placed in trust did not remove it from the operation of our inheritance tax laws or exempt it from the
payment of the inheritance tax. The corresponding inheritance tax should have been paid on or
before March 10, 1924, to escape the penalties of the laws. This is so for the reason already stated
that the delivery of the estate to the trustee was in esse delivery of the same estate to the cestui que
trust, the beneficiary in this case. A trustee is but an instrument or agent for the cestui que
trust (Shelton vs. King, 299 U. S., 90; 33 Sup. Ct. Rep., 689; 57 Law. ed., 1086). When Moore
accepted the trust and took possesson of the trust estate he thereby admitted that the estate
belonged not to him but to his cestui que trust (Tolentino vs. Vitug, 39 Phil.,126, cited in 65 C. J., p.
692, n. 63). He did not acquire any beneficial interest in the estate. He took such legal estate only as
the proper execution of the trust required (65 C. J., p. 528) and, his estate ceased upon the
fulfillment of the testator's wishes. The estate then vested absolutely in the beneficiary (65 C. J., p.
542).

The highest considerations of public policy also justify the conclusion we have reached. Were we to
hold that the payment of the tax could be postponed or delayed by the creation of a trust of the type
at hand, the result would be plainly disastrous. Testators may provide, as Thomas Hanley has
provided, that their estates be not delivered to their beneficiaries until after the lapse of a certain
period of time. In the case at bar, the period is ten years. In other cases, the trust may last for fifty
years, or for a longer period which does not offend the rule against petuities. The collection of the tax
would then be left to the will of a private individual. The mere suggestion of this result is a sufficient
warning against the accpetance of the essential to the very exeistence of government. (Dobbins vs.
Erie Country, 16 Pet., 435; 10 Law. ed., 1022; Kirkland vs. Hotchkiss, 100 U. S., 491; 25 Law. ed.,
558; Lane County vs. Oregon, 7 Wall., 71; 19 Law. ed., 101; Union Refrigerator Transit Co. vs.
Kentucky, 199 U. S., 194; 26 Sup. Ct. Rep., 36; 50 Law. ed., 150; Charles River Bridge vs. Warren
Bridge, 11 Pet., 420; 9 Law. ed., 773.) The obligation to pay taxes rests not upon the privileges
enjoyed by, or the protection afforded to, a citizen by the government but upon the necessity of
money for the support of the state (Dobbins vs. Erie Country, supra). For this reason, no one is
allowed to object to or resist the payment of taxes solely because no personal benefit to him can be
pointed out. (Thomas vs. Gay, 169 U. S., 264; 18 Sup. Ct. Rep., 340; 43 Law. ed., 740.) While
courts will not enlarge, by construction, the government's power of taxation (Bromley vs. McCaughn,
280 U. S., 124; 74 Law. ed., 226; 50 Sup. Ct. Rep., 46) they also will not place upon tax laws so
loose a construction as to permit evasions on merely fanciful and insubstantial distictions. (U. S. vs.
Watts, 1 Bond., 580; Fed. Cas. No. 16,653; U. S. vs. Wigglesirth, 2 Story, 369; Fed. Cas. No.
16,690, followed in Froelich & Kuttner vs. Collector of Customs, 18 Phil., 461, 481; Castle Bros.,
Wolf & Sons vs. McCoy, 21 Phil., 300; Muoz & Co. vs. Hord, 12 Phil., 624; Hongkong & Shanghai
Banking Corporation vs. Rafferty, 39 Phil., 145; Luzon Stevedoring Co. vs. Trinidad, 43 Phil., 803.)
When proper, a tax statute should be construed to avoid the possibilities of tax evasion. Construed
this way, the statute, without resulting in injustice to the taxpayer, becomes fair to the government.

That taxes must be collected promptly is a policy deeply intrenched in our tax system. Thus, no court
is allowed to grant injunction to restrain the collection of any internal revenue tax ( sec. 1578,
Revised Administrative Code; Sarasola vs. Trinidad, 40 Phil., 252). In the case of Lim Co Chui vs.
Posadas (47 Phil., 461), this court had occassion to demonstrate trenchment adherence to this
policy of the law. It held that "the fact that on account of riots directed against the Chinese on
October 18, 19, and 20, 1924, they were prevented from praying their internal revenue taxes on time
and by mutual agreement closed their homes and stores and remained therein, does not authorize
the Collector of Internal Revenue to extend the time prescribed for the payment of the taxes or to
accept them without the additional penalty of twenty five per cent." (Syllabus, No. 3.)

". . . It is of the utmost importance," said the Supreme Court of the United States, ". . . that the
modes adopted to enforce the taxes levied should be interfered with as little as possible. Any delay
in the proceedings of the officers, upon whom the duty is developed of collecting the taxes, may
derange the operations of government, and thereby, cause serious detriment to the public." (Dows
vs. Chicago, 11 Wall., 108; 20 Law. ed., 65, 66; Churchill and Tait vs. Rafferty, 32 Phil., 580.)

It results that the estate which plaintiff represents has been delinquent in the payment of inheritance
tax and, therefore, liable for the payment of interest and surcharge provided by law in such cases.
The delinquency in payment occurred on March 10, 1924, the date when Moore became trustee.
The interest due should be computed from that date and it is error on the part of the defendant to
compute it one month later. The provisions cases is mandatory (see and cf. Lim Co Chui vs.
Posadas, supra), and neither the Collector of Internal Revenuen or this court may remit or decrease
such interest, no matter how heavily it may burden the taxpayer.

To the tax and interest due and unpaid within ten days after the date of notice and demand thereof
by the Collector of Internal Revenue, a surcharge of twenty-five per centum should be added (sec.
1544, subsec. (b), par. 2, Revised Administrative Code). Demand was made by the Deputy Collector
of Internal Revenue upon Moore in a communiction dated October 16, 1931 (Exhibit 29). The date
fixed for the payment of the tax and interest was November 30, 1931. November 30 being an official
holiday, the tenth day fell on December 1, 1931. As the tax and interest due were not paid on that
date, the estate became liable for the payment of the surcharge.

In view of the foregoing, it becomes unnecessary for us to discuss the fifth error assigned by the
plaintiff in his brief.

We shall now compute the tax, together with the interest and surcharge due from the estate of
Thomas Hanley inaccordance with the conclusions we have reached.

At the time of his death, the deceased left real properties valued at P27,920 and personal properties
worth P1,465, or a total of P29,385. Deducting from this amount the sum of P480.81, representing
allowable deductions under secftion 1539 of the Revised Administrative Code, we have P28,904.19
as the net value of the estate subject to inheritance tax.

The primary tax, according to section 1536, subsection (c), of the Revised Administrative Code,
should be imposed at the rate of one per centum upon the first ten thousand pesos and two per
centum upon the amount by which the share exceed thirty thousand pesos, plus an additional two
hundred per centum. One per centum of ten thousand pesos is P100. Two per centum of
P18,904.19 is P378.08. Adding to these two sums an additional two hundred per centum, or
P965.16, we have as primary tax, correctly computed by the defendant, the sum of P1,434.24.

To the primary tax thus computed should be added the sums collectible under section 1544 of the
Revised Administrative Code. First should be added P1,465.31 which stands for interest at the rate
of twelve per centum per annum from March 10, 1924, the date of delinquency, to September 15,
1932, the date of payment under protest, a period covering 8 years, 6 months and 5 days. To the tax
and interest thus computed should be added the sum of P724.88, representing a surhcarge of 25
per cent on both the tax and interest, and also P10, the compromise sum fixed by the defendant
(Exh. 29), giving a grand total of P3,634.43.

As the plaintiff has already paid the sum of P2,052.74, only the sums of P1,581.69 is legally due
from the estate. This last sum is P390.42 more than the amount demanded by the defendant in his
counterclaim. But, as we cannot give the defendant more than what he claims, we must hold that the
plaintiff is liable only in the sum of P1,191.27 the amount stated in the counterclaim.

The judgment of the lower court is accordingly modified, with costs against the plaintiff in both
instances. So ordered.

Avancea, C.J., Abad Santos, Imperial, Diaz and Concepcion, JJ., concur.
Villa-Real, J., concurs.
G.R. No. L-28896 February 17, 1988

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.

CRUZ, J.:

Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On the other hand, such collection
should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to
reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion
of the common good, may be achieved.

The main issue in this case is whether or not the Collector of Internal Revenue correctly disallowed
the P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in
its income tax returns. The corollary issue is whether or not the appeal of the private respondent
from the decision of the Collector of Internal Revenue was made on time and in accordance with
law.

We deal first with the procedural question.

The record shows that on January 14, 1965, the private respondent, a domestic corporation
engaged in engineering, construction and other allied activities, received a letter from the petitioner
assessing it in the total amount of P83,183.85 as delinquency income taxes for the years 1958 and
1959.1 On January 18, 1965, Algue flied a letter of protest or request for reconsideration, which letter
was stamp received on the same day in the office of the petitioner. 2 On March 12, 1965, a warrant of
distraint and levy was presented to the private respondent, through its counsel, Atty. Alberto
Guevara, Jr., who refused to receive it on the ground of the pending protest. 3 A search of the protest
in the dockets of the case proved fruitless. Atty. Guevara produced his file copy and gave a
photostat to BIR agent Ramon Reyes, who deferred service of the warrant. 4 On April 7, 1965, Atty.
Guevara was finally informed that the BIR was not taking any action on the protest and it was only
then that he accepted the warrant of distraint and levy earlier sought to be served.5 Sixteen days
later, on April 23, 1965, Algue filed a petition for review of the decision of the Commissioner of
Internal Revenue with the Court of Tax Appeals.6

The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125,
the appeal may be made within thirty days after receipt of the decision or ruling challenged.7 It is true
that as a rule the warrant of distraint and levy is "proof of the finality of the assessment" 8 and
renders hopeless a request for reconsideration," 9 being "tantamount to an outright denial thereof
and makes the said request deemed rejected." 10 But there is a special circumstance in the case at
bar that prevents application of this accepted doctrine.

The proven fact is that four days after the private respondent received the petitioner's notice of
assessment, it filed its letter of protest. This was apparently not taken into account before the
warrant of distraint and levy was issued; indeed, such protest could not be located in the office of the
petitioner. It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all,
considered by the tax authorities. During the intervening period, the warrant was premature and
could therefore not be served.

As the Court of Tax Appeals correctly noted," 11 the protest filed by private respondent was not pro
forma and was based on strong legal considerations. It thus had the effect of suspending on January
18, 1965, when it was filed, the reglementary period which started on the date the assessment was
received, viz., January 14, 1965. The period started running again only on April 7, 1965, when the
private respondent was definitely informed of the implied rejection of the said protest and the warrant
was finally served on it. Hence, when the appeal was filed on April 23, 1965, only 20 days of the
reglementary period had been consumed.

Now for the substantive question.

The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because
it was not an ordinary reasonable or necessary business expense. The Court of Tax Appeals had
seen it differently. Agreeing with Algue, it held that the said amount had been legitimately paid by the
private respondent for actual services rendered. The payment was in the form of promotional fees.
These were collected by the Payees for their work in the creation of the Vegetable Oil Investment
Corporation of the Philippines and its subsequent purchase of the properties of the Philippine Sugar
Estate Development Company.

Parenthetically, it may be observed that the petitioner had Originally claimed these promotional fees
to be personal holding company income 12 but later conformed to the decision of the respondent
court rejecting this assertion.13 In fact, as the said court found, the amount was earned through the
joint efforts of the persons among whom it was distributed It has been established that the Philippine
Sugar Estate Development Company had earlier appointed Algue as its agent, authorizing it to sell
its land, factories and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr.,
Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of
the Vegetable Oil Investment Corporation, inducing other persons to invest in it.14 Ultimately, after its
incorporation largely through the promotion of the said persons, this new corporation purchased the
PSEDC properties.15 For this sale, Algue received as agent a commission of P126,000.00, and it was
from this commission that the P75,000.00 promotional fees were paid to the aforenamed
individuals.16

There is no dispute that the payees duly reported their respective shares of the fees in their income
tax returns and paid the corresponding taxes thereon.17 The Court of Tax Appeals also found, after
examining the evidence, that no distribution of dividends was involved.18

The petitioner claims that these payments are fictitious because most of the payees are members of
the same family in control of Algue. It is argued that no indication was made as to how such
payments were made, whether by check or in cash, and there is not enough substantiation of such
payments. In short, the petitioner suggests a tax dodge, an attempt to evade a legitimate
assessment by involving an imaginary deduction.

We find that these suspicions were adequately met by the private respondent when its President,
Alberto Guevara, and the accountant, Cecilia V. de Jesus, testified that the payments were not made
in one lump sum but periodically and in different amounts as each payee's need arose. 19 It should be
remembered that this was a family corporation where strict business procedures were not applied
and immediate issuance of receipts was not required. Even so, at the end of the year, when the
books were to be closed, each payee made an accounting of all of the fees received by him or her,
to make up the total of P75,000.00. 20 Admittedly, everything seemed to be informal. This
arrangement was understandable, however, in view of the close relationship among the persons in
the family corporation.

We agree with the respondent court that the amount of the promotional fees was not excessive. The
total commission paid by the Philippine Sugar Estate Development Co. to the private respondent
was P125,000.00. 21After deducting the said fees, Algue still had a balance of P50,000.00 as clear
profit from the transaction. The amount of P75,000.00 was 60% of the total commission. This was a
reasonable proportion, considering that it was the payees who did practically everything, from the
formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar
Estate properties. This finding of the respondent court is in accord with the following provision of the
Tax Code:

SEC. 30. Deductions from gross income.--In computing net income there shall be
allowed as deductions

(a) Expenses:

(1) In general.--All the ordinary and necessary expenses paid or incurred during the
taxable year in carrying on any trade or business, including a reasonable allowance
for salaries or other compensation for personal services actually rendered; ... 22

and Revenue Regulations No. 2, Section 70 (1), reading as follows:

SEC. 70. Compensation for personal services.--Among the ordinary and necessary
expenses paid or incurred in carrying on any trade or business may be included a
reasonable allowance for salaries or other compensation for personal services
actually rendered. The test of deductibility in the case of compensation payments is
whether they are reasonable and are, in fact, payments purely for service. This test
and deductibility in the case of compensation payments is whether they are
reasonable and are, in fact, payments purely for service. This test and its practical
application may be further stated and illustrated as follows:

Any amount paid in the form of compensation, but not in fact as the purchase price of
services, is not deductible. (a) An ostensible salary paid by a corporation may be a
distribution of a dividend on stock. This is likely to occur in the case of a corporation
having few stockholders, Practically all of whom draw salaries. If in such a case the
salaries are in excess of those ordinarily paid for similar services, and the excessive
payment correspond or bear a close relationship to the stockholdings of the officers
of employees, it would seem likely that the salaries are not paid wholly for services
rendered, but the excessive payments are a distribution of earnings upon the stock. .
. . (Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.)

It is worth noting at this point that most of the payees were not in the regular employ of Algue nor
were they its controlling stockholders. 23

The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity
of the claimed deduction. In the present case, however, we find that the onus has been discharged
satisfactorily. The private respondent has proved that the payment of the fees was necessary and
reasonable in the light of the efforts exerted by the payees in inducing investors and prominent
businessmen to venture in an experimental enterprise and involve themselves in a new business
requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently
recompensed.

It is said that taxes are what we pay for civilization society. Without taxes, the government would be
paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one's hard earned income to the taxing authorities, every person who
is able to must contribute his share in the running of the government. The government for its part, is
expected to respond in the form of tangible and intangible benefits intended to improve the lives of
the people and enhance their moral and material values. This symbiotic relationship is the rationale
of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those
in the seat of power.

But even as we concede the inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his
succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the
taxpayer can demonstrate, as it has here, that the law has not been observed.

We hold that the appeal of the private respondent from the decision of the petitioner was filed on
time with the respondent court in accordance with Rep. Act No. 1125. And we also find that the
claimed deduction by the private respondent was permitted under the Internal Revenue Code and
should therefore not have been disallowed by the petitioner.

ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in toto, without
costs.

SO ORDERED.

Teehankee, C.J., Narvasa, Gancayco and Grio-Aquino, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L- 41383 August 15, 1988

PHILIPPINE AIRLINES, INC., plaintiff-appellant,

vs.
ROMEO F. EDU in his capacity as Land Transportation Commissioner, and UBALDO
CARBONELL, in his capacity as National Treasurer, defendants-appellants.

Ricardo V. Puno, Jr. and Conrado A. Boro for plaintiff-appellant.

GUTIERREZ, JR., J.:

What is the nature of motor vehicle registration fees? Are they taxes or regulatory fees?

This question has been brought before this Court in the past. The parties are, in effect, asking for a
re-examination of the latest decision on this issue.

This appeal was certified to us as one involving a pure question of law by the Court of Appeals in a
case where the then Court of First Instance of Rizal dismissed the portion-about complaint for refund
of registration fees paid under protest.
The disputed registration fees were imposed by the appellee, Commissioner Romeo F. Elevate
pursuant to Section 8, Republic Act No. 4136, otherwise known as the Land Transportation and
Traffic Code.

The Philippine Airlines (PAL) is a corporation organized and existing under the laws of the
Philippines and engaged in the air transportation business under a legislative franchise, Act No.
42739, as amended by Republic Act Nos. 25). and 269.1 Under its franchise, PAL is exempt from
the payment of taxes. The pertinent provision of the franchise provides as follows:

Section 13. In consideration of the franchise and rights hereby granted, the grantee
shall pay to the National Government during the life of this franchise a tax of two per
cent of the gross revenue or gross earning derived by the grantee from its operations
under this franchise. Such tax shall be due and payable quarterly and shall be in lieu
of all taxes of any kind, nature or description, levied, established or collected by any
municipal, provincial or national automobiles, Provided, that if, after the audit of the
accounts of the grantee by the Commissioner of Internal Revenue, a deficiency tax is
shown to be due, the deficiency tax shall be payable within the ten days from the
receipt of the assessment. The grantee shall pay the tax on its real property in
conformity with existing law.

On the strength of an opinion of the Secretary of Justice (Op. No. 307, series of 1956) PAL has,
since 1956, not been paying motor vehicle registration fees.

Sometime in 1971, however, appellee Commissioner Romeo F. Elevate issued a regulation requiring
all tax exempt entities, among them PAL to pay motor vehicle registration fees.

Despite PAL's protestations, the appellee refused to register the appellant's motor vehicles unless
the amounts imposed under Republic Act 4136 were paid. The appellant thus paid, under protest,
the amount of P19,529.75 as registration fees of its motor vehicles.

After paying under protest, PAL through counsel, wrote a letter dated May 19,1971, to
Commissioner Edu demanding a refund of the amounts paid, invoking the ruling in Calalang v.
Lorenzo (97 Phil. 212 [1951]) where it was held that motor vehicle registration fees are in reality
taxes from the payment of which PAL is exempt by virtue of its legislative franchise.

Appellee Edu denied the request for refund basing his action on the decision in Republic v.
Philippine Rabbit Bus Lines, Inc., (32 SCRA 211, March 30, 1970) to the effect that motor vehicle
registration fees are regulatory exceptional. and not revenue measures and, therefore, do not come
within the exemption granted to PAL? under its franchise. Hence, PAL filed the complaint against
Land Transportation Commissioner Romeo F. Edu and National Treasurer Ubaldo Carbonell with
the Court of First Instance of Rizal, Branch 18 where it was docketed as Civil Case No. Q-15862.

Appellee Romeo F. Elevate in his capacity as LTC Commissioner, and LOI Carbonell in his capacity
as National Treasurer, filed a motion to dismiss alleging that the complaint states no cause of action.
In support of the motion to dismiss, defendants repatriation the ruling in Republic v. Philippine Rabbit
Bus Lines, Inc., (supra) that registration fees of motor vehicles are not taxes, but regulatory fees
imposed as an incident of the exercise of the police power of the state. They contended that while
Act 4271 exempts PAL from the payment of any tax except two per cent on its gross revenue or
earnings, it does not exempt the plaintiff from paying regulatory fees, such as motor vehicle
registration fees. The resolution of the motion to dismiss was deferred by the Court until after trial on
the merits.
On April 24, 1973, the trial court rendered a decision dismissing the appellant's complaint "moved by
the later ruling laid down by the Supreme Court in the case or Republic v. Philippine Rabbit Bus
Lines, Inc., (supra)." From this judgment, PAL appealed to the Court of Appeals which certified the
case to us.

Calalang v. Lorenzo (supra) and Republic v. Philippine Rabbit Bus Lines, Inc. (supra) cited by PAL
and Commissioner Romeo F. Edu respectively, discuss the main points of contention in the case at
bar.

Resolving the issue in the Philippine Rabbit case, this Court held:

"The registration fee which defendant-appellee had to pay was imposed by Section 8
of the Revised Motor Vehicle Law (Republic Act No. 587 [1950]). Its heading speaks
of "registration fees." The term is repeated four times in the body thereof. Equally so,
mention is made of the "fee for registration." (Ibid., Subsection G) A subsection starts
with a categorical statement "No fees shall be charged." (lbid.,Subsection H) The
conclusion is difficult to resist therefore that the Motor Vehicle Act requires the
payment not of a tax but of a registration fee under the police power. Hence the
incipient, of the section relied upon by defendant-appellee under the Back Pay Law,
It is not held liable for a tax but for a registration fee. It therefore cannot make use of
a backpay certificate to meet such an obligation.

Any vestige of any doubt as to the correctness of the above conclusion should be
dissipated by Republic Act No. 5448. ([1968]. Section 3 thereof as to the imposition
of additional tax on privately-owned passenger automobiles, motorcycles and
scooters was amended by Republic Act No. 5470 which is (sic) approved on May 30,
1969.) A special science fund was thereby created and its title expressly sets forth
that a tax on privately-owned passenger automobiles, motorcycles and scooters was
imposed. The rates thereof were provided for in its Section 3 which clearly specifies
the" Philippine tax."(Cooley to be paid as distinguished from the registration fee
under the Motor Vehicle Act. There cannot be any clearer expression therefore of the
legislative will, even on the assumption that the earlier legislation could by
subdivision the point be susceptible of the interpretation that a tax rather than a fee
was levied. What is thus most apparent is that where the legislative body relies on its
authority to tax it expressly so states, and where it is enacting a regulatory measure,
it is equally exploded (at p. 22,1969

In direct refutation is the ruling in Calalang v. Lorenzo (supra), where the Court, on the other hand,
held:

The charges prescribed by the Revised Motor Vehicle Law for the registration of
motor vehicles are in section 8 of that law called "fees". But the appellation is no
impediment to their being considered taxes if taxes they really are. For not the name
but the object of the charge determines whether it is a tax or a fee. Geveia speaking,
taxes are for revenue, whereas fees are exceptional. for purposes of regulation and
inspection and are for that reason limited in amount to what is necessary to cover the
cost of the services rendered in that connection. Hence, a charge fixed by statute for
the service to be person,-When by an officer, where the charge has no relation to the
value of the services performed and where the amount collected eventually finds its
way into the treasury of the branch of the government whose officer or officers
collected the chauffeur, is not a fee but a tax."(Cooley on Taxation, Vol. 1, 4th ed., p.
110.)
 From the data submitted in the court below, it appears that the expenditures of the
Motor Vehicle Office are but a small portionabout 5 per centumof the total
collections from motor vehicle registration fees. And as proof that the money
collected is not intended for the expenditures of that office, the law itself provides that
all such money shall accrue to the funds for the construction and maintenance of
public roads, streets and bridges. It is thus obvious that the fees are not collected for
regulatory purposes, that is to say, as an incident to the enforcement of regulations
governing the operation of motor vehicles on public highways, for their express
object is to provide revenue with which the Government is to discharge one of its
principal functionsthe construction and maintenance of public highways for
everybody's use. They are veritable taxes, not merely fees.

As a matter of fact, the Revised Motor Vehicle Law itself now regards those fees as
taxes, for it provides that "no other taxes or fees than those prescribed in this Act
shall be imposed," thus implying that the charges therein imposedthough called
feesare of the category of taxes. The provision is contained in section 70, of
subsection (b), of the law, as amended by section 17 of Republic Act 587, which
reads:

Sec. 70(b) No other taxes or fees than those prescribed in this Act
shall be imposed for the registration or operation or on the ownership
of any motor vehicle, or for the exercise of the profession of
chauffeur, by any municipal corporation, the provisions of any city
charter to the contrary notwithstanding: Provided, however, That any
provincial board, city or municipal council or board, or other
competent authority may exact and collect such reasonable and
equitable toll fees for the use of such bridges and ferries, within their
respective jurisdiction, as may be authorized and approved by the
Secretary of Public Works and Communications, and also for the use
of such public roads, as may be authorized by the President of the
Philippines upon the recommendation of the Secretary of Public
Works and Communications, but in none of these cases, shall any toll
fee." be charged or collected until and unless the approved schedule
of tolls shall have been posted levied, in a conspicuous place at such
toll station. (at pp. 213-214)

Motor vehicle registration fees were matters originally governed by the Revised Motor Vehicle Law
(Act 3992 [19511) as amended by Commonwealth Act 123 and Republic Acts Nos. 587 and 1621.

Today, the matter is governed by Rep. Act 4136 [1968]), otherwise known as the Land
Transportation Code, (as amended by Rep. Acts Nos. 5715 and 64-67, P.D. Nos. 382, 843, 896,
110.) and BP Blg. 43, 74 and 398).

Section 73 of Commonwealth Act 123 (which amended Sec. 73 of Act 3992 and remained
unsegregated, by Rep. Act Nos. 587 and 1603) states:

Section 73. Disposal of moneys collected.Twenty per centum of the money

collected under the provisions of this Act shall accrue to the road and bridge funds of
the different provinces and chartered cities in proportion to the centum shall during
the next previous year and the remaining eighty per centum shall be deposited in the
Philippine Treasury to create a special fund for the construction and maintenance of
national and provincial roads and bridges. as well as the streets and bridges in the
 chartered cities to be alloted by the Secretary of Public Works and Communications
for projects recommended by the Director of Public Works in the different provinces
and chartered cities. ....

Presently, Sec. 61 of the Land Transportation and Traffic Code provides:

Sec. 61. Disposal of Mortgage. CollectedMonies collected under the provisions of

this Act shall be deposited in a special trust account in the National Treasury to
constitute the Highway Special Fund, which shall be apportioned and expended in
accordance with the provisions of the" Philippine Highway Act of 1935. "Provided,
however, That the amount necessary to maintain and equip the Land Transportation
Commission but not to exceed twenty per cent of the total collection during one year,
shall be set aside for the purpose. (As amended by RA 64-67, approved August 6,
1971).

It appears clear from the above provisions that the legislative intent and purpose behind the law
requiring owners of vehicles to pay for their registration is mainly to raise funds for the construction
and maintenance of highways and to a much lesser degree, pay for the operating expenses of the
administering agency. On the other hand, the Philippine Rabbit case mentions a presumption arising
from the use of the term "fees," which appears to have been favored by the legislature to distinguish
fees from other taxes such as those mentioned in Section 13 of Rep. Act 4136 which reads:

Sec. 13. Payment of taxes upon registration.No original registration of motor

vehicles subject to payment of taxes, customs s duties or other charges shall be
accepted unless proof of payment of the taxes due thereon has been presented to
the Commission.

referring to taxes other than those imposed on the registration, operation or ownership of a motor
vehicle (Sec. 59, b, Rep. Act 4136, as amended).

Fees may be properly regarded as taxes even though they also serve as an instrument of regulation,
As stated by a former presiding judge of the Court of Tax Appeals and writer on various aspects of
taxpayers

It is possible for an exaction to be both tax arose. regulation. License fees are
changes. looked to as a source of revenue as well as a means of regulation
(Sonzinky v. U.S., 300 U.S. 506) This is true, for example, of automobile license
fees. Isabela such case, the fees may properly be regarded as taxes even though
they also serve as an instrument of regulation. If the purpose is primarily revenue, or
if revenue is at least one of the real and substantial purposes, then the exaction is
properly called a tax. (1955 CCH Fed. tax Course, Par. 3101, citing Cooley on
Taxation (2nd Ed.) 592, 593; Calalang v. Lorenzo. 97 Phil. 213-214) Lutz v. Araneta
98 Phil. 198.) These exactions are sometimes called regulatory taxes. (See Secs.
4701, 4711, 4741, 4801, 4811, 4851, and 4881, U.S. Internal Revenue Code of
1954, which classify taxes on tobacco and alcohol as regulatory taxes.) (Umali,
Reviewer in Taxation, 1980, pp. 12-13, citing Cooley on Taxation, 2nd Edition, 591-
593).

Indeed, taxation may be made the implement of the state's police power (Lutz v. Araneta, 98 Phil.
148).
If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial
purposes, then the exaction is properly called a tax (Umali, Id.) Such is the case of motor vehicle
registration fees. The conclusions become inescapable in view of Section 70(b) of Rep. Act 587
quoted in the Calalang case. The same provision appears as Section 591-593). in the Land
Transportation code. It is patent therefrom that the legislators had in mind a regulatory tax as the law
refers to the imposition on the registration, operation or ownership of a motor vehicle as a "tax or
fee." Though nowhere in Rep. Act 4136 does the law specifically state that the imposition is a tax,
Section 591-593). speaks of "taxes." or fees ... for the registration or operation or on the ownership
of any motor vehicle, or for the exercise of the profession of chauffeur ..." making the intent to
impose a tax more apparent. Thus, even Rep. Act 5448 cited by the respondents, speak of an
"additional" tax," where the law could have referred to an original tax and not one in addition to the
tax already imposed on the registration, operation, or ownership of a motor vehicle under Rep. Act
41383. Simply put, if the exaction under Rep. Act 4136 were merely a regulatory fee, the imposition
in Rep. Act 5448 need not be an "additional" tax. Rep. Act 4136 also speaks of other "fees," such as
the special permit fees for certain types of motor vehicles (Sec. 10) and additional fees for change of
registration (Sec. 11). These are not to be understood as taxes because such fees are very minimal
to be revenue-raising. Thus, they are not mentioned by Sec. 591-593). of the Code as taxes like the
motor vehicle registration fee and chauffers' license fee. Such fees are to go into the expenditures of
the Land Transportation Commission as provided for in the last proviso of see. 61, aforequoted.

It is quite apparent that vehicle registration fees were originally simple exceptional. intended only for
rigidly purposes in the exercise of the State's police powers. Over the years, however, as vehicular
traffic exploded in number and motor vehicles became absolute necessities without which modem
life as we know it would stand still, Congress found the registration of vehicles a very convenient
way of raising much needed revenues. Without changing the earlier deputy. of registration payments
as "fees," their nature has become that of "taxes."

In view of the foregoing, we rule that motor vehicle registration fees as at present exacted pursuant
to the Land Transportation and Traffic Code are actually taxes intended for additional revenues. of
government even if one fifth or less of the amount collected is set aside for the operating expenses
of the agency administering the program.

May the respondent administrative agency be required to refund the amounts stated in the complaint
of PAL?

The answer is NO.

The claim for refund is made for payments given in 1971. It is not clear from the records as to what
payments were made in succeeding years. We have ruled that Section 24 of Rep. Act No. 5448
dated June 27, 1968, repealed all earlier tax exemptions Of corporate taxpayers found in legislative
franchises similar to that invoked by PAL in this case.

In Radio Communications of the Philippines, Inc. v. Court of Tax Appeals, et al. (G.R. No. 615)." July
11, 1985), this Court ruled:

Under its original franchise, Republic Act No. 21); enacted in 1957, petitioner Radio
Communications of the Philippines, Inc., was subject to both the franchise tax and
income tax. In 1964, however, petitioner's franchise was amended by Republic Act
No. 41-42). to the effect that its franchise tax of one and one-half percentum (1-1/2%)
of all gross receipts was provided as "in lieu of any and all taxes of any kind, nature,
or description levied, established, or collected by any authority whatsoever,
municipal, provincial, or national from which taxes the grantee is hereby expressly
 exempted." The issue raised to this Court now is the validity of the respondent court's
decision which ruled that the exemption under Republic Act No. 41-42). was
repealed by Section 24 of Republic Act No. 5448 dated June 27, 1968 which reads:

"(d) The provisions of existing special or general laws to the contrary

notwithstanding, all corporate taxpayers not specifically exempt under
Sections 24 (c) (1) of this Code shall pay the rates provided in this
section. All corporations, agencies, or instrumentalities owned or
controlled by the government, including the Government Service
Insurance System and the Social Security System but excluding
educational institutions, shall pay such rate of tax upon their taxable
net income as are imposed by this section upon associations or
corporations engaged in a similar business or industry. "

An examination of Section 24 of the Tax Code as amended shows clearly that the
law intended all corporate taxpayers to pay income tax as provided by the statute.
There can be no doubt as to the power of Congress to repeal the earlier exemption it
granted. Article XIV, Section 8 of the 1935 Constitution and Article XIV, Section 5 of
the Constitution as amended in 1973 expressly provide that no franchise shall be
granted to any individual, firm, or corporation except under the condition that it shall
be subject to amendment, alteration, or repeal by the legislature when the public
interest so requires. There is no question as to the public interest involved. The
country needs increased revenues. The repealing clause is clear and unambiguous.
There is a listing of entities entitled to tax exemption. The petitioner is not covered by
the provision. Considering the foregoing, the Court Resolved to DENY the petition for
lack of merit. The decision of the respondent court is affirmed.

Any registration fees collected between June 27, 1968 and April 9, 1979, were correctly imposed
because the tax exemption in the franchise of PAL was repealed during the period. However, an
amended franchise was given to PAL in 1979. Section 13 of Presidential Decree No. 1590, now
provides:

In consideration of the franchise and rights hereby granted, the grantee shall pay to
the Philippine Government during the lifetime of this franchise whichever of
subsections (a) and (b) hereunder will result in a lower taxes.)

(a) The basic corporate income tax based on the grantee's annual net
taxable income computed in accordance with the provisions of the
Internal Revenue Code; or

(b) A franchise tax of two per cent (2%) of the gross revenues.
derived by the grantees from all specific. without distinction as to
transport or nontransport corporations; provided that with respect to
international airtransport service, only the gross passengers, mail,
and freight revenues. from its outgoing flights shall be subject to this
law.

The tax paid by the grantee under either of the above alternatives shall be in lieu of
all other taxes, duties, royalties, registration, license and other fees and charges of
any kind, nature or description imposed, levied, established, assessed, or collected
by any municipal, city, provincial, or national authority or government, agency, now or
in the future, including but not limited to the following:
 xxx xxx xxx

(5) All taxes, fees and other charges on the registration, license, acquisition, and
transfer of airtransport equipment, motor vehicles, and all other personal or real
property of the gravitates (Pres. Decree 1590, 75 OG No. 15, 3259, April 9, 1979).

PAL's current franchise is clear and specific. It has removed the ambiguity found in the earlier law.
PAL is now exempt from the payment of any tax, fee, or other charge on the registration and
licensing of motor vehicles. Such payments are already included in the basic tax or franchise tax
provided in Subsections (a) and (b) of Section 13, P.D. 1590, and may no longer be exacted.

WHEREFORE, the petition is hereby partially GRANTED. The prayed for refund of registration fees
paid in 1971 is DENIED. The Land Transportation Franchising and Regulatory Board (LTFRB) is
enjoined functions-the collecting any tax, fee, or other charge on the registration and licensing of the
petitioner's motor vehicles from April 9, 1979 as provided in Presidential Decree No. 1590.

SO ORDERED.

Fernan, C.J., Narvasa, Melencio-Herrera, Cruz, Paras, Feliciano, Gancayco, Padilla, Bidin,
Sarmiento, Cortes, Grio Aquino and Medialdea, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 115455 October 30, 1995

ARTURO M. TOLENTINO, petitioner,

vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE, respondents.

G.R. No. 115525 October 30, 1995

JUAN T. DAVID, petitioner,

vs.
TEOFISTO T. GUINGONA, JR., as Executive Secretary; ROBERTO DE OCAMPO, as Secretary
of Finance; LIWAYWAY VINZONS-CHATO, as Commissioner of Internal Revenue; and their
AUTHORIZED AGENTS OR REPRESENTATIVES, respondents.

G.R. No. 115543 October 30, 1995

RAUL S. ROCO and the INTEGRATED BAR OF THE PHILIPPINES, petitioners,

vs.
THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE COMMISSIONERS OF THE
BUREAU OF INTERNAL REVENUE AND BUREAU OF CUSTOMS, respondents.
G.R. No. 115544 October 30, 1995

PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO., INC.; KAMAHALAN PUBLISHING
CORPORATION; PHILIPPINE JOURNALISTS, INC.; JOSE L. PAVIA; and OFELIA L.
DIMALANTA, petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as Commissioner of Internal Revenue; HON.
TEOFISTO T. GUINGONA, JR., in his capacity as Executive Secretary; and HON. ROBERTO B.
DE OCAMPO, in his capacity as Secretary of Finance, respondents.

G.R. No. 115754 October 30, 1995

CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC., (CREBA), petitioner,

vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.

G.R. No. 115781 October 30, 1995

KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS, ERME CAMBA, EMILIO C.

CAPULONG, JR., JOSE T. APOLO, EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE
ABCEDE, CHRISTINE TAN, FELIPE L. GOZON, RAFAEL G. FERNANDO, RAOUL V.
VICTORINO, JOSE CUNANAN, QUINTIN S. DOROMAL, MOVEMENT OF ATTORNEYS FOR
BROTHERHOOD, INTEGRITY AND NATIONALISM, INC. ("MABINI"), FREEDOM FROM DEBT
COALITION, INC., and PHILIPPINE BIBLE SOCIETY, INC. and WIGBERTO
TAADA, petitioners,
vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE, THE COMMISSIONER OF
INTERNAL REVENUE and THE COMMISSIONER OF CUSTOMS, respondents.

G.R. No. 115852 October 30, 1995

PHILIPPINE AIRLINES, INC., petitioner,

vs.
THE SECRETARY OF FINANCE and COMMISSIONER OF INTERNAL REVENUE, respondents.

G.R. No. 115873 October 30, 1995

COOPERATIVE UNION OF THE PHILIPPINES, petitioner,

vs.
HON. LIWAYWAY V. CHATO, in her capacity as the Commissioner of Internal Revenue, HON.
TEOFISTO T. GUINGONA, JR., in his capacity as Executive Secretary, and HON. ROBERTO B.
DE OCAMPO, in his capacity as Secretary of Finance, respondents.

G.R. No. 115931 October 30, 1995

PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC. and ASSOCIATION OF

PHILIPPINE BOOK SELLERS, petitioners,
vs.
HON. ROBERTO B. DE OCAMPO, as the Secretary of Finance; HON. LIWAYWAY V. CHATO,
as the Commissioner of Internal Revenue; and HON. GUILLERMO PARAYNO, JR., in his
capacity as the Commissioner of Customs, respondents.
 RESOLUTION

MENDOZA, J.:

These are motions seeking reconsideration of our decision dismissing the petitions filed in these
cases for the declaration of unconstitutionality of R.A. No. 7716, otherwise known as the Expanded
Value-Added Tax Law. The motions, of which there are 10 in all, have been filed by the several
petitioners in these cases, with the exception of the Philippine Educational Publishers Association,
Inc. and the Association of Philippine Booksellers, petitioners in G.R. No. 115931.

The Solicitor General, representing the respondents, filed a consolidated comment, to which the
Philippine Airlines, Inc., petitioner in G.R. No. 115852, and the Philippine Press Institute, Inc.,
petitioner in G.R. No. 115544, and Juan T. David, petitioner in G.R. No. 115525, each filed a reply.
In turn the Solicitor General filed on June 1, 1995 a rejoinder to the PPI's reply.

On June 27, 1995 the matter was submitted for resolution.

I. Power of the Senate to propose amendments to revenue bills. Some of the petitioners (Tolentino,
Kilosbayan, Inc., Philippine Airlines (PAL), Roco, and Chamber of Real Estate and Builders
Association (CREBA)) reiterate previous claims made by them that R.A. No. 7716 did not "originate
exclusively" in the House of Representatives as required by Art. VI, 24 of the Constitution. Although
they admit that H. No. 11197 was filed in the House of Representatives where it passed three
readings and that afterward it was sent to the Senate where after first reading it was referred to the
Senate Ways and Means Committee, they complain that the Senate did not pass it on second and
third readings. Instead what the Senate did was to pass its own version (S. No. 1630) which it
approved on May 24, 1994. Petitioner Tolentino adds that what the Senate committee should have
done was to amend H. No. 11197 by striking out the text of the bill and substituting it with the text of
S. No. 1630. That way, it is said, "the bill remains a House bill and the Senate version just becomes
the text (only the text) of the House bill."

The contention has no merit.

The enactment of S. No. 1630 is not the only instance in which the Senate proposed an amendment
to a House revenue bill by enacting its own version of a revenue bill. On at least two occasions
during the Eighth Congress, the Senate passed its own version of revenue bills, which, in
consolidation with House bills earlier passed, became the enrolled bills. These were:

R.A. No. 7369 (AN ACT TO AMEND THE OMNIBUS INVESTMENTS CODE OF 1987 BY
EXTENDING FROM FIVE (5) YEARS TO TEN YEARS THE PERIOD FOR TAX AND DUTY
EXEMPTION AND TAX CREDIT ON CAPITAL EQUIPMENT) which was approved by the President
on April 10, 1992. This Act is actually a consolidation of H. No. 34254, which was approved by the
House on January 29, 1992, and S. No. 1920, which was approved by the Senate on February 3,
1992.

R.A. No. 7549 (AN ACT GRANTING TAX EXEMPTIONS TO WHOEVER SHALL GIVE REWARD
TO ANY FILIPINO ATHLETE WINNING A MEDAL IN OLYMPIC GAMES) which was approved by
the President on May 22, 1992. This Act is a consolidation of H. No. 22232, which was approved by
the House of Representatives on August 2, 1989, and S. No. 807, which was approved by the
Senate on October 21, 1991.
On the other hand, the Ninth Congress passed revenue laws which were also the result of the
consolidation of House and Senate bills. These are the following, with indications of the dates on
which the laws were approved by the President and dates the separate bills of the two chambers of
Congress were respectively passed:

1. R.A. NO. 7642

AN ACT INCREASING THE PENALTIES FOR TAX EVASION, AMENDING FOR

THIS PURPOSE THE PERTINENT SECTIONS OF THE NATIONAL INTERNAL
REVENUE CODE (December 28, 1992).

House Bill No. 2165, October 5, 1992

Senate Bill No. 32, December 7, 1992

2. R.A. NO. 7643

AN ACT TO EMPOWER THE COMMISSIONER OF INTERNAL REVENUE TO

REQUIRE THE PAYMENT OF THE VALUE-ADDED TAX EVERY MONTH AND TO
ALLOW LOCAL GOVERNMENT UNITS TO SHARE IN VAT REVENUE,
AMENDING FOR THIS PURPOSE CERTAIN SECTIONS OF THE NATIONAL
INTERNAL REVENUE CODE (December 28, 1992)

House Bill No. 1503, September 3, 1992

Senate Bill No. 968, December 7, 1992

3. R.A. NO. 7646

AN ACT AUTHORIZING THE COMMISSIONER OF INTERNAL REVENUE TO

PRESCRIBE THE PLACE FOR PAYMENT OF INTERNAL REVENUE TAXES BY
LARGE TAXPAYERS, AMENDING FOR THIS PURPOSE CERTAIN PROVISIONS
OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED (February 24,
1993)

House Bill No. 1470, October 20, 1992

Senate Bill No. 35, November 19, 1992

4. R.A. NO. 7649

AN ACT REQUIRING THE GOVERNMENT OR ANY OF ITS POLITICAL

SUBDIVISIONS, INSTRUMENTALITIES OR AGENCIES INCLUDING
GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS (GOCCS) TO
DEDUCT AND WITHHOLD THE VALUE-ADDED TAX DUE AT THE RATE OF
THREE PERCENT (3%) ON GROSS PAYMENT FOR THE PURCHASE OF
GOODS AND SIX PERCENT (6%) ON GROSS RECEIPTS FOR SERVICES
RENDERED BY CONTRACTORS (April 6, 1993)

House Bill No. 5260, January 26, 1993

 Senate Bill No. 1141, March 30, 1993

5. R.A. NO. 7656

AN ACT REQUIRING GOVERNMENT-OWNED OR CONTROLLED

CORPORATIONS TO DECLARE DIVIDENDS UNDER CERTAIN CONDITIONS TO
THE NATIONAL GOVERNMENT, AND FOR OTHER PURPOSES (November 9,
1993)

House Bill No. 11024, November 3, 1993

Senate Bill No. 1168, November 3, 1993

6. R.A. NO. 7660

AN ACT RATIONALIZING FURTHER THE STRUCTURE AND ADMINISTRATION

OF THE DOCUMENTARY STAMP TAX, AMENDING FOR THE PURPOSE
CERTAIN PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS
AMENDED, ALLOCATING FUNDS FOR SPECIFIC PROGRAMS, AND FOR
OTHER PURPOSES (December 23, 1993)

House Bill No. 7789, May 31, 1993

Senate Bill No. 1330, November 18, 1993

7. R.A. NO. 7717

AN ACT IMPOSING A TAX ON THE SALE, BARTER OR EXCHANGE OF SHARES

OF STOCK LISTED AND TRADED THROUGH THE LOCAL STOCK EXCHANGE
OR THROUGH INITIAL PUBLIC OFFERING, AMENDING FOR THE PURPOSE
THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, BY INSERTING A
NEW SECTION AND REPEALING CERTAIN SUBSECTIONS THEREOF (May 5,
1994)

House Bill No. 9187, November 3, 1993

Senate Bill No. 1127, March 23, 1994

Thus, the enactment of S. No. 1630 is not the only instance in which the Senate, in the exercise of
its power to propose amendments to bills required to originate in the House, passed its own version
of a House revenue measure. It is noteworthy that, in the particular case of S. No. 1630, petitioners
Tolentino and Roco, as members of the Senate, voted to approve it on second and third readings.

On the other hand, amendment by substitution, in the manner urged by petitioner Tolentino,
concerns a mere matter of form. Petitioner has not shown what substantial difference it would make
if, as the Senate actually did in this case, a separate bill like S. No. 1630 is instead enacted as a
substitute measure, "taking into Consideration . . . H.B. 11197."

Indeed, so far as pertinent, the Rules of the Senate only provide:

RULE XXIX
 AMENDMENTS

xxx xxx xxx

68. Not more than one amendment to the original amendment shall be considered.

No amendment by substitution shall be entertained unless the text thereof is

submitted in writing.

Any of said amendments may be withdrawn before a vote is taken thereon.

69. No amendment which seeks the inclusion of a legislative provision foreign to the
subject matter of a bill (rider) shall be entertained.

xxx xxx xxx

70-A. A bill or resolution shall not be amended by substituting it with another which
covers a subject distinct from that proposed in the original bill or resolution.
(emphasis added).

Nor is there merit in petitioners' contention that, with regard to revenue bills, the Philippine Senate
possesses less power than the U.S. Senate because of textual differences between constitutional
provisions giving them the power to propose or concur with amendments.

Art. I, 7, cl. 1 of the U.S. Constitution reads:

All Bills for raising Revenue shall originate in the House of Representatives; but the
Senate may propose or concur with amendments as on other Bills.

Art. VI, 24 of our Constitution reads:

All appropriation, revenue or tariff bills, bills authorizing increase of the public debt,
bills of local application, and private bills shall originate exclusively in the House of
Representatives, but the Senate may propose or concur with amendments.

The addition of the word "exclusively" in the Philippine Constitution and the decision to drop the
phrase "as on other Bills" in the American version, according to petitioners, shows the intention of
the framers of our Constitution to restrict the Senate's power to propose amendments to revenue
bills. Petitioner Tolentino contends that the word "exclusively" was inserted to modify "originate" and
"the words 'as in any other bills' (sic) were eliminated so as to show that these bills were not to be
like other bills but must be treated as a special kind."

The history of this provision does not support this contention. The supposed indicia of constitutional
intent are nothing but the relics of an unsuccessful attempt to limit the power of the Senate. It will be
recalled that the 1935 Constitution originally provided for a unicameral National Assembly. When it
was decided in 1939 to change to a bicameral legislature, it became necessary to provide for the
procedure for lawmaking by the Senate and the House of Representatives. The work of proposing
amendments to the Constitution was done by the National Assembly, acting as a constituent
assembly, some of whose members, jealous of preserving the Assembly's lawmaking powers,
sought to curtail the powers of the proposed Senate. Accordingly they proposed the following
provision:
 All bills appropriating public funds, revenue or tariff bills, bills of local application, and
private bills shall originate exclusively in the Assembly, but the Senate may propose
or concur with amendments. In case of disapproval by the Senate of any such bills,
the Assembly may repass the same by a two-thirds vote of all its members, and
thereupon, the bill so repassed shall be deemed enacted and may be submitted to
the President for corresponding action. In the event that the Senate should fail to
finally act on any such bills, the Assembly may, after thirty days from the opening of
the next regular session of the same legislative term, reapprove the same with a vote
of two-thirds of all the members of the Assembly. And upon such reapproval, the bill
shall be deemed enacted and may be submitted to the President for corresponding
action.

The special committee on the revision of laws of the Second National Assembly vetoed the proposal.
It deleted everything after the first sentence. As rewritten, the proposal was approved by the National
Assembly and embodied in Resolution No. 38, as amended by Resolution No. 73. (J. ARUEGO,
KNOW YOUR CONSTITUTION 65-66 (1950)). The proposed amendment was submitted to the
people and ratified by them in the elections held on June 18, 1940.

This is the history of Art. VI, 18 (2) of the 1935 Constitution, from which Art. VI, 24 of the present
Constitution was derived. It explains why the word "exclusively" was added to the American text from
which the framers of the Philippine Constitution borrowed and why the phrase "as on other Bills" was
not copied. Considering the defeat of the proposal, the power of the Senate to propose amendments
must be understood to be full, plenary and complete "as on other Bills." Thus, because revenue bills
are required to originate exclusively in the House of Representatives, the Senate cannot enact
revenue measures of its own without such bills. After a revenue bill is passed and sent over to it by
the House, however, the Senate certainly can pass its own version on the same subject matter. This
follows from the coequality of the two chambers of Congress.

That this is also the understanding of book authors of the scope of the Senate's power to concur is
clear from the following commentaries:

The power of the Senate to propose or concur with amendments is apparently

without restriction. It would seem that by virtue of this power, the Senate can
practically re-write a bill required to come from the House and leave only a trace of
the original bill. For example, a general revenue bill passed by the lower house of the
United States Congress contained provisions for the imposition of an inheritance tax .
This was changed by the Senate into a corporation tax. The amending authority of
the Senate was declared by the United States Supreme Court to be sufficiently broad
to enable it to make the alteration. [Flint v. Stone Tracy Company, 220 U.S. 107, 55
L. ed. 389].

(L. TAADA AND F. CARREON, POLITICAL LAW OF THE PHILIPPINES 247

(1961))

The above-mentioned bills are supposed to be initiated by the House of

Representatives because it is more numerous in membership and therefore also
more representative of the people. Moreover, its members are presumed to be more
familiar with the needs of the country in regard to the enactment of the legislation
involved.

The Senate is, however, allowed much leeway in the exercise of its power to propose
or concur with amendments to the bills initiated by the House of Representatives.
 Thus, in one case, a bill introduced in the U.S. House of Representatives was
changed by the Senate to make a proposed inheritance tax a corporation tax. It is
also accepted practice for the Senate to introduce what is known as an amendment
by substitution, which may entirely replace the bill initiated in the House of
Representatives.

(I. CRUZ, PHILIPPINE POLITICAL LAW 144-145 (1993)).

In sum, while Art. VI, 24 provides that all appropriation, revenue or tariff bills, bills authorizing
increase of the public debt, bills of local application, and private bills must "originate exclusively in
the House of Representatives," it also adds, "but the Senate may propose or concur with
amendments." In the exercise of this power, the Senate may propose an entirely new bill as a
substitute measure. As petitioner Tolentino states in a high school text, a committee to which a bill is
referred may do any of the following:

(1) to endorse the bill without changes; (2) to make changes in the bill omitting or
adding sections or altering its language; (3) to make and endorse an entirely new bill
as a substitute, in which case it will be known as a committee bill; or (4) to make no
report at all.

(A. TOLENTINO, THE GOVERNMENT OF THE PHILIPPINES 258 (1950))

To except from this procedure the amendment of bills which are required to originate in the House
by prescribing that the number of the House bill and its other parts up to the enacting clause must be
preserved although the text of the Senate amendment may be incorporated in place of the original
body of the bill is to insist on a mere technicality. At any rate there is no rule prescribing this form. S.
No. 1630, as a substitute measure, is therefore as much an amendment of H. No. 11197 as any
which the Senate could have made.

II. S. No. 1630 a mere amendment of H. No. 11197. Petitioners' basic error is that they assume that
S. No. 1630 is an independent and distinct bill. Hence their repeated references to its certification
that it was passed by the Senate "in substitution of S.B. No. 1129, taking into consideration P.S.
Res. No. 734 and H.B. No. 11197," implying that there is something substantially different between
the reference to S. No. 1129 and the reference to H. No. 11197. From this premise, they conclude
that R.A. No. 7716 originated both in the House and in the Senate and that it is the product of two
"half-baked bills because neither H. No. 11197 nor S. No. 1630 was passed by both houses of
Congress."

In point of fact, in several instances the provisions of S. No. 1630, clearly appear to be mere
amendments of the corresponding provisions of H. No. 11197. The very tabular comparison of the
provisions of H. No. 11197 and S. No. 1630 attached as Supplement A to the basic petition of
petitioner Tolentino, while showing differences between the two bills, at the same time indicates that
the provisions of the Senate bill were precisely intended to be amendments to the House bill.

Without H. No. 11197, the Senate could not have enacted S. No. 1630. Because the Senate bill was
a mere amendment of the House bill, H. No. 11197 in its original form did not have to pass the
Senate on second and three readings. It was enough that after it was passed on first reading it was
referred to the Senate Committee on Ways and Means. Neither was it required that S. No. 1630 be
passed by the House of Representatives before the two bills could be referred to the Conference
Committee.
There is legislative precedent for what was done in the case of H. No. 11197 and S. No. 1630. When
the House bill and Senate bill, which became R.A. No. 1405 (Act prohibiting the disclosure of bank
deposits), were referred to a conference committee, the question was raised whether the two bills
could be the subject of such conference, considering that the bill from one house had not been
passed by the other and vice versa. As Congressman Duran put the question:

MR. DURAN. Therefore, I raise this question of order as to procedure: If a House bill
is passed by the House but not passed by the Senate, and a Senate bill of a similar
nature is passed in the Senate but never passed in the House, can the two bills be
the subject of a conference, and can a law be enacted from these two bills? I
understand that the Senate bill in this particular instance does not refer to
investments in government securities, whereas the bill in the House, which was
introduced by the Speaker, covers two subject matters: not only investigation of
deposits in banks but also investigation of investments in government securities.
Now, since the two bills differ in their subject matter, I believe that no law can be
enacted.

Ruling on the point of order raised, the chair (Speaker Jose B. Laurel, Jr.) said:

THE SPEAKER. The report of the conference committee is in order. It is precisely in

cases like this where a conference should be had. If the House bill had been
approved by the Senate, there would have been no need of a conference; but
precisely because the Senate passed another bill on the same subject matter, the
conference committee had to be created, and we are now considering the report of
that committee.

(2 CONG. REC. NO. 13, July 27, 1955, pp. 3841-42 (emphasis added))

III. The President's certification. The fallacy in thinking that H. No. 11197 and S. No. 1630 are distinct
and unrelated measures also accounts for the petitioners' (Kilosbayan's and PAL's) contention that
because the President separately certified to the need for the immediate enactment of these
measures, his certification was ineffectual and void. The certification had to be made of the version
of the same revenue bill which at the moment was being considered. Otherwise, to follow petitioners'
theory, it would be necessary for the President to certify as many bills as are presented in a house of
Congress even though the bills are merely versions of the bill he has already certified. It is enough
that he certifies the bill which, at the time he makes the certification, is under consideration. Since on
March 22, 1994 the Senate was considering S. No. 1630, it was that bill which had to be certified.
For that matter on June 1, 1993 the President had earlier certified H. No. 9210 for immediate
enactment because it was the one which at that time was being considered by the House. This bill
was later substituted, together with other bills, by H. No. 11197.

As to what Presidential certification can accomplish, we have already explained in the main decision
that the phrase "except when the President certifies to the necessity of its immediate enactment,
etc." in Art. VI, 26 (2) qualifies not only the requirement that "printed copies [of a bill] in its final form
[must be] distributed to the members three days before its passage" but also the requirement that
before a bill can become a law it must have passed "three readings on separate days." There is not
only textual support for such construction but historical basis as well.

Art. VI, 21 (2) of the 1935 Constitution originally provided:

(2) No bill shall be passed by either House unless it shall have been printed and
copies thereof in its final form furnished its Members at least three calendar days
 prior to its passage, except when the President shall have certified to the necessity of
its immediate enactment. Upon the last reading of a bill, no amendment thereof shall
be allowed and the question upon its passage shall be taken immediately thereafter,
and the yeas and nays entered on the Journal.

When the 1973 Constitution was adopted, it was provided in Art. VIII, 19 (2):

(2) No bill shall become a law unless it has passed three readings on separate days,
and printed copies thereof in its final form have been distributed to the Members
three days before its passage, except when the Prime Minister certifies to the
necessity of its immediate enactment to meet a public calamity or emergency. Upon
the last reading of a bill, no amendment thereto shall be allowed, and the vote
thereon shall be taken immediately thereafter, and the yeas and nays entered in the
Journal.

This provision of the 1973 document, with slight modification, was adopted in Art. VI, 26 (2) of the
present Constitution, thus:

(2) No bill passed by either House shall become a law unless it has passed three
readings on separate days, and printed copies thereof in its final form have been
distributed to its Members three days before its passage, except when the President
certifies to the necessity of its immediate enactment to meet a public calamity or
emergency. Upon the last reading of a bill, no amendment thereto shall be allowed,
and the vote thereon shall be taken immediately thereafter, and
the yeas and nays entered in the Journal.

The exception is based on the prudential consideration that if in all cases three readings on separate
days are required and a bill has to be printed in final form before it can be passed, the need for a law
may be rendered academic by the occurrence of the very emergency or public calamity which it is
meant to address.

Petitioners further contend that a "growing budget deficit" is not an emergency, especially in a
country like the Philippines where budget deficit is a chronic condition. Even if this were the case, an
enormous budget deficit does not make the need for R.A. No. 7716 any less urgent or the situation
calling for its enactment any less an emergency.

Apparently, the members of the Senate (including some of the petitioners in these cases) believed
that there was an urgent need for consideration of S. No. 1630, because they responded to the call
of the President by voting on the bill on second and third readings on the same day. While the
judicial department is not bound by the Senate's acceptance of the President's certification, the
respect due coequal departments of the government in matters committed to them by the
Constitution and the absence of a clear showing of grave abuse of discretion caution a stay of the
judicial hand.

At any rate, we are satisfied that S. No. 1630 received thorough consideration in the Senate where it
was discussed for six days. Only its distribution in advance in its final printed form was actually
dispensed with by holding the voting on second and third readings on the same day (March 24,
1994). Otherwise, sufficient time between the submission of the bill on February 8, 1994 on second
reading and its approval on March 24, 1994 elapsed before it was finally voted on by the Senate on
third reading.
The purpose for which three readings on separate days is required is said to be two-fold: (1) to
inform the members of Congress of what they must vote on and (2) to give them notice that a
measure is progressing through the enacting process, thus enabling them and others interested in
the measure to prepare their positions with reference to it. (1 J. G. SUTHERLAND, STATUTES AND
STATUTORY CONSTRUCTION 10.04, p. 282 (1972)). These purposes were substantially
achieved in the case of R.A. No. 7716.

IV. Power of Conference Committee. It is contended (principally by Kilosbayan, Inc. and the
Movement of Attorneys for Brotherhood, Integrity and Nationalism, Inc. (MABINI)) that in violation of
the constitutional policy of full public disclosure and the people's right to know (Art. II, 28 and Art.
III, 7) the Conference Committee met for two days in executive session with only the conferees
present.

As pointed out in our main decision, even in the United States it was customary to hold such
sessions with only the conferees and their staffs in attendance and it was only in 1975 when a new
rule was adopted requiring open sessions. Unlike its American counterpart, the Philippine Congress
has not adopted a rule prescribing open hearings for conference committees.

It is nevertheless claimed that in the United States, before the adoption of the rule in 1975, at least
staff members were present. These were staff members of the Senators and Congressmen,
however, who may be presumed to be their confidential men, not stenographers as in this case who
on the last two days of the conference were excluded. There is no showing that the conferees
themselves did not take notes of their proceedings so as to give petitioner Kilosbayan basis for
claiming that even in secret diplomatic negotiations involving state interests, conferees keep notes of
their meetings. Above all, the public's right to know was fully served because the Conference
Committee in this case submitted a report showing the changes made on the differing versions of
the House and the Senate.

Petitioners cite the rules of both houses which provide that conference committee reports must
contain "a detailed, sufficiently explicit statement of the changes in or other amendments." These
changes are shown in the bill attached to the Conference Committee Report. The members of both
houses could thus ascertain what changes had been made in the original bills without the need of a
statement detailing the changes.

The same question now presented was raised when the bill which became R.A. No. 1400 (Land
Reform Act of 1955) was reported by the Conference Committee. Congressman Bengzon raised a
point of order. He said:

MR. BENGZON. My point of order is that it is out of order to consider the report of
the conference committee regarding House Bill No. 2557 by reason of the provision
of Section 11, Article XII, of the Rules of this House which provides specifically that
the conference report must be accompanied by a detailed statement of the effects of
the amendment on the bill of the House. This conference committee report is not
accompanied by that detailed statement, Mr. Speaker. Therefore it is out of order to
consider it.

Petitioner Tolentino, then the Majority Floor Leader, answered:

MR. TOLENTINO. Mr. Speaker, I should just like to say a few words in connection
with the point of order raised by the gentleman from Pangasinan.
 There is no question about the provision of the Rule cited by the gentleman from
Pangasinan, but this provision applies to those cases where only portions of the bill
have been amended. In this case before us an entire bill is presented; therefore, it
can be easily seen from the reading of the bill what the provisions are. Besides, this
procedure has been an established practice.

After some interruption, he continued:

MR. TOLENTINO. As I was saying, Mr. Speaker, we have to look into the reason for
the provisions of the Rules, and the reason for the requirement in the provision cited
by the gentleman from Pangasinan is when there are only certain words or phrases
inserted in or deleted from the provisions of the bill included in the conference report,
and we cannot understand what those words and phrases mean and their relation to
the bill. In that case, it is necessary to make a detailed statement on how those
words and phrases will affect the bill as a whole; but when the entire bill itself is
copied verbatim in the conference report, that is not necessary. So when the reason
for the Rule does not exist, the Rule does not exist.

(2 CONG. REC. NO. 2, p. 4056. (emphasis added))

Congressman Tolentino was sustained by the chair. The record shows that when the ruling was
appealed, it was upheld by viva voce and when a division of the House was called, it was sustained
by a vote of 48 to 5. (Id.,
p. 4058)

Nor is there any doubt about the power of a conference committee to insert new provisions as long
as these are germane to the subject of the conference. As this Court held in Philippine Judges
Association v. Prado, 227 SCRA 703 (1993), in an opinion written by then Justice Cruz, the
jurisdiction of the conference committee is not limited to resolving differences between the Senate
and the House. It may propose an entirely new provision. What is important is that its report is
subsequently approved by the respective houses of Congress. This Court ruled that it would not
entertain allegations that, because new provisions had been added by the conference committee,
there was thereby a violation of the constitutional injunction that "upon the last reading of a bill, no
amendment thereto shall be allowed."

Applying these principles, we shall decline to look into the petitioners' charges that an
amendment was made upon the last reading of the bill that eventually became R.A.
No. 7354 and that copies thereof in its final form were not distributed among the
members of each House. Both the enrolled bill and the legislative journals certify that
the measure was duly enacted i.e., in accordance with Article VI, Sec. 26 (2) of the
Constitution. We are bound by such official assurances from a coordinate
department of the government, to which we owe, at the very least, a becoming
courtesy.

(Id. at 710. (emphasis added))

It is interesting to note the following description of conference committees in the Philippines in a

1979 study:

Conference committees may be of two types: free or instructed. These committees

may be given instructions by their parent bodies or they may be left without
instructions. Normally the conference committees are without instructions, and this is
 why they are often critically referred to as "the little legislatures." Once bills have
been sent to them, the conferees have almost unlimited authority to change the
clauses of the bills and in fact sometimes introduce new measures that were not in
the original legislation. No minutes are kept, and members' activities on conference
committees are difficult to determine. One congressman known for his idealism put it
this way: "I killed a bill on export incentives for my interest group [copra] in the
conference committee but I could not have done so anywhere else." The conference
committee submits a report to both houses, and usually it is accepted. If the report is
not accepted, then the committee is discharged and new members are appointed.

(R. Jackson, Committees in the Philippine Congress, in COMMITTEES AND

LEGISLATURES: A COMPARATIVE ANALYSIS 163 (J. D. LEES AND M. SHAW,
eds.)).

In citing this study, we pass no judgment on the methods of conference committees. We cite it only
to say that conference committees here are no different from their counterparts in the United States
whose vast powers we noted in Philippine Judges Association v. Prado, supra. At all events, under
Art. VI, 16(3) each house has the power "to determine the rules of its proceedings," including those
of its committees. Any meaningful change in the method and procedures of Congress or its
committees must therefore be sought in that body itself.

V. The titles of S. No. 1630 and H. No. 11197. PAL maintains that R.A. No. 7716 violates Art. VI, 26
(1) of the Constitution which provides that "Every bill passed by Congress shall embrace only one
subject which shall be expressed in the title thereof." PAL contends that the amendment of its
franchise by the withdrawal of its exemption from the VAT is not expressed in the title of the law.

Pursuant to 13 of P.D. No. 1590, PAL pays a franchise tax of 2% on its gross revenue "in lieu of all
other taxes, duties, royalties, registration, license and other fees and charges of any kind, nature, or
description, imposed, levied, established, assessed or collected by any municipal, city, provincial or
national authority or government agency, now or in the future."

PAL was exempted from the payment of the VAT along with other entities by 103 of the National
Internal Revenue Code, which provides as follows:

103. Exempt transactions. The following shall be exempt from the value-added
tax:

xxx xxx xxx

(q) Transactions which are exempt under special laws or international agreements to
which the Philippines is a signatory.

R.A. No. 7716 seeks to withdraw certain exemptions, including that granted to PAL, by amending
103, as follows:

103. Exempt transactions. The following shall be exempt from the value-added
tax:

xxx xxx xxx

 (q) Transactions which are exempt under special laws, except those granted under
Presidential Decree Nos. 66, 529, 972, 1491, 1590. . . .

The amendment of 103 is expressed in the title of R.A. No. 7716 which reads:

AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM, WIDENING

ITS TAX BASE AND ENHANCING ITS ADMINISTRATION, AND FOR THESE
PURPOSES AMENDING AND REPEALING THE RELEVANT PROVISIONS OF
THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER
PURPOSES.

By stating that R.A. No. 7716 seeks to "[RESTRUCTURE] THE VALUE-ADDED TAX (VAT)
SYSTEM [BY] WIDENING ITS TAX BASE AND ENHANCING ITS ADMINISTRATION, AND FOR
THESE PURPOSES AMENDING AND REPEALING THE RELEVANT PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS AMENDED AND FOR OTHER PURPOSES,"
Congress thereby clearly expresses its intention to amend any provision of the NIRC which stands in
the way of accomplishing the purpose of the law.

PAL asserts that the amendment of its franchise must be reflected in the title of the law by specific
reference to P.D. No. 1590. It is unnecessary to do this in order to comply with the constitutional
requirement, since it is already stated in the title that the law seeks to amend the pertinent provisions
of the NIRC, among which is 103(q), in order to widen the base of the VAT. Actually, it is the bill
which becomes a law that is required to express in its title the subject of legislation. The titles of H.
No. 11197 and S. No. 1630 in fact specifically referred to 103 of the NIRC as among the provisions
sought to be amended. We are satisfied that sufficient notice had been given of the pendency of
these bills in Congress before they were enacted into what is now R.A.
No. 7716.

In Philippine Judges Association v. Prado, supra, a similar argument as that now made by PAL was
rejected. R.A. No. 7354 is entitled AN ACT CREATING THE PHILIPPINE POSTAL CORPORATION,
DEFINING ITS POWERS, FUNCTIONS AND RESPONSIBILITIES, PROVIDING FOR
REGULATION OF THE INDUSTRY AND FOR OTHER PURPOSES CONNECTED THEREWITH. It
contained a provision repealing all franking privileges. It was contended that the withdrawal of
franking privileges was not expressed in the title of the law. In holding that there was sufficient
description of the subject of the law in its title, including the repeal of franking privileges, this Court
held:

To require every end and means necessary for the accomplishment of the general
objectives of the statute to be expressed in its title would not only be unreasonable
but would actually render legislation impossible. [Cooley, Constitutional Limitations,
8th Ed., p. 297] As has been correctly explained:

The details of a legislative act need not be specifically stated in its

title, but matter germane to the subject as expressed in the title, and
adopted to the accomplishment of the object in view, may properly be
included in the act. Thus, it is proper to create in the same act the
machinery by which the act is to be enforced, to prescribe the
penalties for its infraction, and to remove obstacles in the way of its
execution. If such matters are properly connected with the subject as
expressed in the title, it is unnecessary that they should also have
special mention in the title. (Southern Pac. Co. v. Bartine, 170 Fed.
725)
 (227 SCRA at 707-708)

VI. Claims of press freedom and religious liberty. We have held that, as a general proposition, the
press is not exempt from the taxing power of the State and that what the constitutional guarantee of
free press prohibits are laws which single out the press or target a group belonging to the press for
special treatment or which in any way discriminate against the press on the basis of the content of
the publication, and R.A. No. 7716 is none of these.

Now it is contended by the PPI that by removing the exemption of the press from the VAT while
maintaining those granted to others, the law discriminates against the press. At any rate, it is
averred, "even nondiscriminatory taxation of constitutionally guaranteed freedom is unconstitutional."

With respect to the first contention, it would suffice to say that since the law granted the press a
privilege, the law could take back the privilege anytime without offense to the Constitution. The
reason is simple: by granting exemptions, the State does not forever waive the exercise of its
sovereign prerogative.

Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax burden to
which other businesses have long ago been subject. It is thus different from the tax involved in the
cases invoked by the PPI. The license tax in Grosjean v. American Press Co., 297 U.S. 233, 80 L.
Ed. 660 (1936) was found to be discriminatory because it was laid on the gross advertising receipts
only of newspapers whose weekly circulation was over 20,000, with the result that the tax applied
only to 13 out of 124 publishers in Louisiana. These large papers were critical of Senator Huey Long
who controlled the state legislature which enacted the license tax. The censorial motivation for the
law was thus evident.

On the other hand, in Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue, 460 U.S.
575, 75 L. Ed. 2d 295 (1983), the tax was found to be discriminatory because although it could have
been made liable for the sales tax or, in lieu thereof, for the use tax on the privilege of using, storing
or consuming tangible goods, the press was not. Instead, the press was exempted from both taxes.
It was, however, later made to pay a special use tax on the cost of paper and ink which made these
items "the only items subject to the use tax that were component of goods to be sold at retail." The
U.S. Supreme Court held that the differential treatment of the press "suggests that the goal of
regulation is not related to suppression of expression, and such goal is presumptively
unconstitutional." It would therefore appear that even a law that favors the press is constitutionally
suspect. (See the dissent of Rehnquist, J. in that case)

Nor is it true that only two exemptions previously granted by E.O. No. 273 are withdrawn "absolutely
and unqualifiedly" by R.A. No. 7716. Other exemptions from the VAT, such as those previously
granted to PAL, petroleum concessionaires, enterprises registered with the Export Processing Zone
Authority, and many more are likewise totally withdrawn, in addition to exemptions which are partially
withdrawn, in an effort to broaden the base of the tax.

The PPI says that the discriminatory treatment of the press is highlighted by the fact that
transactions, which are profit oriented, continue to enjoy exemption under R.A. No. 7716. An
enumeration of some of these transactions will suffice to show that by and large this is not so and
that the exemptions are granted for a purpose. As the Solicitor General says, such exemptions are
granted, in some cases, to encourage agricultural production and, in other cases, for the personal
benefit of the end-user rather than for profit. The exempt transactions are:

(a) Goods for consumption or use which are in their original state (agricultural,
marine and forest products, cotton seeds in their original state, fertilizers, seeds,
 seedlings, fingerlings, fish, prawn livestock and poultry feeds) and goods or services
to enhance agriculture (milling of palay, corn, sugar cane and raw sugar, livestock,
poultry feeds, fertilizer, ingredients used for the manufacture of feeds).

(b) Goods used for personal consumption or use (household and personal effects of
citizens returning to the Philippines) or for professional use, like professional
instruments and implements, by persons coming to the Philippines to settle here.

(c) Goods subject to excise tax such as petroleum products or to be used for
manufacture of petroleum products subject to excise tax and services subject to
percentage tax.

(d) Educational services, medical, dental, hospital and veterinary services, and
services rendered under employer-employee relationship.

(e) Works of art and similar creations sold by the artist himself.

(f) Transactions exempted under special laws, or international agreements.

(g) Export-sales by persons not VAT-registered.

(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.

(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-

60)

The PPI asserts that it does not really matter that the law does not discriminate against the press
because "even nondiscriminatory taxation on constitutionally guaranteed freedom is
unconstitutional." PPI cites in support of this assertion the following statement in Murdock
v. Pennsylvania, 319 U.S. 105, 87 L. Ed. 1292 (1943):

The fact that the ordinance is "nondiscriminatory" is immaterial. The protection

afforded by the First Amendment is not so restricted. A license tax certainly does not
acquire constitutional validity because it classifies the privileges protected by the
First Amendment along with the wares and merchandise of hucksters and peddlers
and treats them all alike. Such equality in treatment does not save the ordinance.
Freedom of press, freedom of speech, freedom of religion are in preferred position.

The Court was speaking in that case of a license tax, which, unlike an ordinary tax, is mainly for
regulation. Its imposition on the press is unconstitutional because it lays a prior restraint on the
exercise of its right. Hence, although its application to others, such those selling goods, is valid, its
application to the press or to religious groups, such as the Jehovah's Witnesses, in connection with
the latter's sale of religious books and pamphlets, is unconstitutional. As the U.S. Supreme Court put
it, "it is one thing to impose a tax on income or property of a preacher. It is quite another thing to
exact a tax on him for delivering a sermon."

A similar ruling was made by this Court in American Bible Society v. City of Manila, 101 Phil. 386
(1957) which invalidated a city ordinance requiring a business license fee on those engaged in the
sale of general merchandise. It was held that the tax could not be imposed on the sale of bibles by
the American Bible Society without restraining the free exercise of its right to propagate.
The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege,
much less a constitutional right. It is imposed on the sale, barter, lease or exchange of goods or
properties or the sale or exchange of services and the lease of properties purely for revenue
purposes. To subject the press to its payment is not to burden the exercise of its right any more than
to make the press pay income tax or subject it to general regulation is not to violate its freedom
under the Constitution.

Additionally, the Philippine Bible Society, Inc. claims that although it sells bibles, the proceeds
derived from the sales are used to subsidize the cost of printing copies which are given free to those
who cannot afford to pay so that to tax the sales would be to increase the price, while reducing the
volume of sale. Granting that to be the case, the resulting burden on the exercise of religious
freedom is so incidental as to make it difficult to differentiate it from any other economic imposition
that might make the right to disseminate religious doctrines costly. Otherwise, to follow the
petitioner's argument, to increase the tax on the sale of vestments would be to lay an impermissible
burden on the right of the preacher to make a sermon.

On the other hand the registration fee of P1,000.00 imposed by 107 of the NIRC, as amended by
7 of R.A. No. 7716, although fixed in amount, is really just to pay for the expenses of registration
and enforcement of provisions such as those relating to accounting in 108 of the NIRC. That the
PBS distributes free bibles and therefore is not liable to pay the VAT does not excuse it from the
payment of this fee because it also sells some copies. At any rate whether the PBS is liable for the
VAT must be decided in concrete cases, in the event it is assessed this tax by the Commissioner of
Internal Revenue.

VII. Alleged violations of the due process, equal protection and contract clauses and the rule on
taxation. CREBA asserts that R.A. No. 7716 (1) impairs the obligations of contracts, (2) classifies
transactions as covered or exempt without reasonable basis and (3) violates the rule that taxes
should be uniform and equitable and that Congress shall "evolve a progressive system of taxation."

With respect to the first contention, it is claimed that the application of the tax to existing contracts of
the sale of real property by installment or on deferred payment basis would result in substantial
increases in the monthly amortizations to be paid because of the 10% VAT. The additional amount, it
is pointed out, is something that the buyer did not anticipate at the time he entered into the contract.

The short answer to this is the one given by this Court in an early case: "Authorities from numerous
sources are cited by the plaintiffs, but none of them show that a lawful tax on a new subject, or an
increased tax on an old one, interferes with a contract or impairs its obligation, within the meaning of
the Constitution. Even though such taxation may affect particular contracts, as it may increase the
debt of one person and lessen the security of another, or may impose additional burdens upon one
class and release the burdens of another, still the tax must be paid unless prohibited by the
Constitution, nor can it be said that it impairs the obligation of any existing contract in its true legal
sense." (La Insular v. Machuca Go-Tauco and Nubla Co-Siong, 39 Phil. 567, 574 (1919)). Indeed not
only existing laws but also "the reservation of the essential attributes of sovereignty, is . . . read into
contracts as a postulate of the legal order." (Philippine-American Life Ins. Co. v. Auditor General, 22
SCRA 135, 147 (1968)) Contracts must be understood as having been made in reference to the
possible exercise of the rightful authority of the government and no obligation of contract can extend
to the defeat of that authority. (Norman v. Baltimore and Ohio R.R., 79 L. Ed. 885 (1935)).

It is next pointed out that while 4 of R.A. No. 7716 exempts such transactions as the sale of
agricultural products, food items, petroleum, and medical and veterinary services, it grants no
exemption on the sale of real property which is equally essential. The sale of real property for
socialized and low-cost housing is exempted from the tax, but CREBA claims that real estate
transactions of "the less poor," i.e., the middle class, who are equally homeless, should likewise be
exempted.

The sale of food items, petroleum, medical and veterinary services, etc., which are essential goods
and services was already exempt under 103, pars. (b) (d) (1) of the NIRC before the enactment of
R.A. No. 7716. Petitioner is in error in claiming that R.A. No. 7716 granted exemption to these
transactions, while subjecting those of petitioner to the payment of the VAT. Moreover, there is a
difference between the "homeless poor" and the "homeless less poor" in the example given by
petitioner, because the second group or middle class can afford to rent houses in the meantime that
they cannot yet buy their own homes. The two social classes are thus differently situated in life. "It is
inherent in the power to tax that the State be free to select the subjects of taxation, and it has been
repeatedly held that 'inequalities which result from a singling out of one particular class for taxation,
or exemption infringe no constitutional limitation.'" (Lutz v. Araneta, 98 Phil. 148, 153 (1955). Accord,
City of Baguio v. De Leon, 134 Phil. 912 (1968); Sison, Jr. v. Ancheta, 130 SCRA 654, 663 (1984);
Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 371 (1988)).

Finally, it is contended, for the reasons already noted, that R.A. No. 7716 also violates Art. VI, 28(1)
which provides that "The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation."

Equality and uniformity of taxation means that all taxable articles or kinds of property of the same
class be taxed at the same rate. The taxing power has the authority to make reasonable and natural
classifications for purposes of taxation. To satisfy this requirement it is enough that the statute or
ordinance applies equally to all persons, forms and corporations placed in similar situation. (City of
Baguio v. De Leon, supra; Sison, Jr. v. Ancheta, supra)

Indeed, the VAT was already provided in E.O. No. 273 long before R.A. No. 7716 was enacted. R.A.
No. 7716 merely expands the base of the tax. The validity of the original VAT Law was questioned
in Kapatiran ng Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 383 (1988) on
grounds similar to those made in these cases, namely, that the law was "oppressive, discriminatory,
unjust and regressive in violation of Art. VI, 28(1) of the Constitution." (At 382) Rejecting the
challenge to the law, this Court held:

As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform.
...

The sales tax adopted in EO 273 is applied similarly on all goods and services sold
to the public, which are not exempt, at the constant rate of 0% or 10%.

The disputed sales tax is also equitable. It is imposed only on sales of goods or
services by persons engaged in business with an aggregate gross annual sales
exceeding P200,000.00. Small corner sari-sari stores are consequently exempt from
its application. Likewise exempt from the tax are sales of farm and marine products,
so that the costs of basic food and other necessities, spared as they are from the
incidence of the VAT, are expected to be relatively lower and within the reach of the
general public.

(At 382-383)

The CREBA claims that the VAT is regressive. A similar claim is made by the Cooperative Union of
the Philippines, Inc. (CUP), while petitioner Juan T. David argues that the law contravenes the
mandate of Congress to provide for a progressive system of taxation because the law imposes a flat
rate of 10% and thus places the tax burden on all taxpayers without regard to their ability to pay.

The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are
regressive. What it simply provides is that Congress shall "evolve a progressive system of taxation."
The constitutional provision has been interpreted to mean simply that "direct taxes are . . . to be
preferred [and] as much as possible, indirect taxes should be minimized." (E. FERNANDO, THE
CONSTITUTION OF THE PHILIPPINES 221 (Second ed. (1977)). Indeed, the mandate to Congress
is not to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes, which perhaps
are the oldest form of indirect taxes, would have been prohibited with the proclamation of Art. VIII,
17(1) of the 1973 Constitution from which the present Art. VI, 28(1) was taken. Sales taxes are
also regressive.

Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not
impossible, to avoid them by imposing such taxes according to the taxpayers' ability to pay. In the
case of the VAT, the law minimizes the regressive effects of this imposition by providing for zero
rating of certain transactions (R.A. No. 7716, 3, amending 102 (b) of the NIRC), while
granting exemptions to other transactions. (R.A. No. 7716, 4, amending 103 of the NIRC).

Thus, the following transactions involving basic and essential goods and services are exempted from
the VAT:

(a) Goods for consumption or use which are in their original state (agricultural,
marine and forest products, cotton seeds in their original state, fertilizers, seeds,
seedlings, fingerlings, fish, prawn livestock and poultry feeds) and goods or services
to enhance agriculture (milling of palay, corn sugar cane and raw sugar, livestock,
poultry feeds, fertilizer, ingredients used for the manufacture of feeds).

(b) Goods used for personal consumption or use (household and personal effects of
citizens returning to the Philippines) and or professional use, like professional
instruments and implements, by persons coming to the Philippines to settle here.

(c) Goods subject to excise tax such as petroleum products or to be used for
manufacture of petroleum products subject to excise tax and services subject to
percentage tax.

(d) Educational services, medical, dental, hospital and veterinary services, and
services rendered under employer-employee relationship.

(e) Works of art and similar creations sold by the artist himself.

(f) Transactions exempted under special laws, or international agreements.

(g) Export-sales by persons not VAT-registered.

(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.

(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-

60)
On the other hand, the transactions which are subject to the VAT are those which involve goods and
services which are used or availed of mainly by higher income groups. These include real properties
held primarily for sale to customers or for lease in the ordinary course of trade or business, the right
or privilege to use patent, copyright, and other similar property or right, the right or privilege to use
industrial, commercial or scientific equipment, motion picture films, tapes and discs, radio, television,
satellite transmission and cable television time, hotels, restaurants and similar places, securities,
lending investments, taxicabs, utility cars for rent, tourist buses, and other common carriers, services
of franchise grantees of telephone and telegraph.

The problem with CREBA's petition is that it presents broad claims of constitutional violations by
tendering issues not at retail but at wholesale and in the abstract. There is no fully developed record
which can impart to adjudication the impact of actuality. There is no factual foundation to show in
the concrete the application of the law to actual contracts and exemplify its effect on property rights.
For the fact is that petitioner's members have not even been assessed the VAT. Petitioner's case is
not made concrete by a series of hypothetical questions asked which are no different from those
dealt with in advisory opinions.

The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere

allegation, as here, does not suffice. There must be a factual foundation of such
unconstitutional taint. Considering that petitioner here would condemn such a
provision as void on its face, he has not made out a case. This is merely to adhere to
the authoritative doctrine that where the due process and equal protection clauses
are invoked, considering that they are not fixed rules but rather broad standards,
there is a need for proof of such persuasive character as would lead to such a
conclusion. Absent such a showing, the presumption of validity must prevail.

(Sison, Jr. v. Ancheta, 130 SCRA at 661)

Adjudication of these broad claims must await the development of a concrete case. It may be that
postponement of adjudication would result in a multiplicity of suits. This need not be the case,
however. Enforcement of the law may give rise to such a case. A test case, provided it is an actual
case and not an abstract or hypothetical one, may thus be presented.

Nor is hardship to taxpayers alone an adequate justification for adjudicating abstract issues.
Otherwise, adjudication would be no different from the giving of advisory opinion that does not really
settle legal issues.

We are told that it is our duty under Art. VIII, 1, 2 to decide whenever a claim is made that "there
has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any
branch or instrumentality of the government." This duty can only arise if an actual case or
controversy is before us. Under Art . VIII, 5 our jurisdiction is defined in terms of "cases" and all that
Art. VIII, 1, 2 can plausibly mean is that in the exercise of that jurisdiction we have the judicial
power to determine questions of grave abuse of discretion by any branch or instrumentality of the
government.

Put in another way, what is granted in Art. VIII, 1, 2 is "judicial power," which is "the power of a
court to hear and decide cases pending between parties who have the right to sue and be sued in
the courts of law and equity" (Lamb v. Phipps, 22 Phil. 456, 559 (1912)), as distinguished from
legislative and executive power. This power cannot be directly appropriated until it is apportioned
among several courts either by the Constitution, as in the case of Art. VIII, 5, or by statute, as in the
case of the Judiciary Act of 1948 (R.A. No. 296) and the Judiciary Reorganization Act of 1980 (B.P.
Blg. 129). The power thus apportioned constitutes the court's "jurisdiction," defined as "the power
conferred by law upon a court or judge to take cognizance of a case, to the exclusion of all others."
(United States v. Arceo, 6 Phil. 29 (1906)) Without an actual case coming within its jurisdiction, this
Court cannot inquire into any allegation of grave abuse of discretion by the other departments of the
government.

VIII. Alleged violation of policy towards cooperatives. On the other hand, the Cooperative Union of
the Philippines (CUP), after briefly surveying the course of legislation, argues that it was to adopt a
definite policy of granting tax exemption to cooperatives that the present Constitution embodies
provisions on cooperatives. To subject cooperatives to the VAT would therefore be to infringe a
constitutional policy. Petitioner claims that in 1973, P.D. No. 175 was promulgated exempting
cooperatives from the payment of income taxes and sales taxes but in 1984, because of the crisis
which menaced the national economy, this exemption was withdrawn by P.D. No. 1955; that in 1986,
P.D. No. 2008 again granted cooperatives exemption from income and sales taxes until December
31, 1991, but, in the same year, E.O. No. 93 revoked the exemption; and that finally in 1987 the
framers of the Constitution "repudiated the previous actions of the government adverse to the
interests of the cooperatives, that is, the repeated revocation of the tax exemption to
cooperatives and instead upheld the policy of strengthening the cooperatives by way of the grant of
tax exemptions," by providing the following in Art. XII:

1. The goals of the national economy are a more equitable distribution of

opportunities, income, and wealth; a sustained increase in the amount of goods and
services produced by the nation for the benefit of the people; and an expanding
productivity as the key to raising the quality of life for all, especially the
underprivileged.

The State shall promote industrialization and full employment based on sound
agricultural development and agrarian reform, through industries that make full and
efficient use of human and natural resources, and which are competitive in both
domestic and foreign markets. However, the State shall protect Filipino enterprises
against unfair foreign competition and trade practices.

In the pursuit of these goals, all sectors of the economy and all regions of the country
shall be given optimum opportunity to develop. Private enterprises, including
corporations, cooperatives, and similar collective organizations, shall be encouraged
to broaden the base of their ownership.

15. The Congress shall create an agency to promote the viability and growth of
cooperatives as instruments for social justice and economic development.

Petitioner's contention has no merit. In the first place, it is not true that P.D. No. 1955 singled out
cooperatives by withdrawing their exemption from income and sales taxes under P.D. No. 175, 5.
What P.D. No. 1955, 1 did was to withdraw the exemptions and preferential treatments theretofore
granted to private business enterprises in general, in view of the economic crisis which then beset
the nation. It is true that after P.D. No. 2008, 2 had restored the tax exemptions of cooperatives in
1986, the exemption was again repealed by E.O. No. 93, 1, but then again cooperatives were not
the only ones whose exemptions were withdrawn. The withdrawal of tax incentives applied to all,
including government and private entities. In the second place, the Constitution does not really
require that cooperatives be granted tax exemptions in order to promote their growth and viability.
Hence, there is no basis for petitioner's assertion that the government's policy toward cooperatives
had been one of vacillation, as far as the grant of tax privileges was concerned, and that it was to put
an end to this indecision that the constitutional provisions cited were adopted. Perhaps as a matter
of policy cooperatives should be granted tax exemptions, but that is left to the discretion of
Congress. If Congress does not grant exemption and there is no discrimination to cooperatives, no
violation of any constitutional policy can be charged.

Indeed, petitioner's theory amounts to saying that under the Constitution cooperatives are exempt
from taxation. Such theory is contrary to the Constitution under which only the following are exempt
from taxation: charitable institutions, churches and parsonages, by reason of Art. VI, 28 (3), and
non-stock, non-profit educational institutions by reason of Art. XIV, 4 (3).

CUP's further ground for seeking the invalidation of R.A. No. 7716 is that it denies cooperatives the
equal protection of the law because electric cooperatives are exempted from the VAT. The
classification between electric and other cooperatives (farmers cooperatives, producers
cooperatives, marketing cooperatives, etc.) apparently rests on a congressional determination that
there is greater need to provide cheaper electric power to as many people as possible, especially
those living in the rural areas, than there is to provide them with other necessities in life. We cannot
say that such classification is unreasonable.

We have carefully read the various arguments raised against the constitutional validity of R.A. No.
7716. We have in fact taken the extraordinary step of enjoining its enforcement pending resolution of
these cases. We have now come to the conclusion that the law suffers from none of the infirmities
attributed to it by petitioners and that its enactment by the other branches of the government does
not constitute a grave abuse of discretion. Any question as to its necessity, desirability or expediency
must be addressed to Congress as the body which is electorally responsible, remembering that, as
Justice Holmes has said, "legislators are the ultimate guardians of the liberties and welfare of the
people in quite as great a degree as are the courts." (Missouri, Kansas & Texas Ry. Co. v. May, 194
U.S. 267, 270, 48 L. Ed. 971, 973 (1904)). It is not right, as petitioner in G.R. No. 115543 does in
arguing that we should enforce the public accountability of legislators, that those who took part in
passing the law in question by voting for it in Congress should later thrust to the courts the burden of
reviewing measures in the flush of enactment. This Court does not sit as a third branch of the
legislature, much less exercise a veto power over legislation.

WHEREFORE, the motions for reconsideration are denied with finality and the temporary restraining
order previously issued is hereby lifted.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 99886 March 31, 1993

JOHN H. OSMEA, petitioner,

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

The Solicitor General for public respondents.

NARVASA, C.J.:

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

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

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

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

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

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

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

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

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

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

The petitioner argues that "the monies collected pursuant to . . P.D. 1956, as amended, must be
treated as a 'SPECIAL FUND,' not as a 'trust account' or a 'trust fund,' and that "if a special tax is
collected for a specific purpose, the revenue generated therefrom shall 'be treated as a special fund'
to be used only for the purpose indicated, and not channeled to another government
objective." 10 Petitioner further points out that since "a 'special fund' consists of monies collected
through the taxing power of a State, such amounts belong to the State, although the use thereof is
limited to the special purpose/objective for which it was created." 11

He also contends that the "delegation of legislative authority" to the ERB violates 28 (2). Article VI
of the Constitution, viz.:

(2) The Congress may, by law, authorize the President to fix, within specified limits,
and subject to such limitations and restrictions as it may impose, tariff rates, import
and export quotas, tonnage and wharfage dues, and other duties or imposts within
the framework of the national development program of the Government;

and, inasmuch as the delegation relates to the exercise of the power of taxation, "the limits,
limitations and restrictions must be quantitative, that is, the law must not only specify how to
tax, who (shall) be taxed (and) what the tax is for, but also impose a specific limit on how
much to tax." 12

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

It thus appears that the challenge posed by the petitioner is premised primarily on the view that the
powers granted to the ERB under P.D. 1956, as amended, partake of the nature of the taxation
power of the State. The Solicitor General observes that the "argument rests on the assumption that
the OPSF is a form of revenue measure drawing from a special tax to be expended for a special
purpose." 13 The petitioner's perceptions are, in the Court's view, not quite correct.

To address this critical misgiving in the position of the petitioner on these issues, the Court recalls its
holding in Valmonte v. Energy Regulatory Board, et al. 14

The foregoing arguments suggest the presence of misconceptions about the nature
and functions of the OPSF. The OPSF is a "Trust Account" which was established
"for the purpose of minimizing the frequent price changes brought about by exchange
rate adjustment and/or changes in world market prices of crude oil and imported
petroleum products." 15 Under P.D. No. 1956, as amended by Executive Order No.
137 dated 27 February 1987, this Trust Account may be funded from any of the
following sources:

a) Any increase in the tax collection from ad valorem tax or customs

duty imposed on petroleum products subject to tax under this
Decree arising from exchange rate adjustment, as may be
 determined by the Minister of Finance in consultation with the Board
of Energy;

b) Any increase in the tax collection as a result of the lifting of tax

exemptions of government corporations, as may be determined by
the Minister of Finance in consultation with the Board of Energy:

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

augment the resources of the Fund through an appropriate Order that
may be issued by the Board of Energy requiring payment of persons
or companies engaged in the business of importing, manufacturing
and/or marketing petroleum products;

d) Any resulting peso cost differentials in case the actual peso costs
paid by oil companies in the importation of crude oil and petroleum
products is less than the peso costs computed using the reference
foreign exchange rate as fixed by the Board of Energy.

xxx xxx xxx

The fact that the world market prices of oil, measured by the spot market in
Rotterdam, vary from day to day is of judicial notice. Freight rates for hauling crude
oil and petroleum products from sources of supply to the Philippines may also vary
from time to time. The exchange rate of the peso vis-a-vis the U.S. dollar and other
convertible foreign currencies also changes from day to day. These fluctuations in
world market prices and in tanker rates and foreign exchange rates would in a
completely free market translate into corresponding adjustments in domestic prices
of oil and petroleum products with sympathetic frequency. But domestic prices which
vary from day to day or even only from week to week would result in a chaotic market
with unpredictable effects upon the country's economy in general. The OPSF was
established precisely to protect local consumers from the adverse consequences that
such frequent oil price adjustments may have upon the economy. Thus, the OPSF
serves as a pocket, as it were, into which a portion of the purchase price of oil and
petroleum products paid by consumers as well as some tax revenues are inputted
and from which amounts are drawn from time to time to reimburse oil companies,
when appropriate situations arise, for increases in, as well as underrecovery of, costs
of crude importation. The OPSF is thus a buffer mechanism through which the
domestic consumer prices of oil and petroleum products are stabilized, instead of
fluctuating every so often, and oil companies are allowed to recover those portions of
their costs which they would not otherwise recover given the level of domestic prices
existing at any given time. To the extent that some tax revenues are also put into it,
the OPSF is in effect a device through which the domestic prices of petroleum
products are subsidized in part. It appears to the Court that the establishment and
maintenance of the OPSF is well within that pervasive and non-waivable power and
responsibility of the government to secure the physical and economic survival and
well-being of the community, that comprehensive sovereign authority we designate
as the police power of the State. The stabilization, and subsidy of domestic prices of
petroleum products and fuel oil clearly critical in importance considering, among
other things, the continuing high level of dependence of the country on imported
crude oil are appropriately regarded as public purposes.
Also of relevance is this Court's ruling in relation to the sugar stabilization fund the nature of which is
not far different from the OPSF. In Gaston v. Republic Planters Bank, 16 this Court upheld the legality
of the sugar stabilization fees and explained their nature and character, viz.:

The stabilization fees collected are in the nature of a tax, which is within the power of
the State to impose for the promotion of the sugar industry (Lutz v. Araneta, 98 Phil.
148). . . . The tax collected is not in a pure exercise of the taxing power. It is levied
with a regulatory purpose, to provide a means for the stabilization of the sugar
industry. The levy is primarily in the exercise of the police power of the State (Lutz v.
Araneta, supra).

xxx xxx xxx

The stabilization fees in question are levied by the State upon sugar millers, planters
and producers for a special purpose that of "financing the growth and
development of the sugar industry and all its components, stabilization of the
domestic market including the foreign market." The fact that the State has taken
possession of moneys pursuant to law is sufficient to constitute them state funds,
even though they are held for a special purpose (Lawrence v. American Surety Co.
263 Mich. 586, 249 ALR 535, cited in 42 Am Jur Sec. 2, p. 718). Having been levied
for a special purpose, the revenues collected are to be treated as a special fund, to
be, in the language of the statute, "administered in trust" for the purpose intended.
Once the purpose has been fulfilled or abandoned, the balance if any, is to be
transferred to the general funds of the Government. That is the essence of the trust
intended (SEE 1987 Constitution, Article VI, Sec. 29(3), lifted from the 1935
Constitution, Article VI, Sec. 23(1). 17

The character of the Stabilization Fund as a special kind of fund is emphasized by

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

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

With regard to the alleged undue delegation of legislative power, the Court finds that the provision
conferring the authority upon the ERB to impose additional amounts on petroleum products provides
a sufficient standard by which the authority must be exercised. In addition to the general policy of the
law to protect the local consumer by stabilizing and subsidizing domestic pump rates, 8(c) of P.D.
1956 18 expressly authorizes the ERB to impose additional amounts to augment the resources of the
Fund.

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

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

For a valid delegation of power, it is essential that the law delegating the power must be (1)
complete in itself, that is it must set forth the policy to be executed by the delegate and (2) it must fix
a standard limits of which
are sufficiently determinate or determinable to which the delegate must conform. 20

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

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

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

This Court thus finds no serious impediment to sustaining the validity of the legislation; the express
purpose for which the imposts are permitted and the general objectives and purposes of the fund are
readily discernible, and they constitute a sufficient standard upon which the delegation of power may
be justified.

In relation to the third question respecting the illegality of the reimbursements to oil companies,
paid out of the Oil Price Stabilization Fund, because allegedly in contravention of 8, paragraph 2
(2) of P.D. 1956, amended 23 the Court finds for the petitioner.
The petition assails the payment of certain items or accounts in favor of the petroleum companies
(i.e., inventory losses, financing charges, fuel oil sales to the National Power Corporation, etc.)
because not authorized by law. Petitioner contends that "these claims are not embraced in the
enumeration in 8 of P.D. 1956 . . since none of them was incurred 'as a result of the reduction of
domestic prices of petroleum products,'" 24 and since these items are reimbursements for which the
OPSF should not have responded, the amount of the P12.877 billion deficit "should be reduced by
P5,277.2 million." 25 It is argued "that under the principle of ejusdem generis . . . the term 'other
factors' (as used in 8 of P.D. 1956) . . can only include such 'other factors' which necessarily result
in the reduction of domestic prices of petroleum products." 26

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

This Court, in Caltex Philippines, Inc. v. The Honorable Commissioner on Audit, et al., 27 passed
upon the application of ejusdem generis to paragraph 2 of 8 of P.D. 1956, viz.:

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

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

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

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

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

SO ORDERED.

Cruz, Feliciano, Padilla, Bidin, Grio-Aquino, Regalado, Davide, Jr., Romero, Nocon, Bellosillo,
Melo, Campos, Jr., and Quiason, JJ., concur.

Gutierrez, Jr., J., is on leave.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 88291 May 31, 1991

ERNESTO M. MACEDA, petitioner,

vs.
HON. CATALINO MACARAIG, JR., in his capacity as Executive Secretary, Office of the
President; HON. VICENTE R. JAYME, in his capacity as Secretary of the Department of
Finance; HON. SALVADOR MISON, in his capacity as Commissioner, Bureau of Customs;
HON. JOSE U. ONG, in his capacity as Commissioner of Internal Revenue; NATIONAL
POWER CORPORATION; the FISCAL INCENTIVES REVIEW BOARD; Caltex (Phils.) Inc.;
Pilipinas Shell Petroleum Corporation; Philippine National Oil Corporation; and Petrophil
Corporation, respondents.

Villamor & Villamor Law Offices for petitioner.

Angara, Abello, Concepcion, Regala & Cruz for Pilipinas Shell Petroleum Corporation.
Siguion Reyna, Montecillo & Ongsiako for Caltex (Phils.), Inc.

GANCAYCO, J.:

This petition seeks to nullify certain decisions, orders, rulings, and resolutions of respondents
Executive Secretary, Secretary of Finance, Commissioner of Internal Revenue, Commissioner of
Customs and the Fiscal Incentives Review Board FIRB for exempting the National Power
Corporation (NPC) from indirect tax and duties.

The relevant facts are not in dispute.

On November 3, 1986, Commonwealth Act No. 120 created the NPC as a public corporation to
undertake the development of hydraulic power and the production of power from other sources.1

On June 4, 1949, Republic Act No. 358 granted NPC tax and duty exemption privileges under

Sec. 2. To facilitate payment of its indebtedness, the National Power Corporation shall be
exempt from all taxes, duties, fees, imposts, charges and restrictions of the Republic of the
Philippines, its provinces, cities and municipalities.

On September 10, 1971, Republic Act No. 6395 revised the charter of the NPC wherein Congress
declared as a national policy the total electrification of the Philippines through the development of
power from all sources to meet the needs of industrial development and rural electrification which
should be pursued coordinately and supported by all instrumentalities and agencies of the
government, including its financial institutions.2 The corporate existence of NPC was extended to
carry out this policy, specifically to undertake the development of hydro electric generation of power
and the production of electricity from nuclear, geothermal and other sources, as well as the
transmission of electric power on a nationwide basis.3 Being a non-profit corporation, Section 13 of
the law provided in detail the exemption of the NPC from all taxes, duties, fees, imposts and other
charges by the government and its instrumentalities.

On January 22, 1974, Presidential Decree No. 380 amended section 13, paragraphs (a) and (d) of
Republic Act No. 6395 by specifying, among others, the exemption of NPC from such taxes, duties,
fees, imposts and other charges imposed "directly or indirectly," on all petroleum products used by
NPC in its operation. Presidential Decree No. 938 dated May 27, 1976 further amended the
aforesaid provision by integrating the tax exemption in general terms under one paragraph.

On June 11, 1984, Presidential Decree No. 1931 withdrew all tax exemption privileges granted in
favor of government-owned or controlled corporations including their subsidiaries.4 However, said
law empowered the President and/or the then Minister of Finance, upon recommendation of the
FIRB to restore, partially or totally, the exemption withdrawn, or otherwise revise the scope and
coverage of any applicable tax and duty.

Pursuant to said law, on February 7, 1985, the FIRB issued Resolution No. 10-85 restoring the tax
and duty exemption privileges of NPC from June 11, 1984 to June 30, 1985. On January 7, 1986,
the FIRB issued resolution No. 1-86 indefinitely restoring the NPC tax and duty exemption privileges
effective July 1, 1985.

However, effective March 10, 1987, Executive Order No. 93 once again withdrew all tax and duty
incentives granted to government and private entities which had been restored under Presidential
Decree Nos. 1931 and 1955 but it gave the authority to FIRB to restore, revise the scope and
prescribe the date of effectivity of such tax and/or duty exemptions.

On June 24, 1987 the FIRB issued Resolution No. 17-87 restoring NPC's tax and duty exemption
privileges effective March 10, 1987. On October 5, 1987, the President, through respondent
Executive Secretary Macaraig, Jr., confirmed and approved FIRB Resolution No. 17-87.

As alleged in the petition, the following are the background facts:

The following are the facts relevant to NPC's questioned claim for refunds of taxes and
duties originally paid by respondents Caltex, Petrophil and Shell for specific and ad
valorem taxes to the BIR; and for Customs duties and ad valorem taxes paid by PNOC, Shell
and Caltex to the Bureau of Customs on its crude oil importation.
Many of the factual statements are reproduced from the Senate Committee on Accountability
of Public Officers and Investigations (Blue Ribbon) Report No. 474 dated January 12, 1989
and approved by the Senate on April 21, 1989 (copy attached hereto as Annex "A") and are
identified in quotation marks:

1. Since May 27, 1976 when P.D. No. 938 was issued until June 11, 1984 when P.D. No.
1931 was promulgated abolishing the tax exemptions of all government-owned or-controlled
corporations, the oil firms never paid excise or specific and ad valorem taxes for petroleum
products sold and delivered to the NPC. This non-payment of taxes therefore spanned a
period of eight (8) years. (par. 23, p. 7, Annex "A")

During this period, the Bureau of Internal Revenue was not collecting specific taxes on the
purchases of NPC of petroleum products from the oil companies on the erroneous belief that
the National Power Corporation (NPC) was exempt from indirect taxes as reflected in the
letter of Deputy Commissioner of Internal Revenue (DCIR) Romulo Villa to the NPC dated
October 29, 1980 granting blanket authority to the NPC to purchase petroleum products from
the oil companies without payment of specific tax (copy of this letter is attached hereto as
petitioner's Annex "B").

2. The oil companies started to pay specific and ad valorem taxes on their sales of oil
products to NPC only after the promulgation of P.D. No. 1931 on June 11, 1984, withdrawing
all exemptions granted in favor of government-owned or-controlled corporations and
empowering the FIRB to recommend to the President or to the Minister of Finance the
restoration of the exemptions which were withdrawn. "Specifically, Caltex paid the total
amount of P58,020,110.79 in specific and ad valorem taxes for deliveries of petroleum
products to NPC covering the period from October 31, 1984 to April 27, 1985." (par. 23, p. 7,
Annex "A")

3. Caltex billings to NPC until June 10, 1984 always included customs duty without the tax
portion. Beginning June 11, 1984, when P.D. 1931 was promulgated abolishing NPC's tax
exemptions, Caltex's billings to NPC always included both duties and taxes. (Caturla, tsn,
Oct. 10, 1988, pp. 1-5) (par. 24, p, 7, Annex "A")

4. For the sales of petroleum products delivered to NPC during the period from October,
1984 to April, 1985, NPC was billed a total of P522,016,77.34 (sic) including both duties and
taxes, the specific tax component being valued at P58,020,110.79. (par. 25, p. 8, Annex "A").

5. Fiscal Incentives Review Board (FIRB) Resolution 10-85, dated February 7, 1985, certified
true copy of which is hereto attached as Annex "C", restored the tax exemption privileges of
NPC effective retroactively to June 11, 1984 up to June 30, 1985. The first paragraph of said
resolution reads as follows:

1. Effective June 11, 1984, the tax and duty exemption privileges enjoyed by the
National Power Corporation under C.A. No. 120, as amended, are restored up to
June 30, 1985.

Because of this restoration (Annex "G") the NPC applied on September 11, 1985 with the
BIR for a "refund of Specific Taxes paid on petroleum products . . . in the total amount of
P58,020,110.79. (par. 26, pp. 8-9, Annex "A")

6. In a letter to the president of the NPC dated May 8, 1985 (copy attached as petitioner's
Annex "D"), Acting BIR Commissioner Ruben Ancheta declared:
 FIRB Resolution No. 10-85 serves as sufficient basis to allow NPC to purchase
petroleum products from the oil companies free of specific and ad valorem taxes,
during the period in question.

The "period in question" is June 1 1, 1 984 to June 30, 1 985.

7. On June 6, 1985The president of the NPC, Mr. Gabriel Itchon, wrote Mr. Cesar Virata,
Chairman of the FIRB (Annex "E"), requesting "the FIRB to resolve conflicting rulings on the
tax exemption privileges of the National Power Corporation (NPC)." These rulings involve
FIRB Resolutions No. 1-84 and 10-85. (par. 40, p. 12, Annex "A")

8. In a letter to the President of NPC (Annex "F"), dated June 26, 1985, Minister Cesar Virata
confirmed the ruling of May 8, 1985 of Acting BIR Commissioner Ruben Ancheta, (par. 41, p.
12, Annex "A")

9. On October 22, 1985, however, under BIR Ruling No. 186-85, addressed to Hanil
Development Co., Ltd., a Korean contractor of NPC for its infrastructure projects, certified
true copy of which is attached hereto as petitioner's Annex "E", BIR Acting Commissioner
Ruben Ancheta ruled:

In Reply please be informed that after a re-study of Section 13, R.A. 6395, as
amended by P.D. 938, this Office is of the opinion, and so holds, that the scope of
the tax exemption privilege enjoyed by NPC under said section covers only taxes for
which it is directly liable and not on taxes which are only shifted to it. (Phil. Acetylene
vs. C.I.R. et al., G.R. L-19707, Aug. 17, 1967) Since contractor's tax is directly
payable by the contractor, not by NPC, your request for exemption, based on the
stipulation in the aforesaid contract that NPC shall assume payment of your
contractor's tax liability, cannot be granted for lack of legal basis." (Annex "H")
(emphasis added)

Said BIR ruling clearly states that NPC's exemption privileges covers (sic) only taxes for
which it is directly liable and does not cover taxes which are only shifted to it or for indirect
taxes. The BIR, through Ancheta, reversed its previous position of May 8, 1985 adopted by
Ancheta himself favoring NPC's indirect tax exemption privilege.

10. Furthermore, "in a BIR Ruling, unnumbered, "dated June 30, 1986, "addressed to Caltex
(Annex "F"), the BIR Commissioner declared that PAL's tax exemption is limited to taxes for
which PAL is directly liable, and that the payment of specific and ad valorem taxes on
petroleum products is a direct liability of the manufacturer or producer thereof". (par. 51, p.
15, Annex "A")

11. On January 7, 1986, FIRB Resolution No. 1-86 was issued restoring NPC's tax
exemptions retroactively from July 1, 1985 to a indefinite period, certified true copy of which
is hereto attached as petitioner's Annex "H".

12. NPC's total refund claim was P468.58 million but only a portion thereof i.e. the
P58,020,110.79 (corresponding to Caltex) was approved and released by way of a Tax
Credit Memo (Annex "Q") dated July 7, 1986, certified true copy of which [is) attached hereto
as petitioner's Annex "F," which was assigned by NPC to Caltex. BIR Commissioner Tan
approved the Deed of Assignment on July 30, 1987, certified true copy of which is hereto
attached as petitioner's Annex "G"). (pars. 26, 52, 53, pp. 9 and 15, Annex "A")
The Deed of Assignment stipulated among others that NPC is assigning the tax credit to
Caltex in partial settlement of its outstanding obligations to the latter while Caltex, in turn,
would apply the assigned tax credit against its specific tax payments for two (2) months. (per
memorandum dated July 28, 1986 of DCIR Villa, copy attached as petitioner Annex "G")

13. As a result of the favorable action taken by the BIR in the refund of the P58.0 million tax
credit assigned to Caltex, the NPC reiterated its request for the release of the balance of its
pending refunds of taxes paid by respondents Petrophil, Shell and Caltex covering the period
from June 11, 1984 to early part of 1986 amounting to P410.58 million. (The claim of the first
two (2) oil companies covers the period from June 11, 1984 to early part of 1986; while that
of Caltex starts from July 1, 1985 to early 1986). This request was denied on August 18,
1986, under BIR Ruling 152-86 (certified true copy of which is attached hereto as petitioner's
Annex "I"). The BIR ruled that NPC's tax free privilege to buy petroleum products covered
only the period from June 11, 1984 up to June 30, 1985. It further declared that, despite
FIRB No. 1-86, NPC had already lost its tax and duty exemptions because it only enjoys
special privilege for taxes for which it is directly liable. This ruling, in effect, denied the P410
Million tax refund application of NPC (par. 28, p. 9, Annex "A")

14. NPC filed a motion for reconsideration on September 18, 1986. Until now the BIR has not
resolved the motion. (Benigna, II 3, Oct. 17, 1988, p. 2; Memorandum for the Complainant,
Oct. 26, 1988, p. 15)." (par. 29, p. 9, Annex "A")

15. On December 22, 1986, in a 2nd Indorsement to the Hon. Fulgencio S. Factoran, Jr., BIR
Commissioner Tan, Jr. (certified true copy of which is hereto attached and made a part
hereof as petitioner's Annex "J"), reversed his previous position and states this time that all
deliveries of petroleum products to NPC are tax exempt, regardless of the period of delivery.

16. On December 17, 1986, President Corazon C. Aquino enacted Executive Order No. 93,
entitled "Withdrawing All Tax and Duty Incentives, Subject to Certain Exceptions, Expanding
the Powers of the Fiscal Incentives Review Board and Other Purposes."

17. On June 24, 1987, the FIRB issued Resolution No. 17-87, which restored NPC's tax
exemption privilege and included in the exemption "those pertaining to its domestic
purchases of petroleum and petroleum products, and the restorations were made to retroact
effective March 10, 1987, a certified true copy of which is hereto attached and made a part
hereof as Annex "K".

18. On August 6, 1987, the Hon. Sedfrey A. Ordoez, Secretary of Justice, issued Opinion
No. 77, series of 1987, opining that "the power conferred upon Fiscal Incentives Review
Board by Section 2a (b), (c) and (d) of Executive order No. 93 constitute undue delegation of
legislative power and, therefore, [are] unconstitutional," a copy of which is hereto attached
and made a part hereof as Petitioner's Annex "L."

19. On October 5, 1987, respondent Executive Secretary Macaraig, Jr. in a Memorandum to

the Chairman of the FIRB a certified true copy of which is hereto attached and made a part
hereof as petitioner's Annex "M," confirmed and approved FIRB Res. No. 17-87 dated June
24, 1987, allegedly pursuant to Sections 1 (f) and 2 (e) of Executive Order No. 93.

20. Secretary Vicente Jayme in a reply dated May 20, 1988 to Secretary Catalino Macaraig,
who by letter dated May 2, 1988 asked him to rule "on whether or not, as the law now
stands, the National Power Corporation is still exempt from taxes, duties . . . on its local
purchases of . . . petroleum products . . ." declared that "NPC under the provisions of its
Revised Charter retains its exemption from duties and taxes imposed on the petroleum
products purchased locally and used for the generation of electricity," a certified true copy of
which is attached hereto as petitioner's Annex "N." (par. 30, pp. 9-10, Annex "A")

21. Respondent Executive Secretary came up likewise with a confirmatory letter dated June
1 5, 1988 but without the usual official form of "By the Authority of the President," a certified
true copy of which is hereto attached and made a part hereof as Petitioner's Annex "O".

22. The actions of respondents Finance Secretary and the Executive Secretary are based on
the RESOLUTION No. 17-87 of FIRB restoring the tax and duty exemption of the respondent
NPC pertaining to its domestic purchases of petroleum products (petitioner's Annex
K supra).

23. Subsequently, the newspapers particularly, the Daily Globe, in its issue of July 11, 1988
reported that the Office of the President and the Department of Finance had ordered the BIR
to refund the tax payments of the NPC amounting to Pl.58 Billion which includes the P410
Million Tax refund already rejected by BIR Commissioner Tan, Jr., in his BIR Ruling No. 152-
86. And in a letter dated July 28, 1988 of Undersecretary Marcelo B. Fernando to BIR
Commissioner Tan, Jr. the Pl.58 Billion tax refund was ordered released to NPC (par. 31, p.
1 0, Annex "A")

24. On August 8, 1988, petitioner "wrote both Undersecretary Fernando and Commissioner
Tan requesting them to hold in abeyance the release of the Pl.58 billion and await the
outcome of the investigation in regard to Senate Resolution No. 227," copies attached as
Petitioner's Annexes "P" and "P-1 " (par. 32, p. 10, Annex "A").

Reacting to this letter of the petitioner, Undersecretary Fernando wrote Commissioner Tan of
the BIR dated August, 1988 requesting him to hold in abeyance the release of the tax
refunds to NPC until after the termination of the Blue Ribbon investigation.

25. In the Bureau of Customs, oil companies import crude oil and before removal thereof
from customs custody, the corresponding customs duties and ad valorem taxes are paid.
Bunker fuel oil is one of the petroleum products processed from the crude oil; and same is
sold to NPC. After the sale, NPC applies for tax credit covering the duties and ad valorem
exemption under its Charter. Such applications are processed by the Bureau of Customs and
the corresponding tax credit certificates are issued in favor of NPC which, in turn assigns it to
the oil firm that imported the crude oil. These certificates are eventually used by the
assignee-oil firms in payment of their other duty and tax liabilities with the Bureau of
Customs. (par. 70, p. 19, Annex "A")

A lesser amount totalling P740 million, covering the period from 1985 to the present, is being
sought by respondent NPC for refund from the Bureau of Customs for duties paid by the oil
companies on the importation of crude oil from which the processed products sold locally by
them to NPC was derived. However, based on figures submitted to the Blue Ribbon
Committee of the Philippine Senate which conducted an investigation on this matter as
mandated by Senate Resolution No. 227 of which the herein petitioner was the sponsor, a
much bigger figure was actually refunded to NPC representing duties and ad valorem taxes
paid to the Bureau of Customs by the oil companies on the importation of crude oil from 1979
to 1985.

26. Meantime, petitioner, as member of the Philippine Senate introduced P.S. Res. No. 227,
entitled:
 Resolution Directing the Senate Blue Ribbon Committee, In Aid of Legislation, To
conduct a Formal and Extensive Inquiry into the Reported Massive Tax
Manipulations and Evasions by Oil Companies, particularly Caltex (Phils.) Inc.,
Pilipinas Shell and Petrophil, Which Were Made Possible By Their Availing of the
Non-Existing Exemption of National Power Corporation (NPC) from Indirect Taxes,
Resulting Recently in Their Obtaining A Tax Refund Totalling P1.55 Billion From the
Department of Finance, Their Refusal to Pay Since 1976 Customs Duties Amounting
to Billions of Pesos on Imported Crude Oil Purportedly for the Use of the National
Power Corporation, the Non-Payment of Surtax on Windfall Profits from Increases in
the Price of Oil Products in August 1987 amounting Maybe to as Much as Pl.2 Billion
Surtax Paid by Them in 1984 and For Other Purposes.

27. Acting on the above Resolution, the Blue Ribbon Committee of the Senate did conduct a
lengthy formal inquiry on the matter, calling all parties interested to the witness stand
including representatives from the different oil companies, and in due time submitted its
Committee Report No. 474 . . . The Blue Ribbon Committee recommended the following
courses of action.

1. Cancel its approval of the tax refund of P58,020,110.70 to the National Power
Corporation (NPC) and its approval of Tax Credit memo covering said amount
(Annex "P" hereto), dated July 7, 1986, and cancel its approval of the Deed of
Assignment (Annex "Q" hereto) by NPC to Caltex, dated July 28, 1986, and collect
from Caltex its tax liabilities which were erroneously treated as paid or settled with
the use of the tax credit certificate that NPC assigned to said firm.:

1.1. NPC did not have any indirect tax exemption since May 27, 1976 when
PD 938 was issued. Therefore, the grant of a tax refund to NPC in the
amount of P58 million was illegal, and therefore, null and void. Such refund
was a nullity right from the beginning. Hence, it never transferred any right in
favor of NPC.

2. Stop the processing and/or release of Pl.58 billion tax refund to NPC and/or oil
companies on the same ground that the NPC, since May 27, 1976 up to June 17,
1987 was never granted any indirect tax exemption. So, the P1.58 billion represent
taxes legally and properly paid by the oil firms.

3. Start collection actions of specific or excise and ad valorem taxes due on

petroleum products sold to NPC from May 27, 1976 (promulgation of PD 938) to
June 17, 1987 (issuance of EO 195).

B. For the Bureau of Customs (BOC) to do the following:

1. Start recovery actions on the illegal duty refunds or duty credit certificates for purchases of
petroleum products by NPC and allegedly granted under the NPC charter covering the years
1978-1988 . . .

28. On March 30, 1989, acting on the request of respondent Finance Secretary for clearance
to direct the Bureau of Internal Revenue and of Customs to proceed with the processing of
claims for tax credits/refunds of the NPC, respondent Executive Secretary rendered his
ruling, the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, the clearance is hereby GRANTED and, accordingly, unless
restrained by proper authorities, that department and/or its line-tax bureaus may now proceed with
the processing of the claims of the National Power Corporation for duty and tax free exemption
and/or tax credits/ refunds, if there be any, in accordance with the ruling of that Department dated
May 20,1988, as confirmed by this Office on June 15, 1988 . . .5

Hence, this petition for certiorari, prohibition and mandamus with prayer for a writ of preliminary
injunction and/or restraining order, praying among others that:

1. Upon filing of this petition, a temporary restraining order forthwith be issued against
respondent FIRB Executive Secretary Macaraig, and Secretary of Finance Jayme restraining
them and other persons acting for, under, and in their behalf from enforcing their resolution,
orders and ruling, to wit:

A. FIRB Resolution No. 17-87 dated June 24, 1987 (petitioner's Annex "K");

B. Memorandum-Order of the Office of the President dated October 5, 1987

(petitioner's Annex "M");

C. Order of the Executive Secretary dated June 15, 1988 (petitioner's Annex "O");

D. Order of the Executive Secretary dated March 30, l989 (petitioner's Annex "Q");
and

E. Ruling of the Finance Secretary dated May 20, 1988 (petitioner's Annex "N").

2. Said temporary restraining order should also include respondent Commissioners of

Customs Mison and Internal Revenue Ong restraining them from processing and releasing
any pending claim or application by respondent NPC for tax and duty refunds.

3. Thereafter, and during the pendency of this petition, to issue a writ or preliminary
injunction against above-named respondents and all persons acting for and in their behalf.

4. A decision be rendered in favor of the petitioner and against the respondents:

A. Declaring that respondent NPC did not enjoy indirect tax exemption privilege since May
27, 1976 up to the present;

B. Nullifying the setting aside the following:

1. FIRB Resolution No. 17-87 dated June 24, 1987 (petitioner's Annex "K");

2. Memorandum-Order of the Office of the President dated October 5, 1987

(petitioner's Annex "M");

3. Order of the Executive Secretary dated June 15, 1988 (petitioner's Annex "O");

4. Order of the Executive Secretary dated March 30, 1989 (petitioner's Annex "Q");

5. Ruling of the Finance Secretary dated May 20, 1988 (petitioner's Annex "N"
 6. Tax Credit memo dated July 7, 1986 issued to respondent NPC representing tax
refund for P58,020,110.79 (petitioner's Annex "F");

7. Deed of Assignment of said tax credit memo to respondent Caltex dated July 30,
1987 (petitioner's Annex "G");

8. Application of the assigned tax credit of Caltex in payment of its tax liabilities with
the Bureau of Internal Revenue and

9. Illegal duty and tax refunds issued by the Bureau of Customs to respondent NPC
by way of tax credit certificates from 1979 up to the present.

C. Declaring as illegal and null and void the pending claims for tax and duty refunds by
respondent NPC with the Bureau of Customs and the Bureau of Internal Revenue;

D. Prohibiting respondents Commissioner of Customs and Commissioner of Internal

Revenue from enforcing the abovequestioned resolution, orders and ruling of respondents
Executive Secretary, Secretary of Finance, and FIRB by processing and releasing
respondent NPC's tax and duty refunds;

E. Ordering the respondent Commissioner of Customs to deny as being null and void the
pending claims for refund of respondent NPC with the Bureau of Customs covering the
period from 1985 to the present; to cancel and invalidate the illegal payment made by
respondents Caltex, Shell and PNOC by using the tax credit certificates assigned to them by
NPC and to recover from respondents Caltex, Shell and PNOC all the amounts appearing in
said tax credit certificates which were used to settle their duty and tax liabilities with the
Bureau of Customs.

F. Ordering respondent Commissioner of Internal Revenue to deny as being null and void
the pending claims for refund of respondent NPC with the Bureau of Internal Revenue
covering the period from June 11, 1984 to June 17, 1987.

PETITIONER prays for such other relief and remedy as may be just and equitable in the
premises.6

The issues raised in the petition are the following:

To determine whether respondent NPC is legally entitled to the questioned tax and duty
refunds, this Honorable Court must resolve the following issues:

Main issue

Whether or not the respondent NPC has ceased to enjoy indirect tax and duty exemption
with the enactment of P.D. No. 938 on May 27, 1976 which amended P.D. No. 380, issued
on January 11, 1974.

Corollary issues

1. Whether or not FIRB Resolution No. 10-85 dated February 7, 1985 which restored NPC's
tax exemption privilege effective June 11, 1984 to June 30, 1985 and FIRB Resolution No. 1-
 86 dated January 7, 1986 restoring NPC's tax exemption privilege effective July 1, 1985
included the restoration of indirect tax exemption to NPC and

2. Whether or not FIRB could validly and legally issue Resolution No. 17-87 dated June 24,
1987 which restored NPC's tax exemption privilege effective March 10, 1987; and if said
Resolution was validly issued, the nature and extent of the tax exemption privilege restored
to NPC.7

In a resolution dated June 6, 1989, the Court, without giving due course to the petition, required
respondents to comment thereon, within ten (10) days from notice. The respondents having
submitted their comment, on October 10, 1989 the Court required petitioner to file a consolidated
reply to the same. After said reply was filed by petitioner on November 15, 1989 the Court gave due
course to the petition, considering the comments of respondents as their answer to the petition, and
requiring the parties to file simultaneously their respective memoranda within twenty (20) days from
notice. The parties having submitted their respective memoranda, the petition was deemed
submitted for resolution.

First the preliminary issues.

Public respondents allege that petitioner does not have the standing to challenge the questioned
orders and resolution.

In the petition it is alleged that petitioner is "instituting this suit in his capacity as a taxpayer and a
duly-elected Senator of the Philippines." Public respondent argues that petitioner must show he has
sustained direct injury as a result of the action and that it is not sufficient for him to have a mere
general interest common to all members of the public.8

The Court however agrees with the petitioner that as a taxpayer he may file the instant petition
following the ruling in Lozada when it involves illegal expenditure of public money. The petition
questions the legality of the tax refund to NPC by way of tax credit certificates and the use of said
assigned tax credits by respondent oil companies to pay for their tax and duty liabilities to the BIR
and Bureau of Customs.

Assuming petitioner has the personality to file the petition, public respondents also allege that the
proper remedy for petitioner is an appeal to the Court of Tax Appeals under Section 7 of R.A. No.
125 instead of this petition. However Section 11 of said law provides

Sec. 11. Who may appeal; effect of appealAny person, association or corporation
adversely affected by a decision or ruling of the Commissioner of Internal Revenue, the
Collector of Customs (Commissioner of Customs) or any provincial or City Board of
Assessment Appeals may file an appeal in the Court of Tax Appeals within thirty days after
receipt of such decision or ruling.

From the foregoing, it is only the taxpayer adversely affected by a decision or ruling of the
Commissioner of Internal Revenue, the Commissioner of Customs or any provincial or city Board of
Assessment Appeal who may appeal to the Court of Tax Appeals. Petitioner does not fall under this
category.

Public respondents also contend that mandamus does not lie to compel the Commissioner of
Internal Revenue to impose a tax assessment not found by him to be proper. It would be tantamount
to a usurpation of executive functions.9
Even in Meralco, this Court recognizes the situation when mandamus can control the discretion of
the Commissioners of Internal Revenue and Customs when the exercise of discretion is tainted with
arbitrariness and grave abuse as to go beyond statutory authority.10

Public respondents then assert that a writ of prohibition is not proper as its function is to prevent an
unlawful exercise of jurisdiction11 or to prevent the oppressive exercise of legal authority.12 Precisely,
petitioner questions the lawfulness of the acts of public respondents in this case.

Now to the main issue.

It may be useful to make a distinction, for the purpose of this disposition, between a direct tax and an
indirect tax. A direct tax is a tax for which a taxpayer is directly liable on the transaction or business it
engages in. Examples are the custom duties and ad valorem taxes paid by the oil companies to the
Bureau of Customs for their importation of crude oil, and the specific and ad valorem taxes they pay
to the Bureau of Internal Revenue after converting the crude oil into petroleum products.

On the other hand, "indirect taxes are taxes primarily paid by persons who can shift the burden upon
someone else ."13 For example, the excise and ad valorem taxes that oil companies pay to the
Bureau of Internal Revenue upon removal of petroleum products from its refinery can be shifted to
its buyer, like the NPC, by adding them to the "cash" and/or "selling price."

The main thrust of the petition is that under the latest amendment to the NPC charter by Presidential
Decree No. 938, the exemption of NPC from indirect taxation was revoked and repealed. While
petitioner concedes that NPC enjoyed broad exemption privileges from both direct and indirect taxes
on the petroleum products it used, under Section 13 of Republic Act No, 6395 and more so under
Presidential Decree No. 380, however, by the deletion of the phrases "directly or indirectly" and "on
all petroleum products used by the Corporation in the generation, transmission, utilization and sale
of electric power" he contends that the exemption from indirect taxes was withdrawn by P.D. No.
938.

Petitioner further states that the exemption of NPC provided in Section 13 of Presidential Decree No.
938 regarding the payments of "all forms of taxes, etc." cannot be interpreted to include indirect tax
exemption. He cites Philippine Aceytelene Co. Inc. vs. Commissioner of Internal
Revenue.14 Petitioner emphasizes the principle in taxation that the exception contained in the tax
statutes must be strictly construed against the one claiming the exemption, and that the rule that
a tax statute granting exemption must be strictly construed against the one claiming the exemption is
similar to the rule that a statute granting taxing power is to be construed strictly, with doubts resolved
against its existence.15 Petitioner cites rulings of the BIR that the phrase exemption from "all taxes,
etc." from "all forms of taxes" and "in lieu of all taxes" covers only taxes for which the taxpayer is
directly liable.16

On the corollary issues. First, FIRB Resolution Nos. 10-85 and 10-86 issued under Presidential
Decree No. 1931, the relevant provision of which are to wit:

P.D. No. 1931 provides as follows:

Sec. 1. The provisions of special or general law to the contrary notwithstanding, all
exemptions from the payment of duties, taxes . . . heretofore granted in favor of government-
owned or controlled corporations are hereby withdrawn. (Emphasis supplied.)

Sec. 2. The President of the Philippines and/or the Minister of Finance, upon
the recommendation of the Fiscal Incentives Review Board . . . is hereby empowered to
 restore, partially or totally, the exemptions withdrawn by Section 1 above . . . (Emphasis
supplied.)

The relevant provisions of FIRB resolution Nos. 10-85 and 1-86 are the following:

Resolution. No. 10-85

BE IT RESOLVED AS IT IS HEREBY RESOLVED, That:

1. Effective June 11, 1984, the tax and duty exemption privileges enjoyed by the National Power
Corporation under C.A. No. 120 as amended are restored up to June 30, 1985.

2. Provided, That to restoration does not apply to the following:

a. importations of fuel oil (crude equivalent) and coal as per FIRB Resolution No. 1-
84;

b. commercially-funded importations; and

c. interest income derived from any investment source.

3. Provided further, That in case of importations funded by international financing agreements, the
NPC is hereby required to furnish the FIRB on a periodic basis the particulars of items received or to
be received through such arrangements, for purposes of tax and duty exemptions privileges.17

Resolution No. 1-86

BE IT RESOLVED AS IT IS HEREBY RESOLVED: That:

1. Effective July 1, 1985, the tax and duty exemption privileges enjoyed by the National Power
Corporation (NPC) under Commonwealth Act No. 120, as amended, are restored: Provided, That
importations of fuel oil (crude oil equivalent), and coal of the herein grantee shall be subject to the
basic and additional import duties; Provided, further, that the following shall remain fully taxable:

a. Commercially-funded importations; and

b. Interest income derived by said grantee from bank deposits and yield or any other
monetary benefits from deposit substitutes, trust funds and other similar
arrangements.

2. The NPC as a government corporation is exempt from the real property tax on land and
improvements owned by it provided that the beneficial use of the property is not transferred to
another pursuant to the provisions of Sec. 10(a) of the Real Property Tax Code, as amended.18

Petitioner does not question the validity and enforceability of FIRB Resolution Nos. 10-85 and 1-86.
Indeed, they were issued in compliance with the requirement of Section 2, P.D. No. 1931, whereby
the FIRB should make the recommendation subject to the approval of "the President of the
Philippines and/or the Minister of Finance." While said Resolutions do not appear to have been
approved by the President, they were nevertheless approved by the Minister of Finance who is also
duly authorized to approve the same. In fact it was the Minister of Finance who signed and
promulgated said resolutions.19
The observation of Mr. Justice Sarmiento in the dissenting opinion that FIRB Resolution Nos. 10-85
and 1-86 which were promulgated by then Acting Minister of Finance Alfredo de Roda, Jr. and
Minister of Finance Cesar E.A Virata, as Chairman of FIRB respectively, should be separately
approved by said Minister of Finance as required by P.D. 1931 is, a superfluity. An examination of
the said resolutions which are reproduced in full in the dissenting opinion show that the said officials
signed said resolutions in the dual capacity of Chairman of FIRB and Minister of Finance.

Mr. Justice Sarmiento also makes reference to the case National Power Corporation vs. Province of
Albay,20wherein the Court observed that under P.D. No. 776 the power of the FIRB was only
recommendatory and requires the approval of the President to be valid. Thus, in said case the Court
held that FIRB Resolutions Nos. 10-85 and 1-86 not having been approved by the President were
not valid and effective while the validity of FIRB 17-87 was upheld as it was duly approved by the
Office of the President on October 5, 1987.

However, under Section 2 of P.D. No. 1931 of June 11, 1984, hereinabove reproduced, which
amended P.D. No. 776, it is clearly provided for that such FIRB resolution, may be approved by the
"President of the Philippines and/or the Minister of Finance." To repeat, as FIRB Resolutions Nos.
10-85 and 1-86 were duly approved by the Minister of Finance, hence they are valid and effective.
To this extent, this decision modifies or supersedes the Court's earlier decision in Albay afore-
referred to.

Petitioner, however, argues that under both FIRB resolutions, only the tax and duty exemption
privileges enjoyed by the NPC under its charter, C.A. No. 120, as amended, are restored, that is,
only its direct tax exemption privilege; and that it cannot be interpreted to cover indirect taxes under
the principle that tax exemptions are construed stricissimi juris against the taxpayer and liberally in
favor of the taxing authority.

Petitioner argues that the release by the BIR of the P58.0 million refund to respondent NPC by way
of a tax credit certificate21 which was assigned to respondent Caltex through a deed of assignment
approved by the BIR22 is patently illegal. He also contends that the pending claim of respondent NPC
in the amount of P410.58 million with respondent BIR for the sale and delivery to it of bunker fuel by
respondents Petrophil, Shell and Caltex from July 1, 1985 up to 1986, being illegal, should not be
released.

Now to the second corollary issue involving the validity of FIRB Resolution No. 17-87 issued on June
24, 1987. It was issued under authority of Executive Order No. 93 dated December 17, 1986 which
grants to the FIRB among others, the power to recommend the restoration of the tax and duty
exemptions/incentives withdrawn thereunder.

Petitioner stresses that on August 6, 1987 the Secretary of Justice rendered Opinion No. 77 to the
effect that the powers conferred upon the FIRB by Section 2(a), (b), and (c) and (4) of Executive
Order No. 93 "constitute undue delegation of legislative power and is, therefore, unconstitutional."
Petitioner observes that the FIRB did not merely recommend but categorically restored the tax and
duty exemption of the NPC so that the memorandum of the respondent Executive Secretary dated
October 5, 1987 approving the same is a surplusage.

Further assuming that FIRB Resolution No. 17-87 to have been legally issued, following the doctrine
in Philippine Aceytelene, petitioner avers that the restoration cannot cover indirect taxes and it
cannot create new indirect tax exemption not otherwise granted in the NPC charter as amended by
Presidential Decree No. 938.

The petition is devoid of merit.

The NPC is a non-profit public corporation created for the general good and welfare23 wholly owned
by the government of the Republic of the Philippines.24 From the very beginning of its corporate
existence, the NPC enjoyed preferential tax treatment25 to enable the Corporation to pay the
indebtedness and obligation and in furtherance and effective implementation of the policy
enunciated in Section one of "Republic Act No. 6395"26 which provides:

Sec. 1. Declaration of PolicyCongress hereby declares that (1) the comprehensive

development, utilization and conservation of Philippine water resources for all beneficial
uses, including power generation, and (2) the total electrification of the Philippines through
the development of power from all sources to meet the need of rural electrification are
primary objectives of the nation which shall be pursued coordinately and supported by all
instrumentalities and agencies of the government including its financial institutions.

From the changes made in the NPC charter, the intention to strengthen its preferential tax treatment
is obvious.

Under Republic Act No. 358, its exemption is provided as follows:

Sec. 2. To facilitate payment of its indebtedness, the National Power Corporation shall be
exempt from all taxes, duties, fees, imposts, charges, and restrictions of the Republic of the
Philippines, its provinces, cities and municipalities."

Under Republic Act No. 6395:

Sec. 13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties, Fees,
Imposts and other Charges by Government and Governmental Instrumentalities. The
Corporation shall be non-profit and shall devote all its returns from its capital investment, as
well as excess revenues from its operation, for expansion. To enable the Corporation to pay
its indebtedness and obligations and in furtherance and effective implementation of the
policy enunciated in Section one of this Act, the Corporation is hereby declared exempt:

(a) From the payment of all taxes, duties, fees, imposts, charges, costs and service fees in
any court or administrative proceedings in which it may be a party, restrictions and duties to
the Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities;

(b) From all income taxes, franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other government agencies and
instrumentalities;

(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees
on import of foreign goods required for its operations and projects; and

(d) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of
the Philippines, its provinces, cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the Corporation in the generation,
transmission, utilization, and sale of electric power. (Emphasis supplied.)

Under Presidential Decree No. 380:

 Sec. 13. Non-profit Character of the Corporation: Exemption from all Taxes, Duties, Fees,
Imposts and other Charges by the Government and Government Instrumentalities. The
Corporation shall be non-profit and shall devote all its returns from its capital investment as
well as excess revenues from its operation, for expansion. To enable the Corporation to pay
its indebtedness and obligations and in furtherance and effective implementation of the
policy enunciated in Section one of this Act, the Corporation, including its subsidiaries, is
hereby declared, exempt:

(a) From the payment of all taxes, duties, fees, imposts, charges, costs and services fees in
any court or administrative proceedings in which it may be a party, restrictions and duties to
the Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities;

(b) From all income taxes, franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other governmental agencies and
instrumentalities;

(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees
on import of foreign goods required for its operation and projects; and

(d) From all taxes, duties, fees, imposts, and all other charges imposed directly or indirectly
by the Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities, on all petroleum produced used by the Corporation in the
generation, transmission, utilization, and sale of electric power. (Emphasis supplied.)

Under Presidential Decree No. 938:

Sec. 13. Non-profit Character of the Corporation: Exemption from All Taxes, Duties, Fees,
Imposts and Other Charges by the Government and Government Instrumentalities.The
Corporation shall be non-profit and shall devote all its returns from its capital investment as
well as excess revenues from its operation, for expansion. To enable the Corporation to pay
the indebtedness and obligations and in furtherance and effective implementation of the
policy enunciated in Section One of this Act, the Corporation, including its subsidiaries
hereby declared exempt from the payment of all forms of taxes, duties, fees, imposts as well
as costs and service fees including filing fees, appeal bonds, supersedeas bonds, in any
court or administrative proceedings. (Emphasis supplied.)

It is noted that in the earlier law, R.A. No. 358 the exemption was worded in general terms, as to
cover "all taxes, duties, fees, imposts, charges, etc. . . ." However, the amendment under Republic
Act No. 6395 enumerated the details covered by the exemption. Subsequently, P.D. No. 380, made
even more specific the details of the exemption of NPC to cover, among others, both direct and
indirect taxes on all petroleum products used in its operation. Presidential Decree No. 938 amended
the tax exemption by simplifying the same law in general terms. It succinctly exempts NPC from "all
forms of taxes, duties, fees, imposts, as well as costs and service fees including filing fees, appeal
bonds, supersedeas bonds, in any court or administrative proceedings."

The use of the phrase "all forms" of taxes demonstrate the intention of the law to give NPC all the tax
exemptions it has been enjoying before. The rationale for this exemption is that being non-profit the
NPC "shall devote all its returns from its capital investment as well as excess revenues from its
operation, for expansion. To enable the Corporation to pay the indebtedness and obligations and in
furtherance and effective implementation of the policy enunciated in Section one of this Act, . . ."27
The preamble of P.D. No. 938 states

WHEREAS, in the application of the tax exemption provision of the Revised Charter, the
non-profit character of the NPC has not been fully utilized because of restrictive
interpretations of the taxing agencies of the government on said provisions. . . . (Emphasis
supplied.)

It is evident from the foregoing that the lawmaker did not intend that the said provisions of P.D. No.
938 shall be construed strictly against NPC. On the contrary, the law mandates that it should be
interpreted liberally so as to enhance the tax exempt status of NPC.

Hence, petitioner cannot invoke the rule on strictissimi juris with respect to the interpretation of
statutes granting tax exemptions to NPC.

Moreover, it is a recognized principle that the rule on strict interpretation does not apply in the case
of exemptions in favor of a government political subdivision or instrumentality.28

The basis for applying the rule of strict construction to statutory provisions granting tax
exemptions or deductions, even more obvious than with reference to the affirmative or
levying provisions of tax statutes, is to minimize differential treatment and foster impartiality,
fairness, and equality of treatment among tax payers.

The reason for the rule does not apply in the case of exemptions running to the benefit of the
government itself or its agencies. In such case the practical effect of an exemption is merely
to reduce the amount of money that has to be handled by government in the course of its
operations. For these reasons, provisions granting exemptions to government agencies may
be construed liberally, in favor of non tax liability of such agencies.29

In the case of property owned by the state or a city or other public corporations, the express
exemption should not be construed with the same degree of strictness that applies to exemptions
contrary to the policy of the state, since as to such property "exemption is the rule and taxation the
exception."30

The contention of petitioner that the exemption of NPC from indirect taxes under Section 13 of R.A.
No. 6395 and P.D. No. 380, is deemed repealed by P.D. No. 938 when the reference to it was
deleted is not well-taken.

Repeal by implication is not favored unless it is manifest that the legislature so intended. As laws are
presumed to be passed with deliberation and with knowledge of all existing ones on the subject, it is
logical to conclude that in passing a statute it is not intended to interfere with or abrogate a former
law relating to the same subject matter, unless the repugnancy between the two is not only
irreconcilable but also clear and convincing as a result of the language used, or unless the latter Act
fully embraces the subject matter of the earlier.31 The first effort of a court must always be to
reconcile or adjust the provisions of one statute with those of another so as to give sensible effect to
both provisions.32

The legislative intent must be ascertained from a consideration of the statute as a whole, and not of
an isolated part or a particular provision alone.33 When construing a statute, the reason for its
enactment should be kept in mind and the statute should be construed with reference to its intended
scope and purpose34 and the evil sought to be remedied.35
The NPC is a government instrumentality with the enormous task of undertaking development of
hydroelectric generation of power and production of electricity from other sources, as well as the
transmission of electric power on a nationwide basis, to improve the quality of life of the people
pursuant to the State policy embodied in Section E, Article II of the 1987 Constitution.

It is evident from the provision of P.D. No. 938 that its purpose is to maintain the tax exemption of
NPC from all forms of taxes including indirect taxes as provided for under R.A. No. 6895 and P.D.
No. 380 if it is to attain its goals.

Further, the construction of P.D. No. 938 by the Office charged with its implementation should be
given controlling weight.36

Since the May 8, 1985 ruling of Commissioner Ancheta, to the letter of the Secretary of Finance of
June 26, 1985 confirming said ruling, the letters of the BIR of August 18, 1986, and December 22,
1986, the letter of the Secretary of Finance of February 19, 1987, the Memorandum of the Executive
Secretary of October 9, 1987, by authority of the President, confirming and approving FIRB
Resolution No. 17-87, the letter of the Secretary of Finance of May 20, 1988 to the Executive
Secretary rendering his opinion as requested by the latter, and the latter's reply of June 15, 1988, it
was uniformly held that the grant of tax exemption to NPC under C.A. No. 120, as
amended, included exemption from payment of all taxes relative to NPC's petroleum purchases
including indirect taxes.37 Thus, then Secretary of Finance Vicente Jayme in his letter of May 20,
1988 to the Executive Secretary Macaraig aptly stated the justification for this tax exemption of NPC

The issue turns on the effect to the exemption of NPC from taxes of the deletion of the
phrase 'taxes imposed indirectly on oil products and its exemption from 'all forms of taxes.' It
is suggested that the change in language evidenced an intention to exempt NPC only from
taxes directly imposed on or payable by it; since taxes on fuel-oil purchased by it; since taxes
on fuel-oil purchased by NPC locally are levied on and paid by its oil suppliers, NPC thereby
lost its exemption from those taxes. The principal authority relied on is the 1967 case
of Philippine Acetylene Co., Inc. vs. Commissioner of Internal Revenue, 20 SCRA 1056.

First of all, tracing the changes made through the years in the Revised Charter, the
strengthening of NPC's preferential tax treatment was clearly the intention. To the extent that
the explanatory "whereas clauses" may disclose the intent of the law-maker, the changes
effected by P.D. 938 can only be read as being expansive rather than restrictive, including its
version of Section 13.

Our Tax Code does not recognize that there are taxes directly imposed and those imposed
indirectly. The textbook distinction between a direct and an indirect tax may be based on the
possibility of shifting the incidence of the tax. A direct tax is one which is demanded from the
very person intended to be the payor, although it may ultimately be shifted to another. An
example of a direct tax is the personal income tax. On the other hand, indirect taxes are
those which are demanded from one person in the expectation and intention that he shall
indemnify himself at the expense of another. An example of this type of tax is the sales tax
levied on sales of a commodity.

The distinction between a direct tax and one indirectly imposed (or an indirect tax) is really of
no moment. What is more relevant is that when an "indirect tax" is paid by those upon whom
the tax ultimately falls, it is paid not as a tax but as an additional part of the cost or of the
market price of the commodity.
This distinction was made clear by Chief Justice Castro in the Philippine Acetylene case,
when he analyzed the nature of the percentage (sales) tax to determine whether it is a tax on
the producer or on the purchaser of the commodity. Under out Tax Code, the sales tax falls
upon the manufacturer or producer. The phrase "pass on" the tax was criticized as being
inaccurate. Justice Castro says that the tax remains on the manufacturer alone. The
purchaser does not pay the tax; he pays an amount added to the price because of the tax.
Therefore, the tax is not "passed on" and does not for that reason become an "indirect tax"
on the purchaser. It is eminently possible that the law maker in enacting P.D. 938 in 1976
may have used lessons from the analysis of Chief Justice Castro in 1967 Philippine
Acetylene case.

When P.D. 938 which exempted NPC from "all forms of taxes" was issued in May 1976, the
so-called oil crunch had already drastically pushed up crude oil Prices from about $1.00 per
bbl in 1971 to about $10 and a peak (as it turned out) of about $34 per bbl in 1981. In 1974-
78, NPC was operating the Meralco thermal plants under a lease agreement. The power
generated by the leased plants was sold to Meralco for distribution to its customers. This
lease and sale arrangement was entered into for the benefit of the consuming public, by
reducing the burden on the swiftly rising world crude oil prices. This objective was achieved
by the use of NPC's "tax umbrella under its Revised Charterthe exemption from specific
taxes on locally purchased fuel oil. In this context, I can not interpret P.D. 938 to have
withdrawn the exemption from tax on fuel oil to which NPC was already entitled and which
exemption Government in fact was utilizing to soften the burden of high crude prices.

There is one other consideration which I consider pivotal. The taxes paid by oil companies
on oil products sold to NPC, whether paid to them by NPC or no never entered into the rates
charged by NPC to its customers not even during those periods of uncertainty engendered
by the issuance of P.D. 1931 and E. 0. 93 on NP/Cs tax status. No tax component on the
fuel have been charged or recovered by NPC through its rates.

There is an import duty on the crude oil imported by the local refineries. After the refining
process, specific and ad valorem taxes are levied on the finished products including fuel oil
or residue upon their withdrawal from the refinery. These taxes are paid by the oil companies
as the manufacturer thereof.

In selling the fuel oil to NPC, the oil companies include in their billings the duty and tax
component. NPC pays the oil companies' invoices including the duty component but net of
the tax component. NPC then applies for drawback of customs duties paid and for a credit in
amount equivalent to the tax paid (by the oil companies) on the products purchased. The tax
credit is assigned to the oil companiesas payment, in effect, of the tax component shown
in the sales invoices. (NOTE: These procedures varied over timeThere were instances
when NPC paid the tax component that was shifted to it and then applied for tax credit.
There were also side issues raised because of P.D. 1931 and E.O. 93 which withdrew all
exemptions of government corporations. In these latter instances, the resolutions of the
Fiscal Incentives Review Board (FIRB) come into play. These incidents will not be touched
upon for purposes of this discussion).

NPC rates of electricity are structured such that changes in its cost of fuel are automatically
(without need of fresh approvals) reflected in the subsequent months billing rates.

This Fuel Cost Adjustment clause protects NPC's rate of return. If NPC should ever accept
liability to the tax and duty component on the oil products, such amount will go into its fuel
cost and be passed on to its customers through corresponding increases in rates. Since
 1974, when NPC operated the oil-fired generating stations leased from Meralco (which
plants it bought in 1979), until the present time, no tax on fuel oil ever went into NPC's
electric rates.

That the exemption of NPC from the tax on fuel was not withdrawn by P.D. 938 is impressed
upon me by yet another circumstance. It is conceded that NPC at the very least, is exempt
from taxes to which it is directly liable. NPC therefore could very well have imported its fuel
oil or crude residue for burning at its thermal plants. There would have been no question in
such a case as to its exemption from all duties and taxes, even under the strictest
interpretation that can be put forward. However, at the time P.D. 938 was issued in 1976,
there were already operating in the Philippines three oil refineries. The establishment of
these refineries in the Philippines involved heavy investments, were economically desirable
and enabled the country to import crude oil and process / refine the same into the various
petroleum products at a savings to the industry and the public. The refining process
produced as its largest output, in volume, fuel oil or residue, whose conventional economic
use was for burning in electric or steam generating plants. Had there been no use locally for
the residue, the oil refineries would have become largely unviable.

Again, in this circumstances, I cannot accept that P.D. 938 would have in effect forced NPC
to by-pass the local oil refineries and import its fossil fuel requirements directly in order to
avail itself of its exemption from "direct taxes." The oil refineries had to keep operating both
for economic development and national security reasons. In fact, the restoration by the FIRB
of NPC's exemption after P.D. 1931 and E.O. 93 expressly excluded direct fuel oil
importations, so as not to prejudice the continued operations of the local oil refineries.

To answer your query therefore, it is the opinion of this Department that NPC under the
provisions of its Revised Charter retains its exemption from duties and taxes imposed on the
petroleum products purchased locally and used for the generation of electricity.

The Department in issuing this ruling does so pursuant to its power and function to supervise
and control the collection of government revenues by the application and implementation of
revenue laws. It is prepared to take the measures supplemental to this ruling necessary to
carry the same into full effect.

As presented rather extensively above, the NPC electric power rates did not carry the taxes
and duties paid on the fuel oil it used. The point is that while these levies were in fact paid to
the government, no part thereof was recovered from the sale of electricity produced. As a
consequence, as of our most recent information, some P1.55 B in claims represent amounts
for which the oil suppliers and NPC are "out-of-pocket. There would have to be specific order
to the Bureaus concerned for the resumption of the processing of these claims."38

In the latter of June 15, 1988 of then Executive Secretary Macaraig to the then Secretary of Finance,
the said opinion ruling of the latter was confirmed and its implementation was directed.39

The Court finds and so holds that the foregoing reasons adduced in the aforestated letter of the
Secretary of Finance as confirmed by the then Executive Secretary are well-taken. When the NPC
was exempted from all forms of taxes, duties, fees, imposts and other charges, under P.D. No. 938,
it means exactly what it says, i.e., all forms of taxes including those that were imposed directly or
indirectly on petroleum products used in its operation.
Reference is made in the dissenting opinion to contrary rulings of the BIR that the exemption of the
NPC extends only to taxes for which it is directly liable and not to taxes merely shifted to it. However,
these rulings are predicated on Philippine Acytelene.

The doctrine in Philippine Acytelene decided in 1967 by this Court cannot apply to the present case.
It involved the sales tax of products the plaintiff sold to NPC from June 2, 1953 to June 30,1958
when NPC was enjoying tax exemption from all taxes under Commonwealth Act No. 120, as
amended by Republic Act No. 358 issued on June 4, 1949 hereinabove reproduced.

In said case, this Court held, that the sales tax is due from the manufacturer and not the buyer, so
plaintiff cannot claim exemptions simply because the NPC, the buyer, was exempt.

However, on September 10, 1971, Republic Act No. 6395 was passed as the revised charter of NPC
whereby Section 13 thereof was amended by emphasizing its non-profit character and expanding
the extent of its tax exemption.

As petitioner concedes, Section 13(d) aforestated of this amendment under Republic Act No. 6345
spells out clearly the exemption of the NPC from indirect taxes. And as hereinabove stated, in P.D.
No. 380, the exemption of NPC from indirect taxes was emphasized when it was specified to include
those imposed "directly and indirectly."

Thereafter, under P.D. No. 938 the tax exemption of NPC was integrated under Section 13 defining
the same in general terms to cover "all forms of taxes, duties, fees, imposts, etc." which, as
hereinabove discussed, logically includes exemption from indirect taxes on petroleum products used
in its operation.

This is the status of the tax exemptions the NPC was enjoying when P.D. No. 1931 was passed, on
the authority of which FIRB Resolution Nos. 10-85 and 1-86 were issued, and when Executive Order
No. 93 was promulgated, by which FIRB Resolution 17-87 was issued.

Thus, the ruling in Philippine Acetylene cannot apply to this case due to the different environmental
circumstances. As a matter of fact, the amendments of Section 13, under R.A. No. 6395, P.D. No,
380 and P.D. No. 838 appear to have been brought about by the earlier inconsistent rulings of the
tax agencies due to the doctrine in Philippine Acetylene, so as to leave no doubt as to the exemption
of the NPC from indirect taxes on petroleum products it uses in its operation. Effectively, said
amendments superseded if not abrogated the ruling in Philippine Acetylene that the tax exemption of
NPC should be limited to direct taxes only.

In the light of the foregoing discussion the first corollary issue must consequently be resolved in the
affirmative, that is, FIRB Resolution No. 10-85 dated February 7, 1985 and FIRB Resolution No. 1-
86 dated January 7, 1986 which restored NPC's tax exemption privileges included the restoration of
the indirect tax exemption of the NPC on petroleum products it used.

On the second corollary issue as to the validity of FIRB resolution No. 17-87 dated June 24, 1987
which restored NPC's tax exemption privilege effective March 10, 1987, the Court finds that the
same is valid and effective.

It provides as follows:

BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That the tax and duty exemption

privileges of the National Power Corporation, including those pertaining to its domestic
 purchases of petroleum and petroleum products, granted under the terms and conditions of
Commonwealth Act No. 120 (Creating the National Power Corporation, defining its powers,
objectives and functions, and for other purposes), as amended, are restored effective March
10, 1987, subject to the following conditions:

1. The restoration of the tax and duty exemption privileges does not apply to the following:

1.1. Importation of fuel oil (crude equivalent) and coal;

1.2. Commercially-funded importations (i.e., importations which include but are not
limited to those financed by the NPC's own internal funds, domestic borrowings from
any source whatsoever, borrowing from foreign-based private financial institutions,
etc.); and

1.3. Interest income derived from any source.

2. The NPC shall submit to the FIRB a report of its expansion program, including details of
disposition of relieved tax and duty payments for such expansion on an annual basis or as
often as the FIRB may require it to do so. This report shall be in addition to the usual FIRB
reporting requirements on incentive availment.40

Executive Order No. 93 provides as follows

Sec. 1. The provisions of any general or special law to the contrary notwithstanding, all tax
and duty incentives granted " to government and private entities are hereby withdrawn,
except:

a) those covered by the non-impairment clause of the Constitution;

b) those conferred by effective international agreements to which the Government of

the Republic of the Philippines is a signatory;

c) those enjoyed-by enterprises registered with:

(i) the Board of Investments pursuant to Presidential Decree No. 1789, as

amended;

(ii) the Export Processing Zone Authority, pursuant to Presidential Decree

No. 66, as amended;

(iii) the Philippine Veterans Investment Development Corporation Industrial

Authority pursuant to Presidential Decree No. 538, as amended;

d) those enjoyed by the copper mining industry pursuant to the provisions of Letter of
Instruction No. 1416;

e) those conferred under the four basic codes namely:

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

 (ii) the National Internal Revenue Code, as amended;

(iii) the Local Tax Code, as amended;

(iv) the Real Property Tax Code, as amended;

f) those approved by the President upon the recommendation of the Fiscal Incentives
Review Board.

Sec. 2. The Fiscal Incentives Review Board created under Presidential Decree No. 776, as
amended, is hereby authorized to:

a) restore tax and/or duty exemptions withdrawn hereunder in whole or in part;

b) revise the scope and coverage of tax and/of duty exemption that may be restored.

c) impose conditions for the restoration of tax and/or duty exemption;

d) prescribe the date or period of effectivity of the restoration of tax and/or duty
exemption;

e) formulate and submit to the President for approval, a complete system for the
grant of subsidies to deserving beneficiaries, in lieu of or in combination with the
restoration of tax and duty exemptions or preferential treatment in taxation, indicating
the source of funding therefor, eligible beneficiaries and the terms and conditions for
the grant thereof taking into consideration the international commitments of the
Philippines and the necessary precautions such that the grant of subsidies does not
become the basis for countervailing action.

Sec. 3. In the discharge of its authority hereunder, the Fiscal Incentives Review Board shall
take into account any or all of the following considerations:

a) the effect on relative price levels;

b) relative contribution of the beneficiary to the revenue generation effort;

c) nature of the activity the beneficiary is engaged;

d) in general, the greater national interest to be served.

True it is that the then Secretary of Justice in Opinion No. 77 dated August 6, 1977 was of the view
that the powers conferred upon the FIRB by Sections 2(a), (b), (c), and (d) of Executive Order No.
93 constitute undue delegation of legislative power and is therefore unconstitutional. However, he
was overruled by the respondent Executive Secretary in a letter to the Secretary of Finance dated
March 30, 1989. The Executive Secretary, by authority of the President, has the power to modify,
alter or reverse the construction of a statute given by a department secretary.41

A reading of Section 3 of said law shows that it set the policy to be the greater national interest. The
standards of the delegated power are also clearly provided for.
The required "standard" need not be expressed. In Edu vs. Ericta42 and in De la Llana vs. Alba43 this
Court held: "The standard may be either express or implied. If the former, the non-delegated
objection is easily met. The standard though does not have to be spelled out specifically. It could be
implied from the policy and purpose of the act considered as a whole."

In People vs. Rosenthal44 the broad standard of "public interest" was deemed sufficient. In Calalang
vs. Williams,45, it was "public welfare" and in Cervantes vs. Auditor General,46 it was the purpose of
promotion of "simplicity, economy and efficiency." And, implied from the purpose of the law as a
whole, "national security" was considered sufficient standard47 and so was "protection of fish fry or
fish eggs.48

The observation of petitioner that the approval of the President was not even required in said
Executive Order of the tax exemption privilege approved by the FIRB unlike in previous similar
issuances, is not well-taken. On the contrary, under Section l(f) of Executive Order No. 93,
aforestated, such tax and duty exemptions extended by the FIRB must be approved by the
President. In this case, FIRB Resolution No. 17-87 was approved by the respondent Executive
Secretary, by authority of the President, on October 15, 1987.49

Mr. Justice Isagani A. Cruz commenting on the delegation of legislative power stated

The latest in our jurisprudence indicates that delegation of legislative power has become the
rule and its non-delegation the exception. The reason is the increasing complexity of modern
life and many technical fields of governmental functions as in matters pertaining to tax
exemptions. This is coupled by the growing inability of the legislature to cope directly with the
many problems demanding its attention. The growth of society has ramified its activities and
created peculiar and sophisticated problems that the legislature cannot be expected
reasonably to comprehend. Specialization even in legislation has become necessary. To
many of the problems attendant upon present day undertakings, the legislature may not have
the competence, let alone the interest and the time, to provide the required direct and
efficacious, not to say specific solutions.50

Thus, in the case of Tablarin vs. Gutierrez,51 this Court enunciated the rationale in favor of delegation
of legislative functions

One thing however, is apparent in the development of the principle of separation of powers
and that is that the maxim of delegatus non potest delegare or delegati potestas non potest
delegare, adopted this practice (Delegibus et Consuetudiniis Anglia edited by G.E. Woodline,
Yale University Press, 1922, Vol. 2, p. 167) but which is also recognized in principle in the
Roman Law d. 17.18.3) has been made to adapt itself to the complexities of modern
government, giving rise to the adoption, within certain limits, of the principle of subordinate
legislation, not only in the United States and England but in practically all modern
governments. (People vs. Rosenthal and Osmea, 68 Phil. 318, 1939). Accordingly, with the
growing complexities of modern life, the multiplication of the subjects of governmental
regulation, and the increased difficulty of administering the laws, there is a constantly
growing tendency toward the delegation of greater power by the legislative, and toward the
approval of the practice by the Courts. (Emphasis supplied.)

The legislative authority could not or is not expected to state all the detailed situations wherein the
tax exemption privileges of persons or entities would be restored. The task may be assigned to an
administrative body like the FIRB.
Moreover, all presumptions are indulged in favor of the constitutionality and validity of the statute.
Such presumption can be overturned if its invalidity is proved beyond reasonable doubt. Otherwise,
a liberal interpretation in favor of constitutionality of legislation should be adopted.52

E.O. No. 93 is complete in itself and constitutes a valid delegation of legislative power to the FIRB
And as above discussed, the tax exemption privilege that was restored to NPC by FIRB Resolution
No. 17-87 of June 1987 includes exemption from indirect taxes and duties on petroleum products
used in its operation.

Indeed, the validity of Executive Order No. 93 as well as of FIRB Resolution No. 17-87 has been
upheld in Albay.53

In the dissenting opinion of Mr. Justice Cruz, it is stated that P.D. Nos. 1931 and 1955 issued by
President Marcos in 1984 are invalid as they were presumably promulgated under the infamous
Amendment No. 6 and that as they cover tax exemption, under Section 17(4), Article VIII of the 1973
Constitution, the same cannot be passed "without the concurrence of the majority of all the members
of the Batasan Pambansa." And, even conceding that the reservation of legislative power in the
President was valid, it is opined that it was not validly exercised as there is no showing that such
presidential encroachment was justified under the conditions then existing. Consequently, it is
concluded that Executive Order No. 93, which was intended to implement said decrees, is also
illegal. The authority of the President to sub-delegate to the FIRB powers delegated to him is also
questioned.

In Albay,54 as above stated, this Court upheld the validity of P.D. Nos. 776 and 1931. The latter
decree withdrew tax exemptions of government-owned or controlled corporations including their
subsidiaries but authorized the FIRB to restore the same. Nevertheless, in Albay, as above-
discussed, this Court ruled that the tax exemptions under FIRB Resolution Nos. 10-85 and 1-86
cannot be enforced as said resolutions were only recommendatory and were not duly approved by
the President of the Philippines as required by P.D. No. 776.55 The Court also sustained in Albaythe
validity of Executive Order No. 93, and of the tax exemptions restored under FIRB Resolution No.
17-87 which was issued pursuant thereto, as it was duly approved by the President as required by
said executive order.

Moreover, under Section 3, Article XVIII of the Transitory Provisions of the 1987 Constitution, it is
provided that:

All existing laws, decrees, executive orders, proclamation, letters of instructions, and other
executive issuances not inconsistent with this constitution shall remain operative until
amended, repealed or revoked.

Thus, P.D. Nos. 776 and 1931 are valid and operative unless it is shown that they are inconsistent
with the Constitution.
1wphi1

Even assuming arguendo that P.D. Nos. 776, 1931 and Executive Order No. 93 are not valid and
are unconstitutional, the result would be the same, as then the latest applicable law would be P.D.
No. 938 which amended the NPC charter by granting exemption to NPC from all forms of taxes. As
above discussed, this exemption of NPC covers direct and indirect taxes on petroleum products
used in its operation. This is as it should be, if We are to hold as invalid and inoperative the
withdrawal of such tax exemptions under P.D. No. 1931 as well as under Executive Order No. 93
and the delegation of the power to restore these exemptions to the FIRB.
The Court realizes the magnitude of the consequences of this decision. To reiterate, in Albay this
Court ruled that the NPC is liable for real estate taxes as of June 11, 1984 (the date of promulgation
of P.D. No. 1931) when NPC had ceased to enjoy tax exemption privileges since FIRB Resolution
Nos. 1085 and 1-86 were not validly issued. The real estate tax liability of NPC from June 11, 1984
to December 1, 1990 is estimated to amount to P7.49 billion plus another P4.76 billion in fuel import
duties the firm had earlier paid to the government which the NPC now proposed to pass on to the
consumers by another 33-centavo increase per kilowatt hour in power rates on top of the 17-centavo
increase per kilowatt hour that took effect just over a week ago.,56 Hence, another case has been
filed in this Court to stop this proposed increase without a hearing.

As above-discussed, at the time FIRB Resolutions Nos. 10-85 and 1-86 were issued, P.D. No. 776
dated August 24, 1975 was already amended by P.D. No. 1931 ,57 wherein it is provided that such
FIRB resolutions may be approved not only by the President of the Philippines but also by the
Minister of Finance. Such resolutions were promulgated by the Minister of Finance in his own right
and also in his capacity as FIRB Chairman. Thus, a separate approval thereof by the Minister of
Finance or by the President is unnecessary.

As earlier stated a reexamination of the ruling in Albay on this aspect is therefore called for and
consequently, Albaymust be considered superseded to this extent by this decision. This is because
P.D. No. 938 which is the latest amendment to the NPC charter granting the NPC exemption from all
forms of taxes certainly covers real estate taxes which are direct taxes.

This tax exemption is intended not only to insure that the NPC shall continue to generate electricity
for the country but more importantly, to assure cheaper rates to be paid by the consumers.

The allegation that this is in effect allowing tax evasion by oil companies is not quite correct. There
1a\^/phi 1

are various arrangements in the payment of crude oil purchased by NPC from oil companies.
Generally, the custom duties paid by the oil companies are added to the selling price paid by NPC.
As to the specific and ad valorem taxes, they are added a part of the seller's price, but NPC pays the
price net of tax, on condition that NPC would seek a tax refund to the oil companies. No tax
component on fuel had been charged or recovered by NPC from the consumers through its power
rates.58 Thus, this is not a case of tax evasion of the oil companies but of tax relief for the NPC. The
billions of pesos involved in these exemptions will certainly inure to the ultimate good and benefit of
the consumers who are thereby spared the additional burden of increased power rates to cover
these taxes paid or to be paid by the NPC if it is held liable for the same.

The fear of the serious implication of this decision in that NPC's suppliers, importers and contractors
may claim the same privilege should be dispelled by the fact that (a) this decision particularly treats
of only the exemption of the NPC from all taxes, duties, fees, imposts and all other charges imposed
by the government on the petroleum products it used or uses for its operation; and (b) Section 13(d)
of R.A. No. 6395 and Section 13(d) of P.D. No. 380, both specifically exempt the NPC from all taxes,
duties, fees, imposts and all other charges imposed by the government on all petroleum products
used in its operation only, which is the very exemption which this Court deems to be carried over by
the passage of P.D. No. 938. As a matter of fact in Section 13(d) of P.D. No. 380 it is specified that
the aforesaid exemption from taxes, etc. covers those "directly or indirectly" imposed by the
"Republic of the Philippines, its provincies, cities, municipalities and other government agencies and
instrumentalities" on said petroleum products. The exemption therefore from direct and indirect tax
on petroleum products used by NPC cannot benefit the suppliers, importers and contractors of NPC
of other products or services.

The Court realizes the laudable objective of petitioner to improve the revenue of the government.
The amount of revenue received or expected to be received by this tax exemption is, however, not
going to any of the oil companies. There would be no loss to the government. The said amount shall
accrue to the benefit of the NPC, a government corporation, so as to enable it to sustain its
tremendous task of providing electricity for the country and at the least cost to the consumers.
Denying this tax exemption would mean hampering if not paralyzing the operations of the NPC. The
resulting increased revenue in the government will also mean increased power rates to be
shouldered by the consumers if the NPC is to survive and continue to provide our power
requirements.59 The greater interest of the people must be paramount.

WHEREFORE, the petition is DISMISSED for lack of merit. No pronouncement as to costs.

SO ORDERED.

Narvasa, Melencio-Herrera, Feliciano, Bidin, Medialdea and Regalado, JJ., concur.

Fernan C.J., No part.
Paras, J., I dissent, but the NPC should be refunded not by the consuming public but by the oil
companies for ultimately these oil companies get the benefit of the alleged tax exemption.
Padilla, J., took no part.

Separate Opinions

CRUZ, J., Dissenting:

I join Mr. Justice Abraham F. Sarmiento in his excellent dissent and would stress only the following
additional observations.

A tax exemption represents a loss of revenue to the State and must therefore not be lightly granted
or inferred. When claimed, it must be strictly construed against the taxpayer, who must prove that he
comes under the exemption rather than the rule that every one must contribute his just share in the
maintenance of the government.

In the case at bar, the ponencia would justify the tax exemption as having been validly granted under
P.D. Nos. 1931 and 1955 and Resolutions Nos. 10-85 and 1-86 of the Fiscal Incentives Review
Board. It is also asserted that FIRB Resolution No. 17-87, which restored MPC's tax exemption
effective March 10 1987, was lawfully adopted pursuant to a valid delegation of power made by
Executive Order No. 93.

When P.D. Nos. 1931 and 1955 were issued by President Marcos in 1984, the Batasang Pambansa
was already in existence and discharging its legislative powers. Presumably, these decrees were
promulgated under the infamous Amendment No. 6. Assuming that the reservation of legislative
power in the President was then valid, I submit that the power was nevertheless not validly
exercised. My reason is that the President could legislate under the said amendment only if the
Batasang Pambansa "failed or was unable to act adequately on any matter that in his judgment
required immediate action" to meet the "exigency." There is no showing that the presidential
encroachment on legislative prerogatives was justified under these conditions. Simply because the
rubber-stamp legislature then meekly submitted did not make the usurpation valid.
By these decrees, President Marcos, exercising legislative power, delegated it to himself as
executive and empowered himself and/or the Minister of Finance to restore the exemptions
previously withdrawn.

As the decrees themselves were invalid it should follow that Executive Order No. 93, which was
intended only to implement them, should also be illegal. But even assuming the legality of the said
decrees, I would still question the authority of the President to sub-delegate the powers delegated to
her thereunder.

Such sub-delegation was not permissible because potestas delegata non delegari potest Even if we
were to disregard the opinion of Secretary of Justice Sedfrey A. Ordoez that there were no
sufficient standards in Executive Order No. 93 (although he was reversed on this legal questions by
the Executive Secretary), the President's delegated authority could still not be extended to the FIRB
which was not a delegate of the legislature.

It is remarkable that the respondents could seriously argue that a mere administrative body like the
FIRB can exercise the legislative power to grant tax exemptions. I am not aware that any other such
agency, including the Bureau of Internal Revenue and the Bureau of Customs, has this authority. An
administrative body can apply tax exemptions under existing law but it cannot itself create such
exemptions. This is a prerogative of the Congress that cannot be usurped by or even delegated to a
mere administrative body.

In fact, the decrees clearly provided that it was the President and/or the Minister of Finance who
could restore the exemption, subject only to the recommendation of the FIRB. The FIRB was not
empowered to directly restore the exemption. And even if it be accepted that the FIRB merely
recommended the exemption, which was approved by the Finance Minister, there would still be the
curious anomaly of Minister Virata upholding his very own act as chairman of the FIRB.

This Court called it a "travesty of justice" when in Zambales Chromite vs. Court of Appeals, 94 SCRA
261, the Secretary of Agriculture and Natural Resources approved a decision earlier rendered by
him when he was the Director of Mines, and in Anzaldo vs. Clave, 119 SCRA 353, where the
respondent, as presidential executive assistant, affirmed on appeal to Malacaang his own decision
as chairman of the Civil Service Commission.

It is important to note that when P.D. Nos. 1931 and 1955 were issued by President Marcos, the rule
under the 1973 Constitution was that "no law granting a tax exemption shall be passed without the
concurrence of a majority of all the members of the Batasang Pambansa." (Art. VIII, Sec. 17[4]).
Laws are usually passed by only a majority of those present in the chamber, there being a quorum,
but not where it grants a tax exemption. This requires an absolute majority. Yet, despite this
stringent limitation on the national legislature itself, such stricture does not inhibit the President and
the FIRB in the exercise of their delegated power. It would seem that the delegate has more power
than the principal. Significantly, this limitation is maintained in the present Constitution under Article
VI, Section 28(4).

The ponencia holds that the rule of strict construction is not applicable where the grantee is an
agency of the government itself, like the MPC in the case before us. I notice, however, that the
ultimate beneficiaries of the expected tax credit will be the oil companies, which certainly are not part
of the Republic of the Philippines. As the tax refunds will not be enjoyed by the MPC itself, I see no
reason why we should be exceptionally lenient in applying the exception.

The tax credits involved in this petition are tremendousno less than Pl.58 billion. This amount
could go a long way in improving the national economy and the well-being of the Filipino people,
who deserve the continuing solicitude of the government, including this Court. I respectfully submit
that it is to them that we owe our foremost loyalty.

Gutierrez, Jr., J., concurs

SARMIENTO, J., dissenting:

I would like to point out specifically two things in connection with the majority's disposition as to: (1)
Finance Incentives Review Board FIRB Resolutions Nos. 10-85 and 186; and (2) the National Power
Corporation's tax exemption vis-a-vis our decision in the case of Philippine Acetylene Co., Inc. vs.
Commission of Internal Revenue,1and in the light of the provisions of its charter, Republic Act No.
6395, and the various amendments entered into it.

(1)

On pages 20-23 of the Decision, the majority suggests that FIRB Resolutions Nos. 10-85 and 1-86
had validly restored the National Power Corporation's tax exemption privileges, which Presidential
Decree No. 1931 had meanwhile suspended. I wish to stress that in the case of National Power
Corporation vs. Province of Albay,2 the Court held that the FIRB Resolutions Nos. 10-85 and 1-86
had the bare force of recommendations and did not operate as a restoration, in the absence of an
approval by the President (in then President Marcos' exercise of legislative powers), of tax
exemptions. The Court noted that there is nothing in Presidential Decree No. 776, the FIRB charter,
conferring on it the authority to grant or restore exemptions, other than to make recommendations on
what exemptions to grant or restore. I quote:

xxx xxx xxx

It is to be pointed out that under Presidential Decree No. 776, the power of the FIRB was
merely to "recommend to the President of the Philippines and for reasons of compatibility
with the declared economic policy, the withdrawal, modification, revocation or suspension of
the enforceability of any of the abovecited statutory subsidies or tax exemption grants,
except those granted by the Constitution." It has no authority to impose taxes or revoke
existing ones, which, after all, under the Constitution, only the legislature may accomplish. . .
.3

xxx xxx xxx

As the Court held there, it was only on March 10, 1987 that the restoration became effective, not
because Resolutions Nos. 10-85 and 1-86 decreed a restoration, but because of Resolution No. 17-
87 which, on the other hand, carried the approval of the Office of the President .4 (FIRB Resolution
No. 17-87 made the National Power Corporation's exemption effective March 10, 1987.) Hence, the
National Power Corporation, so the Court held, was liable for payment of real property taxes to the
Province of Albay between. June 11, 1984, the date Presidential Decree No. 1931 (withdrawing its
tax exemptions) took effect, and March 10, 1987,

As far therefore as the majority in the present case rules that the National Power Corporation is also
entitled to a refund as a result of FIRB Resolutions Nos. 10-15 and 1-86, I respectfully submit that a
serious conflict has arisen.
While it is true that FIRB Resolutions Nos. 10-85 and 1-86 were signed by the Finance Minister
Cesar Virata,5 I submit nonetheless, as Albay in fact held, that the signature of the Mr. Virata is not
enough to restore an exemption. The reason is that Mr. Virata signed them (FIRB Resolutions Nos.
10-85 and 1-86) in his capacity as chairman of the Finance Incentives Review Board FIRB. I find this
clear from the very Resolutions in question:

FISCAL INCENTIVES REVIEW BOARD

RESOLUTION NO. 10-85

BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That:

1. Effective June 11, 1984, the tax and duty exemption privileges enjoyed by the National
Power Corporation under C.A. No. 120 as amended are restored up to June 30, 1985.

2. Provided, That this restoration does not apply to the following:

a. importations of fuel oil (crude equivalent) and coal as per FIRB Resolution No. 1-
84;

b. commercially-funded importations; and

c. interest income derived from any investment source.

3. Provided further, That in case of importations funded by international financing

agreements, the NPC is hereby required to furnish the FIRB on a periodic basis the
particulars of items received or to be received through such arrangements, for purposes of
tax and duty exemption privileges.

(Sgd.) ALFREDO PIO DE RODA, JR.

Acting Minister of Finance
Acting Chairman, FIRB

FISCAL INCENTIVES REVIEW BOARD

RESOLUTION NO. 1-86

BE IT RESOLVED, AS IT IS HEREBY RESOLVED: That:

1. Effective July 1, 1985, the tax and duty exemption privileges enjoyed by the National
Power Corporation (NPC) under Commonwealth Act No. 120, as amended, are
restored; Provided, That importations of fuel oil (crude oil equivalent) and coal of the herein
grantee shall be subject to the basic and additional import duties; Provided, further, That the
following shall remain fully taxable:

a. Commercially-funded importations; and

b. Interest income derived by said grantee from bank deposits and yield or any other
monetary benefits from deposit substitutes, trust fund and other similar
arrangements.

2. The NPC as a government corporation is exempt from the real property tax on land and
improvements owned by it provided that the beneficial use of the property is not transferred
 to another pursuant to the provisions of Sec. 40(a) of the Real Property Tax Code, as
amended.

(Sgd.) CESAR E.A. VIRATA

Minister of Finance
Chairman-FIRB

I respectfully submit that to say that Mr. Virata's signature is sufficient (please note that Resolution
No. 10-85 was not even signed by Mr. Virata, but rather by Mr. Alfredo Pio de Roda, Jr.) is in fact to
confer on the Board actual "restoration" or even exemption powers, because in all cases, FIRB
Resolutions are signed by Mr. Virata (or the acting chairman) in his capacity as Board Chairman. I
submit that we can not consider an FIRB Resolution as an act of Mr. Virata in his capacity as
Minister of Finance (and therefore, as a grant or restoration of tax exemption) although Mr. Virata
also happened to be concurrently, Minister of Finance, because to do so would be to blur the
distinction between the capacities in which he, Mr. Virata, actually acted. I submit that he, Mr. Virata,
need have issued separate approvals of the Resolutions in question, in his capacity as Finance
Minister.

Parenthetically, on the issue of the constitutional validity of Executive Order No. 93, insofar as it
"delegates" the power to restore exemptions to the FIRB, I hold that in the first place, Executive
Order No. 93 makes no delegation at all. As the majority points out, "[u]nder Section 1 (f) of
Executive Order No. 93, aforestated, such tax and duty exemptions extended by the FIRB must be
approved by the President."6 Hence, the FIRB does not exercise any powerand as I had held, its
powers does not merely recommendatoryand it is the President who in fact exercises it. It is true
that Executive Order No. 93 has set out certain standards by which the FIRB as a reviewing body,
may act, but I do not believe that a genuine delegation question has arisen because precisely, the
acts of the Board are subject to approval by the President, in the exercise of her legislative powers
under the Freedom Constitution.7

(2)

According to the Decision, the National Power Corporation, under its charter, is also exempt from
indirect taxes, and that there is nothing irregular about what is apparently standard operating
procedure between the Corporation and the oil firms in which the latter sell to the Corporation of "net
of tax" and that thereafter, the Corporation assigns to them its tax credit.

I gather first, and with all due respect, that there has been a misunderstanding about so-called
indirect taxes and the theory of shifting taxes. In Philippine Acetylene Co., Inc., supra, the Court
intimated that there are no such things as indirect taxes for purposes of exemption, and that the
National Power Corporation's exemption from taxes can not be claimed, as well, by a manufacturer
(who sells his products to the Corporation) on the theory that the taxes he will shift will be shifted to a
tax-exempt entity. According to the Court, "the purchaser does not pay the tax . . . [h]e pays or may
pay the seller more for the goods because of the seller's obligation, but that is all and the amount
added because of the tax is paid to get the goods and for nothing else."8

It is true that a tax may be shifted, that is, to enable the payor to escape its effects by adding it to the
price, thereby transferring the burden to the purchaser of whom the incidence of the tax settles
(indirect tax). I submit, however, that it is only for purposes of escape from taxation.
As Acetylene has clarified, the tax which the manufacturer is liable to pay directly under a statute is
still a personal tax and in "passing and tax on" to the purchaser, he does not really make the latter
pay the tax, and what the latter pays actually is just the price. Thus, for purposes of exemption, and
so Acetylene tells us, the manufacturer can not claim one because the purchaser happens to be
exempted from taxes. Mutatis mutandis and so I respectfully submit, the purchaser can not be
allowed to accept the goods "net of tax" because it never paid for the tax in the first place, and was
never liable therefor in the second place.

According to the majority, Philippine Acetylene has been "abrogated," and the majority points to the
various amendments to the charter of the National Power Corporation as authority for its view.

First, there is nothing in those amendments that would remotely point to this conclusion.

Second, Acetylene's pronouncement is founded on the very science of taxationthat indirect taxes
are no taxes for purposes of exemption, and that consequently, one who did not pay taxes can not
claim an exemption although the price he paid for the goods included taxes. To enable him to claim
an exemption, as the majority would now enable him (Acetylene having been "abrogated"), is, I
submit, to defeat the very laws of science.

The theory of "indirect taxes" and that no exemption is possible therefrom, so I reiterate, are well-
settled concepts of taxation, as the law of supply and demand is to the law of economics. A
President is said (unfairly) to have attempted it, but one can not repeal the law on supply and
demand.

I do not find the National Power Corporation's alleged exemption from indirect tax evident, as the
majority finds it evident, from the Corporation's charter, Republic Act No. 6395, as amended by
Presidential Decrees Nos. 380 and 938. It is true that since Commonwealth Act No. 120 (the
Corporation's original charter, which Republic Act No. 6395 repealed), the Corporation has enjoyed
a "preferential tax treatment," I seriously doubt, however, whether or not that preference embraces
"indirect taxes" as wellwhich, as I said, are no taxes for purposes of claims for exemptions by the
"indirect payor." And albeit Presidential Decree No. 938 refers to "all forms of taxes," I can not take
that to include, as a matter of logic, "indirect taxes," and as discussed above, that scenario is not
possible.

I quite agree that the legislative intent, based on a perusal of Republic Act No. 6395 and subsequent
amendatory statutes was to give the National Power Corporation a broad tax preference on account
of the vital functions it performs, indeed, "to enable the Corporation to pay the indebtedness and
obligation and in furtherance and effective implementation of the policy initiated" by its charter. I
submit, however, that that alone can not entitle the Corporation to claim an exemption for indirect
taxes. I also believe that its existing exemption from direct taxes is sufficient to serve the legislative
purpose.

The fact that the National Power Corporation has been tasked with an enormous undertaking "to
improve," as the majority puts it, "the quality of life of the people" pursuant to constitutional mandates
is no reason, I believe, to include indirect taxes within the coverage of its preferential tax treatment.
After all, it is exempt from direct taxes, and the fact that it will be made to shoulder indirect taxes
(which are no taxes) will not defeat its exemption or frustrate the intent of both legislature and
Constitution.

I do not think that the majority can point to the various executive constructions as authorities for its
own construction. First and foremost, with respect to then Commissioner Ruben Ancheta's ruling of
May 8, 1985 cited on pages 32-33 of the Decision, it is notable that in his BIR Ruling No. 183-85,
dated October 22, 1985, he in fact reversed himself, I quote:

In reply please be informed that after a re-study of Section 13, R.A. 6395 as amended by
P.D. No. 938, this Office is of the opinion, and so holds, that the scope of the tax exemption
 privilege enjoyed by NPC under said section covers only taxes for which it is directly liable
and not on taxes which are merely shifted to it. (Phil. Acetylene Co. vs. Comm. of Internal
Revenue, 20 SCRA 1056,1967). Since contractor's tax is directly payable by the contractor,
not by NPC, your request for exemption, based on the stipulation in the aforesaid contract
that NPC shall assume payment of your contractor's tax liability, cannot be granted for lack
of legal basis. (emphasis added)9

In yet another ruling, then Commissioner Bienvenido Tan likewise declared, in connection with an
apparent claim for refund by the Philippine Airlines, that "PAL's tax exemption is limited to taxes for
which PAL is directly liable, and that the payment of specific and ad valorem taxes on petroleum
products is a direct liability of the manufacturer or producer thereof . . ."10

Again, under BIR Ruling No. 152-86, the Bureau of Internal Revenue reiterated, as to the National
Power Corporation's claim for a refund I quote:

. . . this Office has maintained the stand that your tax exemption privileges covers only taxes
for which you are directly liable.11

Per BIR Ruling No. 70-043, dated August 27, 1970, the Bureau likewise held that the term "all forms
of taxes" covers only direct taxes,12

In his letter addressed to former BIR Commissioner Tan, Atty. Reynoso Floreza, BIR Assistant
Commissioner for Legal, opposed Caltex Philippines' claim for a P58-million refund, and although
the Commissioner at that time hedged he was later persuaded by Special Assistant Abraham De la
Via and in fact, instructed Atty. De la Via to "prepare [the] corresponding notice to NPC and
Caltex"13 to inform them that their claim has been denied. (Although strangely, he changed his mind
later.)

Hence, I do not think that we can judiciously rely on executive construction because executive
construction has been at best, erratic, and at worst, conflicting.

I do not find that majority's historical construction a reliable yardstick in this case, for if the historical
development of the law were any indication, the legislative intent is, on the contrary, to exclude
indirect taxes from the coverage of the National Power Corporation's tax exemption. Thus, under
Commonwealth Act No. 120, the Corporation was made exempt from the payment of all taxes in
connection with the issuance of bonds. Under Republic Act No. 358, it was made exempt from the
payment of all taxes, duties, fees, imposts, and charges of the national and local governments.

Under Republic Act No. 6395, the National Power Corporation was further declared exempt:

(e) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of
the Philippines, its provinces, cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the Corporation . . .

By virtue of Presidential Decree No. 380, it was made exempt:

(d) from all taxes, duties, fees, imposts, and all other charges imposed directly or indirectly
by the Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities, on all petroleum products used by the corporation in the
generation, transmission, utilization and sale of electric power.
By virtue however of Presidential Decree No. 938, reference to "indirect taxes" was omitted thus:

. . .To enable the Corporation to pay its indebtedness and obligations and in furtherance and
effective implementation of the policy enunciated in Section One of this Act, the Corporation,
including its subsidiaries, is hereby declared exempt from the payment of all forms of taxes,
duties, fees, imposts as well as costs and service fees including filing fees, appeal bonds,
supersedeas bonds, in any court or administrative proceedings.

The deletion of "indirect taxes" in the Decree is, so I hold, significant, because if the intent of the law
were truly to exempt the National Power Corporation from so-called indirect taxes as well, the law
would have said so specifically, as it said so specifically in Presidential Decree No. 380.

I likewise do not think that the reference to the whereas clauses of Presidential Decree No. 938 is
warranted, in particular, the following whereas clause:

WHEREAS, in the application of the tax exemption provisions of the Revised Charter, the
non-profit character of NPC has not been fully utilized because of the restrictive
interpretations of the taxing agencies of the government on said provisions;

I am not certain whether it can be basis for a "liberal" construction. I am more inclined to believe that
the term "restrictive interpretations" refers to BIR rulings confining the exemption to the Corporation
alone (but not its subsidiaries), and not, rather, to the scope of its exemption. Indeed, as Presidential
Decree No. 938 specifically declares, "the Corporation, including its subsidiaries, is hereby declared
exempt . . . "14

The majority expresses the apprehension that if the National Power Corporation were to be made to
assume "indirect taxes," the latter will be forced to pass them on to the consuming public.

First, and as Acetylene held, we do not even know if the payor will in fact "pass them on." "A
decision to absorb the burden of the tax is largely a matter of economics."15 Furthermore:

In the long run a sales tax is probably shifted to the consumer, but during the period when
supply is being adjusted to changes in demand it must be in part absorbed. In practice the
businessman will treat the levy as an added cost of operation and distribute it over his sales
as he would any other cost, increasing by more than the amount of the tax prices of goods
demand for which will be least affected and leaving other prices unchanged. 47 Harv. Ld.
Rev. 860, 869 (1934).16

It therefore appears to me that any talk of the public ultimately absorbing the tax is pure speculation.

Second, it has typically been the bogeyman that business, with due respect, has invoked to avoid
the payment of tax. And to be sure, the populist allure of that argument has appealed to many, yet it
has probably also obscured what is as fundamental as protecting consumerspreserving public
revenue, the very lifeblood of the nation. I am afraid that this is not healthy policy, and what occurs to
meand what indeed leaves me very uncomfortableis that by the stroke of the pen, we should
have in fact given away P13,750,214,639.00 (so it is said) of legitimate government money.

According moreover to Committee Report No. 474 of the Senate, "NPC itself says that it does not
use taxes to increase prices of electricity to consumers because the cost of electric generation and
sale already takes into account the tax component. "17
I can not accept finally, what to me is an unabashed effort by the oil firms to evade taxes, the
arrangement (as I gather from the Decision) between the National Power Corporation and the oil
companies in which the former assigns its tax credit to the latter. I also presume that this is the
natural consequence of the "understanding," as I discussed above, to purchase oil "net of tax"
between NAPOCOR and the oil firms, because logically, the latter will look for other sources from
which to recoup the taxes they had failed to shift and recover their losses as a result. According to
the Decision, no tax is left unpaid because they have been pre-paid before the oil is delivered to the
National Power Corporation. But whatever taxes are paid are in fact wiped out because the
subsequent credit transfer will enable the oil companies to recover the taxes pre- paid.

According to the majority, "[t]his is not a case of tax evasion of the oil companies but a tax relief for
the NPC."18 The problem, precisely, is that while it is NPC which is entitled to "tax relief," the
arrangement between NPC and the oil companies has enabled instead the latter to enjoy relief
when relief is due to NPC alone. The point still remains that no tax money actually reaches our
coffers because as I said, that arrangement enables them to wipe it out. If the NPC were the direct
importer, I would then have no reason to object, after all, the NPC is exempt from direct taxation and
secondly, the money it is paying to finance its importations belongs to the government. The law,
however, gave the exemption to NPC, not the oil companies.

According to the Decision: "The amount of revenue received or expected to be received by this tax
exemption is, however, not going to any of the oil companies. . . "19 and that "[t]here would be no loss
to the government."20

With due respect to the majority, it is erroneous, if not misleading, to say that no money is going to
the oil companies and that the government is not losing anything. Definitely, the tax credit
assignment arrangement between the NPC and the oil firms enables the latter to recover revenue
they have paid. And definitely, that means loss for the government.

The majority is concerned with the high cost of electricity. The increasing cost of electricity is
however due to myriad factors, foremost of which, is the devaluation of the peso21 and as recent
events have suggested, "miscalculations" at the top levels of NPC. I can not however attribute it, as
the majority in all earnest attributes it, to the fact, far-fetched as it is, that the NPC has not been
allowed to enjoy exemption from indirect taxes.

Tax exemptions furthermore are a matter of personal privilege of the grantee. It has been held that
as such, they can not be assigned, unless the statute granting them permits an assignment.22

While "shifting the burden of tax" is a permissible method of avoiding a tax, evading it is a totally
different matter. And while I agree with the National Power Corporation should be given the widest
financial assistance possible, assistance should not be an excuse for plain tax evasion, if not tax
fraud, by Big Business, in particular, Big Oil.

(3) Postscripts

With all due respect, I do not think that the majority has appreciated enough the serious implications
of its decisionto the contrary, in particular, its shrinking coffers. I do not think that we are, after all,
talking here of "simple" billions, but in fact, billions upon billions in lost revenue looming large.

I am also afraid that the majority is not quite aware that it is setting a precedent not only for the oil
companies but in fact, for the National Power Corporation's suppliers, importers, and contractors.
Although I am not, as of this writing, aware of their exact number or the precise amount the National
Power Corporation has spent in payment of supplies and equipment, I can imagine that the
Corporation's assets consisting of those supplies and equipment, machines and machinery, are
worth no fewer than billions.

With this precedent, there is no stopping indeed the NAPOCOR's suppliers, from makers of storage
tanks, steel towers, cables and cable poles, to builders of dikes, to layers of pipelines, and pipes,
from claiming the same privilege.

There is no stopping the NPC's contractors, from suppliers of cement for plant fixtures and lumber
for edifices, to the very engineers and technicians who designed them, from demanding equal rights.

There will be no stopping the Corporation's transporters, from container van and rig owners to
suppliers of service vehicles of NPC executives, from demanding the privilege.

What is to stop, indeed, caterers of food served in board meetings or in NAPOCOR cafeterias from
asking for exemption, since food billed includes sales taxes shifted to a tax-exempt entity and,
following the theory of the majority, taxes that may be refunded?

What is, indeed, to stop all imagined claimants from demanding all imagined claims, since as we are
aware, the rule of taxationand consequently, tax exemptionis uniform and equitable?23

Of course, we have discussed NAPOCOR alone; we have not touched other tax-exempt entities,
say, the Marinduque Mining Corporation and Nonoc Mining Corporation. Per existing records and
per reliable information, Caltex Philippines, between 1979 and 1986, successfully recovered the total
sum of P49,835,791.00. In 1985, Caltex was said to have been refunded the amount of
P4,217,423.00 arising from the same tax arrangement with the Nonoc Mining Corporation.

Again, what is stoppingby virtue of this decision notonly the oil firms but also Marinduque's and
Nonoc's suppliers, importers, and ridiculously, caterers, from claiming a future refund?

The Decision, to be sure, attempts to allay these apprehensions and "dispel[s] [them] by the fact that
. . . the decision particularly treats of only the exemption of the NPC from all taxes, duties, fees,
imposts and all other charges imposed by the government on the petroleum products it need or uses
for its operation . . . "24 Firstly, under Presidential Decree No. 938, the supposed tax exemption of the
National Power Corporation covers "all forms of taxes.25 If therefore "all forms of taxes covers as well
indirect taxes because Presidential Decree No. 380 supposedly extended the Corporation's
exemption to indirect taxes (and the majority "deems Presidential Decree No. 380 to have been
carried over to Presidential Decree No. 938"), then the conclusion seems in escapablefollowing
the logic of the majoritythat the Corporation is exempt from all indirect taxes, on petroleum and
any and all other products and services.

The fact of the matter, second of all, is that the Decision is premised on the alleged exemption of the
National Power Corporation from all forms of taxes, meaning, direct and indirect taxes. It is a
premise that is allegedly supported by statutory history, and the legislature's alleged intent to grant
the Corporation awesome exemptions. If that were the case, the Corporation must logically be
exempt from all kinds of taxes payable. Logically, the majority can not limit the sweep of its
pronouncement by exempting the National Power Corporation from "indirect taxes on petroleum"
alone. What is sauce for the goose (taxes on petroleum) is also sauce for the gander (all other
taxes).

I still would have reason for my fears.

I can not, in all candor, accept the majority's efforts, and going back to the Corporation's charters, to
"carry over," in particular, Section 13(d) of Presidential Decree No. 380, to Presidential Decree No.
938. First of all, if Presidential Decree No. 938 meant to absorb Presidential Decree No. 380 it would
have said so specifically, or at the very least, left it alone. Obviously, Presidential Decree No. 938
meant otherwise, to begin with, because it is precisely an amendatory statute. Secondly, a "carry-
over" would have allowed this Court to make law, so only it can fit in its theories.

The country has gone to lengths fashioning an elaborate tax system and an efficient tax collection
machinery. Planners' efforts have seen various shifts in the taxing system, from specific, to ad
valorem, to value-added taxation, purportedly to minimize collection. For this year, the Bureau of
Internal Revenue has a collection target of P130 billion, and significantly, it has been unrelenting in
its tax and tax-consciousness drive. I am not prepared to cite numbers but I figure that the money it
will lose by virtue of this Decision is a meaningful chunk off its target, and a significant setback to the
government's programs.

I am afraid that by this Decision, the majority has ignored the forest (the welfare of the entire nation)
in favor of a tree (the welfare of a government corporation). The issue, in my opinion, is not the
viability of the National Power Corporationas if the fate of the nation depended alone on itbut the
very survival of the Republic. I am not of course to be mistaken as being less concerned with
NAPOCOR's fiscal chart. The picture, as I see it however, is that we are in fact assisting the oil
companies, out of that alleged concern, in evading taxes at the expense, needless to state, of our
coffers. I do not think that that is a question of legal hermeneutics, but rather, of plain love of country.

Grio-Aquino, Davide, Jr. and Gutierrez, Jr., JJ., concur

Footnotes

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 91649 May 14, 1991

ATTORNEYS HUMBERTO BASCO, EDILBERTO BALCE, SOCRATES MARANAN AND

LORENZO SANCHEZ,petitioners,
vs.
PHILIPPINE AMUSEMENTS AND GAMING CORPORATION (PAGCOR), respondent.

H.B. Basco & Associates for petitioners.

Valmonte Law Offices collaborating counsel for petitioners.
Aguirre, Laborte and Capule for respondent PAGCOR.
PARAS, J.:

A TV ad proudly announces:

"The new PAGCOR responding through responsible gaming."

But the petitioners think otherwise, that is why, they filed the instant petition seeking to annul the
Philippine Amusement and Gaming Corporation (PAGCOR) Charter PD 1869, because it is
allegedly contrary to morals, public policy and order, and because

A. It constitutes a waiver of a right prejudicial to a third person with a right recognized by law.
It waived the Manila City government's right to impose taxes and license fees, which is
recognized by law;

B. For the same reason stated in the immediately preceding paragraph, the law has intruded
into the local government's right to impose local taxes and license fees. This, in
contravention of the constitutionally enshrined principle of local autonomy;

C. It violates the equal protection clause of the constitution in that it legalizes PAGCOR
conducted gambling, while most other forms of gambling are outlawed, together with
prostitution, drug trafficking and other vices;

D. It violates the avowed trend of the Cory government away from monopolistic and crony
economy, and toward free enterprise and privatization. (p. 2, Amended Petition; p. 7, Rollo)

In their Second Amended Petition, petitioners also claim that PD 1869 is contrary to the declared
national policy of the "new restored democracy" and the people's will as expressed in the 1987
Constitution. The decree is said to have a "gambling objective" and therefore is contrary to Sections
11, 12 and 13 of Article II, Sec. 1 of Article VIII and Section 3 (2) of Article XIV, of the present
Constitution (p. 3, Second Amended Petition; p. 21, Rollo).

The procedural issue is whether petitioners, as taxpayers and practicing lawyers (petitioner Basco
being also the Chairman of the Committee on Laws of the City Council of Manila), can question and
seek the annulment of PD 1869 on the alleged grounds mentioned above.

The Philippine Amusements and Gaming Corporation (PAGCOR) was created by virtue of P.D.
1067-A dated January 1, 1977 and was granted a franchise under P.D. 1067-B also dated January
1, 1977 "to establish, operate and maintain gambling casinos on land or water within the territorial
jurisdiction of the Philippines." Its operation was originally conducted in the well known floating
casino "Philippine Tourist." The operation was considered a success for it proved to be a potential
source of revenue to fund infrastructure and socio-economic projects, thus, P.D. 1399 was passed
on June 2, 1978 for PAGCOR to fully attain this objective.

Subsequently, on July 11, 1983, PAGCOR was created under P.D. 1869 to enable the Government
to regulate and centralize all games of chance authorized by existing franchise or permitted by law,
under the following declared policy
 Sec. 1. Declaration of Policy. It is hereby declared to be the policy of the State to
centralize and integrate all games of chance not heretofore authorized by existing franchises
or permitted by law in order to attain the following objectives:

(a) To centralize and integrate the right and authority to operate and conduct games of
chance into one corporate entity to be controlled, administered and supervised by the
Government.

(b) To establish and operate clubs and casinos, for amusement and recreation, including
sports gaming pools, (basketball, football, lotteries, etc.) and such other forms of amusement
and recreation including games of chance, which may be allowed by law within the territorial
jurisdiction of the Philippines and which will: (1) generate sources of additional revenue to
fund infrastructure and socio-civic projects, such as flood control programs, beautification,
sewerage and sewage projects, Tulungan ng Bayan Centers, Nutritional Programs,
Population Control and such other essential public services; (2) create recreation and
integrated facilities which will expand and improve the country's existing tourist attractions;
and (3) minimize, if not totally eradicate, all the evils, malpractices and corruptions that are
normally prevalent on the conduct and operation of gambling clubs and casinos without
direct government involvement. (Section 1, P.D. 1869)

To attain these objectives PAGCOR is given territorial jurisdiction all over the Philippines. Under its
Charter's repealing clause, all laws, decrees, executive orders, rules and regulations, inconsistent
therewith, are accordingly repealed, amended or modified.

It is reported that PAGCOR is the third largest source of government revenue, next to the Bureau of
Internal Revenue and the Bureau of Customs. In 1989 alone, PAGCOR earned P3.43 Billion, and
directly remitted to the National Government a total of P2.5 Billion in form of franchise tax,
government's income share, the President's Social Fund and Host Cities' share. In addition,
PAGCOR sponsored other socio-cultural and charitable projects on its own or in cooperation with
various governmental agencies, and other private associations and organizations. In its 3 1/2 years
of operation under the present administration, PAGCOR remitted to the government a total of P6.2
Billion. As of December 31, 1989, PAGCOR was employing 4,494 employees in its nine (9) casinos
nationwide, directly supporting the livelihood of Four Thousand Four Hundred Ninety-Four (4,494)
families.

But the petitioners, are questioning the validity of P.D. No. 1869. They allege that the same is "null
and void" for being "contrary to morals, public policy and public order," monopolistic and tends
toward "crony economy", and is violative of the equal protection clause and local autonomy as well
as for running counter to the state policies enunciated in Sections 11 (Personal Dignity and Human
Rights), 12 (Family) and 13 (Role of Youth) of Article II, Section 1 (Social Justice) of Article XIII and
Section 2 (Educational Values) of Article XIV of the 1987 Constitution.

This challenge to P.D. No. 1869 deserves a searching and thorough scrutiny and the most deliberate
consideration by the Court, involving as it does the exercise of what has been described as "the
highest and most delicate function which belongs to the judicial department of the government."
(State v. Manuel, 20 N.C. 144; Lozano v. Martinez, 146 SCRA 323).

As We enter upon the task of passing on the validity of an act of a co-equal and coordinate branch of
the government We need not be reminded of the time-honored principle, deeply ingrained in our
jurisprudence, that a statute is presumed to be valid. Every presumption must be indulged in favor of
its constitutionality. This is not to say that We approach Our task with diffidence or timidity. Where it
is clear that the legislature or the executive for that matter, has over-stepped the limits of its authority
under the constitution, We should not hesitate to wield the axe and let it fall heavily, as fall it must,
on the offending statute (Lozano v. Martinez, supra).

In Victoriano v. Elizalde Rope Workers' Union, et al, 59 SCRA 54, the Court thru Mr. Justice Zaldivar
underscored the

. . . thoroughly established principle which must be followed in all cases where questions of
constitutionality as obtain in the instant cases are involved. All presumptions are indulged in
favor of constitutionality; one who attacks a statute alleging unconstitutionality must prove its
invalidity beyond a reasonable doubt; that a law may work hardship does not render it
unconstitutional; that if any reasonable basis may be conceived which supports the statute, it
will be upheld and the challenger must negate all possible basis; that the courts are not
concerned with the wisdom, justice, policy or expediency of a statute and that a liberal
interpretation of the constitution in favor of the constitutionality of legislation should be
adopted. (Danner v. Hass, 194 N.W. 2nd534, 539; Spurbeck v. Statton, 106 N.W. 2nd 660,
663; 59 SCRA 66; see also e.g. Salas v. Jarencio, 46 SCRA 734, 739 [1970]; Peralta v.
Commission on Elections, 82 SCRA 30, 55 [1978]; and Heirs of Ordona v. Reyes, 125 SCRA
220, 241-242 [1983] cited in Citizens Alliance for Consumer Protection v. Energy Regulatory
Board, 162 SCRA 521, 540)

Of course, there is first, the procedural issue. The respondents are questioning the legal personality
of petitioners to file the instant petition.

Considering however the importance to the public of the case at bar, and in keeping with the Court's
duty, under the 1987 Constitution, to determine whether or not the other branches of government
have kept themselves within the limits of the Constitution and the laws and that they have not
abused the discretion given to them, the Court has brushed aside technicalities of procedure and
has taken cognizance of this petition. (Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas
Inc. v. Tan, 163 SCRA 371)

With particular regard to the requirement of proper party as applied in the cases before us,
We hold that the same is satisfied by the petitioners and intervenors because each of them
has sustained or is in danger of sustaining an immediate injury as a result of the acts or
measures complained of. And even if, strictly speaking they are not covered by the definition,
it is still within the wide discretion of the Court to waive the requirement and so remove the
impediment to its addressing and resolving the serious constitutional questions raised.

In the first Emergency Powers Cases, ordinary citizens and taxpayers were allowed to
question the constitutionality of several executive orders issued by President Quirino
although they were involving only an indirect and general interest shared in common with the
public. The Court dismissed the objection that they were not proper parties and ruled that
"the transcendental importance to the public of these cases demands that they be settled
promptly and definitely, brushing aside, if we must technicalities of procedure." We have
since then applied the exception in many other cases. (Association of Small Landowners in
the Philippines, Inc. v. Sec. of Agrarian Reform, 175 SCRA 343).

Having disposed of the procedural issue, We will now discuss the substantive issues raised.

Gambling in all its forms, unless allowed by law, is generally prohibited. But the prohibition of
gambling does not mean that the Government cannot regulate it in the exercise of its police power.
The concept of police power is well-established in this jurisdiction. It has been defined as the "state
authority to enact legislation that may interfere with personal liberty or property in order to promote
the general welfare." (Edu v. Ericta, 35 SCRA 481, 487) As defined, it consists of (1) an imposition or
restraint upon liberty or property, (2) in order to foster the common good. It is not capable of an exact
definition but has been, purposely, veiled in general terms to underscore its all-comprehensive
embrace. (Philippine Association of Service Exporters, Inc. v. Drilon, 163 SCRA 386).

Its scope, ever-expanding to meet the exigencies of the times, even to anticipate the future where it
could be done, provides enough room for an efficient and flexible response to conditions and
circumstances thus assuming the greatest benefits. (Edu v. Ericta, supra)

It finds no specific Constitutional grant for the plain reason that it does not owe its origin to the
charter. Along with the taxing power and eminent domain, it is inborn in the very fact of statehood
and sovereignty. It is a fundamental attribute of government that has enabled it to perform the most
vital functions of governance. Marshall, to whom the expression has been credited, refers to it
succinctly as the plenary power of the state "to govern its citizens". (Tribe, American Constitutional
Law, 323, 1978). The police power of the State is a power co-extensive with self-protection and is
most aptly termed the "law of overwhelming necessity." (Rubi v. Provincial Board of Mindoro, 39 Phil.
660, 708) It is "the most essential, insistent, and illimitable of powers." (Smith Bell & Co. v. National,
40 Phil. 136) It is a dynamic force that enables the state to meet the agencies of the winds of
change.

What was the reason behind the enactment of P.D. 1869?

P.D. 1869 was enacted pursuant to the policy of the government to "regulate and centralize thru an
appropriate institution all games of chance authorized by existing franchise or permitted by law" (1st
whereas clause, PD 1869). As was subsequently proved, regulating and centralizing gambling
operations in one corporate entity the PAGCOR, was beneficial not just to the Government but to
society in general. It is a reliable source of much needed revenue for the cash strapped
Government. It provided funds for social impact projects and subjected gambling to "close scrutiny,
regulation, supervision and control of the Government" (4th Whereas Clause, PD 1869). With the
creation of PAGCOR and the direct intervention of the Government, the evil practices and
corruptions that go with gambling will be minimized if not totally eradicated. Public welfare, then, lies
at the bottom of the enactment of PD 1896.

Petitioners contend that P.D. 1869 constitutes a waiver of the right of the City of Manila to impose
taxes and legal fees; that the exemption clause in P.D. 1869 is violative of the principle of local
autonomy. They must be referring to Section 13 par. (2) of P.D. 1869 which exempts PAGCOR, as
the franchise holder from paying any "tax of any kind or form, income or otherwise, as well as fees,
charges or levies of whatever nature, whether National or Local."

(2) Income and other taxes. a) Franchise Holder: No tax of any kind or form, income or
otherwise as well as fees, charges or levies of whatever nature, whether National or Local,
shall be assessed and collected under this franchise from the Corporation; nor shall any form
or tax or charge attach in any way to the earnings of the Corporation, except a franchise tax
of five (5%) percent of the gross revenues or earnings derived by the Corporation from its
operations under this franchise. Such tax shall be due and payable quarterly to the National
Government and shall be in lieu of all kinds of taxes, levies, fees or assessments of any kind,
nature or description, levied, established or collected by any municipal, provincial or national
government authority (Section 13 [2]).

Their contention stated hereinabove is without merit for the following reasons:
(a) The City of Manila, being a mere Municipal corporation has no inherent right to impose taxes
(Icard v. City of Baguio, 83 Phil. 870; City of Iloilo v. Villanueva, 105 Phil. 337; Santos v. Municipality
of Caloocan, 7 SCRA 643). Thus, "the Charter or statute must plainly show an intent to confer that
power or the municipality cannot assume it" (Medina v. City of Baguio, 12 SCRA 62). Its "power to
tax" therefore must always yield to a legislative act which is superior having been passed upon by
the state itself which has the "inherent power to tax" (Bernas, the Revised [1973] Philippine
Constitution, Vol. 1, 1983 ed. p. 445).

(b) The Charter of the City of Manila is subject to control by Congress. It should be stressed that
"municipal corporations are mere creatures of Congress" (Unson v. Lacson, G.R. No. 7909, January
18, 1957) which has the power to "create and abolish municipal corporations" due to its "general
legislative powers" (Asuncion v. Yriantes, 28 Phil. 67; Merdanillo v. Orandia, 5 SCRA 541).
Congress, therefore, has the power of control over Local governments (Hebron v. Reyes, G.R. No.
9124, July 2, 1950). And if Congress can grant the City of Manila the power to tax certain matters, it
can also provide for exemptions or even take back the power.

(c) The City of Manila's power to impose license fees on gambling, has long been revoked. As early
as 1975, the power of local governments to regulate gambling thru the grant of "franchise, licenses
or permits" was withdrawn by P.D. No. 771 and was vested exclusively on the National Government,
thus:

Sec. 1. Any provision of law to the contrary notwithstanding, the authority of chartered cities
and other local governments to issue license, permit or other form of franchise to operate,
maintain and establish horse and dog race tracks, jai-alai and other forms of gambling is
hereby revoked.

Sec. 2. Hereafter, all permits or franchises to operate, maintain and establish, horse and dog
race tracks, jai-alai and other forms of gambling shall be issued by the national government
upon proper application and verification of the qualification of the applicant . . .

Therefore, only the National Government has the power to issue "licenses or permits" for the
operation of gambling. Necessarily, the power to demand or collect license fees which is a
consequence of the issuance of "licenses or permits" is no longer vested in the City of Manila.

(d) Local governments have no power to tax instrumentalities of the National Government. PAGCOR
is a government owned or controlled corporation with an original charter, PD 1869. All of its shares
of stocks are owned by the National Government. In addition to its corporate powers (Sec. 3, Title II,
PD 1869) it also exercises regulatory powers thus:

Sec. 9. Regulatory Power. The Corporation shall maintain a Registry of the affiliated
entities, and shall exercise all the powers, authority and the responsibilities vested in the
Securities and Exchange Commission over such affiliating entities mentioned under the
preceding section, including, but not limited to amendments of Articles of Incorporation and
By-Laws, changes in corporate term, structure, capitalization and other matters concerning
the operation of the affiliated entities, the provisions of the Corporation Code of the
Philippines to the contrary notwithstanding, except only with respect to original incorporation.

PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role is
governmental, which places it in the category of an agency or instrumentality of the Government.
Being an instrumentality of the Government, PAGCOR should be and actually is exempt from local
taxes. Otherwise, its operation might be burdened, impeded or subjected to control by a mere Local
government.
 The states have no power by taxation or otherwise, to retard, impede, burden or in any
manner control the operation of constitutional laws enacted by Congress to carry into
execution the powers vested in the federal government. (MC Culloch v. Marland, 4 Wheat
316, 4 L Ed. 579)

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

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

Otherwise, mere creatures of the State can defeat National policies thru extermination of what local
authorities may perceive to be undesirable activities or enterprise using the power to tax as "a tool
for regulation" (U.S. v. Sanchez, 340 US 42).

The power to tax which was called by Justice Marshall as the "power to destroy" (Mc Culloch v.
Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity which
has the inherent power to wield it.

(e) Petitioners also argue that the Local Autonomy Clause of the Constitution will be violated by P.D.
1869. This is a pointless argument. Article X of the 1987 Constitution (on Local Autonomy) provides:

Sec. 5. Each local government unit shall have the power to create its own source of revenue
and to levy taxes, fees, and other charges subject to such guidelines and limitation as the
congress may provide, consistent with the basic policy on local autonomy. Such taxes, fees
and charges shall accrue exclusively to the local government. (emphasis supplied)

The power of local government to "impose taxes and fees" is always subject to "limitations" which
Congress may provide by law. Since PD 1869 remains an "operative" law until "amended, repealed
or revoked" (Sec. 3, Art. XVIII, 1987 Constitution), its "exemption clause" remains as an exception to
the exercise of the power of local governments to impose taxes and fees. It cannot therefore be
violative but rather is consistent with the principle of local autonomy.

Besides, the principle of local autonomy under the 1987 Constitution simply means "decentralization"
(III Records of the 1987 Constitutional Commission, pp. 435-436, as cited in Bernas, The
Constitution of the Republic of the Philippines, Vol. II, First Ed., 1988, p. 374). It does not make local
governments sovereign within the state or an "imperium in imperio."

Local Government has been described as a political subdivision of a nation or state which is
constituted by law and has substantial control of local affairs. In a unitary system of
government, such as the government under the Philippine Constitution, local governments
can only be an intra sovereign subdivision of one sovereign nation, it cannot be
an imperium in imperio. Local government in such a system can only mean a measure of
decentralization of the function of government. (emphasis supplied)

As to what state powers should be "decentralized" and what may be delegated to local government
units remains a matter of policy, which concerns wisdom. It is therefore a political question. (Citizens
Alliance for Consumer Protection v. Energy Regulatory Board, 162 SCRA 539).
What is settled is that the matter of regulating, taxing or otherwise dealing with gambling is a State
concern and hence, it is the sole prerogative of the State to retain it or delegate it to local
governments.

As gambling is usually an offense against the State, legislative grant or express charter
power is generally necessary to empower the local corporation to deal with the subject. . . .
In the absence of express grant of power to enact, ordinance provisions on this subject
which are inconsistent with the state laws are void. (Ligan v. Gadsden, Ala App. 107 So. 733
Ex-Parte Solomon, 9, Cals. 440, 27 PAC 757 following in re Ah You, 88 Cal. 99, 25 PAC
974, 22 Am St. Rep. 280, 11 LRA 480, as cited in Mc Quinllan Vol. 3 Ibid, p. 548, emphasis
supplied)

Petitioners next contend that P.D. 1869 violates the equal protection clause of the Constitution,
because "it legalized PAGCOR conducted gambling, while most gambling are outlawed together
with prostitution, drug trafficking and other vices" (p. 82, Rollo).

We, likewise, find no valid ground to sustain this contention. The petitioners' posture ignores the
well-accepted meaning of the clause "equal protection of the laws." The clause does not preclude
classification of individuals who may be accorded different treatment under the law as long as the
classification is not unreasonable or arbitrary (Itchong v. Hernandez, 101 Phil. 1155). A law does not
have to operate in equal force on all persons or things to be conformable to Article III, Section 1 of
the Constitution (DECS v. San Diego, G.R. No. 89572, December 21, 1989).

The "equal protection clause" does not prohibit the Legislature from establishing classes of
individuals or objects upon which different rules shall operate (Laurel v. Misa, 43 O.G. 2847). The
Constitution does not require situations which are different in fact or opinion to be treated in law as
though they were the same (Gomez v. Palomar, 25 SCRA 827).

Just how P.D. 1869 in legalizing gambling conducted by PAGCOR is violative of the equal protection
is not clearly explained in the petition. The mere fact that some gambling activities like cockfighting
(P.D 449) horse racing (R.A. 306 as amended by RA 983), sweepstakes, lotteries and races (RA
1169 as amended by B.P. 42) are legalized under certain conditions, while others are prohibited,
does not render the applicable laws, P.D. 1869 for one, unconstitutional.

If the law presumably hits the evil where it is most felt, it is not to be overthrown because
there are other instances to which it might have been applied. (Gomez v. Palomar, 25 SCRA
827)

The equal protection clause of the 14th Amendment does not mean that all occupations
called by the same name must be treated the same way; the state may do what it can to
prevent which is deemed as evil and stop short of those cases in which harm to the few
concerned is not less than the harm to the public that would insure if the rule laid down were
made mathematically exact. (Dominican Hotel v. Arizona, 249 US 2651).

Anent petitioners' claim that PD 1869 is contrary to the "avowed trend of the Cory Government away
from monopolies and crony economy and toward free enterprise and privatization" suffice it to state
that this is not a ground for this Court to nullify P.D. 1869. If, indeed, PD 1869 runs counter to the
government's policies then it is for the Executive Department to recommend to Congress its repeal
or amendment.

The judiciary does not settle policy issues. The Court can only declare what the law is and
not what the law should be. Under our system of government, policy issues are within the
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 domain of the political branches of government and of the people themselves as the
repository of all state power. (Valmonte v. Belmonte, Jr., 170 SCRA 256).

On the issue of "monopoly," however, the Constitution provides that:

Sec. 19. The State shall regulate or prohibit monopolies when public interest so requires. No
combinations in restraint of trade or unfair competition shall be allowed. (Art. XII, National
Economy and Patrimony)

It should be noted that, as the provision is worded, monopolies are not necessarily prohibited by the
Constitution. The state must still decide whether public interest demands that monopolies be
regulated or prohibited. Again, this is a matter of policy for the Legislature to decide.

On petitioners' allegation that P.D. 1869 violates Sections 11 (Personality Dignity) 12 (Family) and
13 (Role of Youth) of Article II; Section 13 (Social Justice) of Article XIII and Section 2 (Educational
Values) of Article XIV of the 1987 Constitution, suffice it to state also that these are merely
statements of principles and, policies. As such, they are basically not self-executing, meaning a law
should be passed by Congress to clearly define and effectuate such principles.

In general, therefore, the 1935 provisions were not intended to be self-executing principles
ready for enforcement through the courts. They were rather directives addressed to the
executive and the legislature. If the executive and the legislature failed to heed the directives
of the articles the available remedy was not judicial or political. The electorate could express
their displeasure with the failure of the executive and the legislature through the language of
the ballot. (Bernas, Vol. II, p. 2)

Every law has in its favor the presumption of constitutionality (Yu Cong Eng v. Trinidad, 47 Phil. 387;
Salas v. Jarencio, 48 SCRA 734; Peralta v. Comelec, 82 SCRA 30; Abbas v. Comelec, 179 SCRA
287). Therefore, for PD 1869 to be nullified, it must be shown that there is a clear and unequivocal
breach of the Constitution, not merely a doubtful and equivocal one. In other words, the grounds for
nullity must be clear and beyond reasonable doubt. (Peralta v. Comelec, supra) Those who petition
this Court to declare a law, or parts thereof, unconstitutional must clearly establish the basis for such
a declaration. Otherwise, their petition must fail. Based on the grounds raised by petitioners to
challenge the constitutionality of P.D. 1869, the Court finds that petitioners have failed to overcome
the presumption. The dismissal of this petition is therefore, inevitable. But as to whether P.D. 1869
remains a wise legislation considering the issues of "morality, monopoly, trend to free enterprise,
privatization as well as the state principles on social justice, role of youth and educational values"
being raised, is up for Congress to determine.

As this Court held in Citizens' Alliance for Consumer Protection v. Energy Regulatory Board, 162
SCRA 521

Presidential Decree No. 1956, as amended by Executive Order No. 137 has, in any case, in
its favor the presumption of validity and constitutionality which petitioners Valmonte and the
KMU have not overturned. Petitioners have not undertaken to identify the provisions in the
Constitution which they claim to have been violated by that statute. This Court, however, is
not compelled to speculate and to imagine how the assailed legislation may possibly offend
some provision of the Constitution. The Court notes, further, in this respect that petitioners
have in the main put in question the wisdom, justice and expediency of the establishment of
the OPSF, issues which are not properly addressed to this Court and which this Court may
not constitutionally pass upon. Those issues should be addressed rather to the political
departments of government: the President and the Congress.
Parenthetically, We wish to state that gambling is generally immoral, and this is precisely so when
the gambling resorted to is excessive. This excessiveness necessarily depends not only on the
financial resources of the gambler and his family but also on his mental, social, and spiritual outlook
on life. However, the mere fact that some persons may have lost their material fortunes, mental
control, physical health, or even their lives does not necessarily mean that the same are directly
attributable to gambling. Gambling may have been the antecedent, but certainly not necessarily the
cause. For the same consequences could have been preceded by an overdose of food, drink,
exercise, work, and even sex.

WHEREFORE, the petition is DISMISSED for lack of merit.

SO ORDERED.

Fernan, C.J., Narvasa, Gutierrez, Jr., Cruz, Feliciano, Gancayco, Bidin, Sarmiento, Grio-Aquino,
Medialdea, Regalado and Davide, Jr., JJ., concur.

Separate Opinions

PADILLA, J., concurring:

I concur in the result of the learned decision penned by my brother Mr. Justice Paras. This means
that I agree with the decision insofar as it holds that the prohibition, control, and regulation of the
entire activity known as gambling properly pertain to "state policy." It is, therefore, the political
departments of government, namely, the legislative and the executive that should decide on what
government should do in the entire area of gambling, and assume full responsibility to the people for
such policy.

The courts, as the decision states, cannot inquire into the wisdom, morality or expediency of policies
adopted by the political departments of government in areas which fall within their authority, except
only when such policies pose a clear and present danger to the life, liberty or property of the
individual. This case does not involve such a factual situation.

However, I hasten to make of record that I do not subscribe to gambling in any form. It demeans the
human personality, destroys self-confidence and eviscerates one's self-respect, which in the long
run will corrode whatever is left of the Filipino moral character. Gambling has wrecked and will
continue to wreck families and homes; it is an antithesis to individual reliance and reliability as well
as personal industry which are the touchstones of real economic progress and national
development.

Gambling is reprehensible whether maintained by government or privatized. The revenues realized

by the government out of "legalized" gambling will, in the long run, be more than offset and negated
by the irreparable damage to the people's moral values.

Also, the moral standing of the government in its repeated avowals against "illegal gambling" is
fatally flawed and becomes untenable when it itself engages in the very activity it seeks to eradicate.

One can go through the Court's decision today and mentally replace the activity referred to therein
as gambling, which is legal only because it is authorized by law and run by the government, with the
activity known as prostitution. Would prostitution be any less reprehensible were it to be authorized
by law, franchised, and "regulated" by the government, in return for the substantial revenues it would
yield the government to carry out its laudable projects, such as infrastructure and social
amelioration? The question, I believe, answers itself. I submit that the sooner the legislative
department outlaws all forms of gambling, as a fundamental state policy, and the sooner the
executive implements such policy, the better it will be for the nation.

Melencio-Herrera, J., concur.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-59068 January 27, 1983

JOSE MARI EULALIO C. LOZADA and ROMEO B. IGOT, petitioners,

vs.
THE COMMISSION ON ELECTIONS, respondent.

DE CASTRO, J.:

This is a petition for mandamus filed by Jose Mari Eulalio C. Lozada and Romeo B. Igot as a
representative suit for and in behalf of those who wish to participate in the election irrespective of
party affiliation, to compel the respondent COMELEC to call a special election to fill up existing
vacancies numbering twelve (12) in the Interim Batasan Pambansa. The petition is based on Section
5(2), Article VIII of the 1973 Constitution which reads:

(2) In case a vacancy arises in the Batasang Pambansa eighteen months or more
before a regular election, the Commission on Election shall call a special election to
be held within sixty (60) days after the vacancy occurs to elect the Member to serve
the unexpired term.

Petitioner Lozada claims that he is a taxpayer and a bonafide elector of Cebu City and a transient
voter of Quezon City, Metro Manila, who desires to run for the position in the Batasan Pambansa;
while petitioner Romeo B. Igot alleges that, as a taxpayer, he has standing to petition by mandamus
the calling of a special election as mandated by the 1973 Constitution. As reason for their petition,
petitioners allege that they are "... deeply concerned about their duties as citizens and desirous to
uphold the constitutional mandate and rule of law ...; that they have filed the instant petition on their
own and in behalf of all other Filipinos since the subject matters are of profound and general interest.
"

The respondent COMELEC, represented by counsel, opposes the petition alleging, substantially,
that 1) petitioners lack standing to file the instant petition for they are not the proper parties to
institute the action; 2) this Court has no jurisdiction to entertain this petition; and 3) Section 5(2),
Article VIII of the 1973 Constitution does not apply to the Interim Batasan Pambansa.

The petition must be dismiss.

I

As taxpayers, petitioners may not file the instant petition, for nowhere therein is it alleged that tax
money is being illegally spent. The act complained of is the inaction of the COMELEC to call a
special election, as is allegedly its ministerial duty under the constitutional provision above cited, and
therefore, involves no expenditure of public funds. It is only when an act complained of, which may
include a legislative enactment or statute, involves the illegal expenditure of public money that the
so-called taxpayer suit may be allowed. 1 What the case at bar seeks is one that entails expenditure
of public funds which may be illegal because it would be spent for a purpose that of calling a special
election which, as will be shown, has no authority either in the Constitution or a statute.

As voters, neither have petitioners the requisite interest or personality to qualify them to maintain
and prosecute the present petition. The unchallenged rule is that the person who impugns the
validity of a statute must have a personal and substantial interest in the case such that he has
sustained, or will sustain, direct injury as a result of its enforcement. 2 In the case before Us, the
alleged inaction of the COMELEC to call a special election to fill-up the existing vacancies in the
Batasan Pambansa, standing alone, would adversely affect only the generalized interest of all
citizens. Petitioners' standing to sue may not be predicated upon an interest of the kind alleged here,
which is held in common by all members of the public because of the necessarily abstract nature of
the injury supposedly shared by all citizens. Concrete injury, whether actual or threatened, is that
indispensable element of a dispute which serves in part to cast it in a form traditionally capable of
judicial resolution. 3 When the asserted harm is a "generalized grievance" shared in substantially
equal measure by all or a large class of citizens, that harm alone normally does not warrant exercise
of jurisdiction. 4 As adverted to earlier, petitioners have not demonstrated any permissible personal
stake, for petitioner Lozada's interest as an alleged candidate and as a voter is not sufficient to
confer standing. Petitioner Lozada does not only fail to inform the Court of the region he wants to be
a candidate but makes indiscriminate demand that special election be called throughout the country.
Even his plea as a voter is predicated on an interest held in common by all members of the public
and does not demonstrate any injury specially directed to him in particular.

II

The Supreme Court's jurisdiction over the COMELEC is only to review by certiorari the latter's
decision, orders or rulings. This is as clearly provided in Article XI IC Section 11 of the New
Constitution which reads:

Any decision, order, or ruling of the Commission may be brought to the Supreme
Court on certiorari by the aggrieved party within thirty days from his receipt of a copy
thereof.

There is in this case no decision, order or ruling of the COMELEC which is sought to be reviewed by
this Court under its certiorari jurisdiction as provided for in the aforequoted provision which is the
only known provision conferring jurisdiction or authority on the Supreme Court over the COMELEC.
It is not alleged that the COMELEC was asked by petitioners to perform its alleged duty under the
Constitution to call a special election, and that COMELEC has issued an order or resolution denying
such petition.

Even from the standpoint of an action for mandamus, with the total absence of a showing that
COMELEC has unlawfully neglected the performance of a ministerial duty, or has refused on being
demanded, to discharge such a duty; and as demonstrated above, it is not shown, nor can it ever be
shown, that petitioners have a clear right to the holding of a special election. which is equally the
clear and ministerial duty of COMELEC to respect, mandamus will not lie. 5 The writ will not issue in
doubtful cases. 6

It is obvious that the holding of special elections in several regional districts where vacancies exist,
would entail huge expenditure of money. Only the Batasan Pambansa can make the necessary
appropriation for the purpose, and this power of the Batasan Pambansa may neither be subject to
mandamus by the courts much less may COMELEC compel the Batasan to exercise its power of
appropriation. From the role Batasan Pambansa has to play in the holding of special elections, which
is to appropriate the funds for the expenses thereof, it would seem that the initiative on the matter
must come from said body, not the COMELEC, even when the vacancies would occur in the regular
not interim Batasan Pambansa. The power to appropriate is the sole and exclusive prerogative of
the legislative body, the exercise of which may not be compelled through a petition for mandamus.
What is more, the provision of Section 5(2), Article VIII of the Constitution was intended to apply to
vacancies in the regular National Assembly, now Batasan Pambansa, not to the Interim Batasan
Pambansa, as will presently be shown.

III

Perhaps the strongest reason why the aforecited provision of the Constitution is not intended to
apply to the Interim National Assembly as originally envisioned by the 1973 Constitution is the fact
that as passed by the Constitutional Convention, the Interim National Assembly was to be composed
by the delegates to the Constitutional Convention, as well as the then incumbent President and Vice-
President, and the members of the Senate and House of Representatives of Congress under the
1935 Constitution. With such number of representatives representing each congressional district, or
a province, not to mention the Senators, there was felt absolutely no need for filing vacancies
occurring in the Interim National Assembly, considering the uncertainty of the duration of its
existence. What was in the mind of the Constitutional Convention in providing for special elections to
fill up vacancies is the regular National Assembly, because a province or representative district
would have only one representative in the said National Assembly.

Even as presently constituted where the representation in the Interim Batasan Pambansa is regional
and sectoral, the need to fill up vacancies in the Body is neither imperative nor urgent. No district or
province would ever be left without representation at all, as to necessitate the filling up of vacancies
in the Interim Batasan Pambansa. There would always be adequate representation for every
province which only forms part of a certain region, specially considering that the Body is only
transitory in character.

The unmistakable intent of the Constitutional Convention as adverted to is even more positively
revealed by the fact that the provision of Section 5(2) of Article VIII of the New Constitution is in the
main body of the said Constitution, not in the transitory provisions in which all matters relating to the
Interim Batasan Pambansa are found. No provision outside of Article VIII on the "Transitory
Provisions" has reference or relevance to the Interim Batasan Pambansa.

Also under the original provision of the Constitution (Section 1, Article XVII-Transitory Provisions),
the Interim National Assembly had only one single occasion on which to call for an election, and that
is for the election of members of the regular National Assembly. The Constitution could not have at
1w ph1.t

that time contemplated to fill up vacancies in the Interim National Assembly the composition of
which, as already demonstrated, would not raise any imperious necessity of having to call special
elections for that purpose, because the duration of its existence was neither known or pre-
determined. It could be for a period so brief that the time prescriptions mentioned in Section 5(2),
Article VIII of the Constitution cannot be applicable.
The foregoing observations make it indubitably clear that the aforementioned provision for calling
special elections to fill up vacancies apply only to the regular Batasan Pambansa. This is evident
from the language thereof which speaks of a vacancy in the Batasan Pambansa, " which means
the regular Batasan Pambansa as the same words "Batasan Pambansa" found in all the many other
sections of Article VIII, undoubtedly refer to the regular Batasan, not the interim one. A word or
phrase used in one part of a Constitution is to receive the same interpretation when used in every
other part, unless it clearly appears, from the context or otherwise, that a different meaning should
be applied. 7

WHEREFORE, the petition is hereby dismissed.

SO ORDERED.

Aquino, Concepcion Jr., Guerrero, Plana, Escolin Vasquez, Relova and Gutierrez, Jr., JJ., concur.

Fernando, CJ., Makasiar, and Melencio-Herrera, JJ., concurs in the result.

Teehankee, J., took no part.

Abad Santos, J., I reserve my vote.

FIRST DIVISION

[G.R. No. 130716. December 9, 1998]

FRANCISCO I. CHAVEZ, petitioner, vs. PRESIDENTIAL COMMISSION

ON GOOD GOVERNMENT (PCGG) and MAGTANGGOL
GUNIGUNDO, (in his capacity as chairman of the PCGG), respondents.
GLORIA A. JOPSON, CELNAN A. JOPSON, SCARLET A. JOPSON,
and TERESA A. JOPSON, petitioners-in-intervention.

DECISION
PANGANIBAN, J:

Petitioner asks this Court to define the nature and the extent of the peoples constitutional
right to information on matters of public concern. Does this right include access to the terms of
government negotiations prior to their consummation or conclusion? May the government,
through the Presidential Commission on Good Government (PCGG), be required to reveal the
proposed terms of a compromise agreement with the Marcos heirs as regards their alleged ill-
gotten wealth? More specifically, are the General Agreement and Supplemental Agreement,
both dated December 28, 1993 and executed between the PCGG and the Marcos heirs, valid and
binding?
 The Case

These are the main questions raised in this original action seeking (1) to prohibit and [e]njoin
respondents [PCGG and its chairman] from privately entering into, perfecting and/or executing
any agreement with the heirs of the late President Ferdinand E. Marcos x x x relating to and
concerning the properties and assets of Ferdinand Marcos located in the Philippines and/or abroad
-- including the so-called Marcos gold hoard; and (2) to [c]ompel respondent[s] to make publicall
negotiations and agreement, be they ongoing or perfected, and all documents related to or relating
to such negotiations and agreement between the PCGG and the Marcos heirs.[1]

The Facts

Petitioner Francisco I. Chavez, as taxpayer, citizen and former government official who
initiated the prosecution of the Marcoses and their cronies who committed unmitigated plunder of
the public treasury and the systematic subjugation of the countrys economy, alleges that what
impelled him to bring this action were several news reports[2] bannered in a number of broadsheets
sometime in September 1997. These news items referred to (1) the alleged discovery of billions
of dollars of Marcos assets deposited in various coded accounts in Swiss banks; and (2) the
reported execution of a compromise, between the government (through PCGG) and the Marcos
heirs, on how to split or share these assets.
Petitioner, invoking his constitutional right to information[3] and the correlative duty of the
state to disclose publicly all its transactions involving the national interest,[4] demands that
respondents make public any and all negotiations and agreements pertaining to PCGGs task of
recovering the Marcoses ill-gotten wealth. He claims that any compromise on the alleged billions
of ill-gotten wealth involves an issue of paramount public interest, since it has a debilitating
effect on the countrys economy that would be greatly prejudicial to the national interest of the
Filipino people. Hence, the people in general have a right to know the transactions or deals being
contrived and effected by the government.
Respondents, on the other hand, do not deny forging a compromise agreement with the Marcos
heirs. They claim, though, that petitioners action is premature, because there is no showing that
he has asked the PCGG to disclose the negotiations and the Agreements. And even if he has,
PCGG may not yet be compelled to make any disclosure, since the proposed terms and conditions
of the Agreements have not become effective and binding.
Respondents further aver that the Marcos heirs have submitted the subject Agreements to the
Sandiganbayan for its approval in Civil Case No. 141, entitled Republic v. Heirs of Ferdinand E.
Marcos, and that the Republic opposed such move on the principal grounds that (1) said
Agreements have not been ratified by or even submitted to the President for approval, pursuant to
Item No. 8 of the General Agreement; and (2) the Marcos heirs have failed to comply with their
undertakings therein, particularly the collation and submission of an inventory of their assets. The
Republic also cited an April 11, 1995 Resolution in Civil Case No. 0165, in which the
Sandiganbayan dismissed a similar petition filed by the Marcoses attorney-in-fact.
 Furthermore, then President Fidel V. Ramos, in his May 4, 1998 Memorandum[5] to then
PCGG Chairman Magtanggol Gunigundo, categorically stated:

This is to reiterate my previous position embodied in the Palace Press Release of 6

April 1995 that I have not authorized you to approve the Compromise Agreements of
December 28, 1993 or any agreement at all with the Marcoses, and would have
disapproved them had they been submitted to me.

The Full Powers of Attorney of March 1994 and July 4, 1994, did not authorize you
to approve said Agreements, which I reserve for myself as President of the Republic
of the Philippines.

The assailed principal Agreement[6] reads:

GENERAL AGREEMENT

KNOW ALL MEN BY THESE PRESENTS:

This Agreement entered into this 28th day of December, 1993, by and between -

The Republic of the Philippines, through the Presidential Commission on

Good Government (PCGG), a governmental agency vested with authority
defined under Executive Orders Nos. 1, 2 and 14, with offices at the
Philcomcen Building, Pasig, Metro Manila, represented by its Chairman
referred to as the FIRST PARTY,

-- and --

Estate of Ferdinand E. Marcos, represented by Imelda Romualdez Marcos and

Ferdinand R. Marcos, Jr., all of legal age, and with address at c/o No. 154
Lopez Rizal St., Mandaluyong, Metro Manila, and Imelda Romualdez
Marcos, Imee Marcos Manotoc, Ferdinand E. Marcos, Jr., and Irene Marcos
Araneta, hereinafter collectively referred to as the PRIVATE PARTY.

W I T N E S S E T H:

WHEREAS, the PRIVATE PARTY has been impelled by their sense of nationalism
and love of country and of the entire Filipino people, and their desire to set up a
foundation and finance impact projects like installation of power plants in selected
rural areas and initiation of other community projects for the empowerment of the
people;
WHEREAS, the FIRST PARTY has obtained a judgment from the Swiss Federal
Tribunal of December 21, 1990, that the $356 million belongs in principle to the
Republic of the Philippines provided certain conditionalities are met, but even after 7
years, the FIRST PARTY has not been able to procure a final judgment of conviction
against the PRIVATE PARTY;

WHEREAS, the FIRST PARTY is desirous of avoiding a long-drawn out litigation

which, as proven by the past 7 years, is consuming money, time and effort, and is
counter-productive and ties up assets which the FIRST PARTY could otherwise
utilize for its Comprehensive Agrarian Reform Program, and other urgent needs;

WHEREAS, His Excellency, President Fidel V. Ramos, has adopted a policy of unity
and reconciliation in order to bind the nations wounds and start the process of
rebuilding this nation as it goes on to the twenty-first century;

WHEREAS, this Agreement settles all claims and counterclaims which the parties
may have against one another, whether past, present, or future, matured or inchoate.

NOW, THEREFORE, for and in consideration of the mutual covenants set forth
herein, the parties agree as follows:

1. The parties will collate all assets presumed to be owned by, or held by other parties for the
benefit of, the PRIVATE PARTY for purposes of determining the totality of the assets covered
by the settlement. The subject assets shall be classified by the nature thereof, namely: (a) real
estate; (b) jewelry; (c) paintings and other works of art; (d) securities; (e) funds on deposit; (f)
precious metals, if any, and (g) miscellaneous assets or assets which could not appropriately
fall under any of the preceding classification. The list shall be based on the full disclosure of
the PRIVATE PARTY to insure its accuracy.
2. Based on the inventory, the FIRST PARTY shall determine which shall be ceded to the FIRST
PARTY, and which shall be assigned to/retained by the PRIVATE PARTY. The assets of the
PRIVATE PARTY shall be net of, and exempt from, any form of taxes due the Republic of
the Philippines. However, considering the unavailability of all pertinent and relevant
documents and information as to balances and ownership, the actual specification of assets to
be retained by the PRIVATE PARTY shall be covered by supplemental agreements which
shall form part of this Agreement.
3. Foreign assets which the PRIVATE PARTY shall fully disclose but which are held by trustees,
nominees, agents or foundations are hereby waived over by the PRIVATE PARTY in favor
of the FIRST PARTY. For this purpose, the parties shall cooperate in taking the appropriate
action, judicial and/or extrajudicial, to recover the same for the FIRST PARTY.
4. All disclosures of assets made by the PRIVATE PARTY shall not be used as evidence by the
FIRST PARTY in any criminal, civil, tax or administrative case, but shall be valid and binding
against said PARTY for use by the FIRST PARTY in withdrawing any account and/or
recovering any asset. The PRIVATE PARTY withdraws any objection to the withdrawal by
and/or release to the FIRST PARTY by the Swiss banks and/or Swiss authorities of the $356
million, its accrued interests, and/or any other account; over which the PRIVATE PARTY
 waives any right, interest or participation in favor of the FIRST PARTY. However, any
withdrawal or release of any account aforementioned by the FIRST PARTY shall be made in
the presence of any authorized representative of the PRIVATE PARTY.
5. The trustees, custodians, safekeepers, depositaries, agents, nominees, administrators, lawyers,
or any other party acting in similar capacity in behalf of the PRIVATE PARTY are hereby
informed through this General Agreement to insure that it is fully implemented and this shall
serve as absolute authority from both parties for full disclosure to the FIRST PARTY of said
assets and for the FIRST PARTY to withdraw said account and/or assets and any other assets
which the FIRST PARTY on its own or through the help of the PRIVATE PARTY/their
trustees, etc., may discover.
6. Any asset which may be discovered in the future as belonging to the PRIVATE PARTY or is
being held by another for the benefit of the PRIVATE PARTY and which is not included in
the list per No. 1 for whatever reason shall automatically belong to the FIRST PARTY, and
the PRIVATE PARTY in accordance with No. 4 above, waives any right thereto.
7. This Agreement shall be binding on, and inure to the benefit of, the parties and their respective
legal representatives, successors and assigns and shall supersede any other prior agreement.
8. The PARTIES shall submit this and any other implementing Agreements to the President of
the Philippines for approval. In the same manner, the PRIVATE PARTY shall provide the
FIRST PARTY assistance by way of testimony or deposition on any information it may have
that could shed light on the cases being pursued by the FIRST PARTY against other
parties. The FIRST PARTY shall desist from instituting new suits already subject of this
Agreement against the PRIVATE PARTY and cause the dismissal of all other cases pending
in the Sandiganbayan and in other courts.
9. In case of violation by the PRIVATE PARTY of any of the conditions herein contained, the
PARTIES shall be restored automatically to the status quo ante the signing of this Agreement.

For purposes of this Agreement, the PRIVATE PARTY shall be represented by Atty.
Simeon M. Mesina, Jr., as their only Attorney-in-Fact.

IN WITNESS WHEREOF, the parties have signed this instrument this 28th day of
December, 1993, in Makati, Metro Manila.

PRESIDENTIAL COMMISSION ON
GOOD GOVERNMENT

By:

[Sgd.] MAGTANGGOL C. GUNIGUNDO

Chairman

ESTATE OF FERDINAND E. MARCOS, IMELDA R.

MARCOS, MA. IMELDA MARCOS-MANOTOC,
 FERDINAND R. MARCOS, JR., & IRENE MARCOS-
ARANETA

By:

[Sgd.]IMELDA ROMUALDEZ-MARCOS

[Sgd.] MA. IMELDA MARCOS-MANOTOC

FERDINAND R. MARCOS, JR.[7]

[Sgd.] IRENE MARCOS-ARANETA

Assisted by:

[Sgd.] ATTY. SIMEON M. MESINA, JR.

Counsel & Attorney-in-Fact

Petitioner also denounces this supplement to the above Agreement: [8]

SUPPLEMENTAL AGREEMENT

This Agreement entered into this 28th day of December, 1993, by and between --

The Republic of the Philippines, through the Presidential Commission on

Good Government (PCGG), a governmental agency vested with authority
defined under Executive Orders Nos. 1, 2 and 14, with offices at the
Philcomcen Building, Pasig, Metro Manila, represented by its Chairman
Magtanggol C. Gunigundo, hereinafter referred to as the FIRST PARTY,
-- and --
Estate of Ferdinand E. Marcos, represented by Imelda Romualdez Marcos and
Ferdinand R. Marcos, Jr., all of legal age, and with address at c/o No. 154
Lopez Rizal St., Mandaluyong, Metro Manila, and Imelda Romualdez
Marcos, Imee Marcos Manotoc, Ferdinand E. Marcos, Jr., and Irene Marcos
Araneta, hereinafter collectively referred to as the PRIVATE PARTY.
W I T N E S S E T H:
The parties in this case entered into a General Agreement dated Dec. 28,
1993;
 The PRIVATE PARTY expressly reserve their right to pursue their interest
and/or sue over local assets located in the Philippines against parties other
than the FIRST PARTY.
The parties hereby agree that all expenses related to the recovery and/or
withdrawal of all assets including lawyers fees, agents fees, nominees
service fees, bank charges, traveling expenses and all other expenses related
thereto shall be for the account of the PRIVATE PARTY.

In consideration of the foregoing, the parties hereby agree that the PRIVATE PARTY
shall be entitled to the equivalent of 25% of the amount that may be eventually
withdrawn from said $356 million Swiss deposits.

IN WITNESS WHEREOF, the parties have signed this instrument this 28th day of
December, 1993, in Makati, Metro Manila.

PRESIDENTIAL COMMISSION ON
GOOD GOVERNMENT

By:

[Sgd.] MAGTANGGOL C. GUNIGUNDO

Chairman

ESTATE OF FERDINAND E. MARCOS, IMELDA R.

MARCOS, MA. IMELDA MARCOS-MANOTOC,
FERDINAND R. MARCOS, JR., & IRENE MARCOS-
ARANETA

By:

[Sgd.] IMELDA ROMUALDEZ-MARCOS

[Sgd.] MA. IMELDA MARCOS-MANOTOC

FERDINAND R. MARCOS, JR.[9]

[Sgd.] IRENE MARCOS-ARANETA

Assisted by:

[Sgd.] ATTY. SIMEON M. MESINA, JR.

 Counsel & Attorney-in-Fact

Acting on a motion of petitioner, the Court issued a Temporary Restraining Order[10] dated
March 23, 1998, enjoining respondents, their agents and/or representatives from entering into, or
perfecting and/or executing any agreement with the heirs of the late President Ferdinand E. Marcos
relating to and concerning their ill-gotten wealth.

Issues

The Oral Argument, held on March 16, 1998, focused on the following issues:

(a) Procedural:

(1) Whether or not the petitioner has the personality or legal standing to file the
instant petition; and

(2) Whether or not this Court is the proper court before which this action may be
filed.

(b) Substantive:

(1) Whether or not this Court could require the PCGG to disclose to the public the
details of any agreement, perfected or not, with the Marcoses; and

(2) Whether or not there exist any legal restraints against a compromise agreement between the
Marcoses and the PCGG relative to the Marcoses ill-gotten wealth.[11]

After their oral presentations, the parties filed their respective memoranda.
On August 19, 1998, Gloria, Celnan, Scarlet and Teresa, all surnamed Jopson, filed before the
Court a Motion for Intervention, attaching thereto their Petition in Intervention. They aver that
they are among the 10,000 claimants whose right to claim from the Marcos Family and/or the
Marcos Estate is recognized by the decision in In re Estate of Ferdinand Marcos, Human Rights
Litigation, Maximo Hilao, et al., Class Plaintiffs No. 92-15526, U.S. Court of Appeals for the 9th
Circuit US App. Lexis 14796, June 16, 1994 and the Decision of the Swiss Supreme Court of
December 10, 1997. As such, they claim to have personal and direct interest in the subject matter
of the instant case, since a distribution or disposition of the Marcos properties may adversely affect
their legitimate claims. In a minute Resolution issued on August 24, 1998, the Court granted their
motion to intervene and required the respondents to comment thereon. The September 25, 1998
Comment[12] of the solicitor general on said motion merely reiterated his aforecited arguments
against the main petition.[13]

The Courts Ruling

 The petition is imbued with merit.

First Procedural Issue: Petitioners Standing

Petitioner, on the one hand, explains that as a taxpayer and citizen, he has the legal personality
to file the instant petition. He submits that since ill-gotten wealth belongs to the Filipino people
and [is], in truth and in fact, part of the public treasury, any compromise in relation to it would
constitute a diminution of the public funds, which can be enjoined by a taxpayer whose interest is
for a full, if not substantial, recovery of such assets.
Besides, petitioner emphasizes, the matter of recovering the ill-gotten wealth of the Marcoses
is an issue of transcendental importance to the public. He asserts that ordinary taxpayers have a
right to initiate and prosecute actions questioning the validity of acts or orders of government
agencies or instrumentalities, if the issues raised are of paramount public interest; and if they
immeasurably affect the social, economic, and moral well-being of the people.
Moreover, the mere fact that he is a citizen satisfies the requirement of personal interest, when
the proceeding involves the assertion of a public right,[14] such as in this case. He invokes several
decisions[15] of this Court which have set aside the procedural matter of locus standi, when the
subject of the case involved public interest.
On the other hand, the solicitor general, on behalf of respondents, contends that petitioner has
no standing to institute the present action, because no expenditure of public funds is involved and
said petitioner has no actual interest in the alleged agreement. Respondents further insist that the
instant petition is premature, since there is no showing that petitioner has requested PCGG to
disclose any such negotiations and agreements; or that, if he has, the Commission has refused to
do so.
Indeed, the arguments cited by petitioner constitute the controlling decisional rule as regards
his legal standing to institute the instant petition. Access to public documents and records is a
public right, and the real parties in interest are the people themselves.[16]
In Taada v. Tuvera,[17] the Court asserted that when the issue concerns a public right and the
object of mandamus is to obtain the enforcement of a public duty, the people are regarded as the
real parties in interest; and because it is sufficient that petitioner is a citizen and as such is interested
in the execution of the laws, he need not show that he has any legal or special interest in the result
of the action.[18] In the aforesaid case, the petitioners sought to enforce their right to be informed
on matters of public concern, a right then recognized in Section 6, Article IV of the 1973
Constitution,[19] in connection with the rule that laws in order to be valid and enforceable must be
published in the Official Gazette or otherwise effectively promulgated. In ruling for the
petitioners legal standing, the Court declared that the right they sought to be enforced is a public
right recognized by no less than the fundamental law of the land.
Legaspi v. Civil Service Commission,[20] while reiterating Taada, further declared that when
a mandamus proceeding involves the assertion of a public right, the requirement of personal
interest is satisfied by the mere fact that petitioner is a citizen and, therefore, part of the general
public which possesses the right.[21]
 Further, in Albano v. Reyes,[22] we said that while expenditure of public funds may not have
been involved under the questioned contract for the development, the management and the
operation of the Manila International Container Terminal, public interest [was] definitely
involved considering the important role [of the subject contract] x x x in the economic
development of the country and the magnitude of the financial consideration involved. We
concluded that, as a consequence, the disclosure provision in the Constitution would constitute
sufficient authority for upholding the petitioners standing.
Similarly, the instant petition is anchored on the right of the people to information and access
to official records, documents and papers -- a right guaranteed under Section 7, Article III of the
1987 Constitution. Petitioner, a former solicitor general, is a Filipino citizen. Because of the
satisfaction of the two basic requisites laid down by decisional law to sustain petitioners legal
standing, i.e. (1) the enforcement of a public right (2) espoused by a Filipino citizen, we rule that
the petition at bar should be allowed.
In any event, the question on the standing of Petitioner Chavez is rendered moot by the
intervention of the Jopsons, who are among the legitimate claimants to the Marcos wealth. The
standing of the Jopsons is not seriously contested by the solicitor general. Indeed, said petitioners-
intervenors have a legal interest in the subject matter of the instant case, since a distribution or
disposition of the Marcoses ill-gotten properties may adversely affect the satisfaction of their
claims.

Second Procedural Issue:The Courts Jurisdiction

Petitioner asserts that because this petition is an original action for mandamus and one that is
not intended to delay any proceeding in the Sandiganbayan, its having been filed before this Court
was proper. He invokes Section 5, Article VIII of the Constitution, which confers upon the
Supreme Court original jurisdiction over petitions for prohibition and mandamus.
The solicitor general, on the other hand, argues that the petition has been erroneously brought
before this Court, since there is neither a justiciable controversy nor a violation of petitioners
rights by the PCGG. He alleges that the assailed agreements are already the very lis mota in
Sandiganbayan Civil Case No. 0141, which has yet to dispose of the issue; thus, this petition is
premature. Furthermore, respondents themselves have opposed the Marcos heirs motion, filed in
the graft court, for the approval of the subject Agreements. Such opposition belies petitioners
claim that the government, through respondents, has concluded a settlement with the Marcoses as
regards their alleged ill-gotten assets.
In Taada and Legaspi, we upheld therein petitioners resort to a mandamus proceeding,
seeking to enforce a public right as well as to compel performance of a public duty mandated by
no less than the fundamental law.[23] Further, Section 5, Article VIII of the Constitution, expressly
confers upon the Supreme Court original jurisdiction over petitions
for certiorari, prohibition, mandamus, quo warranto and habeas corpus.
Respondents argue that petitioner should have properly sought relief before the
Sandiganbayan, particularly in Civil Case No. 0141, in which the enforcement of the compromise
Agreements is pending resolution. There may seem to be some merit in such argument, if
petitioner is merely seeking to enjoin the enforcement of the compromise and/or to compel the
PCGG to disclose to the public the terms contained in said Agreements. However, petitioner is
here seeking the public disclosure of all negotiations and agreement, be they ongoing or perfected,
and documents related to or relating to such negotiations and agreement between the PCGG and
the Marcos heirs.
In other words, this petition is not confined to the Agreements that have already been drawn,
but likewise to any other ongoing or future undertaking towards any settlement on the alleged
Marcos loot. Ineluctably, the core issue boils down to the precise interpretation, in terms of scope,
of the twin constitutional provisions on public transactions. This broad and prospective relief
sought by the instant petition brings it out of the realm of Civil Case No. 0141.

First Substantive Issue:

Public Disclosure of Terms of Any Agreement, Perfected or Not

In seeking the public disclosure of negotiations and agreements pertaining to a compromise

settlement with the Marcoses as regards their alleged ill-gotten wealth, petitioner invokes the
following provisions of the Constitution:

Sec. 7 [Article III]. The right of the people to information on matters of public
concern shall be recognized. Access to official records, and to documents, and papers
pertaining to official acts, transactions, or decisions, as well as to government research
data used as basis for policy development, shall be afforded the citizen, subject to
such limitations as may be provided by law.

Sec. 28 [Article II]. Subject to reasonable conditions prescribed by law, the State
adopts and implements a policy of full public disclosure of all its transactions
involving public interest.

Respondents opposite view is that the above constitutional provisions refer to completed and
operative official acts, not to those still being considered. As regards the assailed Agreements
entered into by the PCGG with the Marcoses, there is yet no right of action that has accrued,
because said Agreements have not been approved by the President, and the Marcos heirs have
failed to fulfill their express undertaking therein. Thus, the Agreements have not become
effective. Respondents add that they are not aware of any ongoing negotiation for another
compromise with the Marcoses regarding their alleged ill-gotten assets.
The information and the transactions referred to in the subject provisions of the
Constitution have as yet no defined scope and extent. There are no specific laws prescribing the
exact limitations within which the right may be exercised or the correlative state duty may be
obliged. However, the following are some of the recognized restrictions: (1) national security
matters and intelligence information, (2) trade secrets and banking transactions, (3) criminal
matters, and (4) other confidential information.
Limitations to the Right: (1) National Security Matters

At the very least, this jurisdiction recognizes the common law holding that there is a
governmental privilege against public disclosure with respect to state secrets regarding military,
diplomatic and other national security matters.[24] But where there is no need to protect such state
secrets, the privilege may not be invoked to withhold documents and other information,[25]provided
that they are examined in strict confidence and given scrupulous protection.
Likewise, information on inter-government exchanges prior to the conclusion of treaties and
executive agreements may be subject to reasonable safeguards for the sake of national interest.[26]

(2) Trade Secrets and Banking Transactions

The drafters of the Constitution also unequivocally affirmed that, aside from national security
matters and intelligence information, trade or industrial secrets (pursuant to the Intellectual
Property Code[27] and other related laws) as well as banking transactions (pursuant to the Secrecy
of Bank Deposits Act[28]) are also exempted from compulsory disclosure.[29]

(3) Criminal Matters

Also excluded are classified law enforcement matters, such as those relating to the
apprehension, the prosecution and the detention of criminals,[30] which courts may not inquire
into prior to such arrest, detention and prosecution. Efforts at effective law enforcement would be
seriously jeopardized by free public access to, for example, police information regarding rescue
operations, the whereabouts of fugitives, or leads on covert criminal activities.

(4) Other Confidential Information

The Ethical Standards Act[31] further prohibits public officials and employees from using or
divulging confidential or classified information officially known to them by reason of their office
and not made available to the public.[32]
Other acknowledged limitations to information access include diplomatic correspondence,
closed door Cabinet meetings and executive sessions of either house of Congress, as well as the
internal deliberations of the Supreme Court.[33]

Scope: Matters of Public Concern and Transactions Involving Public Interest

In Valmonte v. Belmonte Jr.,[34] the Court emphasized that the information sought must be
matters of public concern, access to which may be limited by law. Similarly, the state policy of
full public disclosure extends only to transactions involving public interest and may also be
subject to reasonable conditions prescribed by law. As to the meanings of the terms public
interest and public concern, the Court, in Legaspi v. Civil Service Commission,[35] elucidated:

In determining whether or not a particular information is of public concern there is

no rigid test which can be applied. Public concern like public interest is a term
that eludes exact definition. Both terms embrace a broad spectrum of subjects which
the public may want to know, either because these directly affect their lives, or simply
because such matters naturally arouse the interest of an ordinary citizen. In the final
analysis, it is for the courts to determine on a case by case basis whether the matter at
issue is of interest or importance, as it relates to or affects the public.

Considered a public concern in the above-mentioned case was the legitimate concern of
citizens to ensure that government positions requiring civil service eligibility are occupied only by
persons who are eligibles. So was the need to give the general public adequate notification of
various laws that regulate and affect the actions and conduct of citizens, as held
in Taada. Likewise did the public nature of the loanable funds of the GSIS and the public office
held by the alleged borrowers (members of the defunct Batasang Pambansa) qualify the
information sought in Valmonte as matters of public interest and concern. In Aquino-Sarmiento v.
Morato,[36] the Court also held that official acts of public officers done in pursuit of their official
functions are public in character; hence, the records pertaining to such official acts and decisions
are within the ambit of the constitutional right of access to public records.
Under Republic Act No. 6713, public officials and employees are mandated to provide
information on their policies and procedures in clear and understandable language, [and] ensure
openness of information, public consultations and hearings whenever appropriate x x x, except
when otherwise provided by law or when required by the public interest. In particular, the law
mandates free public access, at reasonable hours, to the annual performance reports of offices and
agencies of government and government-owned or controlled corporations; and the statements of
assets, liabilities and financial disclosures of all public officials and employees.[37]
In general, writings coming into the hands of public officers in connection with their official
functions must be accessible to the public, consistent with the policy of transparency of
governmental affairs. This principle is aimed at affording the people an opportunity to determine
whether those to whom they have entrusted the affairs of the government are honestly, faithfully
and competently performing their functions as public servants.[38] Undeniably, the essence of
democracy lies in the free flow of thought;[39] but thoughts and ideas must be well-informed so that
the public would gain a better perspective of vital issues confronting them and, thus, be able to
criticize as well as participate in the affairs of the government in a responsible, reasonable and
effective manner. Certainly, it is by ensuring an unfettered and uninhibited exchange of ideas
among a well-informed public that a government remains responsive to the changes desired by the
people.[40]

The Nature of the Marcoses Alleged Ill-Gotten Wealth

 We now come to the immediate matter under consideration.
Upon the departure from the country of the Marcos family and their cronies in February 1986,
the new government headed by President Corazon C. Aquino was specifically mandated to
[r]ecover ill-gotten properties amassed by the leaders and supporters of the previous regime and
[to] protect the interest of the people through orders of sequestration or freezing of assets or
accounts.[41] Thus, President Aquinos very first executive orders (which partook of the nature of
legislative enactments) dealt with the recovery of these alleged ill-gotten properties.
Executive Order No. 1, promulgated on February 28, 1986, only two (2) days after the
Marcoses fled the country, created the PCGG which was primarily tasked to assist the President
in the recovery of vast government resources allegedly amassed by former President Marcos, his
immediate family, relatives and close associates both here and abroad.
Under Executive Order No. 2, issued twelve (12) days later, all persons and entities who had
knowledge or possession of ill-gotten assets and properties were warned and, under pain of
penalties prescribed by law, prohibited from concealing, transferring or dissipating them or from
otherwise frustrating or obstructing the recovery efforts of the government.
On May 7, 1986, another directive (EO No. 14) was issued giving additional powers to the
PCGG which, taking into account the overriding considerations of national interest and national
survival, required it to achieve expeditiously and effectively its vital task of recovering ill-gotten
wealth.
With such pronouncements of our government, whose authority emanates from the people,
there is no doubt that the recovery of the Marcoses alleged ill-gotten wealth is a matter of public
concern and imbued with public interest.[42] We may also add that ill-gotten wealth, by its very
nature, assumes a public character. Based on the aforementioned Executive Orders, ill-gotten
wealth refers to assets and properties purportedly acquired, directly or indirectly, by former
President Marcos, his immediate family, relatives and close associates through or as a result of
their improper or illegal use of government funds or properties; or their having taken undue
advantage of their public office; or their use of powers, influences or relationships, resulting in
their unjust enrichment and causing grave damage and prejudice to the Filipino people and the
Republic of the Philippines. Clearly, the assets and properties referred to supposedly originated
from the government itself. To all intents and purposes, therefore, they belong to the people. As
such, upon reconveyance they will be returned to the public treasury, subject only to the
satisfaction of positive claims of certain persons as may be adjudged by competent courts. Another
declared overriding consideration for the expeditious recovery of ill-gotten wealth is that it may
be used for national economic recovery.
We believe the foregoing disquisition settles the question of whether petitioner has a right to
respondents disclosure of any agreement that may be arrived at concerning the Marcoses
purported ill-gotten wealth.

Access to Information on Negotiating Terms

But does the constitutional provision likewise guarantee access to information

regarding ongoing negotiations or proposals prior to the final agreement? This same clarification
was sought and clearly addressed by the constitutional commissioners during their deliberations,
which we quote hereunder:[43]

MR. SUAREZ. And when we say transactions which should be distinguished from
contracts, agreements, or treaties or whatever, does the Gentleman refer to the steps
leading to the consummation of the contract, or does he refer to the contract itself?

MR. OPLE. The transactions used here, I suppose, is generic and, therefore, it can
cover both steps leading to a contract, and already a consummated contract, Mr.
Presiding Officer.

MR. SUAREZ. This contemplates inclusion of negotiations leading to the

consummation of the transaction?

MR. OPLE. Yes, subject to reasonable safeguards on the national interest.

Considering the intent of the framers of the Constitution, we believe that it is incumbent
upon the PCGG and its officers, as well as other government representatives, to disclose
sufficient public information on any proposed settlement they have decided to take up with
the ostensible owners and holders of ill-gotten wealth. Such information, though, must pertain
to definite propositions of the government, not necessarily to intra-agency or inter-agency
recommendations or communications[44] during the stage when common assertions are still in the
process of being formulated or are in the exploratory stage. There is a need, of course, to observe
the same restrictions on disclosure of information in general, as discussed earlier -- such as on
matters involving national security, diplomatic or foreign relations, intelligence and other
classified information.

Second Substantive Issue: Legal Restraints on a Marcos-PCGG Compromise

Petitioner lastly contends that any compromise agreement between the government and the
Marcoses will be a virtual condonation of all the alleged wrongs done by them, as well as an
unwarranted permission to commit graft and corruption.
Respondents, for their part, assert that there is no legal restraint on entering into a compromise
with the Marcos heirs, provided the agreement does not violate any law.

Prohibited Compromises

In general, the law encourages compromises in civil cases, except with regard to the following
matters: (1) the civil status of persons, (2) the validity of a marriage or a legal separation, (3) any
ground for legal separation, (4) future support, (5) the jurisdiction of courts, and (6) future
legitime.[45] And like any other contract, the terms and conditions of a compromise must not be
contrary to law, morals, good customs, public policy or public order.[46] A compromise is binding
and has the force of law between the parties,[47] unless the consent of a party is vitiated -- such as
by mistake, fraud, violence, intimidation or undue influence -- or when there is forgery, or if the
terms of the settlement are so palpably unconscionable. In the latter instances, the agreement may
be invalidated by the courts.[48]

Effect of Compromise on Civil Actions

One of the consequences of a compromise, and usually its primary object, is to avoid or to
end a litigation.[49] In fact, the law urges courts to persuade the parties in a civil case to agree to a
fair settlement.[50] As an incentive, a court may mitigate damages to be paid by a losing party who
shows a sincere desire to compromise.[51]
In Republic & Campos Jr. v. Sandiganbayan,[52] which affirmed the grant by the PCGG of
civil and criminal immunity to Jose Y. Campos and family, the Court held that in the absence of
an express prohibition, the rule on compromises in civil actions under the Civil Code is applicable
to PCGG cases. Such principle is pursuant to the objectives of EO No. 14, particularly the just
and expeditious recovery of ill-gotten wealth, so that it may be used to hasten economic
recovery. The same principle was upheld in Benedicto v. Board of Administrators of Television
Stations RPN, BBC and IBC[53] and Republic v. Benedicto,[54] which ruled in favor of the validity
of the PCGG compromise agreement with Roberto S. Benedicto.

Immunity from Criminal Prosecution

However, any compromise relating to the civil liability arising from an

offense does not automatically terminate the criminal proceeding against or extinguish the
criminal liability of the malefactor.[55] While a compromise in civil suits is expressly authorized
by law, there is no similar general sanction as regards criminal liability. The authority must be
specifically conferred. In the present case, the power to grant criminal immunity was conferred
on PCGG by Section 5 of EO No. 14, as amended by EO No. 14-A, which provides:

SECTION 5. The Presidential Commission on Good Government is authorized to

grant immunity from criminal prosecution to any person who provides information or
testifies in any investigation conducted by such Commission to establish the unlawful
manner in which any respondent, defendant or accused has acquired or accumulated
the property or properties in question in any case where such information or testimony
is necessary to ascertain or prove the latters guilt or his civil liability. The immunity
thereby granted shall be continued to protect the witness who repeats such testimony
before the Sandiganbayan when required to do so by the latter or by the Commission.

The above provision specifies that the PCGG may exercise such authority under these
conditions: (1) the person to whom criminal immunity is granted provides information or
testifies in an investigation conducted by the Commission; (2) the information or testimony
pertains to the unlawful manner in which the respondent, defendant or accused acquired or
accumulated ill-gotten property; and (3) such information or testimony is necessary to ascertain or
prove guilt or civil liability of such individual. From the wording of the law, it can be easily
deduced that the person referred to is a witness in the proceeding, not the principal respondent,
defendant or accused.
Thus, in the case of Jose Y. Campos, the grant of both civil and criminal immunity to him and
his family was [i]n consideration of the full cooperation of Mr. Jose Y. Campos [with] this
Commission, his voluntary surrender of the properties and assets [--] disclosed and declared by
him to belong to deposed President Ferdinand E. Marcos [--] to the Government of the Republic
of the Philippines[;] his full, complete and truthful disclosures[;] and his commitment to pay a sum
of money as determined by the Philippine Government.[56] Moreover, the grant of criminal
immunity to the Camposes and the Benedictos was limited to acts and omissions prior to February
25, 1996. At the time such immunity was granted, no criminal cases have yet been filed against
them before the competent courts.

Validity of the PCGG-Marcos Compromise Agreements

Going now to the subject General and Supplemental Agreements between the PCGG and the
Marcos heirs, a cursory perusal thereof reveals serious legal flaws. First, the Agreements do not
conform to the above requirements of EO Nos. 14 and 14-A. We believe that criminal immunity
under Section 5 cannot be granted to the Marcoses, who are the principal defendants in the
spate of ill-gotten wealth cases now pending before the Sandiganbayan. As stated earlier, the
provision is applicable mainly to witnesses who provide information or testify against a
respondent, defendant or accused in an ill-gotten wealth case.
While the General Agreement states that the Marcoses shall provide the [government]
assistance by way of testimony or deposition on any information [they] may have that could shed
light on the cases being pursued by the [government] against other parties,[57] the clause does not
fully comply with the law. Its inclusion in the Agreement may have been only an afterthought,
conceived in pro forma compliance with Section 5 of EO No. 14, as amended. There is no
indication whatsoever that any of the Marcos heirs has indeed provided vital information against
any respondent or defendant as to the manner in which the latter may have unlawfully acquired
public property.
Second, under Item No. 2 of the General Agreement, the PCGG commits to exempt from all
forms of taxes the properties to be retained by the Marcos heirs. This is a clear violation of the
Constitution. The power to tax and to grant tax exemptions is vested in the Congress and, to a
certain extent, in the local legislative bodies.[58] Section 28 (4), Article VI of the Constitution,
specifically provides: No law granting any tax exemption shall be passed without the concurrence
of a majority of all the Members of the Congress. The PCGG has absolutely no power to grant
tax exemptions, even under the cover of its authority to compromise ill-gotten wealth cases.
Even granting that Congress enacts a law exempting the Marcoses from paying taxes on their
properties, such law will definitely not pass the test of the equal protection clause under the Bill
of Rights. Any special grant of tax exemption in favor only of the Marcos heirs will constitute
class legislation. It will also violate the constitutional rule that taxation shall be uniform and
equitable.[59]
Neither can the stipulation be construed to fall within the power of the commissioner of
internal revenue to compromise taxes. Such authority may be exercised only when (1) there
is reasonable doubt as to the validity of the claim against the taxpayer, and (2) the taxpayers
financial position demonstrates a clear inability to pay.[60] Definitely, neither requisite is present in
the case of the Marcoses, because under the Agreement they are effectively conceding the validity
of the claims against their properties, part of which they will be allowed to retain. Nor can the
PCGG grant of tax exemption fall within the power of the commissioner to abate or cancel a tax
liability. This power can be exercised only when (1) the tax appears to be unjustly or excessively
assessed, or (2) the administration and collection costs involved do not justify the collection of the
tax due.[61] In this instance, the cancellation of tax liability is done even before the determination
of the amount due. In any event, criminal violations of the Tax Code, for which legal actions have
been filed in court or in which fraud is involved, cannot be compromised.[62]
Third, the government binds itself to cause the dismissal of all cases against the Marcos heirs,
pending before the Sandiganbayan and other courts.[63] This is a direct encroachment on judicial
powers, particularly in regard to criminal jurisdiction. Well-settled is the doctrine that once a case
has been filed before a court of competent jurisdiction, the matter of its dismissal or pursuance lies
within the full discretion and control of the judge. In a criminal case, the manner in which the
prosecution is handled, including the matter of whom to present as witnesses, may lie within the
sound discretion of the government prosecutor;[64] but the court decides, based on the evidence
proffered, in what manner it will dispose of the case. Jurisdiction, once acquired by the trial court,
is not lost despite a resolution, even by the justice secretary, to withdraw the information or to
dismiss the complaint.[65] The prosecutions motion to withdraw or to dismiss is not the least
binding upon the court. On the contrary, decisional rules require the trial court to make its own
evaluation of the merits of the case, because granting such motion is equivalent to effecting a
disposition of the case itself.[66]
Thus, the PCGG, as the government prosecutor of ill-gotten wealth cases, cannot
guarantee the dismissal of all such criminal cases against the Marcoses pending in the courts,
for said dismissal is not within its sole power and discretion.
Fourth, the government also waives all claims and counterclaims, whether past, present, or
future, matured or inchoate, against the Marcoses.[67] Again, this all-encompassing stipulation is
contrary to law. Under the Civil Code, an action for future fraud may not be waived.[68] The
stipulation in the Agreement does not specify the exact scope of future claims against the Marcoses
that the government thereby relinquishes. Such vague and broad statement may well be
interpreted to include all future illegal acts of any of the Marcos heirs, practically giving them a
license to perpetrate fraud against the government without any liability at all. This is a palpable
violation of the due process and equal protection guarantees of the Constitution. It effectively
ensconces the Marcoses beyond the reach of the law. It also sets a dangerous precedent for public
accountability. It is a virtual warrant for public officials to amass public funds illegally, since
there is an open option to compromise their liability in exchange for only a portion of their
ill-gotten wealth.
 Fifth, the Agreements do not provide for a definite or determinable period within which the
parties shall fulfill their respective prestations. It may take a lifetime before the Marcoses submit
an inventory of their total assets.
Sixth, the Agreements do not state with specificity the standards for determining which assets
shall be forfeited by the government and which shall be retained by the Marcoses. While the
Supplemental Agreement provides that the Marcoses shall be entitled to 25 per cent of the $356
million Swiss deposits (less government recovery expenses), such sharing arrangement pertains
only to the said deposits. No similar splitting scheme is defined with respect to the other
properties. Neither is there, anywhere in the Agreements, a statement of the basis for the 25-75
percent sharing ratio. Public officers entering into an arrangement appearing to be manifestly and
grossly disadvantageous to the government, in violation of the Anti-Graft and Corrupt Practices
Act,[69] invite their indictment for corruption under the said law.
Finally, the absence of then President Ramos approval of the principal Agreement, an express
condition therein, renders the compromise incomplete and unenforceable. Nevertheless, as
detailed above, even if such approval were obtained, the Agreements would still not be valid.
From the foregoing disquisition, it is crystal clear to the Court that the General and
Supplemental Agreements, both dated December 28, 1993, which the PCGG entered into
with the Marcos heirs, are violative of the Constitution and the laws aforementioned.
WHEREFORE, the petition is GRANTED. The General and Supplemental Agreements
dated December 28, 1993, which PCGG and the Marcos heirs entered into are hereby
declared NULL AND VOID for being contrary to law and the Constitution. Respondent PCGG,
its officers and all government functionaries and officials who are or may be
directly or indirectly involved in the recovery of the alleged ill-gotten wealth of the Marcoses
and their associates are DIRECTED to disclose to the public the terms of any proposed compromise
settlement, as well as the final agreement, relating to such alleged ill-gotten wealth, in accordance
with the discussions embodied in this Decision. No pronouncement as to costs.
SO ORDERED.
Davide Jr. C.J. (Chairman), Melo, and Quisumbing JJ., concur.
Vitug, J., please see separate opinion.

EN BANC

[G.R. No. 138570. October 10, 2000]

BAYAN (Bagong Alyansang Makabayan), a JUNK VFA MOVEMENT,

BISHOP TOMAS MILLAMENA (Iglesia Filipina Independiente),
BISHOP ELMER BOLOCAN (United Church of Christ of the Phil.),
DR. REYNALDO LEGASCA, MD, KILUSANG MAMBUBUKID NG
 PILIPINAS, KILUSANG MAYO UNO, GABRIELA, PROLABOR, and
the PUBLIC INTEREST LAW CENTER, petitioners, vs. EXECUTIVE
SECRETARY RONALDO ZAMORA, FOREIGN AFFAIRS
SECRETARY DOMINGO SIAZON, DEFENSE SECRETARY
ORLANDO MERCADO, BRIG. GEN. ALEXANDER AGUIRRE,
SENATE PRESIDENT MARCELO FERNAN, SENATOR FRANKLIN
DRILON, SENATOR BLAS OPLE, SENATOR RODOLFO BIAZON,
and SENATOR FRANCISCO TATAD, respondents.

[G.R. No. 138572. October 10, 2000]

PHILIPPINE CONSTITUTION ASSOCIATION, INC.(PHILCONSA),

EXEQUIEL B. GARCIA, AMADOGAT INCIONG, CAMILO L. SABIO,
AND RAMON A. GONZALES, petitioners, vs. HON. RONALDO B.
ZAMORA, as Executive Secretary, HON. ORLANDO MERCADO, as
Secretary of National Defense, and HON. DOMINGO L. SIAZON,
JR., as Secretary of Foreign Affairs, respondents.

[G.R. No. 138587. October 10, 2000]

TEOFISTO T. GUINGONA, JR., RAUL S. ROCO, and SERGIO R. OSMEA

III, petitioners, vs. JOSEPH E. ESTRADA, RONALDO B. ZAMORA,
DOMINGO L. SIAZON, JR., ORLANDO B. MERCADO, MARCELO
B. FERNAN, FRANKLIN M. DRILON, BLAS F. OPLE and RODOLFO
G. BIAZON, respondents.

[G.R. No. 138680. October 10, 2000]

INTEGRATED BAR OF THE PHILIPPINES, Represented by its National

President, Jose Aguila Grapilon, petitioners, vs. JOSEPH
EJERCITO ESTRADA, in his capacity as President, Republic of
the Philippines, and HON. DOMINGO SIAZON, in his capacity as
Secretary of Foreign Affairs, respondents.
 [G.R. No. 138698. October 10, 2000]

JOVITO R. SALONGA, WIGBERTO TAADA, ZENAIDA QUEZON-

AVENCEA, ROLANDO SIMBULAN, PABLITO V. SANIDAD, MA.
SOCORRO I. DIOKNO, AGAPITO A. AQUINO, JOKER P. ARROYO,
FRANCISCO C. RIVERA JR., RENE A.V. SAGUISAG,
KILOSBAYAN, MOVEMENT OF ATTORNEYS FOR
BROTHERHOOD, INTEGRITY AND NATIONALISM, INC.
(MABINI), petitioners, vs. THE EXECUTIVE SECRETARY, THE
SECRETARY OF FOREIGN AFFAIRS, THE SECRETARY OF
NATIONAL DEFENSE, SENATE PRESIDENT MARCELO B.
FERNAN, SENATOR BLAS F. OPLE, SENATOR RODOLFO G.
BIAZON, AND ALL OTHER PERSONS ACTING THEIR CONTROL,
SUPERVISION, DIRECTION, AND INSTRUCTION IN RELATION TO
THE VISITING FORCES AGREEMENT (VFA), respondents.

DECISION
BUENA, J.:

Confronting the Court for resolution in the instant consolidated petitions for certiorari
and prohibition are issues relating to, and borne by, an agreement forged in the turn of
the last century between the Republic of the Philippines and the United States of America
-the Visiting Forces Agreement.
The antecedents unfold.
On March 14, 1947, the Philippines and the United States of America forged a Military
Bases Agreement which formalized, among others, the use of installations in the
Philippine territory by United States military personnel. To further strengthen their defense
and security relationship, the Philippines and the United States entered into a Mutual
Defense Treaty on August 30, 1951. Under the treaty, the parties agreed to respond to
any external armed attack on their territory, armed forces, public vessels, and aircraft. [1]
In view of the impending expiration of the RP-US Military Bases Agreement in 1991,
the Philippines and the United States negotiated for a possible extension of the military
bases agreement. On September 16, 1991, the Philippine Senate rejected the proposed
RP-US Treaty of Friendship, Cooperation and Security which, in effect, would have
extended the presence of US military bases in the Philippines.[2] With the expiration of the
RP-US Military Bases Agreement, the periodic military exercises conducted between the
two countries were held in abeyance. Notwithstanding, the defense and security
relationship between the Philippines and the United States of America continued pursuant
to the Mutual Defense Treaty.
 On July 18, 1997, the United States panel, headed by US Defense Deputy Assistant
Secretary for Asia Pacific Kurt Campbell, met with the Philippine panel, headed by
Foreign Affairs Undersecretary Rodolfo Severino Jr., to exchange notes on the
complementing strategic interests of the United States and the Philippines in the Asia-
Pacific region. Both sides discussed, among other things, the possible elements of the
Visiting Forces Agreement (VFA for brevity). Negotiations by both panels on the VFA led
to a consolidated draft text, which in turn resulted to a final series of conferences and
negotiations[3] that culminated in Manila on January 12 and 13, 1998. Thereafter, then
President Fidel V. Ramos approved the VFA, which was respectively signed by public
respondent Secretary Siazon and Unites States Ambassador Thomas Hubbard on
February 10, 1998.
On October 5, 1998, President Joseph E. Estrada, through respondent Secretary of
Foreign Affairs, ratified the VFA.[4]
On October 6, 1998, the President, acting through respondent Executive Secretary
Ronaldo Zamora, officially transmitted to the Senate of the Philippines, [5] the Instrument
of Ratification, the letter of the President[6] and the VFA, for concurrence pursuant to
Section 21, Article VII of the 1987 Constitution. The Senate, in turn, referred the VFA to
its Committee on Foreign Relations, chaired by Senator Blas F. Ople, and its Committee
on National Defense and Security, chaired by Senator Rodolfo G. Biazon, for their joint
consideration and recommendation. Thereafter, joint public hearings were held by the two
Committees.[7]
On May 3, 1999, the Committees submitted Proposed Senate Resolution No.
443 recommending the concurrence of the Senate to the VFA and the creation of a
[8]

Legislative Oversight Committee to oversee its implementation. Debates then ensued.

On May 27, 1999, Proposed Senate Resolution No. 443 was approved by the Senate,
by a two-thirds (2/3) vote[9] of its members. Senate Resolution No. 443 was then re-
numbered as Senate Resolution No. 18.[10]
On June 1, 1999, the VFA officially entered into force after an Exchange of Notes
between respondent Secretary Siazon and United States Ambassador Hubbard.
The VFA, which consists of a Preamble and nine (9) Articles, provides for the
mechanism for regulating the circumstances and conditions under which US Armed
Forces and defense personnel may be present in the Philippines, and is quoted in its full
text, hereunder:

Article I
Definitions

As used in this Agreement, United States personnel means United States military
and civilian personnel temporarily in the Philippines in connection with activities
approved by the Philippine Government.

Within this definition:

1. The term military personnel refers to military members of the United States Army,
Navy, Marine Corps, Air Force, and Coast Guard.
2. The term civilian personnel refers to individuals who are neither nationals of, nor
ordinary residents in the Philippines and who are employed by the United States
armed forces or who are accompanying the United States armed forces, such as
employees of the American Red Cross and the United Services Organization.

Article II
Respect for Law

It is the duty of the United States personnel to respect the laws of the Republic of
the Philippines and to abstain from any activity inconsistent with the spirit of this
agreement, and, in particular, from any political activity in the Philippines. The
Government of the United States shall take all measures within its authority to
ensure that this is done.

Article III
Entry and Departure

1. The Government of the Philippines shall facilitate the admission of United

States personnel and their departure from the Philippines in connection with
activities covered by this agreement.

2. United States military personnel shall be exempt from passport and visa
regulations upon entering and departing the Philippines.

3. The following documents only, which shall be presented on demand, shall be

required in respect of United States military personnel who enter the
Philippines:

(a) personal identity card issued by the appropriate United States authority
showing full name, date of birth, rank or grade and service number (if
any), branch of service and photograph;

(b) individual or collective document issued by the appropriate United States

authority, authorizing the travel or visit and identifying the individual or
group as United States military personnel; and

(c) the commanding officer of a military aircraft or vessel shall present a

declaration of health, and when required by the cognizant representative of
the Government of the Philippines, shall conduct a quarantine inspection
and will certify that the aircraft or vessel is free from quarantinable
diseases. Any quarantine inspection of United States aircraft or United
 States vessels or cargoes thereon shall be conducted by the United States
commanding officer in accordance with the international health
regulations as promulgated by the World Health Organization, and
mutually agreed procedures.

4. United States civilian personnel shall be exempt from visa requirements but
shall present, upon demand, valid passports upon entry and departure of the
Philippines.

5. If the Government of the Philippines has requested the removal of any United
States personnel from its territory, the United States authorities shall be
responsible for receiving the person concerned within its own territory or
otherwise disposing of said person outside of the Philippines.

Article IV
Driving and Vehicle Registration

1. Philippine authorities shall accept as valid, without test or fee, a driving permit
or license issued by the appropriate United States authority to United States
personnel for the operation of military or official vehicles.

2. Vehicles owned by the Government of the United States need not be registered,
but shall have appropriate markings.

Article V
Criminal Jurisdiction

1. Subject to the provisions of this article:

(a) Philippine authorities shall have jurisdiction over United States personnel with
respect to offenses committed within the Philippines and punishable under the law
of the Philippines.
(b) United States military authorities shall have the right to exercise within the
Philippines all criminal and disciplinary jurisdiction conferred on them by the
military law of the United States over United States personnel in the Philippines.
2. (a) Philippine authorities exercise exclusive jurisdiction over United States
personnel with respect to offenses, including offenses relating to the security
of the Philippines, punishable under the laws of the Philippines, but not under
the laws of the United States.
(b) United States authorities exercise exclusive jurisdiction over United States
personnel with respect to offenses, including offenses relating to the security
of the United States, punishable under the laws of the United States, but not
under the laws of the Philippines.
 (c) For the purposes of this paragraph and paragraph 3 of this article, an offense
relating to security means:

(1) treason;

(2) sabotage, espionage or violation of any law relating to national

defense.

3. In cases where the right to exercise jurisdiction is concurrent, the following rules shall
apply:
(a) Philippine authorities shall have the primary right to exercise jurisdiction over all
offenses committed by United States personnel, except in cases provided for in
paragraphs 1(b), 2 (b), and 3 (b) of this Article.
(b) United States military authorities shall have the primary right to exercise
jurisdiction over United States personnel subject to the military law of the United
States in relation to.
(1) offenses solely against the property or security of the United States or offenses
solely against the property or person of United States personnel; and
(2) offenses arising out of any act or omission done in performance of official duty.
(c) The authorities of either government may request the authorities of the other
government to waive their primary right to exercise jurisdiction in a particular case.
(d) Recognizing the responsibility of the United States military authorities to maintain
good order and discipline among their forces, Philippine authorities will, upon
request by the United States, waive their primary right to exercise jurisdiction
except in cases of particular importance to the Philippines. If the Government of
the Philippines determines that the case is of particular importance, it shall
communicate such determination to the United States authorities within twenty (20)
days after the Philippine authorities receive the United States request.
(e) When the United States military commander determines that an offense charged
by authorities of the Philippines against United states personnel arises out of an
act or omission done in the performance of official duty, the commander will issue
a certificate setting forth such determination. This certificate will be transmitted to
the appropriate authorities of the Philippines and will constitute sufficient proof of
performance of official duty for the purposes of paragraph 3(b)(2) of this Article. In
those cases where the Government of the Philippines believes the circumstances
of the case require a review of the duty certificate, United States military authorities
and Philippine authorities shall consult immediately. Philippine authorities at the
highest levels may also present any information bearing on its validity. United
States military authorities shall take full account of the Philippine position. Where
appropriate, United States military authorities will take disciplinary or other action
against offenders in official duty cases, and notify the Government of the
Philippines of the actions taken.
(f) If the government having the primary right does not exercise jurisdiction, it shall
notify the authorities of the other government as soon as possible.
 (g) The authorities of the Philippines and the United States shall notify each other of
the disposition of all cases in which both the authorities of the Philippines and the
United States have the right to exercise jurisdiction.
4. Within the scope of their legal competence, the authorities of the Philippines and
United States shall assist each other in the arrest of United States personnel in the
Philippines and in handling them over to authorities who are to exercise jurisdiction in
accordance with the provisions of this article.
5. United States military authorities shall promptly notify Philippine authorities of the
arrest or detention of United States personnel who are subject of Philippine primary
or exclusive jurisdiction. Philippine authorities shall promptly notify United States
military authorities of the arrest or detention of any United States personnel.
6. The custody of any United States personnel over whom the Philippines is to exercise
jurisdiction shall immediately reside with United States military authorities, if they so
request, from the commission of the offense until completion of all judicial
proceedings. United States military authorities shall, upon formal notification by the
Philippine authorities and without delay, make such personnel available to those
authorities in time for any investigative or judicial proceedings relating to the offense
with which the person has been charged in extraordinary cases, the Philippine
Government shall present its position to the United States Government regarding
custody, which the United States Government shall take into full account. In the event
Philippine judicial proceedings are not completed within one year, the United States
shall be relieved of any obligations under this paragraph. The one-year period will not
include the time necessary to appeal. Also, the one-year period will not include any
time during which scheduled trial procedures are delayed because United States
authorities, after timely notification by Philippine authorities to arrange for the
presence of the accused, fail to do so.
7. Within the scope of their legal authority, United States and Philippine authorities shall
assist each other in the carrying out of all necessary investigation into offenses and
shall cooperate in providing for the attendance of witnesses and in the collection and
production of evidence, including seizure and, in proper cases, the delivery of objects
connected with an offense.
8. When United States personnel have been tried in accordance with the provisions of
this Article and have been acquitted or have been convicted and are serving, or have
served their sentence, or have had their sentence remitted or suspended, or have
been pardoned, they may not be tried again for the same offense in the Philippines.
Nothing in this paragraph, however, shall prevent United States military authorities
from trying United States personnel for any violation of rules of discipline arising from
the act or omission which constituted an offense for which they were tried by
Philippine authorities.
9. When United States personnel are detained, taken into custody, or prosecuted by
Philippine authorities, they shall be accorded all procedural safeguards established
by the law of the Philippines. At the minimum, United States personnel shall be
entitled:
(a) To a prompt and speedy trial;
(b) To be informed in advance of trial of the specific charge or charges made against
them and to have reasonable time to prepare a defense;
 (c) To be confronted with witnesses against them and to cross examine such
witnesses;
(d) To present evidence in their defense and to have compulsory process for obtaining
witnesses;
(e) To have free and assisted legal representation of their own choice on the same
basis as nationals of the Philippines;
(f) To have the service of a competent interpreter; and
(g) To communicate promptly with and to be visited regularly by United States
authorities, and to have such authorities present at all judicial proceedings. These
proceedings shall be public unless the court, in accordance with Philippine laws,
excludes persons who have no role in the proceedings.
10. The confinement or detention by Philippine authorities of United States personnel
shall be carried out in facilities agreed on by appropriate Philippine and United States
authorities. United States Personnel serving sentences in the Philippines shall have
the right to visits and material assistance.
11. United States personnel shall be subject to trial only in Philippine courts of ordinary
jurisdiction, and shall not be subject to the jurisdiction of Philippine military or religious
courts.

Article VI
Claims

1. Except for contractual arrangements, including United States foreign military sales
letters of offer and acceptance and leases of military equipment, both governments
waive any and all claims against each other for damage, loss or destruction to
property of each others armed forces or for death or injury to their military and civilian
personnel arising from activities to which this agreement applies.
2. For claims against the United States, other than contractual claims and those to which
paragraph 1 applies, the United States Government, in accordance with United States
law regarding foreign claims, will pay just and reasonable compensation in settlement
of meritorious claims for damage, loss, personal injury or death, caused by acts or
omissions of United States personnel, or otherwise incident to the non-combat
activities of the United States forces.

Article VII
Importation and Exportation

1. United States Government equipment, materials, supplies, and other property

imported into or acquired in the Philippines by or on behalf of the United States armed
forces in connection with activities to which this agreement applies, shall be free of all
Philippine duties, taxes and other similar charges. Title to such property shall remain
with the United States, which may remove such property from the Philippines at any
time, free from export duties, taxes, and other similar charges. The exemptions
provided in this paragraph shall also extend to any duty, tax, or other similar charges
which would otherwise be assessed upon such property after importation into, or
 acquisition within, the Philippines. Such property may be removed from the
Philippines, or disposed of therein, provided that disposition of such property in the
Philippines to persons or entities not entitled to exemption from applicable taxes and
duties shall be subject to payment of such taxes, and duties and prior approval of the
Philippine Government.
2. Reasonable quantities of personal baggage, personal effects, and other property for
the personal use of United States personnel may be imported into and used in the
Philippines free of all duties, taxes and other similar charges during the period of their
temporary stay in the Philippines. Transfers to persons or entities in the Philippines
not entitled to import privileges may only be made upon prior approval of the
appropriate Philippine authorities including payment by the recipient of applicable
duties and taxes imposed in accordance with the laws of the Philippines. The
exportation of such property and of property acquired in the Philippines by United
States personnel shall be free of all Philippine duties, taxes, and other similar charges.

Article VIII
Movement of Vessels and Aircraft

1. Aircraft operated by or for the United States armed forces may enter the Philippines
upon approval of the Government of the Philippines in accordance with procedures
stipulated in implementing arrangements.
2. Vessels operated by or for the United States armed forces may enter the Philippines
upon approval of the Government of the Philippines. The movement of vessels shall
be in accordance with international custom and practice governing such vessels, and
such agreed implementing arrangements as necessary.
3. Vehicles, vessels, and aircraft operated by or for the United States armed forces shall
not be subject to the payment of landing or port fees, navigation or over flight charges,
or tolls or other use charges, including light and harbor dues, while in the Philippines.
Aircraft operated by or for the United States armed forces shall observe local air traffic
control regulations while in the Philippines. Vessels owned or operated by the United
States solely on United States Government non-commercial service shall not be
subject to compulsory pilotage at Philippine ports.

Article IX
Duration and Termination

This agreement shall enter into force on the date on which the parties have
notified each other in writing through the diplomatic channel that they have
completed their constitutional requirements for entry into force. This agreement
shall remain in force until the expiration of 180 days from the date on which
either party gives the other party notice in writing that it desires to terminate the
agreement.

Via these consolidated[11] petitions for certiorari and prohibition, petitioners - as

legislators, non-governmental organizations, citizens and taxpayers - assail the
constitutionality of the VFA and impute to herein respondents grave abuse of discretion
in ratifying the agreement.
We have simplified the issues raised by the petitioners into the following:
I

Do petitioners have legal standing as concerned citizens, taxpayers, or legislators

to question the constitutionality of the VFA?
II

Is the VFA governed by the provisions of Section 21, Article VII or of Section 25,
Article XVIII of the Constitution?
III

Does the VFA constitute an abdication of Philippine sovereignty?

a. Are Philippine courts deprived of their jurisdiction to hear and try offenses committed
by US military personnel?
b. Is the Supreme Court deprived of its jurisdiction over offenses punishable by reclusion
perpetua or higher?
IV

Does the VFA violate:

a. the equal protection clause under Section 1, Article III of the Constitution?
b. the Prohibition against nuclear weapons under Article II, Section 8?
c. Section 28 (4), Article VI of the Constitution granting the exemption from taxes and
duties for the equipment, materials supplies and other properties imported into or
acquired in the Philippines by, or on behalf, of the US Armed Forces?

LOCUS STANDI

At the outset, respondents challenge petitioners standing to sue, on the ground that
the latter have not shown any interest in the case, and that petitioners failed to
substantiate that they have sustained, or will sustain direct injury as a result of the
operation of the VFA.[12] Petitioners, on the other hand, counter that the validity or invalidity
of the VFA is a matter of transcendental importance which justifies their standing. [13]
A party bringing a suit challenging the constitutionality of a law, act, or statute must
show not only that the law is invalid, but also that he has sustained or in is in immediate,
or imminent danger of sustaining some direct injury as a result of its enforcement, and
not merely that he suffers thereby in some indefinite way. He must show that he has been,
or is about to be, denied some right or privilege to which he is lawfully entitled, or that he
is about to be subjected to some burdens or penalties by reason of the statute complained
of.[14]
In the case before us, petitioners failed to show, to the satisfaction of this Court, that
they have sustained, or are in danger of sustaining any direct injury as a result of the
enforcement of the VFA. As taxpayers, petitioners have not established that the VFA
involves the exercise by Congress of its taxing or spending powers.[15] On this point, it
bears stressing that a taxpayers suit refers to a case where the act complained of directly
involves the illegal disbursement of public funds derived from taxation.[16] Thus, in Bugnay
Const. & Development Corp. vs. Laron[17], we held:

x x x it is exigent that the taxpayer-plaintiff sufficiently show that he would be

benefited or injured by the judgment or entitled to the avails of the suit as a real party
in interest. Before he can invoke the power of judicial review, he must specifically
prove that he has sufficient interest in preventing the illegal expenditure of money
raised by taxation and that he will sustain a direct injury as a result of the enforcement
of the questioned statute or contract. It is not sufficient that he has merely a general
interest common to all members of the public.

Clearly, inasmuch as no public funds raised by taxation are involved in this case, and
in the absence of any allegation by petitioners that public funds are being misspent or
illegally expended, petitioners, as taxpayers, have no legal standing to assail the legality
of the VFA.
Similarly, Representatives Wigberto Taada, Agapito Aquino and Joker Arroyo, as
petitioners-legislators, do not possess the requisite locus standi to maintain the present
suit. While this Court, in Phil. Constitution Association vs. Hon. Salvador
Enriquez,[18] sustained the legal standing of a member of the Senate and the House of
Representatives to question the validity of a presidential veto or a condition imposed on
an item in an appropriation bull, we cannot, at this instance, similarly uphold petitioners
standing as members of Congress, in the absence of a clear showing of any direct injury
to their person or to the institution to which they belong.
Beyond this, the allegations of impairment of legislative power, such as the delegation
of the power of Congress to grant tax exemptions, are more apparent than real. While it
may be true that petitioners pointed to provisions of the VFA which allegedly impair their
legislative powers, petitioners failed however to sufficiently show that they have in fact
suffered direct injury.
In the same vein, petitioner Integrated Bar of the Philippines (IBP) is stripped of
standing in these cases. As aptly observed by the Solicitor General, the IBP lacks the
legal capacity to bring this suit in the absence of a board resolution from its Board of
Governors authorizing its National President to commence the present action. [19]
Notwithstanding, in view of the paramount importance and the constitutional
significance of the issues raised in the petitions, this Court, in the exercise of its sound
discretion, brushes aside the procedural barrier and takes cognizance of the petitions, as
we have done in the early Emergency Powers Cases,[20] where we had occasion to rule:

x x x ordinary citizens and taxpayers were allowed to question the constitutionality of

several executive orders issued by President Quirino although they were involving
only an indirect and general interest shared in common with the public. The Court
dismissed the objection that they were not proper parties and ruled
that transcendental importance to the public of these cases demands that they be
settled promptly and definitely, brushing aside, if we must, technicalities of
procedure. We have since then applied the exception in many other
cases.(Association of Small Landowners in the Philippines, Inc. v. Sec. of Agrarian
Reform, 175 SCRA 343). (Underscoring Supplied)

This principle was reiterated in the subsequent cases of Gonzales vs.

COMELEC,[21] Daza vs. Singson,[22] and Basco vs. Phil. Amusement and Gaming
Corporation,[23] where we emphatically held:

Considering however the importance to the public of the case at bar, and in keeping
with the Courts duty, under the 1987 Constitution, to determine whether or not the
other branches of the government have kept themselves within the limits of the
Constitution and the laws and that they have not abused the discretion given to them,
the Court has brushed aside technicalities of procedure and has taken cognizance of
this petition. x x x

Again, in the more recent case of Kilosbayan vs. Guingona, Jr.,[24] thisCourt ruled
that in cases of transcendental importance, the Court may relax the standing
requirements and allow a suit to prosper even where there is no direct injury to the
party claiming the right of judicial review.
Although courts generally avoid having to decide a constitutional question based on
the doctrine of separation of powers, which enjoins upon the departments of the
government a becoming respect for each others acts,[25] this Court nevertheless resolves
to take cognizance of the instant petitions.

APPLICABLE CONSTITUTIONAL PROVISION

One focal point of inquiry in this controversy is the determination of which provision
of the Constitution applies, with regard to the exercise by the senate of its constitutional
power to concur with the VFA. Petitioners argue that Section 25, Article XVIII is applicable
considering that the VFA has for its subject the presence of foreign military troops in the
Philippines. Respondents, on the contrary, maintain that Section 21, Article VII should
apply inasmuch as the VFA is not a basing arrangement but an agreement which involves
merely the temporary visits of United States personnel engaged in joint military exercises.
 The 1987 Philippine Constitution contains two provisions requiring the concurrence
of the Senate on treaties or international agreements. Section 21, Article VII, which herein
respondents invoke, reads:

No treaty or international agreement shall be valid and effective unless concurred in

by at least two-thirds of all the Members of the Senate.

Section 25, Article XVIII, provides:

After the expiration in 1991 of the Agreement between the Republic of the Philippines
and the United States of America concerning Military Bases, foreign military bases,
troops, or facilities shall not be allowed in the Philippines except under a treaty duly
concurred in by the senate and, when the Congress so requires, ratified by a majority
of the votes cast by the people in a national referendum held for that purpose, and
recognized as a treaty by the other contracting State.

Section 21, Article VII deals with treatise or international agreements in general, in
which case, the concurrence of at least two-thirds (2/3) of all the Members of the Senate
is required to make the subject treaty, or international agreement, valid and binding on
the part of the Philippines. This provision lays down the general rule on treatise or
international agreements and applies to any form of treaty with a wide variety of subject
matter, such as, but not limited to, extradition or tax treatise or those economic in
nature.All treaties or international agreements entered into by the Philippines, regardless
of subject matter, coverage, or particular designation or appellation, requires the
concurrence of the Senate to be valid and effective.
In contrast, Section 25, Article XVIII is a special provision that applies to treaties which
involve the presence of foreign military bases, troops or facilities in the Philippines.Under
this provision, the concurrence of the Senate is only one of the requisites to render
compliance with the constitutional requirements and to consider the agreement binding
on the Philippines. Section 25, Article XVIII further requires that foreign military bases,
troops, or facilities may be allowed in the Philippines only by virtue of a treaty duly
concurred in by the Senate, ratified by a majority of the votes cast in a national referendum
held for that purpose if so required by Congress, and recognized as such by the other
contracting state.
It is our considered view that both constitutional provisions, far from contradicting
each other, actually share some common ground. These constitutional provisions both
embody phrases in the negative and thus, are deemed prohibitory in mandate and
character. In particular, Section 21 opens with the clause No treaty x x x, and Section 25
contains the phrase shall not be allowed. Additionally, in both instances, the concurrence
of the Senate is indispensable to render the treaty or international agreement valid and
effective.
To our mind, the fact that the President referred the VFA to the Senate under Section
21, Article VII, and that the Senate extended its concurrence under the same provision,
is immaterial. For in either case, whether under Section 21, Article VII or Section 25,
Article XVIII, the fundamental law is crystalline that the concurrence of the Senate is
mandatory to comply with the strict constitutional requirements.
On the whole, the VFA is an agreement which defines the treatment of United States
troops and personnel visiting the Philippines. It provides for the guidelines to govern such
visits of military personnel, and further defines the rights of the United States and the
Philippine government in the matter of criminal jurisdiction, movement of vessel and
aircraft, importation and exportation of equipment, materials and supplies.
Undoubtedly, Section 25, Article XVIII, which specifically deals with treaties involving
foreign military bases, troops, or facilities, should apply in the instant case. To a certain
extent and in a limited sense, however, the provisions of section 21, Article VII will find
applicability with regard to the issue and for the sole purpose of determining the number
of votes required to obtain the valid concurrence of the Senate, as will be further
discussed hereunder.
It is a finely-imbedded principle in statutory construction that a special provision or
law prevails over a general one. Lex specialis derogat generali. Thus, where there is in
the same statute a particular enactment and also a general one which, in its most
comprehensive sense, would include what is embraced in the former, the particular
enactment must be operative, and the general enactment must be taken to affect only
such cases within its general language which are not within the provision of the particular
enactment.[26]
In Leveriza vs. Intermediate Appellate Court,[27] we enunciated:

x x x that another basic principle of statutory construction mandates that general

legislation must give way to a special legislation on the same subject, and generally be
so interpreted as to embrace only cases in which the special provisions are not
applicable (Sto. Domingo vs. de los Angeles, 96 SCRA 139), that a specific statute
prevails over a general statute (De Jesus vs. People, 120 SCRA 760) and that where
two statutes are of equal theoretical application to a particular case, the one designed
therefor specially should prevail (Wil Wilhensen Inc. vs. Baluyot, 83 SCRA 38).

Moreover, it is specious to argue that Section 25, Article XVIII is inapplicable to mere
transient agreements for the reason that there is no permanent placing of structure for
the establishment of a military base. On this score, the Constitution makes no distinction
between transient and permanent. Certainly, we find nothing in Section 25, Article XVIII
that requires foreign troops or facilities to be stationed or placed permanently in the
Philippines.
It is a rudiment in legal hermenuetics that when no distinction is made by law, the
Court should not distinguish- Ubi lex non distinguit nec nos distinguire debemos.
In like manner, we do not subscribe to the argument that Section 25, Article XVIII is
not controlling since no foreign military bases, but merely foreign troops and facilities, are
involved in the VFA. Notably, a perusal of said constitutional provision reveals that the
proscription covers foreign military bases, troops, or facilities. Stated differently, this
prohibition is not limited to the entry of troops and facilities without any foreign bases
being established. The clause does not refer to foreign military bases,
troops, or facilitiescollectively but treats them as separate and independent subjects. The
use of comma and the disjunctive word or clearly signifies disassociation and
independence of one thing from the others included in the enumeration, [28] such that, the
provision contemplates three different situations - a military treaty the subject of which
could be either (a) foreign bases, (b) foreign troops, or (c) foreign facilities - any of the
three standing alone places it under the coverage of Section 25, Article XVIII.
To this end, the intention of the framers of the Charter, as manifested during the
deliberations of the 1986 Constitutional Commission, is consistent with this interpretation:
MR. MAAMBONG. I just want to address a question or two to Commissioner Bernas.
This formulation speaks of three things: foreign military bases, troops or facilities. My first
question is: If the country does enter into such kind of a treaty, must it cover the
three-bases, troops or facilities-or could the treaty entered into cover only one or
two?
FR. BERNAS. Definitely, it can cover only one. Whether it covers only one or it covers
three, the requirement will be the same.
MR. MAAMBONG. In other words, the Philippine government can enter into a treaty
covering not bases but merely troops?
FR. BERNAS. Yes.
MR. MAAMBONG. I cannot find any reason why the government can enter into a treaty
covering only troops.
FR. BERNAS. Why not? Probably if we stretch our imagination a little bit more, we will find
some. We just want to cover everything.[29] (Underscoring Supplied)
Moreover, military bases established within the territory of another state is no longer
viable because of the alternatives offered by new means and weapons of warfare such
as nuclear weapons, guided missiles as well as huge sea vessels that can stay afloat in
the sea even for months and years without returning to their home country. These military
warships are actually used as substitutes for a land-home base not only of military aircraft
but also of military personnel and facilities. Besides, vessels are mobile as compared to
a land-based military headquarters.
At this juncture, we shall then resolve the issue of whether or not the requirements of
Section 25 were complied with when the Senate gave its concurrence to the VFA.
Section 25, Article XVIII disallows foreign military bases, troops, or facilities in the
country, unless the following conditions are sufficiently met, viz: (a) it must be under
a treaty; (b) the treaty must be duly concurred in by the Senate and, when so required
by congress, ratified by a majority of the votes cast by the people in a national referendum;
and (c) recognized as a treaty by the other contracting state.
There is no dispute as to the presence of the first two requisites in the case of the
VFA. The concurrence handed by the Senate through Resolution No. 18 is in accordance
with the provisions of the Constitution, whether under the general requirement in Section
21, Article VII, or the specific mandate mentioned in Section 25, Article XVIII, the provision
in the latter article requiring ratification by a majority of the votes cast in a national
referendum being unnecessary since Congress has not required it.
As to the matter of voting, Section 21, Article VII particularly requires that a treaty or
international agreement, to be valid and effective, must be concurred in by at least two-
thirds of all the members of the Senate. On the other hand, Section 25, Article XVIII
simply provides that the treaty be duly concurred in by the Senate.
Applying the foregoing constitutional provisions, a two-thirds vote of all the members
of the Senate is clearly required so that the concurrence contemplated by law may be
validly obtained and deemed present. While it is true that Section 25, Article XVIII
requires, among other things, that the treaty-the VFA, in the instant case-be duly
concurred in by the Senate, it is very true however that said provision must be related
and viewed in light of the clear mandate embodied in Section 21, Article VII, which in
more specific terms, requires that the concurrence of a treaty, or international agreement,
be made by a two -thirds vote of all the members of the Senate. Indeed, Section 25,
Article XVIII must not be treated in isolation to section 21, Article, VII.
As noted, the concurrence requirement under Section 25, Article XVIII must be
construed in relation to the provisions of Section 21, Article VII. In a more particular
language, the concurrence of the Senate contemplated under Section 25, Article XVIII
means that at least two-thirds of all the members of the Senate favorably vote to concur
with the treaty-the VFA in the instant case.
Under these circumstances, the charter provides that the Senate shall be composed
of twenty-four (24) Senators.[30] Without a tinge of doubt, two-thirds (2/3) of this figure, or
not less than sixteen (16) members, favorably acting on the proposal is an unquestionable
compliance with the requisite number of votes mentioned in Section 21 of Article VII. The
fact that there were actually twenty-three (23) incumbent Senators at the time the voting
was made,[31] will not alter in any significant way the circumstance that more than two-
thirds of the members of the Senate concurred with the proposed VFA, even if the two-
thirds vote requirement is based on this figure of actual members (23). In this regard, the
fundamental law is clear that two-thirds of the 24 Senators, or at least 16 favorable votes,
suffice so as to render compliance with the strict constitutional mandate of giving
concurrence to the subject treaty.
Having resolved that the first two requisites prescribed in Section 25, Article XVIII are
present, we shall now pass upon and delve on the requirement that the VFA should be
recognized as a treaty by the United States of America.
Petitioners content that the phrase recognized as a treaty, embodied in section 25,
Article XVIII, means that the VFA should have the advice and consent of the United States
Senate pursuant to its own constitutional process, and that it should not be considered
merely an executive agreement by the United States.
In opposition, respondents argue that the letter of United States Ambassador
Hubbard stating that the VFA is binding on the United States Government is conclusive,
on the point that the VFA is recognized as a treaty by the United States of
America.According to respondents, the VFA, to be binding, must only be accepted as a
treaty by the United States.
This Court is of the firm view that the phrase recognized as a treaty means that the
other contracting party accepts or acknowledges the agreement as a treaty.[32] To
require the other contracting state, the United States of America in this case, to submitthe
VFA to the United States Senate for concurrence pursuant to its Constitution, [33] is to
accord strict meaning to the phrase.
Well-entrenched is the principle that the words used in the Constitution are to be given
their ordinary meaning except where technical terms are employed, in which case the
significance thus attached to them prevails. Its language should be understood in the
sense they have in common use.[34]
Moreover, it is inconsequential whether the United States treats the VFA only as an
executive agreement because, under international law, an executive agreement is as
binding as a treaty.[35] To be sure, as long as the VFA possesses the elements of an
agreement under international law, the said agreement is to be taken equally as a treaty.
A treaty, as defined by the Vienna Convention on the Law of Treaties, is an
international instrument concluded between States in written form and governed by
international law, whether embodied in a single instrument or in two or more related
instruments, and whatever its particular designation.[36] There are many other terms used
for a treaty or international agreement, some of which are: act, protocol,
agreement, compromis d arbitrage, concordat, convention, declaration, exchange of notes,
pact, statute, charter and modus vivendi. All writers, from Hugo Grotius onward, have
pointed out that the names or titles of international agreements included under the general
term treaty have little or no legal significance. Certain terms are useful, but they furnish
little more than mere description.[37]
Article 2(2) of the Vienna Convention provides that the provisions of paragraph 1
regarding the use of terms in the present Convention are without prejudice to the use of
those terms, or to the meanings which may be given to them in the internal law of the
State.
Thus, in international law, there is no difference between treaties and executive
agreements in their binding effect upon states concerned, as long as the negotiating
functionaries have remained within their powers.[38] International law continues to make
no distinction between treaties and executive agreements: they are equally binding
obligations upon nations.[39]
In our jurisdiction, we have recognized the binding effect of executive agreements
even without the concurrence of the Senate or Congress. In Commissioner of Customs
vs. Eastern Sea Trading,[40] we had occasion to pronounce:

x x x the right of the Executive to enter into binding agreements without the necessity
of subsequent congressional approval has been confirmed by long usage. From the
earliest days of our history we have entered into executive agreements covering such
subjects as commercial and consular relations, most-favored-nation rights, patent
rights, trademark and copyright protection, postal and navigation arrangements and
the settlement of claims. The validity of these has never been seriously questioned by
our courts.

xxxxxxxxx

Furthermore, the United States Supreme Court has expressly recognized the validity
and constitutionality of executive agreements entered into without Senate
approval. (39 Columbia Law Review, pp. 753-754) (See, also, U.S. vs. Curtis
Wright Export Corporation, 299 U.S. 304, 81 L. ed. 255; U.S. vs. Belmont, 301
U.S. 324, 81 L. ed. 1134; U.S. vs. Pink, 315 U.S. 203, 86 L. ed. 796; Ozanic vs. U.S.
188 F. 2d. 288; Yale Law Journal, Vol. 15 pp. 1905-1906; California Law Review,
Vol. 25, pp. 670-675; Hyde on International Law [revised Edition], Vol. 2, pp.
1405, 1416-1418; willoughby on the U.S. Constitution Law, Vol. I [2d ed.], pp.
537-540; Moore, International Law Digest, Vol. V, pp. 210-218; Hackworth,
International Law Digest, Vol. V, pp. 390-407). (Italics Supplied) (Emphasis Ours)

The deliberations of the Constitutional Commission which drafted the 1987

Constitution is enlightening and highly-instructive:
MR. MAAMBONG. Of course it goes without saying that as far as ratification of the other state
is concerned, that is entirely their concern under their own laws.
FR. BERNAS. Yes, but we will accept whatever they say. If they say that we have done
everything to make it a treaty, then as far as we are concerned, we will accept it as a
treaty.[41]
The records reveal that the United States Government, through Ambassador Thomas
C. Hubbard, has stated that the United States government has fully committed to living
up to the terms of the VFA.[42] For as long as the united States of America accepts or
acknowledges the VFA as a treaty, and binds itself further to comply with its obligations
under the treaty, there is indeed marked compliance with the mandate of the Constitution.
Worth stressing too, is that the ratification, by the President, of the VFA and the
concurrence of the Senate should be taken as a clear an unequivocal expression of our
nations consent to be bound by said treaty, with the concomitant duty to uphold the
obligations and responsibilities embodied thereunder.
Ratification is generally held to be an executive act, undertaken by the head of the
state or of the government, as the case may be, through which the formal acceptance of
the treaty is proclaimed.[43] A State may provide in its domestic legislation the process of
ratification of a treaty. The consent of the State to be bound by a treaty is expressed by
ratification when: (a) the treaty provides for such ratification, (b) it is otherwise established
that the negotiating States agreed that ratification should be required, (c) the
representative of the State has signed the treaty subject to ratification, or (d) the intention
of the State to sign the treaty subject to ratification appears from the full powers of its
representative, or was expressed during the negotiation.[44]
 In our jurisdiction, the power to ratify is vested in the President and not, as commonly
believed, in the legislature. The role of the Senate is limited only to giving or withholding
its consent, or concurrence, to the ratification.[45]
With the ratification of the VFA, which is equivalent to final acceptance, and with the
exchange of notes between the Philippines and the United States of America, it now
becomes obligatory and incumbent on our part, under the principles of international law,
to be bound by the terms of the agreement. Thus, no less than Section 2, Article II of the
Constitution,[46] declares that the Philippines adopts the generally accepted principles of
international law as part of the law of the land and adheres to the policy of peace, equality,
justice, freedom, cooperation and amity with all nations.
As a member of the family of nations, the Philippines agrees to be bound by generally
accepted rules for the conduct of its international relations. While the international
obligation devolves upon the state and not upon any particular branch, institution, or
individual member of its government, the Philippines is nonetheless responsible for
violations committed by any branch or subdivision of its government or any official
thereof. As an integral part of the community of nations, we are responsible to assure that
our government, Constitution and laws will carry out our international obligation. [47] Hence,
we cannot readily plead the Constitution as a convenient excuse for non-compliance with
our obligations, duties and responsibilities under international law.
Beyond this, Article 13 of the Declaration of Rights and Duties of States adopted by
the International Law Commission in 1949 provides: Every State has the duty to carry out
in good faith its obligations arising from treaties and other sources of international law,
and it may not invoke provisions in its constitution or its laws as an excuse for failure to
perform this duty.[48]
Equally important is Article 26 of the convention which provides that Every treaty in
force is binding upon the parties to it and must be performed by them in good faith. This
is known as the principle of pacta sunt servanda which preserves the sanctity of treaties
and have been one of the most fundamental principles of positive international law,
supported by the jurisprudence of international tribunals.[49]

NO GRAVE ABUSE OF DISCRETION

In the instant controversy, the President, in effect, is heavily faulted for exercising a
power and performing a task conferred upon him by the Constitution-the power to enter
into and ratify treaties. Through the expediency of Rule 65 of the Rules of Court,
petitioners in these consolidated cases impute grave abuse of discretion on the part of
the chief Executive in ratifying the VFA, and referring the same to the Senate pursuant to
the provisions of Section 21, Article VII of the Constitution.
On this particular matter, grave abuse of discretion implies such capricious and
whimsical exercise of judgment as is equivalent to lack of jurisdiction, or, when the power
is exercised in an arbitrary or despotic manner by reason of passion or personal hostility,
and it must be so patent and gross as to amount to an evasion of positive duty enjoined
or to act at all in contemplation of law.[50]
By constitutional fiat and by the intrinsic nature of his office, the President, as head
of State, is the sole organ and authority in the external affairs of the country. In many
ways, the President is the chief architect of the nations foreign policy; his dominance in
the field of foreign relations is (then) conceded.[51] Wielding vast powers an influence, his
conduct in the external affairs of the nation, as Jefferson describes, is executive
altogether."[52]

As regards the power to enter into treaties or international agreements, the

Constitution vests the same in the President, subject only to the concurrence of at least
two-thirds vote of all the members of the Senate. In this light, the negotiation of the VFA
and the subsequent ratification of the agreement are exclusive acts which pertain solely
to the President, in the lawful exercise of his vast executive and diplomatic powers
granted him no less than by the fundamental law itself. Into the field of negotiation the
Senate cannot intrude, and Congress itself is powerless to invade it.[53] Consequently, the
acts or judgment calls of the President involving the VFA-specifically the acts of
ratification and entering into a treaty and those necessary or incidental to the exercise of
such principal acts - squarely fall within the sphere of his constitutional powers and thus,
may not be validly struck down, much less calibrated by this Court, in the absence of clear
showing of grave abuse of power or discretion.
It is the Courts considered view that the President, in ratifying the VFA and in
submitting the same to the Senate for concurrence, acted within the confines and limits
of the powers vested in him by the Constitution. It is of no moment that the President, in
the exercise of his wide latitude of discretion and in the honest belief that the VFA falls
within the ambit of Section 21, Article VII of the Constitution, referred the VFA to the
Senate for concurrence under the aforementioned provision. Certainly, no abuse of
discretion, much less a grave, patent and whimsical abuse of judgment, may be imputed
to the President in his act of ratifying the VFA and referring the same to the Senate for
the purpose of complying with the concurrence requirement embodied in the fundamental
law. In doing so, the President merely performed a constitutional task and exercised a
prerogative that chiefly pertains to the functions of his office. Even if he erred in submitting
the VFA to the Senate for concurrence under the provisions of Section 21 of Article VII,
instead of Section 25 of Article XVIII of the Constitution, still, the President may not be
faulted or scarred, much less be adjudged guilty of committing an abuse of discretion in
some patent, gross, and capricious manner.
For while it is conceded that Article VIII, Section 1, of the Constitution has broadened
the scope of judicial inquiry into areas normally left to the political departments to decide,
such as those relating to national security, it has not altogether done away with political
questions such as those which arise in the field of foreign relations.[54] The High Tribunals
function, as sanctioned by Article VIII, Section 1, is merely (to) check whether or not the
governmental branch or agency has gone beyond the constitutional limits of its
jurisdiction, not that it erred or has a different view. In the absence of a showing (of) grave
abuse of discretion amounting to lack of jurisdiction, there is no occasion for the Court to
exercise its corrective powerIt has no power to look into what it thinks is apparent error. [55]
 As to the power to concur with treaties, the constitution lodges the same with the
Senate alone. Thus, once the Senate[56] performs that power, or exercises its prerogative
within the boundaries prescribed by the Constitution, the concurrence cannot, in like
manner, be viewed to constitute an abuse of power, much less grave abuse
thereof.Corollarily, the Senate, in the exercise of its discretion and acting within the limits
of such power, may not be similarly faulted for having simply performed a task conferred
and sanctioned by no less than the fundamental law.
For the role of the Senate in relation to treaties is essentially legislative in
character;[57] the Senate, as an independent body possessed of its own erudite mind, has
the prerogative to either accept or reject the proposed agreement, and whatever action it
takes in the exercise of its wide latitude of discretion, pertains to the wisdom rather than
the legality of the act. In this sense, the Senate partakes a principal, yet delicate, role in
keeping the principles of separation of powers and of checks and balances alive and vigilantly
ensures that these cherished rudiments remain true to their form in a democratic
government such as ours. The Constitution thus animates, through this treaty-concurring
power of the Senate, a healthy system of checks and balances indispensable toward our
nations pursuit of political maturity and growth. True enough, rudimentary is the principle
that matters pertaining to the wisdom of a legislative act are beyond the ambit and
province of the courts to inquire.
In fine, absent any clear showing of grave abuse of discretion on the part of
respondents, this Court- as the final arbiter of legal controversies and staunch sentinel of
the rights of the people - is then without power to conduct an incursion and meddle with
such affairs purely executive and legislative in character and nature. For the Constitution
no less, maps out the distinct boundaries and limits the metes and bounds within which
each of the three political branches of government may exercise the powers exclusively
and essentially conferred to it by law.
WHEREFORE, in light of the foregoing disquisitions, the instant petitions are hereby
DISMISSED.
SO ORDERED.
Davide, Jr., C.J., Bellosillo, Kapunan, Quisumbing, Purisima, Pardo, Gonzaga-
Reyes, Ynares-Santiago, and De Leon, Jr., JJ., concur.
Melo, and Vitug, JJ., join the dissent of J. Puno.
Puno, J., see dissenting opinion.
Mendoza, J., in the result.
Panganiban, J., no part due to close personal and former professional relations with
a petitioner, Sen. J.R. Salonga.

EN BANC

[G.R. No. 138298. November 29, 2000]

RAOUL B. DEL MAR, petitioner, vs. PHILIPPINE AMUSEMENT AND
GAMING CORPORATION, BELLE JAI-ALAI CORPORATION,
FILIPINAS GAMING ENTERTAINMENT TOTALIZATOR
CORPORATION, respondents.

[G.R. No. 138982. November 29, 2000]

FEDERICO S. SANDOVAL II and MICHAEL T. DEFENSOR, petitioners,

vs. PHILIPPINE AMUSEMENT AND GAMING
CORPORATION, respondent.
JUAN MIGUEL ZUBIRI, intervenor.

DECISION
PUNO, J.:

These two consolidated petitions concern the issue of whether the franchise granted
to the Philippine Amusement and Gaming Corporation (PAGCOR) includes the right to
manage and operate jai-alai.
First, we scour the significant facts. The Philippine Amusement and Gaming
Corporation is a government-owned and controlled corporation organized and existing
under Presidential Decree No. 1869 which was enacted on July 11, 1983. Pursuant to
Sections 1 and 10 of P.D. No. 1869, respondent PAGCOR requested for legal advice
from the Secretary of Justice as to whether or not it is authorized by its Charter to operate
and manage jai-alai frontons in the country. In its Opinion No. 67, Series of 1996 dated
July 15, 1996, the Secretary of Justice opined that the authority of PAGCOR to operate
and maintain games of chance or gambling extends to jai-alai which is a form of sport
or game played for bets and that the Charter of PAGCOR amounts to a legislative
franchise for the purpose.[1] Similar favorable opinions were received by PAGCOR from
the Office of the Solicitor General per its letter dated June 3, 1996 and the Office of
the Government Corporate Counsel under its Opinion No. 150 dated June 14,
1996.[2]Thus, PAGCOR started the operation of jai-alai frontons.
On May 6, 1999, petitioner Raoul B. del Mar initially filed in G.R. No. 138298
a Petition for Prohibition to prevent respondent PAGCOR from managing and/or
operating the jai-alai or Basque pelota games, by itself or in agreement with Belle
Corporation, on the ground that the controverted act is patently illegal and devoid of any
basis either from the Constitution or PAGCORs own Charter.
However, on June 17, 1999, respondent PAGCOR entered into an Agreement with
private respondents Belle Jai Alai Corporation (BELLE) and Filipinas Gaming
Entertainment Totalizator Corporation (FILGAME) wherein it was agreed that BELLE will
make available to PAGCOR the required infrastructure facilities including the main
fronton, as well as provide the needed funding for jai-alai operations with no financial
outlay from PAGCOR, while PAGCOR handles the actual management and operation of
jai-alai.[3]
Thus, on August 10, 1999, petitioner Del Mar filed a Supplemental Petition for
Certiorari questioning the validity of said Agreement on the ground that PAGCOR is
without jurisdiction, legislative franchise, authority or power to enter into such Agreement
for the opening, establishment, operation, control and management of jai-alai games.
A little earlier, or on July 1, 1999, petitioners Federico S. Sandoval II and Michael T.
Defensor filed a Petition for Injunction, docketed as G.R. No. 138982, which seeks to
enjoin respondent PAGCOR from operating or otherwise managing the jai-alai or Basque
pelota games by itself or in joint venture with Belle Corporation, for being patently illegal,
having no basis in the law or the Constitution, and in usurpation of the authority that
properly pertains to the legislative branch of the government. In this case, a Petition in
Intervention was filed by Juan Miguel Zubiri alleging that the operation by PAGCOR of
jai-alai is illegal because it is not included in the scope of PAGCORs franchise which
covers only games of chance.
Petitioners Raoul B. del Mar, Federico S. Sandoval II, Michael T. Defensor, and
intervenor Juan Miguel Zubiri, are suing as taxpayers and in their capacity as
members of the House of Representatives representing the First District of Cebu City,
the Lone Congressional District of Malabon-Navotas, the Third Congressional District of
Quezon City, and the Third Congressional District of Bukidnon, respectively.
The bedrock issues spawned by the petitions at bar are:
G.R. No. 138298
Petitioner Del Mar raises the following issues:
I. The respondent PAGCOR has no jurisdiction or legislative franchise or acted with
grave abuse of discretion, tantamount to lack or excess of jurisdiction, in arrogating
unto itself the authority or power to open, pursue, conduct, operate, control and
manage jai-alai game operations in the country.
II. x x x Respondent PAGCOR has equally no jurisdiction or authority x x x in executing
its agreement with co-respondents Belle and Filgame for the conduct and
management of jai-alai game operations, upon undue reliance on an opinion of the
Secretary of Justice.
III. x x x Respondent PAGCOR has equally no jurisdiction or authority x x x in entering
into a partnership, joint venture or business arrangement with its co-respondents
Belle and Filgame, through their agreement x x x. The Agreement was entered into
through manifest partiality and evident bad faith (Sec. 3 (e), RA 3019), thus manifestly
and grossly disadvantageous to the government [Anti-Graft and Corrupt Practices
Act, RA 3019, Sec. 3 (g)].
IV. x x x Respondent PAGCOR has equally no jurisdiction or authority x x x to award to
its co-respondents Belle and Filgame the right to avail of the tax benefits which, by
law, inures solely and exclusively to PAGCOR itself.
 V. x x x Respondent PAGCOR has equally no jurisdiction or authority x x x to cause the
disbursement of funds for the illegal establishment, management and operation of jai-
alai game operations.
VI. x x x Respondent PAGCOR has equally no jurisdiction or authority x x x to award or
grant authority for the establishment, management and operation of off-fronton betting
stations or bookies.
VII. The respondent PAGCOR has no jurisdiction or authority x x x in awarding unto its
co-respondents Belle and Filgame, without public bidding, the subject agreement.
In defense, private respondents BELLE and FILGAME assert:
1. The petition states no cause of action and must be dismissed outright;
2. The petitioner has no cause of action against the respondents, he not being a real
party in interest;
3. The instant petition cannot be maintained as a taxpayer suit, there being no illegal
disbursement of public funds involved;
4. The instant petition is essentially an action for quo warranto and may only be
commenced by the Solicitor General;
5. The operation of jai-alai is well within PAGCORs authority to operate and
maintain. PAGCORs franchise is intended to be wide in its coverage, the underlying
considerations being, that: (1) the franchise must be used to integrate all gambling
operations in one corporate entity (i.e. PAGCOR); and (2) it must be used to generate
funds for the government to support its social impact projects;
6. The agreement executed by, between and among PAGCOR, BJAC and FILGAME is
outside the coverage of existing laws requiring public bidding.
Substantially the same defenses were raised by respondent PAGCOR in its
Comment.
G.R. No. 138982
Petitioners contend that:
I. The operation of jai-alai games by PAGCOR is illegal in that:
1) the franchise of PAGCOR does not include the operation of jai-alai since jai-alai is
a prohibited activity under the Revised Penal Code, as amended by P.D. No. 1602
which is otherwise known as the Anti-Gambling Law;
2) jai-alai is not a game of chance and therefore cannot be the subject of a PAGCOR
franchise.
II. A franchise is a special privilege that should be construed strictly against the grantee.
III. To allow PAGCOR to operate jai-alai under its charter is tantamount to a license to
PAGCOR to legalize and operate any gambling activity.
In its Comment, respondent PAGCOR avers that:
 1. An action for injunction is not among the cases or proceedings originally cognizable
by the Honorable Supreme Court, pursuant to Section 1, Rule 56 of the 1997 Rules
of Civil Procedure.
2. Assuming, arguendo, the Honorable Supreme Court has jurisdiction over the petition,
the petition should be dismissed for failure of petitioners to observe the doctrine on
hierarchy of courts.
3. x x x Petitioners have no legal standing to file a taxpayers suit based on their cause
of action nor are they the real parties-in-interest entitled to the avails of the suit.
4. Respondents franchise definitely includes the operation of jai-alai.
5. Petitioners have no right in esse to be entitled to a temporary restraining order and/or
to be protected by a writ of preliminary injunction.
The Solicitor General claims that the petition, which is actually an action for quo
warranto under Rule 66 of the Rules of Court, against an alleged usurpation by PAGCOR
of a franchise to operate jai alai, should be dismissed outright because only the Solicitor
General or public prosecutor can file the same; that P.D. No. 1869, the Charter of
PAGCOR, authorizes PAGCOR to regulate and operate games of chance and skill which
include jai-alai; and that P.D. No. 1602 did not outlaw jai-alai but merely provided for stiffer
penalties to illegal or unauthorized activities related to jai-alai and other forms of
gambling.
We shall first rule on the important procedural issues raised by the respondents.
Respondents in G.R. No. 138982 contend that the Court has no jurisdiction to take
original cognizance of a petition for injunction because it is not one of those actions
specifically mentioned in Section 1 of Rule 56 of the 1997 Rules of Civil
Procedure.Moreover, they urge that the petition should be dismissed for failure of
petitioners to observe the doctrine on hierarchy of courts.
It is axiomatic that what determines the nature of an action and hence, the jurisdiction
of the court, are the allegations of the pleading and the character of the relief sought. [4] A
cursory perusal of the petition filed in G.R. No. 138982 will show that it is actually one for
Prohibition under Section 2 of Rule 65 for it seeks to prevent PAGCOR from managing,
maintaining and operating jai-alai games. Even assuming, arguendo, that it is an action for
injunction, this Court has the discretionary power to take cognizance of the petition at bar
if compelling reasons, or the nature and importance of the issues raised, warrant the
immediate exercise of its jurisdiction.[5] It cannot be gainsaid that the issues raised in the
present petitions have generated an oasis of concern, even days of disquiet in view of the
public interest at stake. In Tano, et al. vs. Socrates, et al.,[6] this Court did not hesitate to
treat a petition for certiorari and injunction as a special civil action for certiorari and prohibition
to resolve an issue of far-reaching impact to our people. This is in consonance with our
case law now accorded near religious reverence that rules of procedure are but tools
designed to facilitate the attainment of justice such that when its rigid application tends to
frustrate rather than promote substantial justice, this Court has the duty to suspend their
operation.[7]
Respondents also assail the locus standi or the standing of petitioners to file the
petitions at bar as taxpayers and as legislators. First, they allege that petitioners have no
legal standing to file a taxpayers suit because the operation of jai-alai does not involve
the disbursement of public funds.
Respondents' stance is not without oven ready legal support. A party suing as a
taxpayer must specifically prove that he has sufficient interest in preventing the illegal
expenditure of money raised by taxation.[8] In essence, taxpayers are allowed to sue where
there is a claim of illegal disbursement of public funds, [9] or that public money is being
deflected to any improper purpose,[10] or where petitioners seek to restrain respondent
from wasting public funds through the enforcement of an invalid or unconstitutional law. [11]
In the petitions at bar, the Agreement entered into between PAGCOR and private
respondents BELLE and FILGAME will show that all financial outlay or capital expenditure
for the operation of jai-alai games shall be provided for by the latter. Thus, the Agreement
provides, among others, that: PAGCOR shall manage, operate and control the jai-alai
operation at no cost or financial risk to it (Sec. 1[A][1]); BELLE shall provide funds, at no
cost to PAGCOR, for all capital expenditures (Sec. 1[B][1]); BELLE shall make available
to PAGCOR, at no cost to PAGCOR, the use of the integrated nationwide network of on-
line computerized systems (Sec. 1[B][2]); FILGAME shall make available for use of
PAGCOR on a rent-free basis the jai-alai fronton facilities (Sec. 1 [C][1]); BELLE &
FILGAME jointly undertake to provide funds, at no cost to PAGCOR, for pre-operating
expenses and working capital (Sec. 1 [D][1]); and that BELLE & FILGAME will provide
PAGCOR with goodwill money in the amount of P 200 million (Sec. 1 [D][2]).In fine, the
record is barren of evidence that the operation and management of jai-alai by the
PAGCOR involves expenditure of public money.
Be that as it may, in line with the liberal policy of this Court on locus standi when a
case involves an issue of overarching significance to our society,[12] we find and so hold
that as members of the House of Representatives, petitioners have legal standing to file
the petitions at bar. In the instant cases, petitioners complain that the operation of jai-alai
constitutes an infringement by PAGCOR of the legislatures exclusive power to grant
franchise. To the extent the powers of Congress are impaired, so is the power of each
member thereof, since his office confers a right to participate in the exercise of the powers
of that institution, so petitioners contend. The contention commands our concurrence for
it is now settled that a member of the House of Representatives has standing to maintain
inviolate the prerogatives, powers and privileges vested by the Constitution in his
office.[13] As presciently stressed in the case of Kilosbayan, Inc., viz:

We find the instant petition to be of transcendental importance to the

public. The issues it raised are of paramount public interest and of a category
even higher than those involved in many of the aforecited cases. The
ramifications of such issues immeasurably affect the social, economic, and
moral well-being of the people even in the remotest barangays of the country
and the counter-productive and retrogressive effects of the envisioned on-line
lottery system are as staggering as the billions in pesos it is expected to
raise. The legal standing then of the petitioners deserves recognition x x x.
 After hurdling the threshold procedural issues, we now come to the decisive
substantive issue of whether PAGCOR's legislative franchise includes the right to
manage and operate jai-alai.[14] The issue is of supreme significance for its incorrect
resolution can dangerously diminish the plenary legislative power of Congress, more
especially its exercise of police power to protect the morality of our people. After a
circumspect consideration of the clashing positions of the parties, we hold that the charter
of PAGCOR does not give it any franchise to operate and manage jai-alai.
FIRST. A franchise is a special privilege conferred upon a corporation or individual
by a government duly empowered legally to grant it. [15] It is a privilege of public
concern which cannot be exercised at will and pleasure, but should be reserved for
public control and administration, either by the government directly, or by public agents,
under such conditions and regulations as the government may impose on them in the
interest of the public.[16] A franchise thus emanates from a sovereign power[17] and the
grant is inherently a legislative power. It may, however, be derived indirectly from the
state through an agency to which the power has been clearly and validly delegated.[18]In
such cases, Congress prescribes the conditions on which the grant of a franchise may
be made.[19] Thus, the manner of granting the franchise, to whom it may be granted,
the mode of conducting the business, the character and quality of the service to be
rendered and the duty of the grantee to the public in exercising the franchise are
almost always defined in clear and unequivocal language. In the absence of these
defining terms, any claim to a legislative franchise to operate a game played for
bets and denounced as a menace to morality ought to be rejected.
SECOND. A historical study of the creation, growth and development of PAGCOR
will readily show that it was never given a legislative franchise to operate jai-alai.
(2.a) Before the creation of PAGCOR, a 25-year right to operate jai-alai in Manila
was given by President Marcos to the Philippine Jai-Alai and Amusement Corporation
then controlled by his in-laws, the Romualdez family. The franchise was granted on
October 16, 1975 thru P.D. No. 810 issued by President Marcos in the exercise of his
martial law powers. On that very date, the 25-year franchise of the prior grantee expired
and was not renewed. A few months before, President Marcos had issued P.D. No.
771 dated August 20, 1975, revoking the authority of local government units to issue jai-
alai franchises. By these acts, the former President exercised complete control of the
sovereign power to grant franchises.
(2.b) Almost one year and a half after granting the Philippine Jai-Alai and
Amusement Corporation a 25-year franchise to operate jai-alai in Manila, President
Marcos created PAGCOR on January 1, 1977 by issuing P.D. No. 1067-A. The decree
is entitled Creating the Philippine Amusements and Gaming Corporation, Defining Its
Powers and Functions, Providing Funds therefor and for Other Purposes. Its Declaration
of Policy[20] trumpeted the intent that PAGCOR was created to implement the policy of the
State to centralize and integrate all games of chance not heretofore authorized by
existing franchises or permitted by law x x x. One of its whereas clauses referred to
the need to prevent the proliferation of illegal casinos or clubs conducting games of
chance x x x.[21] To achieve this objective, PAGCOR was empowered to establish and
maintain clubs, casinos, branches, agencies or subsidiaries, or other units anywhere in
the Philippines x x x.[22]
(2.c) On the same day after creating PAGCOR, President Marcos issued P.D. No.
1067-B granting PAGCOR x x x a Franchise to Establish, Operate, and
Maintain Gambling Casinos on Land or Water Within the Territorial Jurisdiction of the
Republic of the Philippines. Obviously, P.D. No. 1067-A which created the PAGCOR is
not a grant of franchise to operate the game of jai-alai. On the other hand, Section 1 of
P.D. No. 1067-B provides the nature and term of PAGCORS franchise to maintain
gambling casinos(not a franchise to operate jai-alai), viz:

SECTION 1. NATURE AND TERM OF FRANCHISE. Subject to the terms and

conditions established in this Decree, the Philippine Amusements and Gaming
Corporation is hereby granted for a period of twenty-five (25) years,
renewable for another 25 years, the right, privilege, and authority to operate
and maintain gambling casinos, clubs and other recreation or amusement
places, sports, gaming pools, i.e., basketball, football, etc., whether on land or
sea, within the territorial jurisdiction of the Republic of the Philippines.

Section 2 of the same decree spells out the scope of the PAGCOR franchise to
maintain gambling casinos (not a franchise to operate jai-alai), viz:

SEC. 2. SCOPE OF FRANCHISE. In addition to the right and privileges

granted it under Sec. 1, this Franchise shall entitle the franchise holder to do
and undertake the following:

(1) Enter into operators and/or management contracts with duly registered
and accredited company possessing the knowledge, skill, expertise and
facilities to insure the efficient operation of gambling casinos; Provided, That
the service fees of such management and/or operator companies whose
services may be retained by the franchise holder of this Franchise shall not in
the aggregate exceed ten (10%) percent of the gross income.

(2) Purchase foreign exchange that may be required for the importation of
equipment, facilities and other gambling paraphernalia indispensably needed
or useful to insure the successful operation of gambling casinos.

(3) Acquire the right of way, access to or thru public lands, public waters or
harbors, including the Manila Bay Area; such right to include, but not limited
to, the right to lease and/or purchase public lands, government reclaimed
lands, as well as land of private ownership or those leased from the
government. This right shall carry with it the privilege of the franchise holder to
utilize piers, quays, boat landings, and such other pertinent and related
facilities within these specified areas for use as landing, anchoring, or berthing
sites in connection with its authorized casino operations.

(4) Build or construct structures, buildings, coastways, piers, docks, as well as

any other form of land and berthing facilities for its floating casinos.

(5) To do and perform such other acts directly related to the efficient and
successful operation and conduct of games of chance in accordance with
existing laws and decrees.

(2.d) Still on the day after creating PAGCOR, President Marcos issued P.D. No.
1067-C amending P.D. Nos. 1067-A and B. The amendment provides that PAGCORs
franchise to maintain gambling casinos x x x shall become exclusive in character,
subject only to the exception of existing franchises and games of chance heretofore
permitted by law, upon the generation by the franchise holder of gross revenues
amounting to P1.2 billion and its contribution therefrom of the amount of P720 million as
the governments share.
(2.e) On June 2, 1978, President Marcos issued P.D. No. 1399 amending P.D. Nos.
1067-A and 1067-B. The amendments did not change the nature and scope of the
PAGCOR franchise to maintain gambling casinos. Rather, they referred to the
Composition of the Board of Directors,[23] Special Condition of
Franchise, Exemptions, and Other Conditions.
[24]` [25] [26]

(2.f) On August 13, 1979, President Marcos issued P.D. No. 1632. Again, the
amendments did not change a comma on the nature and scope of PAGCORs
franchise to maintain gambling casinos. They related to the allocation of the 60%
share of the government where the host area is a city or municipality other than Metro
Manila,[27] and the manner of payment of franchise tax of PAGCOR.[28]
(2.g) On July 11, 1983, President Marcos issued P.D. No.
1869 entitled Consolidating and Amending P.D. Nos. 1067-A, 1067-B, 1067-C, 1399
and 1632 Relative to the Franchise and Power of the PAGCOR. As a consolidated
decree, it reiterated the nature and scope of PAGCORs existing franchise to
maintain gambling casinos (not a franchise to operate jai-alai), thus:

SEC. 10. Nature and term of franchise. Subject to the terms and conditions
established in this Decree, the Corporation is hereby granted for a period of
twenty-five (25) years, renewable for another twenty-five (25) years, the rights,
privilege and authority to operate and maintain gambling casinos, clubs, and
other recreation or amusement places, sports, gaming pools, i.e. basketball,
football, lotteries, etc., whether on land or sea, within the territorial jurisdiction
of the Republic of the Philippines.
SEC. 11. Scope of Franchise. In addition to the rights and privileges granted
it under the preceding Section, this Franchise shall entitle the corporation to
do and undertake the following:

(1) Enter into operating and/or management contracts with any registered and
accredited company possessing the knowledge, skill, expertise and facilities
to insure the efficient operation of gambling casinos; provided, that the
service fees of such management and/or operator companies whose services
may be retained by the Corporation shall not in the aggregate exceed ten
(10%) percent of the gross income;

(2) Purchase foreign exchange that may be required for the importation of
equipment, facilities and other gambling paraphernalia indispensably needed
or useful to insure the successful operation of gambling casinos;

(3) Acquire the right of way or access to or thru public land, public waters or
harbors, including the Manila Bay Area; such right shall include, but not be
limited to, the right to lease and/or purchase public lands, government
reclaimed lands, as well as lands of private ownership or those leased from
the Government. This right shall carry with it the privilege of the Corporation to
utilize piers, quays, boat landings, and such other pertinent and related
facilities within these specified areas for use as landing, anchoring or berthing
sites in connection with its authorized casino operations;

(4) Build or construct structures, buildings, castways, piers, decks, as well as

any other form of landing and boarding facilities for its floating casinos; and

(5) To do and perform such other acts directly related to the efficient and
successful operation and conduct of games of chance in accordance with
existing laws and decrees.

(2.h) Then came the 1986 EDSA revolution and the end of the Marcos regime. On
May 8, 1987, President Corazon Aquino issued Executive Order No. 169 repealing
P.D. Nos. 810, 1124 and 1966 thus revoking the franchise of the Philippine Jai-Alai
and Amusement Corporation controlled by the Romualdezes to operate jai-alai in
Manila. PAGCORs franchise to operate gambling casinos was not revoked. Neither
was it given a franchise to operate jai-alai.
THIRD. In light of its legal history, we hold that PAGCOR cannot maintain that
section 10 of P.D. No. 1869 grants it a franchise to operate jai-alai. Section 10
provides:
SEC. 10 Nature and term of franchise. Subject to the terms and conditions
established in this Decree, the Corporation is hereby granted for a period of
twenty-five (25) years, renewable for another twenty-five (25) years, the rights,
privilege and authority to operate and maintain gambling casinos, clubs, and
other recreation or amusement places, sports, gaming pools, i.e., basketball,
football, lotteries, etc., whether on land or sea, within the territorial jurisdiction
of the Republic of the Philippines.

(3.a) P.D. No. 1869 is a mere consolidation of previous decrees dealing with
PAGCOR. PAGCOR cannot seek comfort in section 10 as it is not a new provision in
P.D. No. 1869 and, from the beginning of its history, was never meant to confer it with a
franchise to operate jai-alai. It is a reiteration of section 1 of P.D. No. 1067-B which
provides:

SECTION 1. Nature and Term of Franchise. Subject to the terms and

conditions established in this Decree, the Philippine Amusements and Gaming
Corporation is hereby granted for a period of twenty-five (25) years,
renewable for another 25 years, the right, privilege, and authority to operate
and maintain gambling casinos, clubs and other recreation or amusement
places, sports gaming pools, i.e., basketball, football, etc., whether on land or
sea, within the territorial jurisdiction of the Republic of the Philippines.

(3.b) Plainly, section 1 of P.D. No. 1067-B which was reenacted as section 10 of P.D.
No. 1869 is not a grant of legislative franchise to operate jai-alai. P.D. No. 1067-B is a
franchise to maintain gambling casinos alone. The two franchises are as different as day
and night and no alchemy of logic will efface their difference.
(3.c) PAGCOR's stance becomes more sterile when we consider the law's intent. It
cannot be the intent of President Marcos to grant PAGCOR a franchise to operate
jai-alai because a year and a half before it was chartered, he issued P.D. No. 810 granting
Philippine Jai-Alai and Amusement Corporation a 25-year franchise to operate jai-alai in
Manila. This corporation is controlled by his in-laws, the Romualdezes.[29] To assure that
this Romualdez corporation would have no competition, President Marcos earlier revoked
the power of local governments to grant jai-alai franchises. Thus, PAGCORs stance that
P.D. No. 1067-B is its franchise to operate jai-alai, which would have competed with
the Romualdezes franchise, extends credulity to the limit. Indeed, P.D. No. 1067-A
which created PAGCOR made it crystal clear that it was to implement "the policy of the
State to centralize and integrate all games of chance not heretofore authorized by
existing franchises or permitted by law," which included the Philippine Jai-Alai and
Amusement Corporation.
(3.d) There can be no sliver of doubt that under P.D. No. 1869, PAGCORs franchise
is only to operate gambling casinos and not jai-alai. This conclusion is compelled by
a plain reading of its various provisions, viz:
"SECTION 1. Declaration of Policy. - It is hereby declared to be the policy of
the State to centralize and integrate all games of chance not heretofore
authorized by existing franchises or permitted by law in order to attain the
following objectives:

xxxxxx
(b) To establish and operate clubs and casinos, for amusement and recreation,
including sports, gaming pools (basketball, football, lotteries, etc.) and such other forms
of amusement and recreation including games of chance, which may be allowed by law
within the territorial jurisdiction of the Philippines and which will: x x x (3) minimize, if not
totally eradicate, the evils, malpractices and corruptions that are normally
prevalent in the conduct and operation of gambling clubs and casinos without
direct government involvement.
xxxxxx

TITLE IV GRANT OF FRANCHISE

SEC. 10. Nature and term of franchise. Subject to the terms and conditions
established in this Decree, the Corporation is hereby granted for a period of
twenty-five (25) years, renewable for another twenty-five (25) years,
the rights, privileges and authority to operate and maintain gambling
casinos, clubs, and other recreation or amusement places, sports, gaming
pools, i.e. basketball, football, lotteries, etc. whether on land or sea, within the
territorial jurisdiction of the Republic of the Philippines.

SEC. 11. Scope of Franchise. In addition to the rights and privileges granted it
under the preceding Section, this Franchise shall entitle the Corporation to do
and undertake the following:

(1) Enter into operating and/or management contracts with any registered and
accredited company possessing the knowledge, skill, expertise and
facilities to insure the efficient operation of gambling casinos; provided,
that the service fees of such management and/or operator companies whose
services may be retained by the Corporation shall not in the aggregate exceed
ten (10%) percent of the gross income;

(2) Purchase foreign exchange that may be required for the importation of
equipment, facilities and other gambling paraphernalia indispensably needed
or useful to insure the successful operation of gambling casinos;

(3) Acquire the right of way or access to or thru public land, public waters or
harbors x x x. This right shall carry with it the privilege of the Corporation to
utilize x x x such other pertinent and related facilities within these specified
areas x x x in connection with its authorized casino operations;

(4) Build or construct structures, building castways, piers, decks, as well as

any other form of landing and boarding facilities for its floating casinos;

xxxxxx
SEC. 13. Exemptions.

(1) Customs duties, taxes and other imposts on importations. All importations
of equipment, vehicles, automobiles, boats, ships, barges, aircraft and such
other gambling paraphernalia, including accessories or related facilities, for
the sole and exclusive use of the casinos, the proper and efficient
management and administration thereof, and such other clubs. Recreation or
amusement places to be established under and by virtue of this Franchise
shall be exempt from the payment of all kinds of customs duties, taxes and
other imposts, including all kinds of fees, levies, or charges of any kind or
nature, whether National or Local.

Vessels and/or accessory ferry boats imported or to be imported by any

corporation having existing contractual arrangements with the Corporation, for
the sole and exclusive use of the casino or to be used to service the
operations and requirements of the casino, shall likewise be totally exempt
from the payment of all customs duties, x x x.

(2) Income and other taxes. (a) x x x

(b) Others: The exemption herein granted for earnings derived from the
operations conducted under the franchise x x x shall inure to the benefit of
and extend to corporation(s) x x x with whom the Corporation or operator
has any contractual relationship in connection with the operations of the
casino(s) authorized to be conducted under this Franchise x x x.

(3) Dividend Income. x x x The dividend income shall not in such case be
considered as part of beneficiaries taxable income; provided, however, that
such dividend income shall be totally exempted from income or other forms of
taxes if invested within six (6) months from date the dividend income is
received, in the following:

(a) operation of the casino(s) or investments in any affiliate activity that will
ultimately redound to the benefit of the Corporation or any other corporation
with whom the Corporation has any existing arrangements in connection
with or related to the operations of the casino(s);

xxxxxx

(4) Utilization of Foreign Currencies. The Corporation shall have the right and
authority, solely and exclusively in connection with the operations of the
casino(s), to purchase, receive, exchange and disburse foreign exchange,
subject to the following terms and conditions:

(a) A specific area in the casino(s) or gaming pit shall be put up solely and
exclusively for players and patrons utilizing foreign currencies;

(b) The Corporation shall appoint and designate a duly accredited commercial
bank agent of the Central Bank, to handle, administer and manage the use of
foreign currencies in the casino(s);

(c) The Corporation shall provide an office at casino(s) for the employees of
the designated bank, agent of the Central Bank, where the Corporation will
maintain a dollar account which will be utilized exclusively for the above
purpose and the casino dollar treasury employees;

xxxxxx

(f) The disbursement, administration, management and recording of foreign

exchange currencies used in the casino(s) shall be carried out in
accordance with existing foreign exchange regulations x x x.

SEC. 14. Other Conditions.

(1) Place. The Corporation shall conduct the gambling activities or games of
chance on land or water within the territorial jurisdiction of the Republic of the
Philippines. When conducted on water, the Corporation shall have the right to
dock the floating casino(s) in any part of the Philippines where vessels/boats
are authorized to dock under the Customs and Maritime Laws.

(2) Time. Gambling activities may be held and conducted at anytime of the
day or night; provided, however, that in places where curfew hours are
observed, all players and personnel of gambling casinos shall remain
within the premises of the casinos.

(3) Persons allowed to play. x x x

(4) Persons not allowed to play. -

xxxxxx

From these are excepted the personnel employed by the casinos, special
guests, or those who at the discretion of the Management may be allowed to
stay in the premises.

TITLE VI EXEMPTION FROM CIVIL SERVICE LAW

SEC. 16. Exemption. All position in the Corporation, whether technical,

administrative, professional or managerial are exempt from the provisions of
the Civil Service Law, rules and regulations, and shall be governed only by the
personnel management policies set by the Board of Directors. All employees
of the casinos and related services shall be classified as Confidential
appointees.

TITLE VII TRANSITORY PROVISIONS

SEC. 17. Transitory Provisions. x x x

SEC. 18. Exemption from Labor Laws. No union or any form of association
shall be formed by all those working as employees of the casino or related
services whether directly or indirectly. For such purpose, all employees of
the casinos or related services shall be classified as confidential appointees
and their employment thereof, whether by the franchise holder, or the
operators, or the managers, shall be exempt from the provisions of the Labor
Code or any implementing rules and regulations thereof.

From its creation in 1977 and until 1999, PAGCOR never alleged that it has a
franchise to operate jai-alai. Twenty-two years is a long stretch of silence. It is
inexplicable why it never claimed its alleged franchise for so long a time which
could have allowed it to earn billions of pesos as additional income.
(3.e) To be sure, we need not resort to intellectual jujitsu to determine whether
PAGCOR has a franchise to operate jai-alai. It is easy to tell whether there is a legislative
grant or not. Known as the game of a thousand thrills, jai-alai is a different game, hence,
the terms and conditions imposed on a franchisee are spelled out in standard
form. A review of some laws and executive orders granting a franchise to operate jai-alai
will demonstrate these standard terms and conditions, viz:
(3.e.1) Commonwealth Act No. 485 (An Act to Permit Bets in the Game of Basque
Pelota) June 18, 1939

Be it enacted by the National Assembly of the Philippines:

SECTION 1. Any provision of existing law to the contrary notwithstanding, it
shall be permissible in the game of Basque pelota, a game of skill (including
the games of pala, raqueta, cestapunta, remonte and mano), in which
professional players participate, to make either direct bets or bets by means of
a totalizer; Provided, That no operator or maintainer of a Basque pelota court
shall collect as commission a fee in excess of twelve per centum on such
bets, or twelve per centum of the receipts of the totalizer, and of such per
centum three shall be paid to the Government of the Philippines, for
distribution in equal shares between the General Hospital and the Philippine
Anti-tuberculosis Society.

SEC. 2. Any person, company or corporation, that shall build a court for
Basque pelota games with bets within eighteen months from the date of the
approval of this Act, shall thereunder have the privilege to maintain and
operate the said court for a term of twenty-five years from the date in which
the first game with bets shall have taken place. At the expiration of the said
term of twenty-five years, the buildings and the land on which the court and
the stadium shall be established, shall become the property of the
Government of the Philippines, without payment.

SEC. 3. The location and design of the buildings that shall be used for the
same games of Basque pelota, shall have prior approval of the Bureau of
Public Works and the operator shall pay a license fee of five hundred pesos a
year to the city or municipality in which the establishment shall be situated, in
addition to the real-estate tax due on such real property.

SEC. 4. This Act shall take effect upon its approval.

ENACTED, without Executive approval, June 18, 1939.

(3.e.2) Executive Order No. 135 (Regulating the Establishment, Maintenance and
Operation of Frontons and Basque Pelota Games [Jai Alai]) May 4, 1948

By virtue of the powers vested in me by Commonwealth Act No. 601, entitled

An Act to regulate the establishment, maintenance and operation of places of
amusements in chartered cities, municipalities and municipal districts, the
following rules and regulations governing frontons and basque pelota games
are hereby promulgated:

SECTION 1. Definitions. Whenever used in this Order and unless the context
indicates a different meaning, the following terms shall bear the meaning
indicated herein:
(a) Basque pelota game shall include the pelota game with the use of pala,
raqueta, cesta punta, remonte and mano, in which professional players
participate.

(b) Fronton comprises the court where basque pelota games are played,
inlcuding the adjoining structures used in connection with such games, such
as the betting booths and galleries, totalizator equipment, and the
grandstands where the public is admitted in connection with such games.

(c) Pelotari is a professional player engaged in playing basque pelota.

(d) Professional player is one who plays for compensation.

SEC. 2. Supervision over the establishment and operation of frontons and

basque pelota games. Subject to the administrative control and supervision of
the Secretary of the Interior, city or municipal mayors shall exercise
supervision over the establishment, maintenance and operation of frontons
and basque pelota games within their respective territorial jurisdiction, as well
as over the officials and employees of such frontons and shall see to it that all
laws, orders and regulations relating to such establishments are duly
enforced. Subject to similar approval, they shall appoint such personnel as
may be needed in the discharge of their duties and fix their compensation
which shall be paid out of the allotment of one-half per centum (1/2%) out of
the total bets or wager funds set aside and made available for the purpose in
accordance with Section 19 hereof. The Secretary of the Interior shall have
the power to prohibit or allow the operation of such frontons on any day or
days, or modify their hour of operation and to prescribe additional rules and
regulations governing the same.

SEC. 3. Particular duties of city or municipal mayors regarding operation of

basque pelota games and frontons. In connection with their duty to enforce
the laws, orders, rules and regulations relating to frontons and basque pelota
games, the city or municipal mayor shall require that such frontons shall be
properly constructed and maintained in accordance with the provisions of
Commonwealth Act No. 485; shall see that the proper sanitary
accommodations are provided in the grandstands and other structures
comprising such frontons; and shall require that such frontons be provided
with a properly equipped clinic for the treatment of injuries to the pelotaris.

SEC. 4. Permits. In the absence of a legislative franchise, it shall be unlawful

for any person or entity to establish and/or operate frontons and conduct
basque pelota games without a permit issued by the corresponding city or
municipal mayor, with the approval of the provincial governor in the latter
case. Any permit issued hereunder shall be reported by the provincial
governor or city mayor, as the case may be, to the Secretary of the Interior.

SEC. 5. License fees. The following license fees shall be paid:

(a) For each basque pelota fronton, five hundred pesos (P500) annually, or
one hundred and twenty-five pesos (P125) quarterly.

(b) For pelotaris, judges or referees and superintendents (intendentes) of

basque pelota games, eighteen pesos (P18) each annually.

The above license fees shall accrue to the funds of the city or municipality
where the fronton is operated.

SEC. 6. Location. Except in the case of any basque pelota fronton licensed as
of December 8, 1941, no basque pelota fronton shall be maintained or
operated within a radius of 200 lineal meters from any city hall or municipal
building, provincial capitol building, national capitol building, public playa or
park, public school, church, hospital, athletic stadium, or any institution of
learning or charity.

SEC. 7. Buildings, sanitary and parking requirements. No permit or license for

the construction or operation of a basque pelota fronton shall be issued
without proper certificate of the provincial or city engineer and architect
certifying to the suitability and safety of the building and of the district or city
health officer certifying to the sanitary condition of said building. The city or
municipal mayor may, in his discretion and as circumstances may warrant,
require that the fronton be provided with sufficient space for parking so that
the public roads and highways be not used for such purposes.

SEC. 8. Protest and complaint. Any person who believes that any basque
pelota fronton is located or established in any place not authorized herein or is
being operated in violation of any provision of this order may file a protest or
complaint with the city or municipal mayor concerned, and after proper
investigation of such complaint the city or municipal mayor may take such
action as he may consider necessary in accordance with the provisions of
section 10 hereof. Any decision rendered on the matter by the city or
municipal mayor shall be appealable to the Secretary of the Interior.

SEC. 9. Persons prohibited admission. Persons under 16 years of age,

persons carrying firearms or deadly weapons of any description, except
government officials actually performing their official duties therein, intoxicated
persons, and persons of disorderly nature and conduct who are apt to disturb
peace and order, shall not be admitted or allowed in any basque pelota
fronton: Provided, That persons under 16 years of age may, when
accompanied by their parents or guardians, be admitted therein but in no case
shall such minors be allowed to bet.

SEC. 10. Gambling prohibited. No card games or any of the prohibited games
shall be permitted within the premises of any basque pelota fronton; and upon
satisfactory evidence that the operator or entity conducting the game has
tolerated the existence of any prohibited game within its premises, the city or
municipal mayor may take the necessary action in accordance with the
provisions of section 11 hereof.

SEC. 11. Revocation or suspension of permits and licenses. The city or

municipal mayor, subject to the approval of the Secretary of the Interior, may
suspend or revoke any license granted under this Order to any basque pelota
fronton or to any official or employee thereof, for violation of any of the rules
and regulations provided in this Order or those which said city or municipal
mayor may prescribe, or for any just cause. Such suspension or revocation
shall operate to forfeit to the city or municipality concerned all sums paid
therefor.

SEC. 12. Appeals. Any action taken by the city or municipal mayor under the
provisions of this Order shall stand, unless modified or revoked by the
Secretary of the Interior.

SEC. 13. Books, records and accounts. The city or municipal mayor, or his
duly authorized representative, shall have the power to inspect at all times the
books, records, and accounts of any basque pelota fronton. He may, in his
discretion and as the circumstances may warrant, require that the books and
financial or other statements of the person or entity operating the game be
kept in such manner as he may prescribe.

SEC. 14. Days and hours of operation. Except as may otherwise be provided
herein, basque pelota games with betting shall be allowed every day,
excepting Sundays, from 2 oclock p.m. to not later than 11 oclock p.m.

SEC. 15. Pelotaris, judges, referees, etc. shall be licensed. No person or

entity operating a basque pelota fronton, wherein games are played with
betting, shall employ any pelotari, judge or referee, superintendent of games
(intendente), or any other official whose duties are connected with the
operation or supervision of the games, unless such person has been duly
licensed by the city or municipal mayor concerned. Such license shall be
granted upon satisfactory proof that the applicant is in good health, know the
rules and usages of the game, and is a person of good moral character and of
undoubted honesty. In the case of pelotaris, such license shall be granted
only upon the further condition that they are able to play the game with
reasonable skill and with safety to themselves and to their opponents. The city
or municipal mayor may further require other reasonable qualifications for
applicants to a license, not otherwise provided herein. Such license shall be
obtained yearly.

SEC. 16. Installation of automatic electric totalizator. Any person or entity

operating a fronton wherein betting in any form is allowed shall install in its
premises within the period of one year from the date this Order takes effect,
an automatic electrically operated indicator system and ticket selling machine,
commonly known as totalizator, which shall clearly record each ticket
purchased on every player in any game, the total number of tickets sold on
each event, as well as the dividends that correspond to holders of winning
numbers. This requirement shall, however, not apply to double events or
forecast pools or to any betting made on the basis of a combination or
grouping of players until a totalizator that can register such bets has been
invented and placed on the market.

SEC. 17. Supervision over sale of betting tickets and payment of dividends.
For the purpose of verifying the accuracy of reports in connection with the sale
of betting tickets and the computation of dividends awarded to winners on
each event, as well as other statements with reference to the betting in the
games played, the city or municipal mayor shall assign such number of
auditing officers and checkers as may be necessary for the purpose. These
auditing officers and checkers shall be placed in the ticket selling booths,
dividend computation booths and such other parts of the fronton, where
betting tickets are sold and dividends computed. It shall be their duty to check
up and correct any irregularity or any erroneous report or computation that
may be made by officials of the fronton, in connection with the sale of tickets
and the payment of dividends.

SEC. 18. Wager tickets and dividends. The face value of the wager tickets for
any event shall not exceed P5 whether for win or place, or for any
combination or grouping of winning numbers. The face value of said tickets,
as the case may be, shall be the basis for the computation of the dividends
and such dividends shall be paid after eliminating fractions of ten centavos
(P0.10); for example: if the resulting dividend is P10.43, the dividend that shall
be paid will be only P10.40.

SEC. 19. Distribution of wager funds. The total wager funds or gross receipts
from the sale of the betting tickets shall be apportioned as follows: a
commission not exceeding ten and one-half per centum (10 %) on the total
bets on each game or event shall be set aside for the person or entity
operating the fronton and four and one-half per centum (4 %) of such bets
shall be covered into the National Treasury for disposition as may be
authorized by law or executive order; and the balance or eighty-five per
centum (85%) of the total bets shall be distributed in the form of dividends
among holders of win or place numbers or holders of the winning combination
or grouping of numbers, as the case may be: Provided, however, That of the
ten and one-half per centum (10 %) representing the commission of the
person or entity operating the fronton, an amount equivalent to one-half per
centum (1/2%) of the total bets or wager funds shall be set aside and made
available to cover the expenses of the personnel assigned to supervise the
operation of basque pelota games and frontons, including payment of salaries
of such personnel, purchase of necessary equipment and other sundry
expenses as may be authorized by competent authority.

SEC. 20. Supervision over the conduct of games; enforcement of rules and
regulations. The city or municipal mayor is authorized to place within the
premises of the fronton such number of inspectors and agents as may be
deemed necessary to supervise the conduct of the games to see that the
rules of the games are strictly enforced, and to carry out the provisions of this
Order as well as such other regulations as may hereafter be prescribed.

SEC. 21. Rules governing the games and personnel of the fronton. The rules
and regulations that have been adopted by any fronton to govern the
operation of its games and the behavior, duties and performance of the
officials and personnel connected therewith, such as pelotaris, judges,
referees or superintendents of games (intendentes) and others, shall be the
recognized rules and regulations of such fronton until the same are altered or
repealed by the Secretary of the Interior; and any fronton may introduce any
type or form of games or events, provided they are not contrary to the
provisions of this Order or any rule or regulation hereafter issued by the
Secretary of the Interior.

SEC. 22. Regulations governing pelotaris. Any rule or regulation adopted by

any established fronton governing the conduct or performance of pelotaris to
the contrary notwithstanding, the following regulations shall be observed:
(a) The pelotaris who are participating in the games shall not be allowed to
communicate, talk or make signs with any one in the public or with any official
or employee of the fronton during the games, except with the judges or
referees or the superintendent (intendente) in charge of the games;

(b) The program of games or events, as well as the line-up or order of playing
of the pelotaris in each event shall be determined by the superintendent of the
games (intendente), subject to the approval of the city or municipal mayor, or
his authorized representatives;

(c) Pelotaris shall be in good physical condition before participating in any

game and shall be laid off from playing at least two days in a week. Every
pelotari shall once a month secure a medical certificate from a government
physician to be designated by the city or municipal mayor concerned certifying
to his physical fitness to engage in the games; and

(d) The amount of dividends computed for any event shall not be posted
within the view of the pelotaris participating in the event until after the
termination of said event.

(3.e.3) Presidential Decree No. 810 (An Act Granting the Philippine Jai-Alai and
Amusement Corporation a Franchise to Operate, Construct and Maintain a Fronton for
Basque Pelota and Similar Games of Skill in the Greater Manila Area) October 16, 1975

WHEREAS, by virtue of the provisions of Commonwealth Act Numbered 485

the franchise to operate and maintain a fronton for the Basque pelota and
similar games of skill in the City of Manila, shall expire on October, 1975
whereupon the ownership of the land, buildings and improvements used in the
said game will be transferred without payment to the government by operation
of law;

WHEREAS, there is a pressing need not only to further develop the game as
a sport and amusement for the general public but also to exploit its full
potential in support of the governments objectives and development
programs;

WHEREAS, Basque pelota is a game of international renown, the

maintenance and promotion of which will surely assist the tourism industry of
the country;
WHEREAS, the tourism appeal of the game will be enhanced only with the
governments support and inducement in developing the sport to a level at par
with international standards;

WHEREAS, once such tourism appeal is developed, the same will serve as a
stable and expanding base for revenue generation for the governments
development projects.

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the

Philippines, by virtue of the powers vested in me by the Constitution, hereby
decree as follows:

SECTION 1. Any provision of law to the contrary notwithstanding, there is

hereby granted to the Philippine Jai-Alai and Amusement Corporation, a
corporation duly organized and registered under the laws of the Philippines,
hereinafter called the grantee or its successors, for a period of twenty-five
years from the approval of this Act, extendable for another twenty-five years
without the necessity of another franchise, the right, privilege and authority to
construct, operate and maintain a court for Basque Pelota (including the
games of pala, raqueta, cestapunta, remonte and mano) within the Greater
Manila Area, establish branches thereof for booking purposes and hold or
conduct Basque pelota games therein with bettings either directly or by means
of electric and/or computerized totalizator.

The games to be conducted by the grantee shall be under the supervision of

the Games and Amusements Board, hereinafter referred to as the Board,
which shall enforce the laws, rules and regulations governing Basque pelota
as provided in Commonwealth Act numbered four hundred and eighty-five, as
amended, and all the officials of the game and pelotaris therein shall be duly
licensed as such by the Board.

SEC. 2. The grantee or its duly authorized agent may offer, take or arrange
bets within or outside the place, enclosure or court where the Basque pelota
games are held: Provided, That bets offered, taken or arranged outside the
place, enclosure or court where the games are held, shall be offered, taken or
arranged only in places duly licensed by the corporation; Provided, however,
That the same shall be subject to the supervision of the Board. No person
other than the grantee or its duly authorized agents shall take or arrange bets
on any pelotari or on the game, or maintain or use a totalizator or other
device, method or system to bet on any pelotari or on the game within or
without the place, enclosure or court where the games are held by the
grantee. Any violation of this section shall be punished by a fine of not more
than two thousand pesos or by imprisonment of not more than six months, or
both in the discretion of the Court. If the offender is a partnership, corporation,
or association, the criminal liability shall devolve upon its president, directors
or any other officials responsible for the violation.

SEC. 3. The grantee shall provide mechanical and/or computerized devices,

namely: a) electric totalizator; b) machine directly connected to a computer in
a display board, for the sale of tickets, including, those sold from the off-court
stations; c) modern sound system and loud speakers; d) facilities that bring
safety, security, comfort and convenience to the public; e) modern
intercommunication devices; and f) such other facilities, devices and
instruments for clean, honest and orderly Basque pelota games, within three
years from the approval of this Act.

The Board shall assign its auditors and/or inspectors to supervise and
regulate the placing of bets, proper computation of dividends and the
distribution of wager funds.

SEC. 4. The total wager fund or gross receipts from the sale of betting tickets
will be apportioned as follows: eighty-five per centum (85%) shall be
distributed in the form of dividends among the holders of win or place
numbers or holders of the winning combination or grouping of numbers as the
case may be. The remaining balance of fifteen per centum (15%) shall be
distributed as follows: eleven and one-half per centum (11 %) shall be set
aside as the commission fee of the grantee, and three and one-half per
centum (3 %) thereof shall be set aside and alloted to any special health,
educational, civic, cultural, charitable, social welfare, sports, and other similar
projects as may be directed by the President. The receipts from betting
corresponding to the fraction of ten centavos eliminated from the dividends
paid to the winning tickets, commonly known as breakage, shall also be set
aside for the above-named special projects.

SEC. 5. The provision of any existing law to the contrary notwithstanding, the
grantee is hereby authorized to hold Basque pelota games (including the
games of pala, raqueta, cestapunta, remonte and mano) on all days of the
week except Sundays and official holidays.

SEC. 6. The provisions of Commonwealth Act numbered four hundred and

eighty-five as amended, shall be deemed incorporated herein, provided that
the provisions of this Act shall take precedence over the provisions thereof
and all other laws, executive orders and regulations which are inconsistent
herewith.
SEC. 7. The grantee shall not lease, transfer, grant the usufruct of, sell or
assign this franchise permit, or the rights or privileges acquired thereunder to
any person, firm, company, corporation or other commercial or legal entity,
nor merge with any other person, company or corporation organized for the
same purpose, without the previous approval of the President of the
Philippines.

SEC. 8. For purposes of this franchise, the grantee is herein authorized to

make use of the existing fronton, stadium and facilities located along Taft
Avenue, City of Manila, belonging to the government by virtue of the
provisions of Commonwealth Act numbered four hundred and eighty-five.

It is abundantly clear from the aforequoted laws, executive orders and decrees
that the legislative practice is that a franchise to operate jai-alai is granted solely
for that purpose and the terms and conditions of the grant are unequivocably
defined by the grantor. Such express grant and its conditionalities protective of the
public interest are evidently wanting in P.D. No. 1869, the present Charter of
PAGCOR. Thus, while E.O. 135 and P.D. No. 810 provided for the apportionment of the
wager funds or gross receipts from the sale of betting tickets, as well as the distribution
of dividends among holders of win or place numbers or holders of the winning combination
or grouping of numbers, no such provisions can be found in P.D. No. 1869. Likewise,
while P.D. No. 810 describes where and how the games are to be conducted and bettings
to be made, and imposes a penalty in case of a violation thereof, such provisions are
absent in P.D. No. 1869.
In fine, P.D. No. 1869 does not have the standard marks of a law granting a
franchise to operate jai-alai as those found under P.D. No. 810 or E.O. 135. We
cannot blink away from the stubborn reality that P.D. No. 1869 deals with details
pertinent alone to the operation of gambling casinos. It prescribes the rules and
regulations concerning the operation of gambling casinos such as the place, time,
persons who are and are not entitled to play, tax exemptions, use of foreign exchange,
and the exemption of casino employees from the coverage of the Civil Service Law and
the Labor Code. The short point is that P.D. No. 1869 does not have the
usualprovisions with regards to jai-alai. The logical inference is that PAGCOR was not
given a franchise to operate jai-alai frontons. There is no reason to resist the beguiling
rule that acts of incorporation, and statutes granting other franchises or special benefits
or privileges to corporations, are to be construed strictly against the corporations; and
whatever is not given in unequivocal terms is understood to be withheld. [30]
FOURTH. The tax treatment between jai-alai operations and gambling casinos are
distinct from each other. Letters of Instruction No. 1439 issued on November 2, 1984
directed the suspension of the imposition of the increased tax on winnings in horse races
and jai-alai under the old revenue code, to wit:

WHEREAS, the increased tax on winnings on horse races and jai-alai under
Presidential Decree 1959 has already affected the holding of horse races and
jai-alai games, resulting in government revenue loss and affecting the
livelihood of those dependent thereon;

WHEREAS, the manner of taxation applicable thereto is unique and its effects
and incidence are in no way similar to the taxes on casino operation or to any
shiftable tax;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the

Philippines, by virtue of the powers vested in me by the Constitution, do
hereby order and instruct the Minister of Finance, the Commissioner of the
Bureau of Internal Revenue, and the Chairman, Games & Amusements
Board, to suspend the implementation of the increased rate of tax winnings in
horse races and jai-alai games and collect instead the rate applicable prior to
the effectivity of PD 1959.

Similarly, under Republic Act No. 8424, or the Tax Reform Act of 1997, there is an
amusement tax imposed on operators of jai-alai (Section 125) and a stamp tax on jai-alai
tickets (Section 190). There is no corresponding imposition on gambling casinos. Well to
note, section 13 of P.D. No. 1869 grants to the franchise holder and casino operators tax
exemptions from the payment of customs duties and income tax, except a franchise tax
of five (5%) percent which shall be in lieu of all kinds of taxes, levies, fees or assessments
of any kind, nature or description, levied, established or collected by any municipal,
provincial, or national government authority. No similar exemptions have been extended
to operators of jai-alai frontons.
FIFTH. P.D. No. 1869, the present Charter of PAGCOR, is a consolidation of P.D.
Nos. 1067-A, 1067-B and 1067-C all issued on January 1, 1977. P.D. No. 1067-A created
the PAGCOR and defined its powers and functions; P.D. No. 1067-B granted to PAGCOR
a franchise to establish, operate, and maintain gambling casinos on land or water
within the territorial jurisdiction of the Republic of the Philippines; and P.D. No. 1067-C
granted PAGCOR the exclusive right, privilege and authority to operate and maintain
gambling casinos, subject only to the exception of existing franchises and games of
chance permitted by law.
Beyond debate, P.D. No. 1869 adopted substantially the provisions of said prior
decrees, with some additions which, however, have no bearing on the franchise
granted to PAGCOR to operate gambling casinos alone, such as the Affiliation
Provisions under Title III and the Transitory Provisions under Title VII. It also added the
term lotteries under Section 1 (b) on Declaration of Policy and Section 10 on the Nature
and Term of Franchise. It ought to follow that P.D. No. 1869 carries with it the same
legislative intent that infused P.D. Nos. 1067-A, 1067-B and 1067-C. To be sure, both
P.D. No. 1067-A and P.D. No. 1869 seek to enforce the same avowed policy of the State
to minimize, if not totally eradicate, the evils, malpractices and corruptions that normally
are found prevalent in the conduct and operation of gambling clubs and casinos without
direct government involvement. It did not address the moral malevolence of jai-alai
games and the need to contain it thru PAGCOR. We cannot deface this legislative
intent by holding that the grant to PAGCOR under P.D. Nos. 1067-A and 1067-B to
establish, operate, and maintain gambling casinos, has been enlarged, broadened or
expanded by P.D. No. 1869 so as to include a grant to operate jai-alai frontons. Then and
now, the intention was merely to grant PAGCOR a franchise to operate gambling casinos,
no more, no less.
SIXTH. Lest the idea gets lost in the shoals of our subconsciousness, let us not forget
that PAGCOR is engaged in business affected with public interest. The phrase affected
with public interest means that an industry is subject to control for the public good; [31] it has
been considered as the equivalent of subject to the exercise of the police
power.[32] Perforce, a legislative franchise to operate jai-alai is imbued with public
interest and involves an exercise of police power. The familiar rule is that laws
which grant the right to exercise a part of the police power of the state are to be
construed strictly and any doubt must be resolved against the grant. [33] The
legislature is regarded as the guardian of society, and therefore is not presumed
to disable itself or abandon the discharge of its duty. Thus, courts do not assume
that the legislature intended to part away with its power to regulate public
morals.[34]The presumption is influenced by constitutional considerations. Constitutions
are widely understood to withhold from legislatures any authority to bargain away their
police power[35] for the power to protect the public interest is beyond abnegation.
It is stressed that the case at bar does not involve a franchise to operate a public
utility (such as water, transportation, communication or electricity) the operation of which
undoubtedly redounds to the benefit of the general public. What is claimed is an alleged
legislative grant of a gambling franchise a franchise to operate jai-alai. A statute which
legalizes a gambling activity or business should be strictly construed and every
reasonable doubt must be resolved to limit the powers and rights claimed under its
authority.[36]
The dissent would like to make capital of the fact that the cases of Stone vs.
Mississippi and Aicardi vs. Alabama are not on all fours to the cases at bar and, hence,
the rulings therein do not apply. The perceived incongruity is more apparent than real.
Stone[37] involves a contract entered into by the State of Mississippi with the plaintiffs
which allowed the latter to sell and dispose of certificates of subscription which would
entitle the holders thereof to such prizes as may be awarded to them, by the casting of
lots or by lot, chance or otherwise. The contract was entered into by plaintiffs pursuant to
their charter entitled An Act Incorporating the Mississippi Agricultural, Educational and
Manufacturing Aid Society which purportedly granted them the franchise to issue and sell
lottery tickets. However, the state constitution expressly prohibits the legislature from
authorizing any lottery or allowing the sale of lottery tickets. Mississippi law makes it
unlawful to conduct a lottery.
The question raised in Stone concerned the authority of the plaintiffs to exercise the
franchise or privilege of issuing and selling lottery tickets. This is essentially the issue
involved in the cases at bar, that is, whether PAGCORs charter includes the franchise to
operate jai-alai frontons. Moreover, even assuming arguendo that the facts in the cases
at bar are not identical, the principles of law laid down in Stone are illuminating. For one,
it was held in Stone that:
Experience has shown that the common forms of gambling are comparatively
innocuous when placed in contrast with the wide-spread pestilence of
lotteries. The former are confined to a few persons and places, but the latter
infests the whole community; it enters every dwelling; it reaches every class; it
preys upon the hard earnings of the poor; and it plunders the ignorant and
simple. x x x [38]

The verity that all species of gambling are pernicious prompted the Mississippi Court to
rule that the legislature cannot bargain away public health or public morals. We can take
judicial notice of the fact that jai-alai frontons have mushroomed in every nook and corner
of the country. They are accessible to everyone and they specially mangle the morals of
the marginalized sector of society. It cannot be gainsaid that there is but a miniscule of a
difference between jai-alai and lottery with respect to the evils sought to be prevented.
In the case of Aicardi vs. Alabama, Moses & Co. was granted a legislative franchise
to carry on gaming in the form specified therein, and its agent, Antonio Aicardi, was
indicted for keeping a gaming table. In ascertaining whether the scope of the companys
franchise included the right to keep a gaming table, the Court there held that such an Act
should be construed strictly. Every reasonable doubt should be so resolved as to limit the
powers and rights claimed under its authority. Implications and intendments should have
no place except as they are inevitable from the language or the context.
The view expressed in the dissent that the aforequoted ruling was taken out of context
is perched on the premise that PAGCORs franchise is couched in a language that is
broad enough to cover the operations of jai-alai. This view begs the question for as shown
in our disquisition, PAGCOR's franchise is restricted only to the operation of gambling
casinos. Aicardi supports the thesis that a gambling franchise should be strictly
construed due to its ill-effects on public order and morals.
SEVENTH. The dissent also insists that the legislative intent must be sought first of
all in the language of the statute itself. In applying a literal interpretation of the provision
under Section 11 of P.D. 1869 that x x x the Corporation is hereby granted x x x the rights,
privileges, and authority to operate and maintain gambling casinos, clubs, and other
recreation or amusement places, sports, gaming pools, i.e., basketball, football, lotteries,
etc. x x x, it contends that the extent and nature of PAGCORs franchise is so broad that
literally all kinds of sports and gaming pools, including jai-alai, are covered therein. It
concluded that since under Section 11 of P.D. No. 1869, games of skill like basketball
and football have been lumped together with the word lotteries just before the word etc.
and after the words gaming pools, it may be deduced from the wording of the law that
when bets or stakes are made in connection with the games of skill, they may be classified
as games of chance under the coverage of PAGCORs franchise.
We reject this simplistic reading of the law considering the social, moral and public
policy implications embedded in the cases at bar. The plain meaning rule used in the
dissent rests on the assumption that there is no ambiguity or obscurity in the language of
the law. The fact, however, that the statute admits of different interpretations is the best
evidence that the statute is vague and ambiguous. [39] It is widely acknowledged that a
statute is ambiguous when it is capable of being understood by reasonably well-informed
persons in either of two or more senses.[40] In the cases at bar, it is difficult to see how a
literal reading of the statutory text would unerringly reveal the legislative intent. To be
sure, the term jai-alai was never used and is nowhere to be found in the law. The
conclusion that it is included in the franchise granted to PAGCOR cannot be based on a
mere cursory perusal of and a blind reliance on the ordinary and plain meaning of the
statutory terms used such as gaming pools and lotteries. Sutherland tells us that a statute
is ambiguous, and so open to explanation by extrinsic aids, not only when its abstract
meaning or the connotation of its terms is uncertain, but also when it is uncertain in its
application to, or effect upon, the fact-situation of the case at bar.[41]
Similarly, the contention in the dissent that :

x x x Even if the Court is fully persuaded that the legislature really meant and
intended something different from what it enacted, and that the failure to
convey the real meaning was due to inadvertence or mistake in the use of the
language, yet, if the words chosen by the legislature are not obscure or
ambiguous, but convey a precise and sensible meaning (excluding the case of
obvious clerical errors or elliptical forms of expression), then the Court must
take the law as it finds it, and give it its literal interpretation, without being
influenced by the probable legislative meaning lying at the back of the
words. In that event, the presumption that the legislature meant what it said,
though it be contrary to the fact, is conclusive.

cannot apply in the cases at bar considering that it has not been shown that the failure to
convey the true intention of the legislature is attributable to inadvertence or a mistake in
the language used.
EIGHTH. Finally, there is another reason why PAGCOR's claim to a legislative grant
of a franchise to operate jai-alai should be subjected to stricter scrutiny. The so-called
legislative grant to PAGCOR did not come from a real Congress. It came from
President Marcos who assumed legislative powers under martial law. The grant is not the
result of deliberations of the duly elected representatives of our people.
This is not to assail President Marcos legislative powers granted by Amendment No.
6 of the 1973 Constitution, as the dissent would put it. It is given that in the exercise of
his legislative power, President Marcos legally granted PAGCOR's franchise to operate
gambling casinos. The validity of this franchise to operate gambling casinos is not,
however, the issue in the cases at bar. The issue is whether this franchise to operate
gambling casinos includes the privilege to operate jai-alai. PAGCOR says it does. We
hold that it does not. PAGCOR's overarching claim should be given the strictest scrutiny
because it was granted by one man who governed when the country was under martial
law and whose governance was repudiated by our people in EDSA 1986. The reason for
this submission is rooted in the truth that PAGCOR's franchise was not granted by a real
Congress where the passage of a law requires a more rigorous process in terms of floor
deliberations and voting by members of both the House and the Senate. It is self-evident
that there is a need to be extra cautious in treating this alleged grant of a franchise
as a grant by the legislature, as a grant by the representatives of our people, for
plainly it is not. We now have a real Congress and it is best to let Congress resolve this
issue considering its policy ramifications on public order and morals.
In view of this ruling, we need not resolve the other issues raised by petitioners.
WHEREFORE, the petitions are GRANTED. Respondents PAGCOR, Belle Jai Alai
Corporation and Filipinas Gaming Entertainment Totalizator Corporation are ENJOINED
from managing, maintaining and operating jai-alai games, and from enforcing the
agreement entered into by them for that purpose.
SO ORDERED.
Melo, Panganiban, Pardo, Buena, Gonzaga-Reyes, and Ynares-Santiago
JJ., concur.
Davide, Jr., C.J., Vitug and De Leon Jr., JJ., see separate opinion.
Bellosillo, Kapunan, and Quisumbing, JJ., join the opinion of J. De Leon.
Mendoza, J., join in the separate opinion of Vitug, J.

EN BANC

[G.R. No. 143540. April 11, 2003]

JOEL G. MIRANDA, petitioner, vs. ANTONIO C. CARREON, MILAGROS

B. CASCO, ELSIE S. ESTARES, JULIUS N. MALLARI, ELINORA A.
DANAO, JOVELYN G. RETAMAL, MARIFE S. ALMAZAN, JONALD
R. DALMACIO, JENNIFER C. PLAZA, RIZALDY B. AGGABAO,
VILMA T. VENTURA, BENEDICT B. PANGANIBAN, JOSE L.
GOMBIO, MELCHOR E. SORIANO, ZARINA C. PANGANIBAN,
EMELITA D. TAUYA, EVANGELINE A. SICAM, MATABAI
AQUARIOUS Q. CULANG, MELVIN L. GARCIA, JOHNNY N. YU,
JR., LOIDA J. PURUGGANAN, EDUARDO S. VALENCIA, EDITHA
A. REGLOS, HENRY P. MAPALAD, RAMIL C. GALANG, JUSTINA
M. MACASO, MARTHA B. ALLAM, and ARSENIA A.
CATAINA, respondents.

DECISION
SANDOVAL-GUTIERREZ, J.:

Before us is a petition for review on certiorari[1] assailing the Decision[2] dated May 21,
1999 and the Resolution dated June 5, 2000 of the Court of Appeals in CA-G.R. SP No.
36997.
 In the early part of 1988, Vice Mayor Amelita Navarro, while serving as Acting Mayor
of the City of Santiago because of the suspension of Mayor Jose Miranda, appointed the
above-named respondents to various positions in the city government. Their
appointments were with permanent status and based on the evaluation made by the City
Personnel Selection and Promotion Board (PSPB) created pursuant to Republic Act No.
7160.[3] The Civil Service Commission (CSC) approved the appointments.
When Mayor Jose Miranda reassumed his post on March 5, 1998 after his
suspension, he considered the composition of the PSPB irregular since the majority party,
to which he belongs, was not properly represented.[4] He then formed a three-man special
performance audit team composed of Roberto C. Bayaua, Antonio AL. Martinez and
Antonio L. Santos, to conduct a personnel evaluation audit of those who were previously
screened by the PSPB and those on probation. After conducting the evaluation, the audit
team submitted to him a report dated June 8, 1998 stating that the respondents were
found wanting in (their) performance.
On June 10, 1998, or three months after Mayor Miranda reassumed his post, he
issued an order terminating respondents services effective June 15, 1998 because they
performed poorly during the probationary period.
Respondents appealed to the CSC, contending that being employees on
probation,[5]they can be dismissed from the service on the ground of poor performance
only after their probationary period of six months, not after three (3) months. They
also denied that an evaluation on their performance was conducted, hence, their
dismissal from the service violated their right to due process.
On October 19, 1998, the CSC issued Resolution No. 982717 reversing the order of
Mayor Miranda and ordering that respondents be reinstated to their former positions with
payment of backwages, thus:
xxx

Granting that the complainant-employees (now respondents) indeed rated poorly, the
question that remains is whether they can be terminated from the service on that
ground.

xxx

x x x, at the time of their termination the complainants have not finished the six (6)
months probationary period. x x x, they may be terminated even before the expiration
of the probationary period pursuant to Section 26, par. 1, Chapter 5, Book V, Title I-A
of the Revised Administrative Code of 1987. Said Section provides:

All such persons (appointees who meet all the requirements of the position) must
serve a probationary period of six months following their original appointment and
shall undergo a thorough character investigation in order to acquire a permanent civil
service status. A probationer may be dropped from the service for unsatisfactory
conduct or for want of capacity anytime before the expiration of the
probationary period: Provided, that such action is appealable to the
Commission.

It is, however, clear from the foregoing quoted provision that an employee on
probation status may be terminated only for unsatisfactory conduct or want of
capacity. In this case, the services of the complainants were terminated on the
ground of poor performance x x x. Although poor performance may come near
the concept of want of capacity, the latter, as held by this Commission, implies
opportunity on the part of the head of office to observe the performance and
demeanor of the employee concerned (Charito Pandes, CSC Resolution No.
965592). At this point, considering that Mayor Jose Miranda reassumed his post
only on March 5, 1998 after serving his suspension, it is quite improbable that he
can already gauge the performance of the complainants through the mere lapse
of three months considering that the date of the letter of termination is June 10,
1998 and its effectivity date June 15, 1998. (emphasis supplied)
[6]

Meanwhile, the COMELEC disqualified Mayor Jose Miranda as a mayoralty

candidate in the 1998 May elections. His son Joel G. Miranda, herein petitioner,
substituted for him and was proclaimed Mayor of Santiago City. He then filed a motion for
reconsideration of the CSC Resolution No. 982717 (in favor of respondents) but it was
denied in the CSC Resolution No. 990557 dated March 3, 1999.
Petitioner then filed with the Court of Appeals a petition for review on certiorari,
docketed as CA-G.R. SP No. 36997. On May 21, 1999, the Court of Appeals rendered a
Decision affirming in toto the CSC Resolution No. 982717. Forthwith, petitioner filed a
motion for reconsideration, but before it could be resolved by the Court of Appeals,
several events supervened. This Court, in G.R. No. 136351, Joel G. Miranda vs. Antonio
M. Abaya and the COMELEC, set aside the proclamation of petitioner as Mayor of
Santiago City for lack of a certificate of candidacy and declared Vice Mayor Amelita
Navarro as City Mayor by operation of law.[7]
On December 20, 1999, Mayor Navarro filed with the Court of Appeals a Motion to
Withdraw the Motion for Reconsideration (previously submitted by former Mayor Joel G.
Miranda).
On June 5, 2000, the Court of Appeals denied petitioners motion for reconsideration
of its Decision.
On June 11, 2000, the Court of Appeals granted Mayor Navarros Motion to Withdraw
the Motion for Reconsideration. In effect, the CSC Resolution reinstating respondents to
their positions stays.
In this petition, petitioner Joel G. Miranda contends that the Court of Appeals erred in
affirming the CSC Resolution declaring that the termination of respondents services is
illegal and ordering their reinstatement to their former positions with payment of
backwages.
 In their comment, respondents claim that since petitioner ceased to be Mayor of
Santiago City, he has no legal personality to file the instant petition and, therefore, the
same should be dismissed. They insist that they were not actually evaluated on their
performance. But assuming there was indeed such an evaluation, it should have been
done by their immediate supervisors, not by those appointed by former Mayor Jose
Miranda.
In his reply, petitioner contends that as a taxpayer, he has a legal interest in the case
at bar, hence, can lawfully file this petition.
Section 17, Rule 3 of the 1997 Rules of Civil Procedure, as amended, provides:

Sec. 17. Death or separation of a party who is a public officer. When a public officer
is a party in an action in his official capacity and during its pendency dies, resigns or
otherwise ceases to hold office, the action may be continued and maintained by or
against his successor if, within thirty (30) days after the successor takes office or such
time as may be granted by the Court, it is satisfactorily shown by any party that there
is substantial need for continuing or maintaining it and the successor adopts or
continues or threatens to adopt or continue the action of his predecessor.

It is clear from the above Rule that when petitioner ceased to be mayor of Santiago
City, the action may be continued and maintained by his successor, Mayor Amelita
Navarro, if there is substantial need to do so.
Mayor Navarro, however, found no substantial need to continue and maintain the
action of her predecessor in light of the CSC Resolution declaring that respondents
services were illegally terminated by former Mayor Jose Miranda. In fact, she filed with
the Court of Appeals aMotion to Withdraw the Motion for Reconsideration (lodged by
petitioner). She likewise reinstated all the respondents to their respective positions and
approved the payment of their salaries.
Petitioner insists though that as a taxpayer, he is a real party-in-interest and,
therefore, should continue and maintain this suit. Such contention is misplaced. Section
2, Rule 3 of the same Rules provides:

Section 2. Parties in interest. - A real party in interest is the party who stands to be
benefited or injured by the judgment in the suit, or the party entitled to the avails
of the suit. Unless otherwise authorized by law or these Rules, every action must be
prosecuted or defended in the name of the real party in interest. (emphasis supplied)

Even as a taxpayer, petitioner does not stand to be benefited or injured by the

judgment of the suit. Not every action filed by a taxpayer can qualify to challenge the
legality of official acts done by the government. [8] It bears stressing that a taxpayers suit
refers to a case where the act complained of directly involves the illegal disbursement
of public funds from taxation.[9] The issue in this case is whether respondents services
were illegally terminated. Clearly, it does not involve the illegal disbursement of public
funds, hence, petitioners action cannot be considered a taxpayers suit.
 At any rate, to put to rest the controversy at hand, we shall resolve the issue of
whether respondents services were illegally terminated by former Mayor Jose Miranda.
The 1987 Constitution provides that no officer or employee of the civil service shall
be removed or suspended except for cause provided by law.[10] Under the Revised
Administrative Code of 1987, a government officer or employee may be removed from
the service on two (2) grounds: (1) unsatisfactory conduct and (2) want of capacity. While
the Code does not define and delineate the concepts of these two grounds, however, the
Civil Service Law (Presidential Decree No. 807, as amended) provides specific grounds
for dismissing a government officer or employee from the service. Among these grounds
are inefficiency and incompetence in the performance of official duties. In the case at bar,
respondents were dismissed on the ground of poor performance. Poor performance falls
within the concept of inefficiency and incompetence in the performance of official duties
which, as earlier mentioned, are grounds for dismissing a government official or employee
from the service.
But inefficiency or incompetence can only be determined after the passage of
sufficient time, hence, the probationary period of six (6) months for the
respondents.Indeed, to be able to gauge whether a subordinate is inefficient or
incompetent requires enough time on the part of his immediate superior within which to
observe his performance. This condition, however, was not observed in this case. As
aptly stated by the CSC, it is quite improbable that Mayor Jose Miranda could finally
determine the performance of respondents for only the first three months of the
probationary period.
Not only that, we find merit in respondents claim that they were denied due
process.They cited Item 2.2 (b), Section VI of the Omnibus Guidelines on Appointments
and Other Personnel Actions (CSC Memorandum Circular No. 38, Series of 1993, as
amended by CSC Memorandum Circular No. 12, Series of 1994) which provides:

2.2. Unsatisfactory or Poor Performance

xxx

b. An official or employee who, for one evaluation period, is rated poor in

performance, may be dropped from the rolls after due notice. Due notice
shall mean that the officer or employee is informed in writing of the
status of his performance not later than the fourth month of that
rating period with sufficient warning that failure to improve his
performance within the remaining period of the semester shall
warrant his separation from the service. Such notice shall also contain
sufficient information which shall enable the employee to prepare an
explanation. (emphasis supplied)
[11]

Respondents vehemently assert that they were never notified in writing regarding the
status of their performance, neither were they warned that they will be dismissed from the
service should they fail to improve their performance. Significantly, petitioner did not
refute respondents assertion. The records show that what respondents received was only
the termination order from Mayor Jose Miranda. Obviously, respondents right to due
process was violated.
Moreover, respondents contend that the only reason behind their arbitrary dismissal
was Mayor Jose Mirandas perception that they were not loyal to him, being appointees
of then Acting Mayor Navarro. This contention appears to be true considering that all
those who were accepted and screened by the PSPB during the incumbency of Acting
Mayor Navarro were rated to have performed poorly by an audit team whose three
members were personally picked by Mayor Jose Miranda.
The Constitution has envisioned the civil service to be a career service based on merit
and rewards system that will truly be accountable and responsive to the people and
deserving of their trust and support.[12] These noble objectives will be frustrated if the
tenure of its members is subject to the whim of partisan politics. A civil servant who lives
in ceaseless fear of being capriciously removed from office every time a new political
figure assumes power will strive to do anything that pleases the latter. In this way, he will
hardly develop efficiency, accountability and a sense of loyalty to the public service. Such
a climate will only breed opportunistic, inefficient and irresponsible civil servants to the
detriment of the public. This should not be countenanced.
In fine, we hold that petitioner, not being a real party in interest, has no legal
personality to file this petition. Besides, his motion for reconsideration was validly
withdrawn by the incumbent Mayor. Even assuming he is a real party in interest, we see
no reason to disturb the findings of both the CSC and the Court of Appeals. The
reinstatement of respondents who, unfortunately, were victims of political bickerings, is in
order.
WHEREFORE, the petition is DENIED. The assailed Decision dated May 21, 1999 of
the Court of Appeals in CA-G.R. SP No. 36997 is AFFIRMED.
Treble costs against petitioner.
SO ORDERED.
Davide, Jr., C.J., Bellosillo, Puno, Vitug, Panganiban, Quisumbing, Ynares-Santiago,
Carpio, Austria-Martinez, Corona, Carpio-Morales, Callejo, Sr., and Azcuna, JJ., concur.

EN BANC

[G.R. No. 143076. June 10, 2003]

PHILIPPINE RURAL ELECTRIC COOPERATIVES ASSOCIATION, INC.

(PHILRECA); AGUSAN DEL NORTE ELECTRIC COOPERATIVE,
INC. (ANECO); ILOILO I ELECTRIC COOPERATIVE, INC. (ILECO
 I); and ISABELA I ELECTRIC COOPERATIVE, INC. (ISELCO
I), petitioners, vs. THE SECRETARY, DEPARTMENT OF INTERIOR
AND LOCAL GOVERNMENT, and THE
SECRETARY, DEPARTMENT OF FINANCE, respondents.

DECISION
PUNO, J.:

This is a petition for Prohibition under Rule 65 of the Rules of Court with prayer for
the issuance of a temporary restraining order seeking to annul as unconstitutional
sections 193 and 234 of R.A. No. 7160 otherwise known as the Local Government Code.
On May 23, 2000, a class suit was filed by petitioners in their own behalf and in behalf
of other electric cooperatives organized and existing under P.D. No. 269 who are
members of petitioner Philippine Rural Electric Cooperatives Association, Inc.
(PHILRECA). Petitioner PHILRECA is an association of 119 electric cooperatives
throughout the country. Petitioners Agusan del Norte Electric Cooperative, Inc. (ANECO),
Iloilo I Electric Cooperative, Inc. (ILECO I) and Isabela I Electric Cooperative, Inc.
(ISELCO I) are non-stock, non-profit electric cooperatives organized and existing under
P.D. No. 269, as amended, and registered with the National Electrification Administration
(NEA).
Under P.D. No. 269, as amended, or the National Electrification Administration
Decree, it is the declared policy of the State to provide the total electrification of the
Philippines on an area coverage basis the same being vital to the people and the sound
development of the nation.[1] Pursuant to this policy, P.D. No. 269 aims to promote,
encourage and assist all public service entities engaged in supplying electric service,
particularly electric cooperatives by giving every tenable support and assistance to the
electric cooperatives coming within the purview of the law.[2] Accordingly, Section 39 of
P.D. No. 269 provides for the following tax incentives to electric cooperatives:

SECTION 39. Assistance to Cooperatives; Exemption from Taxes, Imposts, Duties,

Fees; Assistance from the National Power Corporation. Pursuant to the national
policy declared in Section 2, the Congress hereby finds and declares that the following
assistance to cooperative is necessary and appropriate:

(a) Provided that it operates in conformity with the purposes and provisions of this
Decree,cooperatives (1) shall be permanently exempt from paying income taxes,
and (2) for a period ending on December 31 of the thirtieth full calendar year after the
date of a cooperative's organization or conversion hereunder, or until it shall become
completely free of indebtedness incurred by borrowing, whichever event first
occurs, shall be exempt from the payment (a) of all National Government, local
government and municipal taxes and fees, including franchise, filing,
recordation, license or permit fees or taxes and any fees, charges, or costs
involved in any court or administrative proceeding in which it may be a
party, and (b) of all duties or imposts on foreign goods acquired for its
operations, the period of such exemption for a new cooperative formed by
consolidation, as provided for in Section 29, to begin from as of the date of the
beginning of such period for the constituent consolidating cooperative which was
most recently organized or converted under this Decree: Provided, That the Board of
Administrators shall, after consultation with the Bureau of Internal Revenue,
promulgate rules and regulations for the proper implementation of the tax exemptions
provided for in this Decree.

.[3]
From 1971 to 1978, in order to finance the electrification projects envisioned by P.D.
No. 269, as amended, the Philippine Government, acting through the National Economic
Council (now National Economic Development Authority) and the NEA, entered into six
(6) loan agreements with the government of the United States of America through the
United States Agency for International Development (USAID) with electric cooperatives,
including petitioners ANECO, ILECO I and ISELCO I, as beneficiaries. The six (6) loan
agreements involved a total amount of approximately US$86,000,000.00. These loan
agreements are existing until today.
The loan agreements contain similarly worded provisions on the tax application of the
loan and any property or commodity acquired through the proceeds of the loan. Thus,
Section 6.5 of A.I.D. Loan No. 492-H-027 dated November 15, 1971 provides:

Section 6.5. Taxes and Duties. The Borrower covenants and agrees that this Loan
Agreement and the Loan provided for herein shall be free from, and the Principal and
interest shall be paid to A.I.D. without deduction for and free from, any taxation or
fees imposed under any laws or decrees in effect within the Republic of the
Philippines or any such taxes or fees so imposed or payable shall be reimbursed by the
Borrower with funds other than those provided under the Loan. To the extent that (a)
any contractor, including any consulting firm, any personnel of such contractor
financed hereunder, and any property or transactions relating to such contracts and (b)
any commodity procurement transactions financed hereunder, are not exempt from
identifiable taxes, tariffs, duties and other levies imposed under laws in effect in the
country of the Borrower, the Borrower and/or Beneficiary shall pay or reimburse the
same with funds other than those provided under the Loan. [4]

Petitioners contend that pursuant to the provisions of P.D. No. 269, as amended, and
the above-mentioned provision in the loan agreements, they are exempt from payment of
local taxes, including payment of real property tax. With the passage of the Local
Government Code, however, they allege that their tax exemptions have been invalidly
withdrawn. In particular, petitioners assail Sections 193 and 234 of the Local Government
Code on the ground that the said provisions discriminate against them, in violation of the
equal protection clause. Further, they submit that the said provisions are unconstitutional
because they impair the obligation of contracts between the Philippine Government and
the United States Government.
On July 25, 2000 we issued a Temporary Restraining Order.[5]
We note that the instant action was filed directly to this Court, in disregard of the rule
on hierarchy of courts. However, we opt to take primary jurisdiction over the present
petition and decide the same on its merits in view of the significant constitutional issues
raised by the parties dealing with the tax treatment of cooperatives under existing laws
and in the interest of speedy justice and prompt disposition of the matter.
I
There is No Violation of the Equal Protection Clause
The pertinent parts of Sections 193 and 234 of the Local Government Code provide:

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 and 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.

Section 234. Exemptions from real property tax.The following are exempted from
payment of the real property tax:

(d) All real property owned by duly registered cooperatives as provided for
under R.A. No. 6938; and

Except as provided herein, any exemption from payment of real property tax
previously granted to, or presently enjoyed by, all persons whether natural or juridical,
including all government-owned and controlled corporations are hereby withdrawn
upon effectivity of this Code. [6]

Petitioners argue that the above provisions of the Local Government Code are
unconstitutional for violating the equal protection clause. Allegedly, said provisions unduly
discriminate against petitioners who are duly registered cooperatives under P.D. No. 269,
as amended, and not under R.A. No. 6938 or the Cooperative Code of the Philippines.
They stress that cooperatives registered under R.A. No. 6938 are singled out for tax
exemption privileges under the Local Government Code. They maintain that electric
cooperatives registered with the NEA under P.D. No. 269, as amended, and electric
cooperatives registered with the Cooperative Development Authority (CDA) under R.A.
No. 6938 are similarly situated for the following reasons: a) petitioners are registered with
the NEA which is a government agency like the CDA; b) petitioners, like CDA-registered
cooperatives, operate for service to their member-consumers; and c) prior to the
enactment of the Local Government Code, petitioners, like CDA-registered cooperatives,
were already tax-exempt.[7] Thus, petitioners contend that to grant tax exemptions from
local government taxes, including real property tax under Sections 193 and 234 of the
Local Government Code only to registered cooperatives under R.A. No. 6938 is a
violation of the equal protection clause.
We are not persuaded. The equal protection clause under the Constitution means
that no person or class of persons shall be deprived of the same protection of laws which
is enjoyed by other persons or other classes in the same place and in like
circumstances.[8] Thus, the guaranty of the equal protection of the laws is not violated by
a law based on reasonable classification. Classification, to be reasonable, must (1) rest
on substantial distinctions; (2) be germane to the purposes of the law; (3) not be limited
to existing conditions only; and (4) apply equally to all members of the same class. [9]
We hold that there is reasonable classification under the Local Government Code to
justify the different tax treatment between electric cooperatives covered by P.D. No. 269,
as amended, and electric cooperatives under R.A. No. 6938.
First, substantial distinctions exist between cooperatives under P.D. No. 269, as
amended, and cooperatives under R.A. No. 6938. These distinctions are manifest in at
least two material respects which go into the nature of cooperatives envisioned by R.A.
No. 6938 and which characteristics are not present in the type of cooperative associations
created under P.D. No. 269, as amended.

a. Capital Contributions by Members

A cooperative under R.A. No. 6938 is defined as:

[A] duly registered association of persons with a common bond of interest,

who have voluntarily joined together to achieve a lawful common or social
economic end, making equitable contributions to the capital required and
accepting a fair share of the risks and benefits of the undertaking in
accordance with universally accepted cooperative principles. [10]

The above definition provides for the following elements of a cooperative: a)

association of persons; b) common bond of interest; c) voluntary association; d) lawful
common social or economic end; e) capital contributions; f) fair share of risks and benefits;
g) adherence to cooperative values; and g) registration with the appropriate government
authority.[11]
The importance of capital contributions by members of a cooperative under R.A. No.
6938 was emphasized during the Senate deliberations as one of the key factors which
distinguished electric cooperatives under P.D. No. 269, as amended, from electric
cooperatives under the Cooperative Code. Thus:

Senator Osmea. Will this Code, Mr. President, cover electric cooperatives as they
exist in the country today and are administered by the National Electrification
Administration?

Senator Aquino. That cannot be answered with a simple yes or no, Mr. President.
The answer will depend on what provisions we will eventually come up with. Electric
cooperatives as they exist today would not fall under the term cooperative as
used in this bill because the concept of a cooperative is that which adheres and
practices certain cooperative principles. .

Senator Aquino. To begin with, one of the most important requirements, Mr.
President, is the principle where members bind themselves to help themselves. It
is because of their collectivity that they can have some economic benefits. In this
particular case [cooperatives under P.D. No. 269], the government is the one that
funds these so-called electric cooperatives.

Senator Aquino. That is why in Article III we have the following definition:

A cooperative is an association of persons with a common bond of interest who have

voluntarily joined together to achieve a common social or economic end, making
equitable contributions to the capital required.

In this particular case [cooperatives under P.D. No. 269], Mr. President, the
members do not make substantial contribution to the capital required. It is the
government that puts in the capital, in most cases.

Senator Osmea. Under line 6, Mr. President, making equitable contributions to the
capital required would exclude electric cooperatives [under P.D. No. 269]. Because
the membership does not make equitable contributions.

Senator Aquino. Yes, Mr. President. This is precisely what I mean, that electric
cooperatives [under P.D. No. 269] do not qualify in the spirit of cooperatives. That is
the reason why they should be eventually assessed whether they intend to comply
with the cooperatives or not. Because, if after giving them a second time, they do not
comply, then, they should not be classified as cooperatives.

Senator Osmea. Mr. President, the measure of their qualifying as a cooperative

would be the requirement that a member of the electric cooperative must
contribute a pro rata share of the capital of the cooperative in cash to be a
cooperative. [12]

Nowhere in P.D. No. 269, as amended, does it require cooperatives to make

equitable contributions to capital. Petitioners themselves admit that to qualify as a
member of an electric cooperative under P.D. No. 269, only the payment of a P5.00
membership fee is required which is even refundable the moment the member is no
longer interested in getting electric service from the cooperative or will transfer to another
place outside the area covered by the cooperative.[13] However, under the Cooperative
Code, the articles of cooperation of a cooperative applying for registration must be
accompanied with the bonds of the accountable officers and a sworn statement of the
treasurer elected by the subscribers showing that at least twenty-five per cent (25%) of
the authorized share capital has been subscribed and at least twenty-five per cent (25%)
of the total subscription has been paid and in no case shall the paid-up share capital be
less than Two thousand pesos (P2,000.00).[14]
b. Extent of Government Control over Cooperatives
Another principle adhered to by the Cooperative Code is the principle of
subsidiarity. Pursuant to this principle, the government may only engage in development
activities where cooperatives do not posses the capability nor the resources to do so and
only upon the request of such cooperatives.[15] Thus, Article 2 of the Cooperative Code
provides:

Art. 2. Declaration of Policy. It is the declared policy of the State to foster the creation
and growth of cooperatives as a practical vehicle for prompting self-reliance and
harnessing people power towards the attainment of economic development and social
justice. The State shall encourage the private sector to undertake the actual formation
and organization to cooperatives and shall create an atmosphere that is conducive to
the growth and development of these cooperatives.

Towards this end, the Government and all its branches, subdivisions, instrumentalities
and agencies shall ensure the provision of technical guidance, financial assistance and
other services to enable said cooperatives to develop into viable and responsive
economic enterprises and thereby bring about a strong cooperative movement that is
free from any conditions that might infringe upon the autonomy or organizational
integrity of cooperatives.

Further, the State recognizes the principle of subsidiarity under which the
cooperative sector will initiate and regulate within its own ranks the promotion
and organization, training and research, audit and support services relating to
cooperatives with government assistance where necessary. [16]

Accordingly, under the charter of the CDA, or the primary government agency tasked
to promote and regulate the institutional development of cooperatives, it is the declared
policy of the State that:

[g]overnment assistance to cooperatives shall be free from any restriction and

conditionalitythat may in any manner infringe upon the objectives and character of
cooperatives as provided in this Act. The State shall, except as provided in this Act,
maintain the policy of noninterference in the management and operation of
cooperatives. [17]

In contrast, P.D. No. 269, as amended by P.D. No. 1645, is replete with provisions
which grant the NEA, upon the happening of certain events, the power to control and take
over the management and operations of cooperatives registered under it. Thus:
a) the NEA Administrator has the power to designate, subject to the confirmation of
the Board of Administrators, an Acting General Manager and/or Project Supervisor
for a cooperative where vacancies in the said positions occur and/or when the
interest of the cooperative or the program so requires, and to prescribe the
functions of the said Acting General Manager and/or Project Supervisor, which
powers shall not be nullified, altered or diminished by any policy or
resolution of the Board of Directors of the cooperative concerned;[18]
b) the NEA is given the power of supervision and control over electric cooperatives
and pursuant to such powers, NEA may issue orders, rules and regulations motu
propio or upon petition of third parties to conduct referenda and other similar
actions in all matters affecting electric cooperatives;[19]
c) No cooperative shall borrow money from any source without the approval of the
Board of Administrators of the NEA;[20] and
d) The management of a cooperative shall be vested in its Board, subject to the
supervision and control of NEA which shall have the right to be represented and
to participate in all Board meetings and deliberations and to approve all policies
and resolutions.[21]
The extent of government control over electric cooperatives covered by P.D. No. 269,
as amended, is largely a function of the role of the NEA as a primary source of funds of
these electric cooperatives. It is crystal clear that NEA incurred loans from various
sources to finance the development and operations of the electric
cooperatives. Consequently, amendments to P.D. No. 269 were primarily geared to
expand the powers of the NEA over the electric cooperatives to ensure that loans granted
to them would be repaid to the government. In contrast, cooperatives under R.A. No. 6938
are envisioned to be self-sufficient and independent organizations with minimal
government intervention or regulation.
 To be sure, the transitory provisions of R.A. No. 6938 are indicative of the recognition
by Congress of the fundamental distinctions between electric cooperatives organized
under P.D No. 269, as amended, and cooperatives under the new Cooperative Code.
Article 128 of the Cooperative Code provides that all cooperatives registered under
previous laws shall be deemed registered with the CDA upon submission of certain
requirements within one year. However, cooperatives created under P.D. No. 269, as
amended, are given three years within which to qualify and register with the CDA, after
which, provisions of P.D. No. 1645 which expand the powers of the NEA over electric
cooperatives, would no longer apply.[22]
Second, the classification of tax-exempt entities in the Local Government Code is
germane to the purpose of the law. The Constitutional mandate that every local
government unit shall enjoy local autonomy, does not mean that the exercise of power by
local governments is beyond regulation by Congress. Thus, while each government unit
is granted the power to create its own sources of revenue, Congress, in light of its broad
power to tax, has the discretion to determine the extent of the taxing powers of local
government units consistent with the policy of local autonomy.[23]
Section 193 of the Local Government Code is indicative of the legislative intent to
vest broad taxing powers upon local government units and to limit exemptions from local
taxation to entities specifically provided therein. Section 193 provides:

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 and 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. [24]

The above provision effectively withdraws exemptions from local taxation enjoyed by
various entities and organizations upon effectivity of the Local Government Code except
for a) local water districts; b) cooperatives duly registered under R.A. No. 6938; and
c) non-stock and non-profit hospitals and educational institutions. Further, with
respect to real property taxes, the Local Government Code again specifically enumerates
entities which are exempt therefrom and withdraws exemptions enjoyed by all other
entities upon the effectivity of the code. Thus, Section 234 provides:

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

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

(b) Charitable institutions, churches, parsonages or convents appurtenant thereto,

mosques, nonprofit or religious cemeteries and all lands, buildings and improvements
actually, directly, and exclusively used for religious, charitable or educational
purposes;

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

(d) All real property owned by duly registered cooperatives as provided for
under R.A. No. 6938; and

(e) Machinery and equipment used for pollution control and environmental protection.

Except as provided herein, any exemption from payment of real property tax
previously granted to, or presently enjoyed by, all persons, whether natural or
juridical, including all government-owned or controlled corporations are hereby
withdrawn upon the effectivity of this Code. [25]

In Mactan Cebu International Airport Authority v. Marcos,[26] this Court held that
the limited and restrictive nature of the tax exemption privileges under the Local
Government Code is consistent with the State policy to ensure autonomy of local
governments and the objective of the Local Government Code to grant genuine and
meaningful autonomy to enable local government units to attain their fullest development
as self-reliant communities and make them effective partners in the attainment of national
goals. The obvious intention of the law is to broaden the tax base of local government
units to assure them of substantial sources of revenue.
While we understand petitioners predicament brought about by the withdrawal of their
local tax exemption privileges under the Local Government Code, it is not the province of
this Court to go into the wisdom of legislative enactments. Courts can only interpret laws.
The principle of separation of powers prevents them from re-inventing the laws.
Finally, Sections 193 and 234 of the Local Government Code permit reasonable
classification as these exemptions are not limited to existing conditions and apply equally
to all members of the same class. Exemptions from local taxation, including real property
tax, are granted to all cooperatives covered by R.A. No. 6938 and such exemptions exist
for as long as the Local Government Code and the provisions therein on local taxation
remain good law.
II
There is No Violation of the Non-Impairment Clause
It is ingrained in jurisprudence that the constitutional prohibition on the impairment of
the obligation of contracts does not prohibit every change in existing laws. To fall within
the prohibition, the change must not only impair the obligation of the existing contract, but
the impairment must be substantial.[27] What constitutes substantial impairment was
explained by this Court in Clemons v. Nolting:[28]
A law which changes the terms of a legal contract between parties, either in the time
or mode of performance, or imposes new conditions, or dispenses with those
expressed, or authorizes for its satisfaction something different from that provided in
its terms, is law which impairs the obligation of a contract and is therefore null and
void.

Moreover, to constitute impairment, the law must affect a change in the rights of the
parties with reference to each other and not with respect to non-parties.[29]
Petitioners insist that Sections 193 and 234 of the Local Government Code impair the
obligations imposed under the six (6) loan agreements executed by the NEA as borrower
and USAID as lender. All six agreements contain similarly worded provisions on the tax
treatment of the proceeds of the loan and properties and commodities acquired through
the loan. Thus:

Section 6.5. Taxes and Duties. The Borrower covenants and agrees that this Loan
Agreement and the Loan provided for herein shall be free from, and the Principal
and interest shall be paid to A.I.D. without deduction for and free from, any
taxation or fees imposed under any laws or decrees in effect within the Republic of
the Philippines or any such taxes or fees so imposed or payable shall be reimbursed by
the Borrower with funds other than those provided under the Loan. To the extent that
(a) any contractor, including any consulting firm, any personnel of such
contractor financed hereunder, and any property or transactions relating to such
contracts and (b) any commodity procurement transactions financed hereunder,
are not exempt from identifiable taxes, tariffs, duties and other levies imposed
under laws in effect in the country of the Borrower, the Borrower and/or
Beneficiary shall pay or reimburse the same with funds other than those
provided under the Loan. [30]

Petitioners contend that the withdrawal by the Local Government Code of the tax
exemptions of cooperatives under P.D. No. 269, as amended, is an impairment of the tax
exemptions provided under the loan agreements. Petitioners argue that as beneficiaries
of the loan proceeds, pursuant to the above provision, [a]ll the assets of petitioners, such
as lands, buildings, distribution lines acquired through the proceeds of the Loan
Agreements are tax exempt.[31]
We hold otherwise.
A plain reading of the provision quoted above readily shows that it does not grant any
tax exemption in favor of the borrower or the beneficiary either on the proceeds of the
loan itself or the properties acquired through the said loan. It simply states that the loan
proceeds and the principal and interest of the loan, upon repayment by the borrower, shall
be without deduction of any tax or fee that may be payable under Philippine law as
such tax or fee will be absorbed by the borrower with funds other than the loan
proceeds. Further, the provision states that with respect to any payment made by the
borrower to (1) any contractor or any personnel of such contractor or any property
transaction and (2) any commodity transaction using the proceeds of the loan, the tax to
be paid, if any, on such transactions shall be absorbed by the borrower and/or
beneficiary through funds other than the loan proceeds.
Beyond doubt, the import of the tax provision in the loan agreements cited by
petitioners is twofold: (1) the borrower is entitled to receive from and is obliged to pay the
lender the principal amount of the loan and the interest thereon in full, without any
deduction of the tax component thereof imposed under applicable Philippine law
and any tax imposed shall be paid by the borrower with funds other than the loan
proceeds and (2) with respect to payments made to any contractor, its personnel or any
property or commodity transaction entered into pursuant to the loan agreement and with
the use of the proceeds thereof, taxes payable under the said transactions shall be paid
by the borrower and/or beneficiary with the use of funds other than the loan
proceeds. The quoted provision does not purport to grant any tax exemption in favor of
any party to the contract, including the beneficiaries thereof. The provisions simply shift
the tax burden, if any, on the transactions under the loan agreements to the borrower
and/or beneficiary of the loan. Thus, the withdrawal by the Local Government Code under
Sections 193 and 234 of the tax exemptions previously enjoyed by petitioners does not
impair the obligation of the borrower, the lender or the beneficiary under the loan
agreements as in fact, no tax exemption is granted therein.
III

Conclusion

Petitioners lament the difficulties they face in complying with the implementing rules
and regulations issued by the CDA for the conversion of electric cooperatives under P.D.
No. 269, as amended, to cooperatives under R.A. No. 6938. They allege that because of
the cumbersome legal and technical requirements imposed by the Omnibus Rules and
Regulations on the Registration of Electric Cooperatives under R.A. No. 6938, petitioners
cannot register and convert as stock cooperatives under the Cooperative Code.[32]
The Court understands the plight of the petitioners. Their remedy, however, is not
judicial. Striking down Sections 193 and 234 of the Local Government Code as
unconstitutional or declaring them inapplicable to petitioners is not the proper course of
action for them to obtain their previous tax exemptions. The language of the law and the
intention of its framers are clear and unequivocal and courts have no other duty except
to uphold the law. The task to re-examine the rules and guidelines on the conversion of
electric cooperatives to cooperatives under R.A. No. 6938 and provide every assistance
available to them should be addressed by the proper authorities of government. This is
necessary to encourage the growth and viability of cooperatives as instruments of social
justice and economic development.
WHEREFORE, the instant petition is DENIED and the temporary restraining order
heretofore issued is LIFTED.
SO ORDERED.
 Davide, Jr., C.J., Bellosillo, Vitug, Panganiban, Quisumbing, Ynares-Santiago,
Sandoval-Gutierrez, Carpio, Austria-Martinez, Corona, Carpio-Morales, Callejo,
Sr., andAzcuna, JJ., concur.

ublic of the Philippines

SUPREME COURT
Manila

EN BANC

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

ANTERO M. SISON, JR., petitioner,

vs.
RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue; ROMULO VILLA,
Deputy Commissioner, Bureau of Internal Revenue; TOMAS TOLEDO Deputy Commissioner,
Bureau of Internal Revenue; MANUEL ALBA, Minister of Budget, FRANCISCO TANTUICO,
Chairman, Commissioner on Audit, and CESAR E. A. VIRATA, Minister of
Finance, respondents.

Antero Sison for petitioner and for his own behalf.

The Solicitor General for respondents.

FERNANDO, C.J.:

The success of the challenge posed in this suit for declaratory relief or prohibition proceeding 1 on the
validity of Section I of Batas Pambansa Blg. 135 depends upon a showing of its constitutional infirmity. The assailed provision further
amends Section 21 of the National Internal Revenue Code of 1977, which provides for rates of tax on citizens or residents on (a) taxable
compensation income, (b) taxable net income, (c) royalties, prizes, and other winnings, (d) interest from bank deposits and yield or any other
monetary benefit from deposit substitutes and from trust fund and similar arrangements, (e) dividends and share of individual partner in the
net profits of taxable partnership, (f) adjusted gross income. 2 Petitioner 3 as taxpayer alleges that by virtue thereof, "he would be unduly
discriminated against by the imposition of higher rates of tax upon his income arising from the exercise of his profession vis-a-visthose which
are imposed upon fixed income or salaried individual taxpayers. 4 He characterizes the above sction as arbitrary amounting to class
legislation, oppressive and capricious in character 5 For petitioner, therefore, there is a transgression of both the equal protection and due
process clauses 6 of the Constitution as well as of the rule requiring uniformity in taxation. 7

The Court, in a resolution of January 26, 1982, required respondents to file an answer within 10 days
from notice. Such an answer, after two extensions were granted the Office of the Solicitor General,
was filed on May 28, 1982. 8The facts as alleged were admitted but not the allegations which to their
mind are "mere arguments, opinions or conclusions on the part of the petitioner, the truth [for them]
being those stated [in their] Special and Affirmative Defenses." 9 The answer then affirmed: "Batas
Pambansa Big. 135 is a valid exercise of the State's power to tax. The authorities and cases cited
while correctly quoted or paraghraph do not support petitioner's stand." 10 The prayer is for the dismissal of the
petition for lack of merit.

This Court finds such a plea more than justified. The petition must be dismissed.
1. It is manifest that the field of state activity has assumed a much wider scope, The reason was so
clearly set forth by retired Chief Justice Makalintal thus: "The areas which used to be left to private
enterprise and initiative and which the government was called upon to enter optionally, and only
'because it was better equipped to administer for the public welfare than is any private individual or
group of individuals,' continue to lose their well-defined boundaries and to be absorbed within
activities that the government must undertake in its sovereign capacity if it is to meet the increasing
social challenges of the times." 11 Hence the need for more revenues. The power to tax, an inherent prerogative, has to be
availed of to assure the performance of vital state functions. It is the source of the bulk of public funds. To praphrase a recent decision, taxes
being the lifeblood of the government, their prompt and certain availability is of the essence. 12

2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is the strongest of all the powers of of
government." 13 It is, of course, to be admitted that for all its plenitude 'the power to tax is not unconfined. There are restrictions. The
Constitution sets forth such limits . Adversely affecting as it does properly rights, both the due process and equal protection clauses inay
properly be invoked, all petitioner does, to invalidate in appropriate cases a revenue measure. if it were otherwise, there would -be truth to
the 1803 dictum of Chief Justice Marshall that "the power to tax involves the power to destroy." 14 In a separate opinion in Graves v. New
York, 15 Justice Frankfurter, after referring to it as an 1, unfortunate remark characterized it as "a flourish of rhetoric [attributable to] the
intellectual fashion of the times following] a free use of absolutes." 16 This is merely to emphasize that it is riot and there cannot be such a
constitutional mandate. Justice Frankfurter could rightfully conclude: "The web of unreality spun from Marshall's famous dictum was brushed
away by one stroke of Mr. Justice Holmess pen: 'The power to tax is not the power to destroy while this Court sits." 17 So it is in the
Philippines.

3. This Court then is left with no choice. The Constitution as the fundamental law overrides any
legislative or executive, act that runs counter to it. In any case therefore where it can be
demonstrated that the challenged statutory provision as petitioner here alleges fails to abide by
its command, then this Court must so declare and adjudge it null. The injury thus is centered on the
question of whether the imposition of a higher tax rate on taxable net income derived from business
or profession than on compensation is constitutionally infirm.

4, The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation,
as here. does not suffice. There must be a factual foundation of such unconstitutional taint.
Considering that petitioner here would condemn such a provision as void or its face, he has not
made out a case. This is merely to adhere to the authoritative doctrine that were the due process
and equal protection clauses are invoked, considering that they arc not fixed rules but rather broad
standards, there is a need for of such persuasive character as would lead to such a conclusion.
Absent such a showing, the presumption of validity must prevail. 18

5. It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary that it finds no support in the
Constitution. An obvious example is where it can be shown to amount to the confiscation of property. That would be a clear abuse of power.
It then becomes the duty of this Court to say that such an arbitrary act amounted to the exercise of an authority not conferred. That properly
calls for the application of the Holmes dictum. It has also been held that where the assailed tax measure is beyond the jurisdiction of the
state, or is not for a public purpose, or, in case of a retroactive statute is so harsh and unreasonable, it is subject to attack on due process
grounds. 19

6. Now for equal protection. The applicable standard to avoid the charge that there is a denial of this constitutional mandate whether the
assailed act is in the exercise of the lice power or the power of eminent domain is to demonstrated that the governmental act assailed, far
from being inspired by the attainment of the common weal was prompted by the spirit of hostility, or at the very least, discrimination that finds
no support in reason. It suffices then that the laws operate equally and uniformly on all persons under similar circumstances or that all
persons must be treated in the same manner, the conditions not being different, both in the privileges conferred and the liabilities imposed.
Favoritism and undue preference cannot be allowed. For the principle is that equal protection and security shall be given to every person
under circumtances which if not Identical are analogous. If law be looked upon in terms of burden or charges, those that fall within a class
should be treated in the same fashion, whatever restrictions cast on some in the group equally binding on the rest." 20 That same formulation
applies as well to taxation measures. The equal protection clause is, of course, inspired by the noble concept of approximating the Ideal of
the laws benefits being available to all and the affairs of men being governed by that serene and impartial uniformity, which is of the very
essence of the Idea of law. There is, however, wisdom, as well as realism in these words of Justice Frankfurter: "The equality at which the
'equal protection' clause aims is not a disembodied equality. The Fourteenth Amendment enjoins 'the equal protection of the laws,' and laws
are not abstract propositions. They do not relate to abstract units A, B and C, but are expressions of policy arising out of specific difficulties,
address to the attainment of specific ends by the use of specific remedies. The Constitution does not require things which are different in fact
or opinion to be treated in law as though they were the same." 21 Hence the constant reiteration of the view that classification if rational in
character is allowable. As a matter of fact, in a leading case of Lutz V. Araneta, 22 this Court, through Justice J.B.L. Reyes, went so far as to
hold "at any rate, it is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that
'inequalities which result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation.'" 23
7. Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution: "The
rule of taxation shag be uniform and equitable." 24 This requirement is met according to Justice
Laurel in Philippine Trust Company v. Yatco,25 decided in 1940, when the tax "operates with the
same force and effect in every place where the subject may be found. " 26 He likewise added: "The
rule of uniformity does not call for perfect uniformity or perfect equality, because this is hardly
attainable." 27 The problem of classification did not present itself in that case. It did not arise until nine
years later, when the Supreme Court held: "Equality and uniformity in taxation means that all taxable
articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has
the authority to make reasonable and natural classifications for purposes of taxation, ... . 28 As
clarified by Justice Tuason, where "the differentiation" complained of "conforms to the practical
dictates of justice and equity" it "is not discriminatory within the meaning of this clause and is
therefore uniform." 29 There is quite a similarity then to the standard of equal protection for all that is
required is that the tax "applies equally to all persons, firms and corporations placed in similar
situation."30

8. Further on this point. Apparently, what misled petitioner is his failure to take into consideration the
distinction between a tax rate and a tax base. There is no legal objection to a broader tax base or
taxable income by eliminating all deductible items and at the same time reducing the applicable tax
rate. Taxpayers may be classified into different categories. To repeat, it. is enough that the
classification must rest upon substantial distinctions that make real differences. In the case of the
gross income taxation embodied in Batas Pambansa Blg. 135, the, discernible basis of classification
is the susceptibility of the income to the application of generalized rules removing all deductible
items for all taxpayers within the class and fixing a set of reduced tax rates to be applied to all of
them. Taxpayers who are recipients of compensation income are set apart as a class. As there is
practically no overhead expense, these taxpayers are e not entitled to make deductions for income
tax purposes because they are in the same situation more or less. On the other hand, in the case of
professionals in the practice of their calling and businessmen, there is no uniformity in the costs or
expenses necessary to produce their income. It would not be just then to disregard the disparities by
giving all of them zero deduction and indiscriminately impose on all alike the same tax rates on the
basis of gross income. There is ample justification then for the Batasang Pambansa to adopt the
gross system of income taxation to compensation income, while continuing the system of net income
taxation as regards professional and business income.

9. Nothing can be clearer, therefore, than that the petition is without merit, considering the (1) lack of
factual foundation to show the arbitrary character of the assailed provision; 31 (2) the force of
controlling doctrines on due process, equal protection, and uniformity in taxation and (3) the
reasonableness of the distinction between compensation and taxable net income of professionals
and businessman certainly not a suspect classification,

WHEREFORE, the petition is dismissed. Costs against petitioner.

Makasiar, Concepcion, Jr., Guerero, Melencio-Herrera, Escolin, Relova, Gutierrez, Jr., De la Fuente
and Cuevas, JJ., concur.

Teehankee, J., concurs in the result.

Plana, J., took no part.

Separate Opinions

AQUINO, J., concurring:

I concur in the result. The petitioner has no cause of action for prohibition.

ABAD SANTOS, J., dissenting:

This is a frivolous suit. While the tax rates for compensation income are lower than those for net
income such circumtance does not necessarily result in lower tax payments for these receiving
compensation income. In fact, the reverse will most likely be the case; those who file returns on the
basis of net income will pay less taxes because they claim all sort of deduction justified or not I vote
for dismissal.

Separate Opinions

AQUINO, J., concurring:

I concur in the result. The petitioner has no cause of action for prohibition.

ABAD SANTOS, J., dissenting:

This is a frivolous suit. While the tax rates for compensation income are lower than those for net
income such circumtance does not necessarily result in lower tax payments for these receiving
compensation income. In fact, the reverse will most likely be the case; those who file returns on the
basis of net income will pay less taxes because they claim all sort of deduction justified or not I vote
for dismissal.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-9637 April 30, 1957

AMERICAN BIBLE SOCIETY, plaintiff-appellant,

vs.
CITY OF MANILA, defendant-appellee.

City Fiscal Eugenio Angeles and Juan Nabong for appellant.

Assistant City Fiscal Arsenio Naawa for appellee.

FELIX, J.:
Plaintiff-appellant is a foreign, non-stock, non-profit, religious, missionary corporation duly registered
and doing business in the Philippines through its Philippine agency established in Manila in
November, 1898, with its principal office at 636 Isaac Peral in said City. The defendant appellee is a
municipal corporation with powers that are to be exercised in conformity with the provisions of
Republic Act No. 409, known as the Revised Charter of the City of Manila.

In the course of its ministry, plaintiff's Philippine agency has been distributing and selling bibles
and/or gospel portions thereof (except during the Japanese occupation) throughout the Philippines
and translating the same into several Philippine dialects. On May 29 1953, the acting City Treasurer
of the City of Manila informed plaintiff that it was conducting the business of general merchandise
since November, 1945, without providing itself with the necessary Mayor's permit and municipal
license, in violation of Ordinance No. 3000, as amended, and Ordinances Nos. 2529, 3028 and
3364, and required plaintiff to secure, within three days, the corresponding permit and license fees,
together with compromise covering the period from the 4th quarter of 1945 to the 2nd quarter of
1953, in the total sum of P5,821.45 (Annex A).

Plaintiff protested against this requirement, but the City Treasurer demanded that plaintiff deposit
and pay under protest the sum of P5,891.45, if suit was to be taken in court regarding the same
(Annex B). To avoid the closing of its business as well as further fines and penalties in the premises
on October 24, 1953, plaintiff paid to the defendant under protest the said permit and license fees in
the aforementioned amount, giving at the same time notice to the City Treasurer that suit would be
taken in court to question the legality of the ordinances under which, the said fees were being
collected (Annex C), which was done on the same date by filing the complaint that gave rise to this
action. In its complaint plaintiff prays that judgment be rendered declaring the said Municipal
Ordinance No. 3000, as amended, and Ordinances Nos. 2529, 3028 and 3364 illegal and
unconstitutional, and that the defendant be ordered to refund to the plaintiff the sum of P5,891.45
paid under protest, together with legal interest thereon, and the costs, plaintiff further praying for
such other relief and remedy as the court may deem just equitable.

Defendant answered the complaint, maintaining in turn that said ordinances were enacted by the
Municipal Board of the City of Manila by virtue of the power granted to it by section 2444, subsection
(m-2) of the Revised Administrative Code, superseded on June 18, 1949, by section 18, subsection
(1) of Republic Act No. 409, known as the Revised Charter of the City of Manila, and praying that the
complaint be dismissed, with costs against plaintiff. This answer was replied by the plaintiff
reiterating the unconstitutionality of the often-repeated ordinances.

Before trial the parties submitted the following stipulation of facts:

COME NOW the parties in the above-entitled case, thru their undersigned attorneys and
respectfully submit the following stipulation of facts:

1. That the plaintiff sold for the use of the purchasers at its principal office at 636 Isaac Peral,
Manila, Bibles, New Testaments, bible portions and bible concordance in English and other
foreign languages imported by it from the United States as well as Bibles, New Testaments
and bible portions in the local dialects imported and/or purchased locally; that from the fourth
quarter of 1945 to the first quarter of 1953 inclusive the sales made by the plaintiff were as
follows:

Quarter Amount of Sales

4th quarter 1945 P1,244.21

1st quarter 1946 2,206.85

2nd quarter 1946 1,950.38

3rd quarter 1946 2,235.99

4th quarter 1946 3,256.04

1st quarter 1947 13,241.07

2nd quarter 1947 15,774.55

3rd quarter 1947 14,654.13

4th quarter 1947 12,590.94

1st quarter 1948 11,143.90

2nd quarter 1948 14,715.26

3rd quarter 1948 38,333.83

4th quarter 1948 16,179.90

1st quarter 1949 23,975.10

2nd quarter 1949 17,802.08

3rd quarter 1949 16,640.79

4th quarter 1949 15,961.38

1st quarter 1950 18,562.46

2nd quarter 1950 21,816.32

3rd quarter 1950 25,004.55

4th quarter 1950 45,287.92

1st quarter 1951 37,841.21

2nd quarter 1951 29,103.98

3rd quarter 1951 20,181.10

4th quarter 1951 22,968.91

1st quarter 1952 23,002.65

2nd quarter 1952 17,626.96

3rd quarter 1952 17,921.01

4th quarter 1952 24,180.72

 1st quarter 1953 29,516.21

2. That the parties hereby reserve the right to present evidence of other facts not herein
stipulated.

WHEREFORE, it is respectfully prayed that this case be set for hearing so that the parties
may present further evidence on their behalf. (Record on Appeal, pp. 15-16).

When the case was set for hearing, plaintiff proved, among other things, that it has been in existence
in the Philippines since 1899, and that its parent society is in New York, United States of America;
that its, contiguous real properties located at Isaac Peral are exempt from real estate taxes; and that
it was never required to pay any municipal license fee or tax before the war, nor does the American
Bible Society in the United States pay any license fee or sales tax for the sale of bible therein.
Plaintiff further tried to establish that it never made any profit from the sale of its bibles, which are
disposed of for as low as one third of the cost, and that in order to maintain its operating cost it
obtains substantial remittances from its New York office and voluntary contributions and gifts from
certain churches, both in the United States and in the Philippines, which are interested in its
missionary work. Regarding plaintiff's contention of lack of profit in the sale of bibles, defendant
retorts that the admissions of plaintiff-appellant's lone witness who testified on cross-examination
that bibles bearing the price of 70 cents each from plaintiff-appellant's New York office are sold here
by plaintiff-appellant at P1.30 each; those bearing the price of $4.50 each are sold here at P10 each;
those bearing the price of $7 each are sold here at P15 each; and those bearing the price of $11
each are sold here at P22 each, clearly show that plaintiff's contention that it never makes any profit
from the sale of its bible, is evidently untenable.

After hearing the Court rendered judgment, the last part of which is as follows:

As may be seen from the repealed section (m-2) of the Revised Administrative Code and the
repealing portions (o) of section 18 of Republic Act No. 409, although they seemingly differ in
the way the legislative intent is expressed, yet their meaning is practically the same for the
purpose of taxing the merchandise mentioned in said legal provisions, and that the taxes to
be levied by said ordinances is in the nature of percentage graduated taxes (Sec. 3 of
Ordinance No. 3000, as amended, and Sec. 1, Group 2, of Ordinance No. 2529, as
amended by Ordinance No. 3364).

IN VIEW OF THE FOREGOING CONSIDERATIONS, this Court is of the opinion and so

holds that this case should be dismissed, as it is hereby dismissed, for lack of merits, with
costs against the plaintiff.

Not satisfied with this verdict plaintiff took up the matter to the Court of Appeals which certified the
case to Us for the reason that the errors assigned to the lower Court involved only questions of law.

Appellant contends that the lower Court erred:

1. In holding that Ordinances Nos. 2529 and 3000, as respectively amended, are not
unconstitutional;

2. In holding that subsection m-2 of Section 2444 of the Revised Administrative Code under
which Ordinances Nos. 2592 and 3000 were promulgated, was not repealed by Section 18 of
Republic Act No. 409;
 3. In not holding that an ordinance providing for taxes based on gross sales or receipts, in
order to be valid under the new Charter of the City of Manila, must first be approved by the
President of the Philippines; and

4. In holding that, as the sales made by the plaintiff-appellant have assumed commercial
proportions, it cannot escape from the operation of said municipal ordinances under the
cloak of religious privilege.

The issues. As may be seen from the proceeding statement of the case, the issues involved in
the present controversy may be reduced to the following: (1) whether or not the ordinances of the
City of Manila, Nos. 3000, as amended, and 2529, 3028 and 3364, are constitutional and valid; and
(2) whether the provisions of said ordinances are applicable or not to the case at bar.

Section 1, subsection (7) of Article III of the Constitution of the Republic of the Philippines, provides
that:

(7) No law shall be made respecting an establishment of religion, or prohibiting the free
exercise thereof, and the free exercise and enjoyment of religious profession and worship,
without discrimination or preference, shall forever be allowed. No religion test shall be
required for the exercise of civil or political rights.

Predicated on this constitutional mandate, plaintiff-appellant contends that Ordinances Nos. 2529
and 3000, as respectively amended, are unconstitutional and illegal in so far as its society is
concerned, because they provide for religious censorship and restrain the free exercise and
enjoyment of its religious profession, to wit: the distribution and sale of bibles and other religious
literature to the people of the Philippines.

Before entering into a discussion of the constitutional aspect of the case, We shall first consider the
provisions of the questioned ordinances in relation to their application to the sale of bibles, etc. by
appellant. The records, show that by letter of May 29, 1953 (Annex A), the City Treasurer required
plaintiff to secure a Mayor's permit in connection with the society's alleged business of distributing
and selling bibles, etc. and to pay permit dues in the sum of P35 for the period covered in this
litigation, plus the sum of P35 for compromise on account of plaintiff's failure to secure the permit
required by Ordinance No. 3000 of the City of Manila, as amended. This Ordinance is of general
application and not particularly directed against institutions like the plaintiff, and it does not contain
any provisions whatever prescribing religious censorship nor restraining the free exercise and
enjoyment of any religious profession. Section 1 of Ordinance No. 3000 reads as follows:

SEC. 1. PERMITS NECESSARY. It shall be unlawful for any person or entity to conduct
or engage in any of the businesses, trades, or occupations enumerated in Section 3 of this
Ordinance or other businesses, trades, or occupations for which a permit is required for the
proper supervision and enforcement of existing laws and ordinances governing the
sanitation, security, and welfare of the public and the health of the employees engaged in the
business specified in said section 3 hereof, WITHOUT FIRST HAVING OBTAINED A
PERMIT THEREFOR FROM THE MAYOR AND THE NECESSARY LICENSE FROM THE
CITY TREASURER.

The business, trade or occupation of the plaintiff involved in this case is not particularly mentioned in
Section 3 of the Ordinance, and the record does not show that a permit is required therefor under
existing laws and ordinances for the proper supervision and enforcement of their provisions
governing the sanitation, security and welfare of the public and the health of the employees engaged
in the business of the plaintiff. However, sections 3 of Ordinance 3000 contains item No. 79, which
reads as follows:

79. All other businesses, trades or occupations not

mentioned in this Ordinance, except those upon which the
City is not empowered to license or to tax P5.00

Therefore, the necessity of the permit is made to depend upon the power of the City to license or tax
said business, trade or occupation.

As to the license fees that the Treasurer of the City of Manila required the society to pay from the 4th
quarter of 1945 to the 1st quarter of 1953 in the sum of P5,821.45, including the sum of P50 as
compromise, Ordinance No. 2529, as amended by Ordinances Nos. 2779, 2821 and 3028
prescribes the following:

SEC. 1. FEES. Subject to the provisions of section 578 of the Revised Ordinances of the
City of Manila, as amended, there shall be paid to the City Treasurer for engaging in any of
the businesses or occupations below enumerated, quarterly, license fees based on gross
sales or receipts realized during the preceding quarter in accordance with the rates herein
prescribed: PROVIDED, HOWEVER, That a person engaged in any businesses or
occupation for the first time shall pay the initial license fee based on the probable gross sales
or receipts for the first quarter beginning from the date of the opening of the business as
indicated herein for the corresponding business or occupation.

xxx xxx xxx

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

xxx xxx xxx

As may be seen, the license fees required to be paid quarterly in Section 1 of said Ordinance No.
2529, as amended, are not imposed directly upon any religious institution but upon those engaged in
any of the business or occupations therein enumerated, such as retail "dealers in general
merchandise" which, it is alleged, cover the business or occupation of selling bibles, books, etc.

Chapter 60 of the Revised Administrative Code which includes section 2444, subsection (m-2) of
said legal body, as amended by Act No. 3659, approved on December 8, 1929, empowers the
Municipal Board of the City of Manila:

(M-2) To tax and fix the license fee on (a) dealers in new automobiles or accessories or both,
and (b) retail dealers in new (not yet used) merchandise, which dealers are not yet subject to
the payment of any municipal tax.

For the purpose of taxation, these retail dealers shall be classified as (1) retail dealers in
general merchandise, and (2) retail dealers exclusively engaged in the sale of (a) textiles . . .
(e) books, including stationery, paper and office supplies, . . .: PROVIDED, HOWEVER, That
the combined total tax of any debtor or manufacturer, or both, enumerated under these
 subsections (m-1) and (m-2), whether dealing in one or all of the articles mentioned herein,
SHALL NOT BE IN EXCESS OF FIVE HUNDRED PESOS PER ANNUM.

and appellee's counsel maintains that City Ordinances Nos. 2529 and 3000, as amended, were
enacted in virtue of the power that said Act No. 3669 conferred upon the City of Manila. Appellant,
however, contends that said ordinances are longer in force and effect as the law under which they
were promulgated has been expressly repealed by Section 102 of Republic Act No. 409 passed
on June 18, 1949, known as the Revised Manila Charter.

Passing upon this point the lower Court categorically stated that Republic Act No. 409 expressly
repealed the provisions of Chapter 60 of the Revised Administrative Code but in the opinion of the
trial Judge, although Section 2444 (m-2) of the former Manila Charter and section 18 (o) of the new
seemingly differ in the way the legislative intent was expressed, yet their meaning is practically the
same for the purpose of taxing the merchandise mentioned in both legal provisions and,
consequently, Ordinances Nos. 2529 and 3000, as amended, are to be considered as still in full
force and effect uninterruptedly up to the present.

Often the legislature, instead of simply amending the pre-existing statute, will repeal the old
statute in its entirety and by the same enactment re-enact all or certain portions of the
preexisting law. Of course, the problem created by this sort of legislative action involves
mainly the effect of the repeal upon rights and liabilities which accrued under the original
statute. Are those rights and liabilities destroyed or preserved? The authorities are divided as
to the effect of simultaneous repeals and re-enactments. Some adhere to the view that the
rights and liabilities accrued under the repealed act are destroyed, since the statutes from
which they sprang are actually terminated, even though for only a very short period of
time. Others, and they seem to be in the majority, refuse to accept this view of the situation,
and consequently maintain that all rights an liabilities which have accrued under the original
statute are preserved and may be enforced, since the re-enactment neutralizes the repeal,
therefore, continuing the law in force without interruption. (Crawford-Statutory Construction,
Sec. 322).

Appellant's counsel states that section 18 (o) of Republic Act No, 409 introduces a new and wider
concept of taxation and is different from the provisions of Section 2444(m-2) that the former cannot
be considered as a substantial re-enactment of the provisions of the latter. We have quoted above
the provisions of section 2444(m-2) of the Revised Administrative Code and We shall now copy
hereunder the provisions of Section 18, subdivision (o) of Republic Act No. 409, which reads as
follows:

(o) To tax and fix the license fee on dealers in general merchandise, including importers and
indentors, except those dealers who may be expressly subject to the payment of some other
municipal tax under the provisions of this section.

Dealers in general merchandise shall be classified as (a) wholesale dealers and (b) retail
dealers. For purposes of the tax on retail dealers, general merchandise shall be classified
into four main classes: namely (1) luxury articles, (2) semi-luxury articles, (3) essential
commodities, and (4) miscellaneous articles. A separate license shall be prescribed for each
class but where commodities of different classes are sold in the same establishment, it shall
not be compulsory for the owner to secure more than one license if he pays the higher or
highest rate of tax prescribed by ordinance. Wholesale dealers shall pay the license tax as
such, as may be provided by ordinance.
 For purposes of this section, the term "General merchandise" shall include poultry and
livestock, agricultural products, fish and other allied products.

The only essential difference that We find between these two provisions that may have any bearing
on the case at bar, is that, while subsection (m-2) prescribes that the combined total tax of any
dealer or manufacturer, or both, enumerated under subsections (m-1) and (m-2), whether dealing in
one or all of the articles mentioned therein, shall not be in excess of P500 per annum, the
corresponding section 18, subsection (o) of Republic Act No. 409, does not contain any limitation as
to the amount of tax or license fee that the retail dealer has to pay per annum. Hence, and in
accordance with the weight of the authorities above referred to that maintain that "all rights and
liabilities which have accrued under the original statute are preserved and may be enforced, since
the reenactment neutralizes the repeal, therefore continuing the law in force without interruption",
We hold that the questioned ordinances of the City of Manila are still in force and effect.

Plaintiff, however, argues that the questioned ordinances, to be valid, must first be approved by the
President of the Philippines as per section 18, subsection (ii) of Republic Act No. 409, which reads
as follows:

(ii) To tax, license and regulate any business, trade or occupation being conducted within the
City of Manila, not otherwise enumerated in the preceding subsections, including percentage
taxes based on gross sales or receipts, subject to the approval of the PRESIDENT, except
amusement taxes.

but this requirement of the President's approval was not contained in section 2444 of the former
Charter of the City of Manila under which Ordinance No. 2529 was promulgated. Anyway, as stated
by appellee's counsel, the business of "retail dealers in general merchandise" is expressly
enumerated in subsection (o), section 18 of Republic Act No. 409; hence, an ordinance prescribing a
municipal tax on said business does not have to be approved by the President to be effective, as it is
not among those referred to in said subsection (ii). Moreover, the questioned ordinances are still in
force, having been promulgated by the Municipal Board of the City of Manila under the authority
granted to it by law.

The question that now remains to be determined is whether said ordinances are inapplicable, invalid
or unconstitutional if applied to the alleged business of distribution and sale of bibles to the people of
the Philippines by a religious corporation like the American Bible Society, plaintiff herein.

With regard to Ordinance No. 2529, as amended by Ordinances Nos. 2779, 2821 and 3028,
appellant contends that it is unconstitutional and illegal because it restrains the free exercise and
enjoyment of the religious profession and worship of appellant.

Article III, section 1, clause (7) of the Constitution of the Philippines aforequoted, guarantees the
freedom of religious profession and worship. "Religion has been spoken of as a profession of faith to
an active power that binds and elevates man to its Creator" (Aglipay vs. Ruiz, 64 Phil., 201).It has
reference to one's views of his relations to His Creator and to the obligations they impose of
reverence to His being and character, and obedience to His Will (Davis vs. Beason, 133 U.S., 342).
The constitutional guaranty of the free exercise and enjoyment of religious profession and worship
carries with it the right to disseminate religious information. Any restraints of such right can only be
justified like other restraints of freedom of expression on the grounds that there is a clear and
present danger of any substantive evil which the State has the right to prevent". (Taada and
Fernando on the Constitution of the Philippines, Vol. 1, 4th ed., p. 297). In the case at bar the license
fee herein involved is imposed upon appellant for its distribution and sale of bibles and other
religious literature:
In the case of Murdock vs. Pennsylvania, it was held that an ordinance requiring that a
license be obtained before a person could canvass or solicit orders for goods, paintings,
pictures, wares or merchandise cannot be made to apply to members of Jehovah's
Witnesses who went about from door to door distributing literature and soliciting people to
"purchase" certain religious books and pamphlets, all published by the Watch Tower Bible &
Tract Society. The "price" of the books was twenty-five cents each, the "price" of the
pamphlets five cents each. It was shown that in making the solicitations there was a request
for additional "contribution" of twenty-five cents each for the books and five cents each for
the pamphlets. Lesser sum were accepted, however, and books were even donated in case
interested persons were without funds.

On the above facts the Supreme Court held that it could not be said that petitioners were
engaged in commercial rather than a religious venture. Their activities could not be
described as embraced in the occupation of selling books and pamphlets. Then the Court
continued:

"We do not mean to say that religious groups and the press are free from all financial
burdens of government. See Grosjean vs. American Press Co., 297 U.S., 233, 250, 80 L. ed.
660, 668, 56 S. Ct. 444. We have here something quite different, for example, from a tax on
the income of one who engages in religious activities or a tax on property used or employed
in connection with activities. It is one thing to impose a tax on the income or property of a
preacher. It is quite another to exact a tax from him for the privilege of delivering a sermon.
The tax imposed by the City of Jeannette is a flat license tax, payment of which is a condition
of the exercise of these constitutional privileges. The power to tax the exercise of a privilege
is the power to control or suppress its enjoyment. . . . Those who can tax the exercise of this
religious practice can make its exercise so costly as to deprive it of the resources necessary
for its maintenance. Those who can tax the privilege of engaging in this form of missionary
evangelism can close all its doors to all those who do not have a full purse. Spreading
religious beliefs in this ancient and honorable manner would thus be denied the needy. . . .

It is contended however that the fact that the license tax can suppress or control this activity
is unimportant if it does not do so. But that is to disregard the nature of this tax. It is a license
tax a flat tax imposed on the exercise of a privilege granted by the Bill of Rights . . . The
power to impose a license tax on the exercise of these freedom is indeed as potent as the
power of censorship which this Court has repeatedly struck down. . . . It is not a nominal fee
imposed as a regulatory measure to defray the expenses of policing the activities in
question. It is in no way apportioned. It is flat license tax levied and collected as a condition
to the pursuit of activities whose enjoyment is guaranteed by the constitutional liberties of
press and religion and inevitably tends to suppress their exercise. That is almost uniformly
recognized as the inherent vice and evil of this flat license tax."

Nor could dissemination of religious information be conditioned upon the approval of an

official or manager even if the town were owned by a corporation as held in the case
of Marsh vs. State of Alabama (326 U.S. 501), or by the United States itself as held in the
case of Tucker vs. Texas (326 U.S. 517). In the former case the Supreme Court expressed
the opinion that the right to enjoy freedom of the press and religion occupies a preferred
position as against the constitutional right of property owners.

"When we balance the constitutional rights of owners of property against those of the people
to enjoy freedom of press and religion, as we must here, we remain mindful of the fact that
the latter occupy a preferred position. . . . In our view the circumstance that the property
rights to the premises where the deprivation of property here involved, took place, were held
 by others than the public, is not sufficient to justify the State's permitting a corporation to
govern a community of citizens so as to restrict their fundamental liberties and the
enforcement of such restraint by the application of a State statute." (Taada and Fernando
on the Constitution of the Philippines, Vol. 1, 4th ed., p. 304-306).

Section 27 of Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code,
provides:

SEC. 27. EXEMPTIONS FROM TAX ON CORPORATIONS. The following organizations

shall not be taxed under this Title in respect to income received by them as such

(e) Corporations or associations organized and operated exclusively for religious, charitable,
. . . or educational purposes, . . .: Provided, however, That the income of whatever kind and
character from any of its properties, real or personal, or from any activity conducted for profit,
regardless of the disposition made of such income, shall be liable to the tax imposed under
this Code;

Appellant's counsel claims that the Collector of Internal Revenue has exempted the plaintiff from this
tax and says that such exemption clearly indicates that the act of distributing and selling bibles, etc.
is purely religious and does not fall under the above legal provisions.

It may be true that in the case at bar the price asked for the bibles and other religious pamphlets was
in some instances a little bit higher than the actual cost of the same but this cannot mean that
appellant was engaged in the business or occupation of selling said "merchandise" for profit. For this
reason We believe that the provisions of City of Manila Ordinance No. 2529, as amended, cannot be
applied to appellant, for in doing so it would impair its free exercise and enjoyment of its religious
profession and worship as well as its rights of dissemination of religious beliefs.

With respect to Ordinance No. 3000, as amended, which requires the obtention the Mayor's permit
before any person can engage in any of the businesses, trades or occupations enumerated therein,
We do not find that it imposes any charge upon the enjoyment of a right granted by the Constitution,
nor tax the exercise of religious practices. In the case of Coleman vs. City of Griffin, 189 S.E. 427,
this point was elucidated as follows:

An ordinance by the City of Griffin, declaring that the practice of distributing either by hand or
otherwise, circulars, handbooks, advertising, or literature of any kind, whether said articles
are being delivered free, or whether same are being sold within the city limits of the City of
Griffin, without first obtaining written permission from the city manager of the City of Griffin,
shall be deemed a nuisance and punishable as an offense against the City of Griffin, does
not deprive defendant of his constitutional right of the free exercise and enjoyment of
religious profession and worship, even though it prohibits him from introducing and carrying
out a scheme or purpose which he sees fit to claim as a part of his religious system.

It seems clear, therefore, that Ordinance No. 3000 cannot be considered unconstitutional, even if
applied to plaintiff Society. But as Ordinance No. 2529 of the City of Manila, as amended, is not
applicable to plaintiff-appellant and defendant-appellee is powerless to license or tax the business of
plaintiff Society involved herein for, as stated before, it would impair plaintiff's right to the free
exercise and enjoyment of its religious profession and worship, as well as its rights of dissemination
of religious beliefs, We find that Ordinance No. 3000, as amended is also inapplicable to said
business, trade or occupation of the plaintiff.
Wherefore, and on the strength of the foregoing considerations, We hereby reverse the decision
appealed from, sentencing defendant return to plaintiff the sum of P5,891.45 unduly collected from it.
Without pronouncement as to costs. It is so ordered.

Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion and Endencia, JJ., concur