SECTION 34. Universal Charge.

Within one (1) year from the

EN BANC effectivity of this Act, a universal charge to be determined, fixed and
approved by the ERC, shall be imposed on all electricity end-users for
ROMEO P. GEROCHI, KATULONG NG BAYAN (KB) G.R. No. 159796 the following purposes:
and ENVIRONMENTALIST CONSUMERS
NETWORK, INC. (ECN), Present: (a) Payment for the stranded debts[4] in excess of the amount
Petitioners, assumed by the National Government and stranded contract
PUNO, C.J., costs of NPC[5] and as well as qualified stranded contract costs
-versus- QUISUMBING, of distribution utilities resulting from the restructuring of the
YNARES-SANTIAGO, industry;
DEPARTMENT OF ENERGY (DOE), ENERGY SANDOVAL-GUTIERREZ,
REGULATORY COMMISSION (ERC), NATIONAL CARPIO, (b) Missionary electrification;[6]
POWER CORPORATION (NPC), POWER SECTOR AUSTRIA-MARTINEZ,
ASSETS AND LIABILITIES MANAGEMENT GROUP CORONA,
(PSALM Corp.), STRATEGIC POWER UTILITIES (c) The equalization of the taxes and royalties applied to indigenous
CARPIO MORALES, or renewable sources of energy vis--vis imported energy fuels;
GROUP (SPUG), and PANAYELECTRIC COMPANY
AZCUNA,
INC. (PECO),
TINGA, (d) An environmental charge equivalent to one-fourth of one centavo
Respondents.
CHICO-NAZARIO, per kilowatt-hour (P0.0025/kWh), which shall accrue to an
GARCIA, environmental fund to be used solely for watershed
VELASCO, JR. and rehabilitation and management. Said fund shall be managed by
NACHURA, JJ. NPC under existing arrangements; and

Promulgated:
July 17, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
DECISION
NACHURA, J.:
Petitioners Romeo P. Gerochi, Katulong Ng Bayan (KB), and Environmentalist
Consumers Network, Inc. (ECN) (petitioners), come before this Court in this original
action praying that Section 34 of Republic Act (RA) 9136, otherwise known as the
Electric Power Industry Reform Act of 2001 (EPIRA), imposing the Universal
Charge,[1] and Rule 18 of the Rules and Regulations (IRR)[2] which seeks to implement
the said imposition, be declared unconstitutional. Petitioners also pray that the
Universal Charge imposed upon the consumers be refunded and that a preliminary
injunction and/or temporary restraining order (TRO) be issued directing the
respondents to refrain from implementing, charging, and collecting the said
charge.[3] The assailed provision of law reads:
(e) A charge to account for all forms of cross-subsidies for a period
not exceeding three (3) years.
The universal charge shall be a non-bypassable charge which shall be
passed on and collected from all end-users on a monthly basis by the
distribution utilities. Collections by the distribution utilities and the
TRANSCO in any given month shall be remitted to the PSALM Corp.
on or before the fifteenth (15th) of the succeeding month, net of any
amount due to the distribution utility. Any end-user or self-
generating entity not connected to a distribution utility shall remit its
corresponding universal charge directly to the TRANSCO. The PSALM
Corp., as administrator of the fund, shall create a Special Trust Fund
which shall be disbursed only for the purposes specified herein in an
open and transparent manner. All amount collected for the universal
charge shall be distributed to the respective beneficiaries within a
reasonable period to be provided by the ERC.
The Facts
Congress enacted the EPIRA on June 8, 2001; on June 26, 2001, it took effect.[7]
On April 5, 2002, respondent National Power Corporation-Strategic Power Utilities In the meantime, NPC-SPUG is directed to submit, not later
Group[8] (NPC-SPUG) filed with respondent Energy Regulatory Commission (ERC) a than April 30, 2004, a detailed report to include Audited Financial
petition for the availment from the Universal Charge of its share for Missionary Statements and physical status (percentage of completion) of the
Electrification, docketed as ERC Case No. 2002-165.[9] projects using the prescribed format.

On May 7, 2002, NPC filed another petition with ERC, docketed as ERC Case No. 2002- Let copies of this Order be furnished petitioner NPC-SPUG
194, praying that the proposed share from the Universal Charge for the Environmental and all distribution utilities (Dus).
charge of P0.0025 per kilowatt-hour (/kWh), or a total of P119,488,847.59, be approved
for withdrawal from the Special SO ORDERED.
Trust Fund (STF) managed by respondent Power Sector Assets and

On August 13, 2003, NPC-SPUG filed a Motion for Reconsideration asking the ERC,
Liabilities Management Group (PSALM) [10]
for the rehabilitation and management of among others,[14] to set aside the above-mentioned Decision, which the ERC granted in
watershed areas.[11] its Order dated October 7, 2003, disposing:

On December 20, 2002, the ERC issued an Order[12] in ERC Case No. 2002-165
provisionally approving the computed amount of P0.0168/kWh as the share of the
NPC-SPUG from the Universal Charge for Missionary Electrification and authorizing the
National Transmission Corporation (TRANSCO) and Distribution Utilities to collect the
same from its end-users on a monthly basis.
WHEREFORE, the foregoing premises considered, the Motion for
Reconsideration filed by petitioner National Power Corporation-
Small Power Utilities Group (NPC-SPUG) is hereby GRANTED.
Accordingly, the Decision dated June 26, 2003 is hereby modified
accordingly.

On June 26, 2003, the ERC rendered its Decision[13] (for ERC Case No. 2002-165) Relative thereto, NPC-SPUG is directed to submit a quarterly report
modifying its Order of December 20, 2002, thus: on the following:

WHEREFORE, the foregoing premises considered, the 1. Projects for CY 2002 undertaken;
provisional authority granted to petitioner National Power 2. Location
Corporation-Strategic Power Utilities Group (NPC-SPUG) in the Order 3. Actual amount utilized to complete the
dated December 20, 2002 is hereby modified to the effect that an project;
additional amount of P0.0205 per kilowatt-hour should be added to 4. Period of completion;
the P0.0168 per kilowatt-hour provisionally authorized by the 5. Start of Operation; and
Commission in the said Order. Accordingly, a total amount 6. Explanation of the reallocation of UC-ME
of P0.0373 per kilowatt-hour is hereby APPROVED for withdrawal funds, if any.
from the Special Trust Fund managed by PSALM as its share from the SO ORDERED.[15]
Universal Charge for Missionary Electrification (UC-ME) effective on
the following billing cycles:
Meanwhile, on April 2, 2003, ERC decided ERC Case No. 2002-194, authorizing the NPC
(a) June 26-July 25, 2003 for National Transmission to draw up to P70,000,000.00 from PSALM for its 2003 Watershed Rehabilitation Budget
Corporation (TRANSCO); and subject to the availability of funds for the Environmental Fund component of the
(b) July 2003 for Distribution Utilities (Dus). Universal Charge.[16]

Relative thereto, TRANSCO and Dus are directed to collect On the basis of the said ERC decisions, respondent Panay Electric Company, Inc. (PECO)
the UC-ME in the amount of P0.0373 per kilowatt-hour and remit the charged petitioner Romeo P. Gerochi and all other
same to PSALM on or before the 15th day of the succeeding month.
end-users with the Universal Charge as reflected in their respective electric bills starting
from the month of July 2003.[17]
Hence, this original action.
Petitioners submit that the assailed provision of law and its IRR which sought to
implement the same are unconstitutional on the following grounds:
1) The universal charge provided for under Sec. 34 of the EPIRA
and sought to be implemented under Sec. 2, Rule 18 of the IRR
of the said law is a tax which is to be collected from all electric
end-users and self-generating entities. The power to tax is
strictly a legislative function and as such, the delegation of said
power to any executive or administrative agency like the ERC is
unconstitutional, giving the same unlimited authority. The
assailed provision clearly provides that the Universal Charge is
to be determined, fixed and approved by the ERC, hence leaving
to the latter complete discretionary legislative authority.
2) The ERC is also empowered to approve and determine where
the funds collected should be used.
3) The imposition of the Universal Charge on all end-users is
oppressive and confiscatory and amounts to taxation without
representation as the consumers were not given a chance to be
heard and represented.[18]
Petitioners contend that the Universal Charge has the characteristics of a tax
and is collected to fund the operations of the NPC. They argue that the cases[19] invoked
by the respondents clearly show the regulatory purpose of the charges imposed therein,
which is not so in the case at bench. In said cases, the respective funds[20] were created
in order to balance and stabilize the prices of oil and sugar, and to act as buffer to
counteract the changes and adjustments in prices, peso devaluation, and other
variables which cannot be adequately and timely monitored by the legislature. Thus,
there was a need to delegate powers to administrative bodies.[21] Petitioners posit that
the Universal Charge is imposed not for a similar purpose.
On the other hand, respondent PSALM through the Office of the Government Corporate
Counsel (OGCC) contends that unlike a tax which is imposed to provide income for
public purposes, such as support of the government, administration of the law, or
payment of public expenses, the assailed Universal Charge is levied for a specific
regulatory purpose, which is to ensure the viability of the country's electric power
industry. Thus, it is exacted by the State in the exercise of its inherent police power. On
this premise, PSALM submits that there is no undue delegation of legislative power to
the ERC since the latter merely exercises a limited authority or discretion as to the
execution and implementation of the provisions of the EPIRA.[22]
Respondents Department of Energy (DOE), ERC, and NPC, through the Office of the
Solicitor General (OSG), share the same view that the Universal Charge is not a tax
because it is levied for a specific regulatory purpose, which is to ensure the viability of
the country's electric power industry, and is, therefore, an exaction in the exercise of the
State's police power. Respondents further contend that said Universal Charge does not
possess the essential characteristics of a tax, that its imposition would redound to the
benefit of the electric power industry and not to the public, and that its rate is uniformly
levied on electricity end-users, unlike a tax which is imposed based on the individual
taxpayer's ability to pay. Moreover, respondents deny that there is undue delegation of
legislative power to the ERC since the EPIRA sets forth sufficient determinable standards
which would guide the ERC in the exercise of the powers granted to it. Lastly,
respondents argue that the imposition of the Universal Charge is not oppressive and
confiscatory since it is an exercise of the police power of the State and it complies with
the requirements of due process.[23]
On its part, respondent PECO argues that it is duty-bound to collect and remit the
amount pertaining to the Missionary Electrification and Environmental Fund
components of the Universal Charge, pursuant to Sec. 34 of the EPIRA and the Decisions
in ERC Case Nos. 2002-194 and 2002-165. Otherwise, PECO could be held liable under
Sec. 46[24] of the EPIRA, which imposes fines and penalties for any violation of its
provisions or its IRR.[25]
The Issues
The ultimate issues in the case at bar are:
1) Whether or not, the Universal Charge imposed under Sec. 34 of
the EPIRA is a tax; and
2) Whether or not there is undue delegation of legislative power
to tax on the part of the ERC.[26]
Before we discuss the issues, the Court shall first deal with an obvious
procedural lapse.
Petitioners filed before us an original action particularly denominated as a
Complaint assailing the constitutionality of Sec. 34 of the EPIRA imposing the Universal
Charge and Rule 18 of the EPIRA's IRR. No doubt, petitioners have locus standi. They
impugn the constitutionality of Sec. 34 of the EPIRA because they sustained a direct
injury as a result of the imposition of the Universal Charge as reflected in their electric
bills.
However, petitioners violated the doctrine of hierarchy of courts when they
filed this Complaint directly with us. Furthermore, the Complaint is bereft of any
allegation of grave abuse of discretion on the part of the ERC or any of the public
respondents, in order for the Court to consider it as a petition for certiorari or
prohibition.
Article VIII, Section 5(1) and (2) of the 1987 Constitution[27] categorically
provides that:
SECTION 5. The Supreme Court shall have the following
powers:
1. Exercise original jurisdiction over cases affecting ambassadors,
other public ministers and consuls, and over petitions for
certiorari, prohibition, mandamus, quo warranto, and habeas
corpus.
2. Review, revise, reverse, modify, or affirm on appeal or certiorari,
as the law or the rules of court may provide, final judgments and
orders of lower courts in:
(a) All cases in which the constitutionality or
validity of any treaty, international or
executive agreement, law, presidential decree,
proclamation, order, instruction, ordinance, or
regulation is in question.
But this Court's jurisdiction to issue writs of certiorari, prohibition, mandamus, quo
warranto, and habeas corpus, while concurrent with that of the regional trial courts and
the Court of Appeals, does not give litigants unrestrained freedom of choice of forum
from which to seek such relief.[28] It has long been established that this Court will not
entertain direct resort to it unless the redress desired cannot be obtained in the
appropriate courts, or where exceptional and compelling circumstances justify
availment of a remedy within and call for the exercise of our primary jurisdiction.[29] This
circumstance alone warrants the outright dismissal of the present action.
This procedural infirmity notwithstanding, we opt to resolve the constitutional
issue raised herein. We are aware that if the constitutionality of Sec. 34 of the EPIRA is
not resolved now, the issue will certainly resurface in the near future, resulting in a
repeat of this litigation, and probably involving the same parties. In the public interest
and to avoid unnecessary delay, this Court renders its ruling now.
The instant complaint is bereft of merit.
The First Issue
To resolve the first issue, it is necessary to distinguish the States power of
taxation from the police power.
The power to tax is an incident of sovereignty and is unlimited in its range,
acknowledging in its very nature no limits, so that security against its abuse is to be
found only in the responsibility of the legislature which imposes the tax on the
constituency that is to pay it.[30] It is based on the principle that taxes are the lifeblood
of the government, and their prompt and certain availability is an imperious
need.[31] Thus, the theory behind the exercise of the power to tax emanates from
necessity; without taxes, government cannot fulfill its mandate of promoting the
general welfare and well-being of the people.[32]
On the other hand, police power is the power of the state to promote public welfare by
restraining and regulating the use of liberty and property.[33] It is the most pervasive,
the least limitable, and the most demanding of the three fundamental powers of the
State. The justification is found in the Latin maxims salus populi est suprema lex (the
welfare of the people is the supreme law) and sic utere tuo ut alienum non laedas (so
use your property as not to injure the property of others). As an inherent attribute of
sovereignty which virtually extends to all public needs, police power grants a wide
panoply of instruments through which the State, as parens patriae, gives effect to a host
of its regulatory powers.[34] We have held that the power to "regulate" means the power
to protect, foster, promote, preserve, and control, with due regard for the interests, first
and foremost, of the public, then of the utility and of its patrons.[35]
The conservative and pivotal distinction between these two powers rests in the
purpose for which the charge is made. If generation of revenue is the primary purpose
and regulation is merely incidental, the imposition is a tax; but if regulation is the
primary purpose, the fact that revenue is incidentally raised does not make the
imposition a tax.[36]
In exacting the assailed Universal Charge through Sec. 34 of the EPIRA, the State's police
power, particularly its regulatory dimension, is invoked. Such can be deduced from Sec.
34 which enumerates the purposes for which the Universal Charge is imposed[37] and
which can be amply discerned as regulatory in character. The EPIRA resonates such
regulatory purposes, thus:
SECTION 2. Declaration of Policy. It is hereby declared the policy of
the State:
(a) To ensure and accelerate the total electrification of the country;
 (b) To ensure the quality, reliability, security and affordability of the
supply of electric power;
(c) To ensure transparent and reasonable prices of electricity in a
regime of free and fair competition and full public
accountability to achieve greater operational and economic
efficiency and enhance the competitiveness of Philippine
products in the global market;
(d) To enhance the inflow of private capital and broaden the
ownership base of the power generation, transmission and
distribution sectors;
(e) To ensure fair and non-discriminatory treatment of public and
private sector entities in the process of restructuring the electric
power industry;
(f) To protect the public interest as it is affected by the rates and
services of electric utilities and other providers of electric
power;
(g) To assure socially and environmentally compatible energy
sources and infrastructure;
(h) To promote the utilization of indigenous and new and renewable
energy resources in power generation in order to reduce
dependence on imported energy;
(i) To provide for an orderly and transparent privatization of the
assets and liabilities of the National Power Corporation (NPC);
(j) To establish a strong and purely independent regulatory body and
system to ensure consumer protection and enhance the
competitive operation of the electricity market; and
(k) To encourage the efficient use of energy and other modalities of
demand side management.
From the aforementioned purposes, it can be gleaned that the assailed Universal
Charge is not a tax, but an exaction in the exercise of the State's police power. Public
welfare is surely promoted.
Moreover, it is a well-established doctrine that the taxing power may be used as an
implement of police power.[38] In Valmonte v. Energy Regulatory Board, et al.[39] and
in Gaston v. Republic Planters Bank,[40] this Court held that the Oil Price Stabilization
Fund (OPSF) and the Sugar Stabilization Fund (SSF) were exactions made in the exercise
of the police power. The doctrine was reiterated in Osmea v. Orbos[41] with respect to
the OPSF. Thus, we disagree with petitioners that the instant case is different from the
aforementioned cases. With the Universal Charge, a Special Trust Fund (STF) is also
created under the administration of PSALM.[42] The STF has some notable characteristics
similar to the OPSF and the SSF, viz.:
1) In the implementation of stranded cost recovery, the ERC shall
conduct a review to determine whether there is under-recovery
or over recovery and adjust (true-up) the level of the stranded
cost recovery charge. In case of an over-recovery, the ERC shall
ensure that any excess amount shall be remitted to the STF. A
separate account shall be created for these amounts which shall
be held in trust for any future claims of distribution utilities for
stranded cost recovery. At the end of the stranded cost recovery
period, any remaining amount in this account shall be used to
reduce the electricity rates to the end-users.[43]
2) With respect to the assailed Universal Charge, if the total
amount collected for the same is greater than the actual
availments against it, the PSALM shall retain the balance within
the STF to pay for periods where a shortfall occurs.[44]
3) Upon expiration of the term of PSALM, the administration of
the STF shall be transferred to the DOF or any of the DOF
attached agencies as designated by the DOF Secretary.[45]
The OSG is in point when it asseverates:
Evidently, the establishment and maintenance of the Special Trust
Fund, under the last paragraph of Section 34, R.A. No. 9136, is well
within the pervasive and non-waivable power and responsibility of
the government to secure the physical and economic survival and
well-being of the community, that comprehensive sovereign
authority we designate as the police power of the State.[46]
This feature of the Universal Charge further boosts the position that the same is an
exaction imposed primarily in pursuit of the State's police objectives. The STF
reasonably serves and assures the attainment and perpetuity of the purposes for which
the Universal Charge is imposed, i.e., to ensure the viability of the country's electric
power industry.
The Second Issue
The principle of separation of powers ordains that each of the three branches
of government has exclusive cognizance of and is supreme in matters falling within its
own constitutionally allocated sphere. A logical corollary to the doctrine of separation
of powers is the principle of non-delegation of powers, as expressed in the Latin
maxim potestas delegata non delegari potest (what has been delegated cannot be
delegated). This is based on the ethical principle that such delegated power constitutes
not only a right but a duty to be performed by the delegate through the instrumentality
of his own judgment and not through the intervening mind of another. [47]
In the face of the increasing complexity of modern life, delegation of legislative power
to various specialized administrative agencies is allowed as an exception to this
principle.[48] Given the volume and variety of interactions in today's society, it is doubtful
if the legislature can promulgate laws that will deal adequately with and respond
promptly to the minutiae of everyday life. Hence, the need to delegate to administrative
bodies - the principal agencies tasked to execute laws in their specialized fields - the
authority to promulgate rules and regulations to implement a given statute and
effectuate its policies. All that is required for the valid exercise of this power of
subordinate legislation is that the regulation be germane to the objects and purposes
of the law and that the regulation be not in contradiction to, but in conformity with, the
standards prescribed by the law. These requirements are denominated as the
completeness test and the sufficient standard test.
Under the first test, the law must be complete in all its terms and conditions when it
leaves the legislature such that when it reaches the delegate, the only thing he will have
to do is to enforce it. The second test mandates adequate guidelines or limitations in
the law to determine the boundaries of the delegate's authority and prevent the
delegation from running riot.[49]
The Court finds that the EPIRA, read and appreciated in its entirety, in relation to Sec.
34 thereof, is complete in all its essential terms and conditions, and that it contains
sufficient standards.
Although Sec. 34 of the EPIRA merely provides that within one (1) year from the
effectivity thereof, a Universal Charge to be determined, fixed and approved by the ERC,
shall be imposed on all electricity end-users, and therefore, does not state the specific
amount to be paid as Universal Charge, the amount nevertheless is made certain by the
legislative parameters provided in the law itself. For one, Sec. 43(b)(ii) of the EPIRA
provides:
SECTION 43. Functions of the ERC. The ERC shall promote
competition, encourage market development, ensure customer
choice and penalize abuse of market power in the restructured
electricity industry. In appropriate cases, the ERC is authorized to
issue cease and desist order after due notice and hearing. Towards
this end, it shall be responsible for the following key functions in the
restructured industry:
xxxx
(b) Within six (6) months from the effectivity of this Act, promulgate
and enforce, in accordance with law, a National Grid Code and a
Distribution Code which shall include, but not limited to the
following:
xxxx
(ii) Financial capability standards for the generating companies,
the TRANSCO, distribution utilities and suppliers: Provided, That in
the formulation of the financial capability standards, the nature and
function of the entity shall be considered: Provided, further, That such
standards are set to ensure that the electric power industry
participants meet the minimum financial standards to protect the
public interest. Determine, fix, and approve, after due notice and
public hearings the universal charge, to be imposed on all electricity
end-users pursuant to Section 34 hereof;
Moreover, contrary to the petitioners contention, the ERC does not enjoy a wide latitude
of discretion in the determination of the Universal Charge. Sec. 51(d) and (e) of the
EPIRA[50] clearly provides:
SECTION 51. Powers. The PSALM Corp. shall, in the performance of
its functions and for the attainment of its objective, have the
following powers:
xxxx
(d) To calculate the amount of the stranded debts and stranded
contract costs of NPC which shall form the basis for ERC in
the determination of the universal charge;
(e) To liquidate the NPC stranded contract costs, utilizing the
proceeds from sales and other property contributed to it,
including the proceeds from the universal charge.
Thus, the law is complete and passes the first test for valid delegation of
legislative power.
As to the second test, this Court had, in the past, accepted as sufficient standards the
following: "interest of law and order;"[51] "adequate and efficient instruction;"[52] "public
interest;"[53] "justice and equity;"[54] "public convenience and welfare;"[55] "simplicity,
economy and efficiency;"[56] "standardization and regulation of medical
education;"[57] and "fair and equitable employment practices."[58] Provisions of the
EPIRA such as, among others, to ensure the total electrification of the country and the
quality, reliability, security and affordability of the supply of electric power [59] and
watershed rehabilitation and management[60] meet the requirements for valid
delegation, as they provide the limitations on the ERCs power to formulate the IRR.
These are sufficient standards.
It may be noted that this is not the first time that the ERC's conferred powers were
challenged. In Freedom from Debt Coalition v. Energy Regulatory Commission,[61] the
Court had occasion to say:
In determining the extent of powers possessed by the ERC, the
provisions of the EPIRA must not be read in separate parts. Rather,
the law must be read in its entirety, because a statute is passed as a
whole, and is animated by one general purpose and intent. Its
meaning cannot to be extracted from any single part thereof but
from a general consideration of the statute as a whole. Considering
the intent of Congress in enacting the EPIRA and reading the statute
in its entirety, it is plain to see that the law has expanded the
jurisdiction of the regulatory body, the ERC in this case, to enable the
latter to implement the reforms sought to be accomplished by the
EPIRA. When the legislators decided to broaden the jurisdiction of
the ERC, they did not intend to abolish or reduce the powers already
conferred upon ERC's predecessors. To sustain the view that the ERC
possesses only the powers and functions listed under Section 43 of
the EPIRA is to frustrate the objectives of the law.
In his Concurring and Dissenting Opinion[62] in the same case, then Associate Justice,
now Chief Justice, Reynato S. Puno described the immensity of police power in relation
to the delegation of powers to the ERC and its regulatory functions over electric power
as a vital public utility, to wit:
Over the years, however, the range of police power was no
longer limited to the preservation of public health, safety and morals,
which used to be the primary social interests in earlier times. Police
power now requires the State to "assume an affirmative duty to
eliminate the excesses and injustices that are the concomitants of an
unrestrained industrial economy." Police power is now exerted "to
further the public welfare a concept as vast as the good of society
itself." Hence, "police power is but another name for the
governmental authority to further the welfare of society that is the
basic end of all government." When police power is delegated to
administrative bodies with regulatory functions, its exercise should
be given a wide latitude. Police power takes on an even broader
dimension in developing countries such as ours, where the State
must take a more active role in balancing the many conflicting
interests in society. The Questioned Order was issued by the ERC,
acting as an agent of the State in the exercise of police power. We
should have exceptionally good grounds to curtail its exercise. This
approach is more compelling in the field of rate-regulation of electric
power rates. Electric power generation and distribution is a
traditional instrument of economic growth that affects not only a few
but the entire nation. It is an important factor in encouraging
investment and promoting business. The engines of progress may
come to a screeching halt if the delivery of electric power is impaired.
Billions of pesos would be lost as a result of power outages or
unreliable electric power services. The State thru the ERC should be
able to exercise its police power with great flexibility, when the need
arises.
This was reiterated in National Association of Electricity Consumers for Reforms v.
Energy Regulatory Commission[63] where the Court held that the ERC, as regulator,
should have sufficient power to respond in real time to changes wrought by multifarious
factors affecting public utilities.
From the foregoing disquisitions, we therefore hold that there is no undue delegation
of legislative power to the ERC.
Petitioners failed to pursue in their Memorandum the contention in the
Complaint that the imposition of the Universal Charge on all end-users is oppressive
and confiscatory, and amounts to taxation without representation. Hence, such
contention is deemed waived or abandoned per Resolution[64] of August 3,
2004.[65] Moreover, the determination of whether or not a tax is excessive, oppressive
or confiscatory is an issue which essentially involves questions of fact, and thus, this
Court is precluded from reviewing the same.[66]
As a penultimate statement, it may be well to recall what this Court said of EPIRA:
One of the landmark pieces of legislation enacted by Congress in
recent years is the EPIRA. It established a new policy, legal structure
and regulatory framework for the electric power industry. The new
thrust is to tap private capital for the expansion and improvement of
the industry as the large government debt and the highly capital-
intensive character of the industry itself have long been
acknowledged as the critical constraints to the program. To attract
private investment, largely foreign, the jaded structure of the industry
had to be addressed. While the generation and transmission sectors
were centralized and monopolistic, the distribution side was
fragmented with over 130 utilities, mostly small and uneconomic. The
 pervasive flaws have caused a low utilization of existing generation
capacity; extremely high and uncompetitive power rates; poor quality
of service to consumers; dismal to forgettable performance of the
government power sector; high system losses; and an inability to
develop a clear strategy for overcoming these shortcomings.

Thus, the EPIRA provides a framework for the restructuring of the

industry, including the privatization of the assets of the National
Power Corporation (NPC), the transition to a competitive structure,
and the delineation of the roles of various government agencies and
the private entities. The law ordains the division of the industry into
four (4) distinct
sectors, namely: generation, transmission, distribution and supply.
Corollarily, the NPC generating plants have to privatized and its
transmission business spun off and privatized thereafter.[67]

Finally, every law has in its favor the presumption of constitutionality, and to justify its
nullification, there must be a clear and unequivocal breach of the Constitution and not
one that is doubtful, speculative, or argumentative.[68]Indubitably, petitioners failed to
overcome this presumption in favor of the EPIRA. We find no clear violation of the
Constitution which would warrant a pronouncement that Sec. 34 of the EPIRA and Rule
18 of its IRR are unconstitutional and void.

WHEREFORE, the instant case is hereby DISMISSED for lack of merit.

SO ORDERED.
THIRD DIVISION 3. Royalty Fees

CHEVRON PHILIPPINES, INC. (Formerly G.R. No. 173863 Suppliers delivering fuel from outside sources shall be assessed the
CALTEX PHILIPPINES, INC.), following royalty fees:
Petitioner, Present:
- Php0.50 per liter those delivering Coastal
petroleum fuel to CSEZ locators not
CARPIO MORALES, J.,
sanctioned by CDC
Chairperson,
- versus - PERALTA,* - Php1.00 per liter those bringing-in
BERSAMIN, petroleum fuel (except Jet A-1) from outside
VILLARAMA, JR., and sources
SERENO, JJ.
xxxx

4. Gate Pass Fee

BASES CONVERSION DEVELOPMENT Promulgated: x x x x[5]

AUTHORITY and CLARK
DEVELOPMENT CORPORATION, September 15, 2010 The above policy guidelines were implemented effective July 27, 2002. On
Respondents.
October 1, 2002, CDC sent a letter[6] to herein petitioner Chevron Philippines, Inc.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
(formerly Caltex Philippines, Inc.), a domestic corporation which has been supplying fuel
to Nanox Philippines, a locator inside the CSEZ since 2001, informing the petitioner that
DECISION
VILLARAMA, JR., J.: a royalty fee of P0.50 per liter shall be assessed on its deliveries to Nanox Philippines
effective August 1, 2002. Thereafter, on October 21, 2002 a Statement of Account[7] was
sent by CDC billing the petitioner for royalty fees in the amount of P115,000.00 for its
This petition for review on certiorari assails the Decision[1] dated November 30, fuel sales from Coastal depot to Nanox Philippines from August 1-31 to September 3-
2005 of the Court of Appeals (CA) in CA-G.R. SP No. 87117, which affirmed the 21, 2002.
Resolution[2] dated August 2, 2004 and the Order[3] dated September 30, 2004 of the
Office of the President in O.P. Case No. 04-D-170.
Claiming that nothing in the law authorizes CDC to impose royalty fees or any
fees based on a per unit measurement of any commodity sold within the special
The facts follow. economic zone, petitioner sent a letter[8] dated October 30, 2002 to the President and
Chief Executive Officer of CDC, Mr. Emmanuel Y. Angeles, to protest the assessment for
On June 28, 2002, the Board of Directors of respondent Clark Development royalty fees. Petitioner nevertheless paid the said fees under protest on November 4,
Corporation (CDC) issued and approved Policy Guidelines on the Movement of 2002.
Petroleum Fuel to and from the Clark Special Economic Zone (CSEZ)[4]which provided,
among others, for the following fees and charges: On August 18, 2003, CDC again wrote a letter[9] to petitioner regarding the
latters unsettled royalty fees covering the period of December 2002 to July
1. Accreditation Fee
2003. Petitioner responded through a letter[10] dated September 8, 2003reiterating its
xxxx continuing objection over the assessed royalty fees and requested a refund of the
amount paid under protest on November 4, 2002. The letter also asked CDC to revoke
2. Annual Inspection Fee the imposition of such royalty fees. The request was denied by CDC in a
letter[11] dated September 29, 2003.
xxxx
 Petitioner elevated its protest before respondent Bases Conversion
Development Authority (BCDA) arguing that the royalty fees imposed had no
reasonable relation to the probable expenses of regulation and that the imposition on
a per unit measurement of fuel sales was for a revenue generating purpose, thus, akin
to a tax. The protest was however denied by BCDA in a letter[12] dated March 3, 2004.
Petitioner appealed to the Office of the President which dismissed[13] the
appeal for lack of merit on August 2, 2004 and denied[14] petitioners motion for
reconsideration thereof on September 30, 2004.
Aggrieved, petitioner elevated the case to the CA which likewise
dismissed[15] the appeal for lack of merit on November 30, 2005 and denied[16] the
motion for reconsideration on July 26, 2006.
The CA held that in imposing the challenged royalty fees, respondent CDC was
exercising its right to regulate the flow of fuel into CSEZ, which is bolstered by the fact
that it possesses exclusive right to distribute fuel within CSEZ pursuant to its Joint
Venture Agreement (JVA)[17] with Subic Bay Metropolitan Authority (SBMA) and Coastal
Subic Bay Terminal, Inc. (CSBTI) dated April 11, 1996. The appellate court also found
that royalty fees were assessed on fuel delivered, not on the sale, by petitioner and that
the basis of such imposition was petitioners delivery receipts to Nanox Philippines. The
fact that revenue is incidentally also obtained does not make the imposition a tax as
long as the primary purpose of such imposition is regulation.[18]
Petitioner filed a motion for reconsideration but the CA denied the same in its
Resolution[19] dated July 26, 2006.
Hence, this petition raising the following grounds:
I. THE ISSUE RAISED BEFORE THE COURT A QUO IS A QUESTION OF
SUBSTANCE NOT HERETOFORE DETERMINED BY THE
HONORABLE SUPREME COURT.
II. THE RULING OF THE COURT OF APPEALS THAT THE CDC HAS THE
POWER TO IMPOSE THE QUESTIONED ROYALTY FEES IS
CONTRARY TO LAW.
III. THE COURT OF APPEALS WAS MANIFESTLY MISTAKEN AND
COMMITTED GRAVE ABUSE OF DISCRETION AND A CLEAR
MISUNDERSTANDING OF FACTS WHEN IT RULED CONTRARY
TO THE EVIDENCE THAT: (i) THE QUESTIONED ROYALTY FEE IS
PRIMARILY FOR REGULATION; AND (ii) ANY REVENUE EARNED
THEREFROM IS MERELY INCIDENTAL TO THE PURPOSE OF
REGULATION.
IV. THE COURT OF APPEALS FAILED TO GIVE DUE WEIGHT AND
CONSIDERATION TO THE EVIDENCE PRESENTED BY CPI SUCH
AS THE LETTERS COMING FROM RESPONDENT CDC ITSELF
PROVING THAT THE QUESTIONED ROYALTY FEES ARE
IMPOSED ON THE BASIS OF FUEL SALES (NOT DELIVERY OF
FUEL) AND NOT FOR REGULATION BUT PURELY FOR INCOME
GENERATION, I.E. AS PRICE OR CONSIDERATION FOR THE
RIGHT TO MARKET AND DISTRIBUTE FUEL INSIDE THE CSEZ.[20]
Petitioner argues that CDC does not have any power to impose royalty fees on
sale of fuel inside the CSEZ on the basis of purely income generating functions and its
exclusive right to market and distribute goods inside the CSEZ. Such imposition of royalty
fees for revenue generating purposes would amount to a tax, which the respondents have
no power to impose. Petitioner stresses that the royalty fee imposed by CDC is not
regulatory in nature but a revenue generating measure to increase its profits and to
further enhance its exclusive right to market and distribute fuel in CSEZ.[21]
Petitioner would also like this Court to note that the fees imposed,
assuming arguendo they are regulatory in nature, are unreasonable and are grossly in
excess of regulation costs. It adds that the amount of the fees should be presumed to
be unreasonable and that the burden of proving that the fees are not unreasonable lies
with the respondents.[22]
On the part of the respondents, they argue that the purpose of the royalty fees
is to regulate the flow of fuel to and from the CSEZ. Such being its main purpose, and
revenue (if any) just an incidental product, the imposition cannot be considered a tax.
It is their position that the regulation is a valid exercise of police power since it is aimed
at promoting the general welfare of the public. They claim that being the administrator
of the CSEZ, CDC is responsible for the safe distribution of fuel products inside the
CSEZ.[23]
The petition has no merit.
In distinguishing tax and regulation as a form of police power, the determining
factor is the purpose of the implemented measure. If the purpose is primarily to raise
revenue, then it will be deemed a tax even though the measure results in some form of
regulation. On the other hand, if the purpose is primarily to regulate, then it is deemed
a regulation and an exercise of the police power of the state, even though incidentally,
revenue is generated. Thus, in Gerochi v. Department of Energy,[24] the Court stated:
 The conservative and pivotal distinction between these two
(2) powers rests in the purpose for which the charge is made. If
generation of revenue is the primary purpose and regulation is
merely incidental, the imposition is a tax; but if regulation is the
primary purpose, the fact that revenue is incidentally raised does not
make the imposition a tax.
In the case at bar, we hold that the subject royalty fee was imposed primarily
for regulatory purposes, and not for the generation of income or profits as petitioner
claims. The Policy Guidelines on the Movement of Petroleum Fuel to and from the Clark
Special Economic Zone[25] provides:
DECLARATION OF POLICY
It is hereby declared the policy of CDC to develop and maintain the
Clark Special Economic Zone (CSEZ) as a highly secured zone free
from threats of any kind, which could possibly endanger the lives and
properties of locators, would-be investors, visitors, and employees.
It is also declared the policy of CDC to operate and manage the CSEZ
as a separate customs territory ensuring free flow or movement of
goods and capital within, into and exported out of the
CSEZ.[26] (Emphasis supplied.)
From the foregoing, it can be gleaned that the Policy Guidelines was issued, first and
foremost, to ensure the safety, security, and good condition of the petroleum fuel
industry within the CSEZ. The questioned royalty fees form part of the regulatory
framework to ensure free flow or movement of petroleum fuel to and from the
CSEZ. The fact that respondents have the exclusive right to distribute and market
petroleum products within CSEZ pursuant to its JVA with SBMA and CSBTI does not
diminish the regulatory purpose of the royalty fee for fuel products supplied by
petitioner to its client at the CSEZ.
As pointed out by the respondents in their Comment, from the time the JVA took effect
up to the time CDC implemented its Policy Guidelines on the Movement of Petroleum
Fuel to and from the CSEZ, suppliers/distributors were allowed to bring in petroleum
products inside CSEZ without any charge at all. But this arrangement clearly negates
CDCs mandate under the JVA as exclusive distributor of CSBTIs fuel products within
CSEZ and respondents ownership of the Subic-Clark Pipeline.[27] On this score,
respondents were justified in charging royalty fees on fuel delivered by outside
suppliers.
However, it was erroneous for petitioner to argue that such exclusive right of
respondent CDC to market and distribute fuel inside CSEZ is the sole basis of the royalty
fees imposed under the Policy Guidelines. Being the administrator of CSEZ, the
responsibility of ensuring the safe, efficient and orderly distribution of fuel products
within the Zone falls on CDC. Addressing specific concerns demanded by the nature of
goods or products involved is encompassed in the range of services which respondent
CDC is expected to provide under the law, in pursuance of its general power
of supervision and control over the movement of all supplies and equipment into the
CSEZ.
Section 2 of Executive Order No. 80[28] provides:
SEC. 2. Powers and Functions of the Clark Development
Corporation. The BCDA, as the incorporator and holding company of
its Clark subsidiary, shall determine the powers and functions of the
CDC. Pursuant to Section 15 of RA 7227, the CDC shall have the
specific powers of the Export Processing Zone Authority as provided
for in Section 4 of Presidential Decree No. 66 (1972) as amended.
Among those specific powers granted to CDC under Section 4 of Presidential Decree
No. 66 are:
(a) To operate, administer and manage the export
processing zone established in the Port of Mariveles, Bataan, and
such other export processing zones as may be established under this
Decree; to construct, acquire, own, lease, operate and maintain
infrastructure facilities, factory building, warehouses, dams, reservoir,
water distribution, electric light and power system,
telecommunications and transportation, or such other facilities and
services necessary or useful in the conduct of commerce or in the
attainment of the purposes and objectives of this Decree;
xxxx
(g) To fix, assess and collect storage charges and fees,
including rentals for the lease, use or occupancy of lands, buildings,
structure, warehouses, facilities and other properties owned and
administered by the Authority; and to fix and collect the fees and
charges for the issuance of permits, licenses and the rendering of
services not enumerated herein, the provisions of law to the
contrary notwithstanding;
 (h) For the due and effective exercise of the powers We are therefore constrained to sustain the imposition of the royalty
conferred by law and to the extend (sic) [extent] requisite therefor, to fees on deliveries of CPIs fuel products to Nanox Philippines.[31]
exercise exclusive jurisdiction and sole police authority over all areas
owned or administered by the Authority. For this purpose, the
As to the issue of reasonableness of the amount of the fees, we hold that no evidence
Authority shall have supervision and control over the bringing in
was adduced by the petitioner to show that the fees imposed are unreasonable.
or taking out of the Zone, including the movement therein, of
all cargoes, wares, articles, machineries, equipment, supplies or
merchandise of every type and description; Administrative issuances have the force and effect of law.[32] They benefit from the same
presumption of validity and constitutionality enjoyed by statutes. These two precepts
x x x x (Emphasis supplied.) place a heavy burden upon any party assailing governmental regulations.[33] Petitioners
plain allegations are simply not enough to overcome the presumption of validity and
reasonableness of the subject imposition.
In relation to the regulatory purpose of the imposed fees, this Court in Progressive
Development Corporation v. Quezon City,[29] stated that x x x the imposition WHEREFORE, the petition is DENIED for lack of merit and the Decision of the Court of
questioned must relate to an occupation or activity that so engages the public interest Appeals dated November 30, 2005 in CA-G.R. SP No. 87117 is hereby AFFIRMED.
in health, morals, safety and development as to require regulation for the protection
and promotion of such public interest; the imposition must also bear a reasonable With costs against the petitioner.
relation to the probable expenses of regulation, taking into account not only the costs
of direct regulation but also its incidental consequences as well.
SO ORDERED.

In the case at bar, there can be no doubt that the oil industry is greatly imbued with
public interest as it vitally affects the general welfare.[30] In addition, fuel is a highly
combustible product which, if left unchecked, poses a serious threat to life and property.
Also, the reasonable relation between the royalty fees imposed on a per liter basis and
the regulation sought to be attained is that the higher the volume of fuel entering CSEZ,
the greater the extent and frequency of supervision and inspection required to ensure
safety, security, and order within the Zone.

Respondents submit that increased administrative costs were triggered by security risks
that have recently emerged, such as terrorist strikes in airlines and military/government
facilities. Explaining the regulatory feature of the charges imposed under the Policy
Guidelines, then BCDA President Rufo Colayco in his letter dated March 3,
2004 addressed to petitioners Chief Corporate Counsel, stressed:

The need for regulation is more evident in the light of the 9/11
tragedy considering that what is being moved from one location to
another are highly combustible fuel products that could cause loss
of lives and damage to properties, hence, a set of guidelines was
promulgated on 28 June 2002. It must be emphasized also that
greater security measure must be observed in the CSEZ because of
the presence of the airport which is a vital public infrastructure.
EN BANC
G.R. Nos. L-19824, L-19825 and 19826 July 9, 1966
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,
vs.
BACOLOD-MURCIA MILLING CO., INC., MA-AO SUGAR CENTRAL CO., INC., and
TALISAY-SILAY MILLING COMPANY, defendants-appellants.
Meer, Meer and Meer, Enrique M. Fernando and Emma Quisumbing-Fernando for
defendants-appellants.
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Antonio
Torres and Solicitor Ceferino Padua, for plaintiff-appellee.
REGALA, J.:
This is a joint appeal by three sugar centrals, Bacolod Murcia Milling Co., Inc., Ma-ao
Sugar Central Co., Inc., and Talisay-Silay Milling Co., sister companies under one
controlling ownership and management, from a decision of the Court of First Instance
of Manila finding them liable for special assessments under Section 15 of Republic Act
No. 632.
Republic Act No. 632 is the charter of the Philippine Sugar Institute, Philsugin for short,
a semi-public corporation created for the following purposes and objectives:
(a) To conduct research work for the sugar industry in all its phases, either
agricultural or industrial, for the purpose of introducing into the sugar industry
such practices or processes that will reduce the cost of production, increase
and improve the industrialization of the by-products of sugar cane, and
achieve greater efficiency in the industry;
(b) To improve existing methods of raising sugar cane and of sugar
manufacturing;
(c) To insure a permanent, sufficient and balanced production of sugar and its
by-products for local consumption and exportation;
(d) To establish and maintain such balanced relation between production and
consumption of sugar and its by-products, and such marketing conditions
therefor, as well insure stabilized prices at a level sufficient to cover the cost
of production plus a reasonable profit;
(e) To promote the effective merchandising of sugar and its by-products in the
domestic and foreign markets so that those engaged in the sugar industry will
be placed on a basis of economic security; and
(f) To improve the living and economic conditions of laborers engaged in the
sugar industry by the gradual and effective correction of the inequalities
existing in the industry. (Section 2, Rep. Act 632)
To realize and achieve these ends, Sections 15 and 16 of the aforementioned law
provide:
Sec. 15. Capitalization. — To raise the necessary funds to carry out the
provisions of this Act and the purposes of the corporation, there shall be levied
on the annual sugar production a tax of TEN CENTAVOS [P0.10] per picul of
sugar to be collected for a period of five (5) years beginning the crop year
1951-1952. The amount shall be borne by the sugar cane planters and the
sugar centrals in the proportion of their corresponding milling share, and said
levy shall constitute a lien on their sugar quedans and/or warehouse receipts.
Sec. 16. Special Fund. — The proceeds of the foregoing levy shall be set aside
to constitute a special fund to be known as the "Sugar Research and
Stabilization Fund," which shall be available exclusively for the use of the
corporation. All the income and receipts derived from the special fund herein
created shall accrue to, and form part of the said fund to be available solely
for the use of the corporation.
The specific and general powers of the Philsugin are set forth in Section 8 of the same
law, to wit:
Sec. 3. Specific and General Powers. — For carrying out the purposes
mentioned in the preceding section, the PHILSUGIN shall have the following
powers:
(a) To establish, keep, maintain and operate, or help establish, keep, maintain,
and operate one central experiment station and such number of regional
experiment stations in any part of the Philippines as may be necessary to
undertake extensive research in sugar cane culture and manufacture, including
studies as to the feasibility of merchandising sugar cane farms, the control and
eradication of pests, the selected and propagation of high-yielding varieties
of sugar cane suited to Philippine climatic conditions, and such other pertinent
studies as will be useful in adjusting the sugar industry to a position
independent of existing trade preference in the American market;
 (b) To purchase such machinery, materials, equipment and supplies as may be
necessary to prosecute successfully such researches and experimental work;
(c) To explore and expand the domestic and foreign markets for sugar and its
by-products to assure mutual benefits to consumers and producers, and to
promote and maintain a sufficient general production of sugar and its by-
products by an efficient coordination of the component elements of the sugar
industry of the country;
(d) To buy, sell, assign, own, operate, rent or lease, subject to existing laws,
machineries, equipment, materials, merchant vessels, rails, railroad lines, and
any other means of transportation, warehouses, buildings, and any other
equipment and material to the production, manufacture, handling,
transportation and warehousing of sugar and its by-products;
(e) To grant loans, on reasonable terms, to planters when it deems such loans
advisable;
(f) To enter, make and execute contracts of any kind as may be necessary or
incidental to the attainment of its purposes with any person, firm, or public or
private corporation, with the Government of the Philippines or of the United
States, or any state, territory, or persons therefor, or with any foreign
government and, in general, to do everything directly or indirectly necessary
or incidental to, or in furtherance of, the purposes of the corporation;
(g) To do all such other things, transact all such business and perform such
functions directly or indirectly necessary, incidental or conducive to the
attainment of the purposes of the corporation; and
(h) Generally, to exercise all the powers of a Corporation under the
Corporation Law insofar as they are not inconsistent with the provisions of this
Act.
The facts of this case bearing relevance to the issue under consideration, as recited by
the lower court and accepted by the appellants, are the following:
x x x during the 5 crop years mentioned in the law, namely 1951-1952, 1952-
1953, 1953-1954, 1954-1955 and 1955-1956, defendant Bacolod-Murcia
Milling Co., Inc., has paid P267,468.00 but left an unpaid balance of
P216,070.50; defendant Ma-ao Sugar Central Co., Inc., has paid P117,613.44
but left unpaid balance of P235,800.20; defendant Talisay-Silay Milling
Company has paid P251,812.43 but left unpaid balance of P208,193.74; and
defendant Central Azucarera del Danao made a payment of P49,897.78 but
left unpaid balance of P48,059.77. There is no question regarding the
correctness of the amounts paid and the amounts that remain unpaid.
From the evidence presented, on which there is no controversy, it was
disclosed that on September 3, 1951, the Philippine Sugar Institute, known as
the PHILSUGIN for short, acquired the Insular Sugar Refinery for a total
consideration of P3,070,909.60 payable, in accordance with the deed of sale
Exhibit A, in 3 installments from the process of the sugar tax to be collected,
under Republic Act 632. The evidence further discloses that the operation of
the Insular Sugar Refinery for the years, 1954, 1955, 1956 and 1957 was
disastrous in the sense that PHILSUGIN incurred tremendous losses as shown
by an examination of the statements of income and expenses marked Exhibits
5, 6, 7 and 8. Through the testimony of Mr. Cenon Flor Cruz, former acting
general manager of PHILSUGIN and at present technical consultant of said
entity, presented by the defendants as witnesses, it has been shown that the
operation of the Insular Sugar Refinery has consumed 70% of the thinking
time and effort of the PHILSUGIN management. x x x .
Contending that the purchase of the Insular Sugar Refinery with money from the
Philsugin Fund was not authorized by Republic Act 632 and that the continued
operation of the said refinery was inimical to their interests, the appellants refused to
continue with their contributions to the said fund. They maintained that their obligation
to contribute or pay to the said Fund subsists only to the limit and extent that they are
benefited by such contributions since Republic Act 632 is not a revenue measure but
an Act which establishes a "Special assessments." Adverting to the finding of the lower
court that proceeds of the said Fund had been used or applied to absorb the
"tremendous losses" incurred by Philsugin in its "disastrous operation" of the said
refinery, the appellants herein argue that they should not only be released from their
obligation to pay the said assessment but be refunded, besides, of all that they might
have previously paid thereunder.
The appellants' thesis is simply to the effect that the "10 centavos per picul of sugar"
authorized to be collected under Sec. 15 of Republic 632 is a special assessment. As
such, the proceeds thereof may be devoted only to the specific purpose for which the
assessment was authorized, a special assessment being a levy upon property predicated
on the doctrine that the property against which it is levied derives some special benefit
from the improvement. It is not a tax measure intended to raise revenues for the
Government. Consequently, once it has been determined that no benefit accrues or
inures to the property owners paying the assessment, or that the proceeds from the
said assessment are being misapplied to the prejudice of those against whom it has
been levied, then the authority to insist on the payment of the said assessment ceases.
On the other hand, the lower court adjudged the appellants herein liable under the
aforementioned law, Republic Act 632, upon the following considerations:
First, Subsection d) of Section 3 of Republic Act 632 authorizes Philsugin to buy and
operate machineries, equipment, merchant vessels, etc., and any other equipment and
material for the production, manufacture, handling, transportation and warehousing of
sugar and its by-products. It was, therefore, authorized to purchase and operate a sugar
refinery.
Secondly, the corporate powers of the Philsugin are vested in and exercised by a board
of directors composed of 5 members, 3 of whom shall be appointed upon
recommendation of the National Federation of Sugar Cane Planters and 2 upon
recommendation of the Philippine Sugar Association. (Sec. 4, Rep. Act 632). It has not
been shown that this particular provision was not observed in this case. Therefore, the
appellants herein may not rightly claim that there had been a misapplication of the
Philsugin funds when the same was used to procure the Insular Sugar Refinery because
the decision to purchase the said refinery was made by a board in which the applicants
were fully and duly represented, the appellants being members of the Philippine Sugar
Association.
Thirdly, all financial transactions of the Philsugin are audited by the General Auditing
Office, which must be presumed to have passed upon the legality and prudence of the
disbursements of the Fund. Additionally, other offices of the Government review such
transactions as reflected in the annual report obliged of the Philsugin to prepare.
Among those offices are the Office of the President of the Philippines, the Administrator
of Economic Coordination and the Presiding Officers of the two chambers of Congress.
With all these safeguards against any imprudent or unauthorized expenditure of
Philsugin Funds, the acquisition of the Insular Sugar Refinery must be upheld in its
legality and propriety.
Fourthly, it would be dangerous to sanction the unilateral refusal of the appellants
herein to continue with their contribution to the Fund for that conduct is no different
"from the case of an ordinary taxpayer who refuses to pay his taxes on the ground that
the money is being misappropriated by Government officials." This is taking the law
into their own hands.
Against the above ruling of the trial court, the appellants contend:
First. It is fallacious to argue that no mismanagement or abuse of corporate power could
have been committed by Philsugin solely because its charter incorporates so many
devices or safeguards to preclude such abuse. This reasoning of the lower court does
not reconcile with that actually happened in this case.
Besides, the appellants contend that the issue on hand is not whether Philsugin abused
or not its powers when it purchased the Insular Sugar Refinery. The issue, rather, is
whether Philsugin had any power or authority at all to acquire the said refinery. The
appellants deny that Philsugin is possessed of any such authority because what it is
empowered to purchase is not a "sugar refinery but a central experiment station or
perhaps at the most a sugar central to be used for that purpose." (Sec. 3[a], Rep. Act
632) For this distinction, the appellants cite the case of Collector vs. Ledesma, G.R. No.
L-12158, May 27, 1959, in which this Court ruled that —
We are of the opinion that a "sugar central," as that term is used in Section
189, applies to "a large mill that makes sugar out of the cane brought from a
wide surrounding territory," or a sugar mill which manufactures sugar for a
number of plantations. The term "sugar central" could not have been intended
by Congress to refer to all sugar mills or sugar factories as contended by
respondent. If respondent's interpretation is to be followed, even sugar mills
run by animal power (trapiche) would be considered sugar central. We do not
think Congress ever intended to place owners of (trapiches) in the same
category as operators of sugar centrals.
That sugar mills are not the same as sugar centrals may also be gleaned from
Commonwealth Act No. 470 (Assessment Law). In prescribing the principle
governing valuation and assessment of real property. Section 4 of said Act
provides —
"Machinery permanently used or in stalled in sugar centrals, mills, or refineries
shall be assessed."
This clearly indicates that "Sugar centrals" are not the same as "sugar mills" or
"sugar refineries."
Second. The appellants' refusal to continue paying the assessment under Republic Act
632 may not rightly be equated with a taxpayer's refusal to pay his ordinary taxes
precisely because there is a substantial distinction between a "special assessment" and
an ordinary tax. The purpose of the former is to finance the improvement of particular
properties, with the benefits of the improvement accruing or inuring to the owners
thereof who, after all, pay the assessment. The purpose of an ordinary tax, on the other
hand, is to provide the Government with revenues needed for the financing of state
affairs. Thus, while the refusal of a citizen to pay his ordinary taxes may not indeed be
sanctioned because it would impair government functions, the same would not hold
true in the case of a refusal to comply with a special assessment.
Third. Upon a host of decisions of the United States Supreme Court, the imposition or
collection of a special assessment upon property owners who receive no benefit from
such assessment amounts to a denial of due process. Thus, in the case of Norwood vs.
Baer, 172 US 269, the ruling was laid down that —
As already indicated, the principle underlying special assessments to meet the
cost of public improvements is that the property upon which they are imposed
is peculiarly benefited, and therefore, the panels do not, in fact, pay anything
in excess of what they received by reason of such improvement.
unless a corresponding benefit is realized by the property owner, the exaction of a
special assessment would be "manifestly unfair" (Seattle vs. Kelleher 195 U.S. 351) and
"palpably arbitrary or plain abuse" (Gast Realty Investment Co. vs. Schneider Granite
Co., 240 U.S. 57). In other words, the assessment is violative of the due process
guarantee of the constitution (Memphis vs. Charleston Ry v. Pace, 282 U.S. 241).
We find for the appellee.
The nature of a "special assessment" similar to the case at bar has already been
discussed and explained by this Court in the case of Lutz vs. Araneta, 98 Phil. 148. For
in this Lutz case, Commonwealth Act 567, otherwise known as the Sugar Adjustment
Act, levies on owners or persons in control of lands devoted to the cultivation of sugar
cane and ceded to others for a consideration, on lease or otherwise —
a tax equivalent to the difference between the money value of the rental or
consideration collected and the amount representing 12 per centum of the
assessed value of such land. (Sec. 3).1äwphï1.ñët
Under Section 6 of the said law, Commonwealth Act 567, all collections made
thereunder "shall accrue to a special fund in the Philippine Treasury, to be known as the
'Sugar Adjustment and Stabilization Fund,' and shall be paid out only for any or all of
the following purposes or to attain any or all of the following objectives, as may be
provided by law." It then proceeds to enumerate the said purposes, among which are
"to place the sugar industry in a position to maintain itself; ... to readjust the benefits
derived from the sugar industry ... so that all might continue profitably to engage
therein; to limit the production of sugar to areas more economically suited to the
production thereof; and to afford laborers employed in the industry a living wage and
to improve their living and working conditions.
The plaintiff in the above case, Walter Lutz, contended that the aforementioned tax or
special assessment was unconstitutional because it was being "levied for the aid and
support of the sugar industry exclusively," and therefore, not for a public purpose. In
rejecting the theory advanced by the said plaintiff, this Court said:
The basic defect in the plaintiff's position in his assumption that the tax
provided for in Commonwealth Act No. 567 is a pure exercise of the taxing
power. Analysis of the Act, and particularly Section 6, will show that the tax is
levied with a regulatory purpose, to provide means for the rehabilitation and
stabilization of the threatened sugar industry. In other words, the act is
primarily an exercise of the police power.
This Court can take judicial notice of the fact that sugar production is one of
the great industries of our nation, sugar occupying a leading position among
its export products; that it gives employment to thousands of laborers in fields
and factories; that it is a great source of the state's wealth, is one, of the
important sources to foreign exchange needed by our government, and is thus
pivotal in the plans of a regime committed to a policy of currency stability. Its
promotion, protection and advancement, therefore redounds greatly to the
general welfare. Hence, it was competent for the Legislature to find that the
general welfare demanded that the sugar industry should be stabilized in turn;
and in the wide field of its police power, the law-making body could provide
that the distribution of benefits therefrom be readjusted among its
components, to enable it to resist the added strain of the increase in taxes that
it had to sustain (Sligh vs. Kirkwood, 237 U.S. 52, 59 L. Ed. 835; Johnson vs.
State ex rel. Marey, 99 Fla. 1311, 128 So. 853; Marcy Inc. vs. Mayo, 103 Fla. 552,
139 So. 121)
As stated in Johnson vs. State ex rel. Marcy, with reference to the citrus
industry in Florida —
"The protection of a large industry constituting one of the great
source of the state's wealth and therefore directly or indirectly
affecting the welfare of so great a portion of the population of the
State is affected to such an extent by public interests as to be within
the police power of the sovereign." (128 So. 857).
Once it is conceded, as it must that the protection and promotion of the sugar
industry is a matter of public concern, it follows that the Legislature may
determine within reasonable bounds what is necessary for its protection and
expedient for its promotion. Here, the legislative discretion must be allowed
full play, subject only to the test of reasonableness; and it is not contended
that the means provided in Section 6 of the law (above quoted) bear no
relation to the objective pursued or are oppressive in character. If objective
and methods are alike constitutionally valid, no reason is seen why the state
may not levy taxes to raise funds for their prosecution and attainment.
Taxation may be made the implement of the state's police power. (Great Atl.
 & Pac. Tea Co. vs. Grosjean, 301 U.S. 412, 81 L. Ed. 1193; U.S. vs. Butler, 297
U.S. 1, 80 L. Ed. 477; M'cullock vs. Maryland, 4 Wheat. 316, 4 L. Ed. 579).

On the authority of the above case, then, We hold that the special assessment at bar
may be considered as similarly as the above, that is, that the levy for the Philsugin Fund
is not so much an exercise of the power of taxation, nor the imposition of a special
assessment, but, the exercise of the police power for the general welfare of the entire
country. It is, therefore, an exercise of a sovereign power which no private citizen may
lawfully resist.

Besides, under Section 2(a) of the charter, the Philsugin is authorized "to conduct
research work for the sugar industry in all its phases, either agricultural or industrial, for
the purpose of introducing into the sugar industry such practices or processes that will
reduce the cost of production, ..., and achieve greater efficiency in the industry." This
provision, first of all, more than justifies the acquisition of the refinery in question. The
case dispute that the operation of a sugar refinery is a phase of sugar production and
that from such operation may be learned methods of reducing the cost of sugar
manufactured no less than it may afford the opportunity to discover the more effective
means of achieving progress in the industry. Philsugin's experience alone of running a
refinery is a gain to the entire industry. That the operation resulted in a financial loss is
by no means an index that the industry did not profit therefrom, as other farms of a
different nature may have been realized. Thus, from its financially unsuccessful venture,
the Philsugin could very well have advanced in its appreciation of the problems of
management faced by sugar centrals. It could have understood more clearly the
difficulties of marketing sugar products. It could have known with better intimacy the
precise area of the industry in need of the more help from the government. The view
of the appellants herein, therefore, that they were not benefited by the unsuccessful
operation of the refinery in question is not entirely accurate.

Furthermore, Section 2(a) specifies a field of research which, indeed, would be difficult
to carry out save through the actual operation of a refinery. Quite obviously, the most
practical or realistic approach to the problem of what "practices or processes" might
most effectively cut the cost of production is to experiment on production itself. And
yet, how can such an experiment be carried out without the tools, which is all that a
refinery is?

In view of all the foregoing, the decision appealed from is hereby affirmed, with costs.
SECOND DIVISION
On April 4, 1995, respondent ICC, holder of a legislative franchise under Republic Act
(RA) No. 7633 to operate domestic telecommunications, filed with the NTC an
application for a Certificate of Public Convenience and Necessity to install, operate, and
REPUBLIC OF THE PHILIPPINES, represented by G.R. No. 141667 maintain an international telecommunications leased circuit service between the
NATIONAL TELECOMMUNICATIONS Philippines and other countries, and to charge rates therefor, with provisional authority
COMMISSION (NTC), Present: for the purpose.
Petitioner,
PUNO, J., Chairperson, In an Order[3] dated June 4, 1996, the NTC approved the application for a provisional
- versus - SANDOVAL-GUTIERREZ, authority subject, among others, to the condition:
CORONA,
AZCUNA, and 2. That applicant [ICC] shall pay a permit fee in the amount of
GARCIA, JJ. P1,190,750.00, in accordance with section 40(g) of the Public
INTERNATIONAL COMMUNICATIONS
CORPORATION (ICC), Service Act,[4] as amended;
Respondent. Promulgated:

Respondent ICC filed a motion for partial reconsideration of the Order insofar as the
July 17, 2006 same required the payment of a permit fee. In a subsequent Order dated June 25,
1997, the NTC denied the motion.
Therefrom, ICC went to the CA on a petition for certiorari with prayer for a temporary
restraining order and/or writ of preliminary injunction, questioning the NTC's
imposition against it of a permit fee of P1,190,750.50 as a condition for the grant of the
provisional authority applied for.

x - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x In its original decision[5] dated January 29, 1999, the CA ruled in favor of the NTC whose
challenged orders were sustained, and accordingly denied ICC's certiorari petition,
thus:

WHEREFORE, the instant petition is hereby DENIED. In view thereof,

DECISION
GARCIA, J.:
In this petition for review under Rule 45 of the Rules of Court, petitioner Republic,
through the National Telecommunications Commission (NTC), seeks the annulment and
setting aside of the Amended Decision[1]dated September 30, 1999 of the Court of
Appeals (CA), setting aside the orders dated June 4, 1996 and June 25, 1997 of the NTC
insofar as said orders required respondent International Communications Corporation
(ICC) to pay the amount of P1,190,750.50 by way of permit fee as a condition for the
grant of a provisional authority to operate an international telecommunications leased
circuit service, and the Resolution[2] dated January 24, 2000, denying NTC's motion for
reconsideration.
There is no dispute as to the facts:
the assailed orders dated 4 June 1996 and 25 June 1997, requiring
the payment of permit fees in the amount of One Million One
Hundred Ninety Thousand Seven Hundred Fifty and 50/100 Pesos
(P1,190,750.50) as a condition for the grant of a Provisional Authority
to operate an International Circuit service, are hereby AFFIRMED.
ACCORDINGLY, the International Communications Corporation is
hereby ordered to pay the amount of One Million One Hundred
Ninety Thousand Seven Hundred Fifty and 50/100 Pesos
(P1,190,750.50) to the National Telecommunications Commission.
SO ORDERED.
In time, ICC moved for a reconsideration. This time, the CA, in its Amended
Decision dated September 30, 1999, reversed itself, to wit:
 WHEREFORE, the instant Motion for Reconsideration is hereby
GRANTED. Accordingly, the Decision dated 29 January
1999 including the imposition by the public respondent of permit
fees with respect to [ICCs] international leased circuit service is
hereby REVERSED. Judgment is hereby rendered, setting aside the
questioned orders dated 04 June 1996 and 25 June 1997, insofar as
they impose upon petitioner ICC the payment of the amount of One
Million One Hundred Ninety Thousand Seven Hundred Fifty and Fifty
Centavos (P1,190,750.50) by way of permit fees as a condition for the
grant of a provisional authority to operate an International Leased
Circuit Service. No costs.
SO ORDERED. (Word in bracket added).
Petitioner NTC filed a motion for reconsideration, but its motion was denied by the CA
in its equally challenged Resolution dated January 24, 2000. Hence, NTC's present
recourse claiming that the CA erred in ruling that:
1. NTC has arrogated upon itself the power to tax an entity;
2. Section 40(g) of the Public Service Act has been
amended by Section 5(g) of R.A. 7925;[6]
3. The imposition of permit fees is no longer authorized by
R.A. 7925; and
4. The imposed permit fee in the amount of
P1,190,750.50 for respondent's provisional authority is
exorbitant.
Before addressing the issues raised, we shall first dwell on the procedural matter raised
by respondent ICC, namely, that the present petition should be dismissed outright for
having been filed out of time. It is respondent's posture that petitioner's motion for
reconsideration filed with the CA vis-a-vis the latter's Amended Decision is a pro
forma motion and, therefore, did not toll the running of the reglementary period to
come to this Court via this petition for review.
Under Section 2 of Rule 45 of the Rules of Court, a recourse to this Court by way of a
petition for review must be filed within fifteen (15) days from notice of the judgment or
final order or resolution appealed from, or of the denial of the petitioner's motion for
new trial or reconsideration filed in due time after notice of the judgment. While a
motion for reconsideration ordinarily tolls the period for appeal, one that fails to point
out the findings or conclusions which were supposedly contrary to law or the evidence
does not have such
an effect on the reglementary period as it is merely a pro forma motion.[7]
In arguing for the outright dismissal of this petition, respondent ICC claims that the
motion for reconsideration filed by petitioner NTC in connection with the CAs
Amended Decision failed to point out specifically the findings or conclusions of the CA
which were supposedly contrary to law. Respondent contends that the issues raised
by the petitioner in its motion for reconsideration were mere reiterations of
the same issues which had already been considered and passed upon by the CA when
it promulgated its Amended Decision. On this premise, respondent maintains that
petitioners aforementioned motion for reconsideration is a
mere pro forma motion that did not toll the period for filing the present petition.
Under established jurisprudence, the mere fact that a
motion for reconsideration reiterates issues already passed upon by the court does not,
by itself, make it a pro forma motion.[8] Among the ends to which a motion for
reconsideration is addressed is precisely to convince the court that its ruling is
erroneous and improper, contrary to the law or evidence; and in so doing, the movant
has to dwell of necessity on issues already passed upon. If a motion for reconsideration
may not discuss those issues, the consequence would be that after a decision is
rendered, the losing party would be confined to filing only motions for reopening and
new trial.[9]
Where there is no apparent intent to employ dilatory tactics, courts should be slow in
declaring outright a motion for reconsideration as pro forma. The doctrine relating
to pro forma motions has a direct bearing upon the movant's valuable right to
appeal. Hence, if petitioner's motion for reconsideration was indeed pro forma, it
would still be in the interest of justice to review the Amended Decision a quo on the
merits, rather than to abort the appeal due to a technicality, especially where, as
here, the industry involved (telecommunications) is vested with public interest. All the
more so given that the instant petition raises some arguments that are well-worth
resolving for future reference.
This brings us to the substantive merits of the petition.
In its Amended Decision, the CA ruled that petitioner NTC had arrogated upon itself
the power to tax an entity, which it is not authorized to do. Petitioner disagreed,
contending the fee in question is not in the nature of a tax, but is merely a regulatory
measure.
Section 40(g) of the Public Service Act provides:
Sec. 40. The Commission is authorized and ordered to charge and
collect from any public service or applicant, as the case may be, the
 following fees as reimbursement of its expenses in the
authorization, supervision and/or regulation of the public
services:
xxx xxx xxx
g) For each permit, authorizing the increase in equipment, the
installation of new units or authorizing the increase of capacity, or
the extension of means or general extensions in the services, twenty
centavos for each one hundred pesos or fraction of the additional
capital necessary to carry out the permit. (Emphasis supplied)
Clearly, Section 40(g) of the Public Service Act is not a tax measure but a simple
regulatory provision for the collection of fees imposed pursuant to the exercise of the
States police power. A tax is imposed under the taxing power of government principally
for the purpose of raising revenues. The law in question, however, merely authorizes
and requires the collection of fees for the reimbursement of the Commission's expenses
in the authorization, supervision and/or regulation of public services. There can be no
doubt then that petitioner NTC is authorized to collect such fees. However, the
amount thereof must be reasonably related to the cost of such supervision and/or
regulation.[10]
Petitioner NTC also assails the CA's ruling that Section 40(g) of the Public Service Act
had been amended by Section 5(g) of R.A. No. 7925, which reads:
Sec. 5. Responsibilities of the National Telecommunications
Commission. - The National Telecommunications Commission
(Commission) shall be the principal administrator of this Act and as
such shall take the necessary measures to implement the policies and
objectives set forth in this Act. Accordingly, in addition to its existing
functions, the Commission shall be responsible for the following:
xxx xxx xxx
g) In the exercise of its regulatory powers, continue to impose such
fees and charges as may be necessary to cover reasonable costs
and expenses for the regulation and supervision of the
operations of telecommunications entities. (Emphasis supplied)
The CA ratiocinated that while Section 40(g) of the Public Service Act (CA 146, as
amended), supra, allowed NTC to impose fees as reimbursement of its expenses related
to, among other things, the authorizationof public services, Section 5(g), above, of
R.A. No. 7921 no longer speaks of authorization but only of regulation and supervision.
To the CA, the omission by Section 5(g) of R.A. No. 7921 of the word
authorization found in Section 40(g) of the Public Service Act, as amended, meant
that the fees which NTC may impose are only for reimbursement of its expenses
for regulation and supervision but no longer for authorization purposes.
We find, however, that NTC is correct in saying that there is no showing of legislative
intent to repeal, even impliedly, Section 40(g), supra, of the Public Service Act, as
amended. An implied repeal is predicated on a substantial conflict between the new
and prior laws. In the absence of an express repeal, a subsequent law cannot be
construed as repealing a prior one unless an irreconcilable inconsistency and
repugnancy exist in the terms of the new and old laws.[11] The two laws must be
absolutely incompatible such that they cannot be made to stand together.[12]
Courts of justice, when confronted with apparently conflicting statutes or provisions,
should endeavor to reconcile the same instead of declaring outright the validity of one
as against the other. Such alacrity should be avoided. The wise policy is for the judge
to harmonize such statutes or provisions if this is possible, bearing in mind that they
are equally the handiwork of the same legislature, and so give effect to both while at
the same time also according due
respect to a coordinate department of the government. It is this
policy the Court will apply in arriving at the interpretation of the laws and the
conclusions that should follow therefrom.[13]
It is a rule of statutory construction that repeals by implication are not favored. An
implied repeal will not be allowed unless it is convincingly and unambiguously
demonstrated that the two laws
are so clearlyrepugnant and patently inconsistent with each other that they cannot co-
exist. This is based on the rationale that the will of the legislature cannot be overturned
by the judicial function of construction and interpretation. Courts cannot
take the place of Congress in repealing statutes. Their function is to try to harmonize,
as much as possible, seeming conflicts in the laws and resolve doubts in favor of their
validity and co-existence.[14]
Here, there does not even appear to be a conflict between Section 40(g) of the Public
Service Act, as amended, and Section 5(g) of R.A. 7925. In fact, the latter provision
directs petitioner NTC to continue to impose such fees and charges as may be
necessary to cover reasonable costs and expenses for the regulation and supervision of
telecommunications entities. The absence alone of the word authorization in Section
5(g) of R.A. No. 7921 cannot be construed to mean that petitioner NTC had thus been
deprived of the power to collect such fees. As pointed out by the petitioner, the words
authorization, supervision and/or regulation used in Section 40(g) of the Public Service
Act are not distinct and completely separable concepts which may be taken singly or
piecemeal. Taken in their entirety, they are the quintessence of the Commission's
regulatory functions, and must go hand-in-hand with one another. In petitioner's own
words, [t]he Commission authorizes, supervises and regulates telecommunications
entities and these functions... cannot be considered singly without destroying the whole
concept of the Commission's regulatory functions.[15] Hence, petitioner NTC is correct
in asserting that the passage of R.A. 7925 did not bring with it the abolition of permit
fees.
annually within ten days after the audit and approval of the accounts
by the Commission on Audit as prescribed in Section 11 hereof
and shall be in lieu of all taxes, assessments, charges, fees, or
levies of any kind, nature, or description levied, established or
collected by any municipal, provincial, or national authority x x x
(Emphasis supplied)

However, while petitioner had made some valid points of argument, its position must, The CA was correct in ruling that the above-quoted provision is, by law, considered
of necessity, crumble on the fourth issue raised in its petition. Petitioner itself admits as ipso facto part of ICC's franchise due to the parity clause embodied in Section 23 of
that the fees imposed are precisely regulatory and supervision fees, and not taxes. This R.A. No. 7925. Accordingly, respondent ICC cannot be made subject to the payment of
necessarily implies, however, that such fees must be commensurate to the costs and the subject fees because its payment of the franchise tax is in lieu of all other taxes and
expenses involved in discharging its supervisory and regulatory functions. In the words fees.
of Section 40(g) of the Public Service Act itself, the fees and charges which petitioner
NTC is authorized to collect from any public service or applicant are limited to the WHEREFORE, the petition is hereby DENIED and the assailed Amended Decision and
reimbursement of its expenses in the authorization, supervision and/or regulation of Resolution of the CA are AFFIRMED.
public services. It is difficult to comprehend how the cost of licensing, regulating, and
surveillance could amount to P1,190,750.50. The CA was correct in finding theamount SO ORDERED.
imposed as permit fee exorbitant and in complete disregard of the basic limitation that
the fee should be at least approximately commensurate to the expense. Petitioner itself
admits that it had imposed the maximum amount possible under the Public Service Act,
as amended. That is hardly taking into consideration the actual costs of fulfilling its
regulatory and supervisory functions.

Independent of the above, there is one basic consideration

for the dismissal of this petition, about which petitioner NTC did not bother to
comment at all. We refer to the fact that, as respondent ICC aptly observed, the
principal ground given by the CA in striking down the imposition of the P1,190,750.50
fee is that respondent ICC is entitled to the benefits of the so-called parity
clause embodied in Section 23 of R.A. No. 7925, to wit:
Section 23. Equality of Treatment in the Telecommunications
Industry. - Any advantage, favor, privilege, exemption, or immunity
granted under existing franchises, or may hereafter be granted, shall
ipso facto become part of previously granted telecommunications
franchises and shall be accorded immediately and unconditionally to
the grantees of such franchises x x x.

In this connection, it is significant to note that the subsequent congressional franchise

granted to the Domestic Satellite Corporation under Presidential Decree No. 947, states:

Section 6. In consideration of the franchise and rights hereby granted,

the grantee shall pay to the Republic of the Philippines during the life
of this franchise a tax of one-half percent of gross earnings derived
by the grantee from its operation under this franchise and which
originate from the Philippines. Such tax shall be due and payable
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 portion—
about 5 per centum—of 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 functions—the 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 imposed—though called fees—are 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. Collected—Monies 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 collected is set aside for the operating expenses of the agency administering the
tobacco and alcohol as regulatory taxes.) (Umali, Reviewer in program.
Taxation, 1980, pp. 12-13, citing Cooley on Taxation, 2nd Edition,
591-593). May the respondent administrative agency be required to refund the amounts stated
in the complaint of PAL?
Indeed, taxation may be made the implement of the state's police power (Lutz v.
Araneta, 98 Phil. 148). The answer is NO.

If the purpose is primarily revenue, or if revenue is, at least, one of the real and The claim for refund is made for payments given in 1971. It is not clear from the records
substantial purposes, then the exaction is properly called a tax (Umali, Id.) Such is the as to what payments were made in succeeding years. We have ruled that Section 24 of
case of motor vehicle registration fees. The conclusions become inescapable in view of Rep. Act No. 5448 dated June 27, 1968, repealed all earlier tax exemptions Of corporate
Section 70(b) of Rep. Act 587 quoted in the Calalang case. The same provision appears taxpayers found in legislative franchises similar to that invoked by PAL in this case.
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 In Radio Communications of the Philippines, Inc. v. Court of Tax Appeals, et al. (G.R. No.
registration, operation or ownership of a motor vehicle as a "tax or fee." Though 615)." July 11, 1985), this Court ruled:
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
Under its original franchise, Republic Act No. 21); enacted in 1957,
ownership of any motor vehicle, or for the exercise of the profession of chauffeur ..."
petitioner Radio Communications of the Philippines, Inc., was subject
making the intent to impose a tax more apparent. Thus, even Rep. Act 5448 cited by
to both the franchise tax and income tax. In 1964, however,
the respondents, speak of an "additional" tax," where the law could have referred to an
petitioner's franchise was amended by Republic Act No. 41-42). to
original tax and not one in addition to the tax already imposed on the registration,
the effect that its franchise tax of one and one-half percentum (1-
operation, or ownership of a motor vehicle under Rep. Act 41383. Simply put, if the
1/2%) of all gross receipts was provided as "in lieu of any and all taxes
exaction under Rep. Act 4136 were merely a regulatory fee, the imposition in Rep. Act
of any kind, nature, or description levied, established, or collected by
5448 need not be an "additional" tax. Rep. Act 4136 also speaks of other "fees," such as
any authority whatsoever, municipal, provincial, or national from
the special permit fees for certain types of motor vehicles (Sec. 10) and additional fees
which taxes the grantee is hereby expressly exempted." The issue
for change of registration (Sec. 11). These are not to be understood as taxes because
raised to this Court now is the validity of the respondent court's
such fees are very minimal to be revenue-raising. Thus, they are not mentioned by Sec.
decision which ruled that the exemption under Republic Act No. 41-
591-593). of the Code as taxes like the motor vehicle registration fee and chauffers'
42). was repealed by Section 24 of Republic Act No. 5448 dated June
license fee. Such fees are to go into the expenditures of the Land Transportation
27, 1968 which reads:
Commission as provided for in the last proviso of see. 61, aforequoted.

"(d) The provisions of existing special or general

It is quite apparent that vehicle registration fees were originally simple exceptional.
laws to the contrary notwithstanding, all corporate
intended only for rigidly purposes in the exercise of the State's police powers. Over the
taxpayers not specifically exempt under Sections
years, however, as vehicular traffic exploded in number and motor vehicles became
24 (c) (1) of this Code shall pay the rates provided
absolute necessities without which modem life as we know it would stand still, Congress
in this section. All corporations, agencies, or
found the registration of vehicles a very convenient way of raising much needed
instrumentalities owned or controlled by the
revenues. Without changing the earlier deputy. of registration payments as "fees," their
government, including the Government Service
nature has become that of "taxes."
Insurance System and the Social Security System
but excluding educational institutions, shall pay
In view of the foregoing, we rule that motor vehicle registration fees as at present such rate of tax upon their taxable net income as
exacted pursuant to the Land Transportation and Traffic Code are actually taxes are imposed by this section upon associations or
intended for additional revenues. of government even if one fifth or less of the amount corporations engaged in a similar business or
industry. "
 An examination of Section 24 of the Tax Code as amended shows city, provincial, or national authority or government, agency, now or
clearly that the law intended all corporate taxpayers to pay income in the future, including but not limited to the following:
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, xxx xxx xxx
Section 8 of the 1935 Constitution and Article XIV, Section 5 of the
Constitution as amended in 1973 expressly provide that no franchise (5) All taxes, fees and other charges on the registration, license,
shall be granted to any individual, firm, or corporation except under acquisition, and transfer of airtransport equipment, motor vehicles,
the condition that it shall be subject to amendment, alteration, or and all other personal or real property of the gravitates (Pres. Decree
repeal by the legislature when the public interest so requires. There 1590, 75 OG No. 15, 3259, April 9, 1979).
is no question as to the public interest involved. The country needs
increased revenues. The repealing clause is clear and unambiguous.
PAL's current franchise is clear and specific. It has removed the ambiguity found in the
There is a listing of entities entitled to tax exemption. The petitioner
earlier law. PAL is now exempt from the payment of any tax, fee, or other charge on the
is not covered by the provision. Considering the foregoing, the Court
registration and licensing of motor vehicles. Such payments are already included in the
Resolved to DENY the petition for lack of merit. The decision of the
basic tax or franchise tax provided in Subsections (a) and (b) of Section 13, P.D. 1590,
respondent court is affirmed.
and may no longer be exacted.

Any registration fees collected between June 27, 1968 and April 9, 1979, were correctly
WHEREFORE, the petition is hereby partially GRANTED. The prayed for refund of
imposed because the tax exemption in the franchise of PAL was repealed during the
registration fees paid in 1971 is DENIED. The Land Transportation Franchising and
period. However, an amended franchise was given to PAL in 1979. Section 13 of
Regulatory Board (LTFRB) is enjoined functions-the collecting any tax, fee, or other
Presidential Decree No. 1590, now provides:
charge on the registration and licensing of the petitioner's motor vehicles from April 9,
1979 as provided in Presidential Decree No. 1590.
In consideration of the franchise and rights hereby granted, the
grantee shall pay to the Philippine Government during the lifetime of
SO ORDERED.
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,
PLANTERS PRODUCTS, INC., G.R. No. 166006
Petitioner,
Present: On June 3, 1985, then President Ferdinand Marcos, exercising his legislative
YNARES-SANTIAGO, J., powers, issued LOI No. 1465 which provided, among others, for the imposition of a
Chai capital recovery component (CRC) on the domestic sale of all grades of fertilizers in
rperson, the Philippines.[4] The LOI provides:
AUSTRIA-MARTINEZ,
3. The Administrator of the Fertilizer Pesticide Authority to include in
- versus - CHICO-NAZARIO, its fertilizer pricing formula a capital contribution component of
NACHURA, and not less than P10 per bag. This capital contribution shall be
REYES, JJ.
collected until adequate capital is raised to make PPI
viable. Such capital contribution shall be applied by FPA to all
domestic sales of fertilizers in the Philippines.[5] (Underscoring
Promulgated:
supplied)
FERTIPHIL CORPORATION,
Respondent. March 14, 2008 Pursuant to the LOI, Fertiphil paid P10 for every bag of fertilizer it sold in the
domestic market to the Fertilizer and Pesticide Authority (FPA). FPA then remitted the
x--------------------------------------------------x amount collected to the Far East Bank and Trust Company, the depositary bank of
PPI. Fertiphil paid P6,689,144 to FPA from July 8, 1985 to January 24, 1986.[6]
DECISION
After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of
the P10 levy. With the return of democracy, Fertiphil demanded from PPI a refund of
REYES, R.T., J.: the amounts it paid under LOI No. 1465, but PPI refused to accede to the demand.[7]

THE Regional Trial Courts (RTC) have the authority and jurisdiction to consider the
constitutionality of statutes, executive orders, presidential decrees and other
issuances. The Constitution vests that power not only in the Supreme Court but in all
Regional Trial Courts.
The principle is relevant in this petition for review on certiorari of the
Decision[1] of the Court of Appeals (CA) affirming with modification that of
the RTC in Makati City,[2] finding petitioner Planters Products, Inc. (PPI) liable to private
respondent Fertiphil Corporation (Fertiphil) for the levies it paid under Letter of
Instruction (LOI) No. 1465.
Fertiphil filed a complaint for collection and damages[8] against FPA and PPI
with the RTC in Makati. It questioned the constitutionality of LOI No. 1465 for being
unjust, unreasonable, oppressive, invalid and an unlawful imposition that amounted to
a denial of due process of law.[9] Fertiphil alleged that the LOI solely favored PPI, a
privately owned corporation, which used the proceeds to maintain its monopoly of the
fertilizer industry.
In its Answer,[10] FPA, through the Solicitor General, countered that the
issuance of LOI No. 1465 was a valid exercise of the police power of the State in ensuring
the stability of the fertilizer industry in the country. It also averred that Fertiphil did not
sustain any damage from the LOI because the burden imposed by the levy fell on the
ultimate consumer, not the seller.
RTC Disposition

On November 20, 1991, the RTC rendered judgment in favor of Fertiphil, disposing as
The Facts
follows:
Petitioner PPI and private respondent Fertiphil are private corporations
incorporated under Philippine laws.[3] They are both engaged in the importation and
distribution of fertilizers, pesticides and agricultural chemicals.
 WHEREFORE, in view of the foregoing, the Court hereby
renders judgment in favor of the plaintiff and against the defendant
Planters Product, Inc., ordering the latter to pay the former:
1) the sum of P6,698,144.00 with interest at 12%
from the time of judicial demand;
2) the sum of P100,000 as attorneys fees;
3) the cost of suit.
SO ORDERED.[11]
Ruling that the imposition of the P10 CRC was an exercise of the States inherent power
of taxation, the RTC invalidated the levy for violating the basic principle that taxes can
only be levied for public purpose, viz.:
It is apparent that the imposition of P10 per fertilizer bag
sold in the country by LOI 1465 is purportedly in the exercise of the
power of taxation. It is a settled principle that the power of taxation
by the state is plenary. Comprehensive and supreme, the principal
check upon its abuse resting in the responsibility of the members of
the legislature to their constituents. However, there are two kinds of
limitations on the power of taxation: the inherent limitations and the
constitutional limitations.
One of the inherent limitations is that a tax may be levied only for
public purposes:
The power to tax can be resorted to only for a
constitutionally valid public purpose. By the same
token, taxes may not be levied for purely private
purposes, for building up of private fortunes, or for
the redress of private wrongs. They cannot be
levied for the improvement of private property, or
for the benefit, and promotion of private
enterprises, except where the aid is incident to the
public benefit. It is well-settled principle of
constitutional law that no general tax can be levied
except for the purpose of raising money which is
to be expended for public use. Funds cannot be
exacted under the guise of taxation to promote a
purpose that is not of public interest. Without such
limitation, the power to tax could be exercised or
employed as an authority to destroy the economy
of the people. A tax, however, is not held void on
the ground of want of public interest unless the
want of such interest is clear. (71 Am. Jur. pp. 371-
372)
In the case at bar, the plaintiff paid the amount of P6,698,144.00 to
the Fertilizer and Pesticide Authority pursuant to the P10 per bag of
fertilizer sold imposition under LOI 1465 which, in turn, remitted the
amount to the defendant Planters Products, Inc. thru the latters
depository bank, Far East Bank and Trust Co. Thus, by virtue of LOI
1465 the plaintiff, Fertiphil Corporation, which is a private domestic
corporation, became poorer by the amount of P6,698,144.00 and the
defendant, Planters Product, Inc., another private domestic
corporation, became richer by the amount of P6,698,144.00.
Tested by the standards of constitutionality as set forth in the afore-
quoted jurisprudence, it is quite evident that LOI 1465 insofar as it
imposes the amount of P10 per fertilizer bag sold in the country and
orders that the said amount should go to the defendant Planters
Product, Inc. is unlawful because it violates the mandate that a tax
can be levied only for a public purpose and not to benefit, aid and
promote a private enterprise such as Planters Product, Inc.[12]
PPI moved for reconsideration but its motion was denied.[13] PPI then filed a notice of
appeal with the RTC but it failed to pay the requisite appeal docket fee. In a separate
but related proceeding, this Court[14] allowed the appeal of PPI and remanded the case
to the CA for proper disposition.
CA Decision
On November 28, 2003, the CA handed down its decision affirming with modification
that of the RTC, with the following fallo:
IN VIEW OF ALL THE FOREGOING, the decision appealed
from is hereby AFFIRMED, subject to the MODIFICATION that the
award of attorneys fees is hereby DELETED.[15]
In affirming the RTC decision, the CA ruled that the lis mota of the complaint for
collection was the constitutionality of LOI No. 1465, thus:
The question then is whether it was proper for the trial court to
exercise its power to judicially determine the constitutionality of the
subject statute in the instant case.
 As a rule, where the controversy can be settled on other grounds, the
courts will not resolve the constitutionality of a law (Lim v. Pacquing,
240 SCRA 649 [1995]). The policy of the courts is to avoid ruling on
constitutional questions and to presume that the acts of political
departments are valid, absent a clear and unmistakable showing to
the contrary.
However, the courts are not precluded from exercising such power
when the following requisites are obtaining in a controversy before
it: First, there must be before the court an actual case calling for the
exercise of judicial review. Second, the question must be ripe for
adjudication. Third, the person challenging the validity of the act
must have standing to challenge. Fourth, the question of
constitutionality must have been raised at the earliest opportunity;
and lastly, the issue of constitutionality must be the very lis motaof
the case (Integrated Bar of the Philippines v. Zamora, 338 SCRA 81
[2000]).
Indisputably, the present case was primarily instituted for collection
and damages. However, a perusal of the complaint also reveals
that the instant action is founded on the claim that the levy imposed
was an unlawful and unconstitutional special
assessment. Consequently, the requisite that the constitutionality of
the law in question be the very lis mota of the case is present, making
it proper for the trial court to rule on the constitutionality of LOI
1465.[16]
The CA held that even on the assumption that LOI No. 1465 was issued under the police
power of the state, it is still unconstitutional because it did not promote public
welfare. The CA explained:
In declaring LOI 1465 unconstitutional, the trial court held
that the levy imposed under the said law was an invalid exercise of
the States power of taxation inasmuch as it violated the inherent and
constitutional prescription that taxes be levied only for public
purposes. It reasoned out that the amount collected under the levy
was remitted to the depository bank of PPI, which the latter used to
advance its private interest.
On the other hand, appellant submits that the subject statutes
passage was a valid exercise of police power. In addition, it disputes
the court a quos findings arguing that the collections under LOI 1465
was for the benefit of Planters Foundation, Incorporated (PFI), a
foundation created by law to hold in trust for millions of farmers, the
stock ownership of PPI.
Of the three fundamental powers of the State, the exercise of police
power has been characterized as the most essential, insistent and the
least limitable of powers, extending as it does to all the great public
needs. It may be exercised as long as the activity or the property
sought to be regulated has some relevance to public welfare
(Constitutional Law, by Isagani A. Cruz, p. 38, 1995 Edition).
Vast as the power is, however, it must be exercised within the limits
set by the Constitution, which requires the concurrence of a lawful
subject and a lawful method. Thus, our courts have laid down the test
to determine the validity of a police measure as follows: (1) the
interests of the public generally, as distinguished from those of a
particular class, requires its exercise; and (2) the means employed are
reasonably necessary for the accomplishment of the purpose and not
unduly oppressive upon individuals (National Development
Company v. Philippine Veterans Bank, 192 SCRA 257 [1990]).
It is upon applying this established tests that We sustain the trial
courts holding LOI 1465 unconstitutional. To be sure, ensuring the
continued supply and distribution of fertilizer in the country is an
undertaking imbued with public interest. However, the method by
which LOI 1465 sought to achieve this is by no means a measure that
will promote the public welfare. The governments commitment to
support the successful rehabilitation and continued viability of PPI, a
private corporation, is an unmistakable attempt to mask the subject
statutes impartiality. There is no way to treat the self-interest of a
favored entity,
like PPI, as identical with the general interest of the countrys farmers
or even the Filipino people in general. Well to stress, substantive due
process exacts fairness and equal protection disallows distinction
where none is needed. When a statutes public purpose is spoiled by
private interest, the use of police power becomes a travesty which
must be struck down for being an arbitrary exercise of government
power. To rule in favor of appellant would contravene the general
principle that revenues derived from taxes cannot be used for purely
private purposes or for the exclusive benefit of private individuals.[17]
The CA did not accept PPIs claim that the levy imposed under LOI No. 1465 was for the
benefit of Planters Foundation, Inc., a foundation created to hold in trust the stock
ownership of PPI. The CA stated:
Appellant next claims that the collections under LOI 1465 was for the
benefit of Planters Foundation, Incorporated (PFI), a foundation
created by law to hold in trust for millions of farmers, the stock
ownership of PFI on the strength of Letter of Undertaking (LOU)
issued by then Prime Minister Cesar Virata on April 18, 1985 and
affirmed by the Secretary of Justice in an Opinion dated October 12,
1987, to wit:
2. Upon the effective date of this Letter of
Undertaking, the Republic shall cause FPA to
include in its fertilizer pricing formula a capital
recovery component, the proceeds of which will be
used initially for the purpose of funding the unpaid
portion of the outstanding capital stock of Planters
presently held in trust by Planters Foundation, Inc.
(Planters Foundation), which unpaid capital is
estimated at approximately P206 million (subject
to validation by Planters and Planters Foundation)
(such unpaid portion of the outstanding capital
stock of Planters being hereafter referred to as the
Unpaid Capital), and subsequently for such capital
increases as may be required for the continuing
viability of Planters.
The capital recovery component shall be in the
minimum amount of P10 per bag, which will be
added to the price of all domestic sales of fertilizer
in the Philippines by any importer and/or fertilizer
mother company. In this connection, the Republic
hereby acknowledges that the advances by
Planters to Planters Foundation which were
applied to the payment of the Planters shares now
held in trust by Planters Foundation, have been
assigned to, among others, the
Creditors. Accordingly, the Republic, through FPA,
hereby agrees to deposit the proceeds of the
capital recovery component in the special trust
account designated in the notice dated April 2,
1985, addressed by counsel for the Creditors to
Planters Foundation. Such proceeds shall be
deposited by FPA on or before the 15th day of each
month.
The capital recovery component shall continue to
be charged and collected until payment in full of
(a) the Unpaid Capital and/or (b) any shortfall in
the payment of the Subsidy Receivables, (c) any
carrying cost accruing from the date hereof on the
amounts which may be outstanding from time to
time of the Unpaid Capital and/or the Subsidy
Receivables and (d) the capital increases
contemplated in paragraph 2 hereof. For the
purpose of the foregoing clause (c), the carrying
cost shall be at such rate as will represent the full
and reasonable cost to Planters of servicing its
debts, taking into account both its peso and
foreign currency-denominated obligations.
(Records, pp. 42-43)
Appellants proposition is open to question, to say the least. The LOU
issued by then Prime Minister Virata taken together with the Justice
Secretarys Opinion does not preponderantly demonstrate that the
collections made were held in trust in favor of millions of
farmers. Unfortunately for appellant, in the absence of sufficient
evidence to establish its claims, this Court is constrained to rely on
what is explicitly provided in LOI 1465 that one of the primary aims
in imposing the levy is to support the successful rehabilitation and
continued viability of PPI.[18]
PPI moved for reconsideration but its motion was denied.[19] It then filed the
present petition with this Court.
Issues
Petitioner PPI raises four issues for Our consideration, viz.:
I
THE CONSTITUTIONALITY OF LOI 1465 CANNOT BE COLLATERALLY
ATTACKED AND BE DECREED VIA A DEFAULT JUDGMENT IN A CASE
FILED FOR COLLECTION AND DAMAGES WHERE THE ISSUE OF
 CONSTITUTIONALITY IS NOT THE VERY LIS MOTA OF THE
CASE. NEITHER CAN LOI 1465 BE CHALLENGED BY ANY PERSON OR
ENTITY WHICH HAS NO STANDING TO DO SO.
II
LOI 1465, BEING A LAW IMPLEMENTED FOR THE PURPOSE OF
ASSURING THE FERTILIZER SUPPLY AND DISTRIBUTION IN THE
COUNTRY, AND FOR BENEFITING A FOUNDATION CREATED BY LAW
TO HOLD IN TRUST FOR MILLIONS OF FARMERS THEIR STOCK
OWNERSHIP IN PPI CONSTITUTES A VALID LEGISLATION PURSUANT
TO THE EXERCISE OF TAXATION AND POLICE POWER FOR PUBLIC
PURPOSES.
III
THE AMOUNT COLLECTED UNDER THE CAPITAL RECOVERY
COMPONENT WAS REMITTED TO THE GOVERNMENT, AND BECAME
GOVERNMENT FUNDS PURSUANT TO AN EFFECTIVE AND VALIDLY
ENACTED LAW WHICH IMPOSED DUTIES AND CONFERRED RIGHTS
BY VIRTUE OF THE PRINCIPLE OF OPERATIVE FACT PRIOR TO ANY
DECLARATION OF UNCONSTITUTIONALITY OF LOI 1465.
IV
THE PRINCIPLE OF UNJUST VEXATION (SHOULD BE ENRICHMENT)
FINDS NO APPLICATION IN THE INSTANT CASE.[20] (Underscoring
supplied)
Our Ruling
We shall first tackle the procedural issues of locus standi and the jurisdiction of
the RTC to resolve constitutional issues.
Fertiphil has locus standi
because it suffered direct
injury; doctrine of standing is
a mere procedural
technicality which may be
waived.
PPI argues that Fertiphil has no locus standi to question the constitutionality
of LOI No. 1465 because it does not have a personal and substantial interest in the case
or will sustain direct injury as a result of its enforcement.[21] It asserts that Fertiphil did
not suffer any damage from the CRC imposition because incidence of the levy fell on
the ultimate consumer or the farmers themselves, not on the seller fertilizer company.[22]
We cannot agree. The doctrine of locus standi or the right of appearance in a
court of justice has been adequately discussed by this Court in a catena of
cases. Succinctly put, the doctrine requires a litigant to have a material interest in the
outcome of a case. In private suits, locus standi requires a litigant to be a real party in
interest, which is defined as the
party who stands to be benefited or injured by the judgment in the suit or the party
entitled to the avails of the suit.[23]
In public suits, this Court recognizes the difficulty of applying the doctrine
especially when plaintiff asserts a public right on behalf of the general public because
of conflicting public policy issues. [24] On one end, there is the right of the ordinary
citizen to petition the courts to be freed from unlawful government intrusion and illegal
official action. At the other end, there is the public policy precluding excessive judicial
interference in official acts, which may unnecessarily hinder the delivery of basic public
services.
In this jurisdiction, We have adopted the direct injury test to determine locus
standi in public suits. In People v. Vera,[25] it was held that a person who impugns the
validity of a statute must have a personal and substantial interest in the case such that
he has sustained, or will sustain direct injury as a result. The direct injury test in public
suits is similar to the real party in interest rule for private suits under Section 2, Rule 3
of the 1997 Rules of Civil Procedure.[26]
Recognizing that a strict application of the direct injury test may hamper public
interest, this Court relaxed the requirement in cases of transcendental importance or
with far reaching implications. Being a mere procedural technicality, it has also been
held that locus standi may be waived in the public interest.[27]
Whether or not the complaint for collection is characterized as a private or
public suit, Fertiphil has locus standi to file it. Fertiphil suffered a direct injury from the
enforcement of LOI No. 1465. It was required, and it did pay, the P10 levy imposed for
every bag of fertilizer sold on the domestic market. It may be true that Fertiphil has
passed some or all of the levy to the ultimate consumer, but that does not disqualify it
from attacking the constitutionality of the LOI or from seeking a refund. As seller, it bore
the ultimate burden of paying the levy. It faced the possibility of severe sanctions for
failure to pay the levy. The fact of payment is sufficient injury to Fertiphil.
Moreover, Fertiphil suffered harm from the enforcement of the LOI because it
was compelled to factor in its product the levy. The levy certainly rendered the fertilizer
products of Fertiphil and other domestic sellers much more expensive. The harm to
their business consists not only in fewer clients because of the increased price, but also
in adopting alternative corporate strategies to meet the demands of LOI No.
1465. Fertiphil and other fertilizer sellers may have shouldered all or part of the levy just
to be competitive in the market. The harm occasioned on the business of Fertiphil is
sufficient injury for purposes of locus standi.
Even assuming arguendo that there is no direct injury, We find that the liberal
policy consistently adopted by this Court on locus standi must apply. The issues raised
by Fertiphil are of paramount public importance. It involves not only the
constitutionality of a tax law but, more importantly, the use of taxes for public
purpose. Former President Marcos issued LOI No. 1465 with the intention of
rehabilitating an ailing private company. This is clear from the text of the LOI. PPI is
expressly named in the LOI as the direct beneficiary of the levy. Worse, the levy was
made dependent and conditional upon PPI becoming financially viable. The LOI
provided that the capital contribution shall be collected until adequate capital is raised
to make PPI viable.
The constitutionality of the levy is already in doubt on a plain reading of the statute. It
is Our constitutional duty to squarely resolve the issue as the final arbiter of all
justiciable controversies. The doctrine of standing, being a mere procedural technicality,
should be waived, if at all, to adequately thresh out an important constitutional issue.
RTC may resolve
constitutional issues; the
constitutional issue was
adequately raised in the
complaint; it is the lis mota of
the case.
PPI insists that the RTC and the CA erred in ruling on the constitutionality of
the LOI. It asserts that the constitutionality of the LOI cannot be collaterally attacked in
a complaint for collection.[28] Alternatively, the resolution of the constitutional issue is
not necessary for a determination of the complaint for collection.[29]
Fertiphil counters that the constitutionality of the LOI was adequately pleaded
in its complaint. It claims that the constitutionality of LOI No. 1465 is the very lis mota of
the case because the trial court cannot determine its claim without resolving the
issue.[30]
It is settled that the RTC has jurisdiction to resolve the constitutionality of a
statute, presidential decree or an executive order. This is clear from Section 5, Article
VIII of the 1987 Constitution, which provides:
SECTION 5. The Supreme Court shall have the following
powers:
xxxx
(2) Review, revise, reverse, modify, or affirm on appeal
or certiorari, as the law or the Rules of Court may provide, final
judgments and orders of lower courts in:
(a) All cases in which the constitutionality
or validity of any treaty, international or executive
agreement, law, presidential decree,
proclamation, order, instruction, ordinance, or
regulation is in question. (Underscoring supplied)
In Mirasol v. Court of Appeals,[31] this Court recognized the power of
the RTC to resolve constitutional issues, thus:
On the first issue. It is settled that Regional Trial Courts have
the authority and jurisdiction to consider the constitutionality of a
statute, presidential decree, or executive order. The Constitution
vests the power of judicial review or the power to declare a law,
treaty, international or executive agreement, presidential decree,
order, instruction, ordinance, or regulation not only in this Court, but
in all Regional Trial Courts.[32]
In the recent case of Equi-Asia Placement, Inc. v. Department of Foreign
Affairs,[33] this Court reiterated:
There is no denying that regular courts have jurisdiction
over cases involving the validity or constitutionality of a rule or
regulation issued by administrative agencies. Such jurisdiction,
however, is not limited to the Court of Appeals or to this Court alone
for even the regional trial courts can take cognizance of actions
assailing a specific rule or set of rules promulgated by administrative
bodies. Indeed, the Constitution vests the power of judicial review or
the power to declare a law, treaty, international or executive
agreement, presidential decree, order, instruction, ordinance, or
regulation in the courts, including the regional trial courts.[34]
 Judicial review of official acts on the ground of unconstitutionality may be
sought or availed of through any of the actions cognizable by courts of justice, not
necessarily in a suit for declaratory relief. Such review may be had in criminal actions,
as in People v. Ferrer[35] involving the constitutionality of the now defunct Anti-
Subversion law, or in ordinary actions, as in Krivenko v. Register of Deeds[36] involving
the constitutionality of laws prohibiting aliens from acquiring public lands. The
constitutional issue, however, (a) must be properly raised and presented in the
case, and (b) its resolution is necessary to a determination of the case, i.e., the issue of
constitutionality must be the very lis mota presented.[37]
Contrary to PPIs claim, the constitutionality of LOI No. 1465 was properly and
adequately raised in the complaint for collection filed with the RTC. The pertinent
portions of the complaint allege:
6. The CRC of P10 per bag levied under LOI 1465 on
domestic sales of all grades of fertilizer in the Philippines, is unlawful,
unjust, uncalled for, unreasonable, inequitable and
oppressive because:
xxxx
(c) It favors only one private domestic
corporation, i.e., defendant PPPI, and imposed at
the expense and disadvantage of the other
fertilizer importers/distributors who were
themselves in tight business situation and were
then exerting all efforts and maximizing
management and marketing skills to remain
viable;
xxxx
(e) It was a glaring example of crony
capitalism, a forced program through which the
PPI, having been presumptuously masqueraded as
the fertilizer industry itself, was the sole and
anointed beneficiary;
7. The CRC was an unlawful; and unconstitutional special
assessment and its imposition is tantamount to illegal exaction
amounting to a denial of due process since the persons of entities
which had to bear the burden of paying the CRC derived no benefit
therefrom; that on the contrary it was used by PPI in trying to regain
its former despicable monopoly of the fertilizer industry to the
detriment of other distributors and importers.[38] (Underscoring
supplied)
The constitutionality of LOI No. 1465 is also the very lis mota of the complaint
for collection. Fertiphil filed the complaint to compel PPI to refund the levies paid under
the statute on the ground that the law imposing the levy is unconstitutional. The thesis
is that an unconstitutional law is void. It has no legal effect. Being void, Fertiphil had no
legal obligation to pay the levy. Necessarily, all levies duly paid pursuant to an
unconstitutional law should be refunded under the civil code principle against unjust
enrichment. The refund is a mere consequence of the law being declared
unconstitutional. The RTC surely cannot order PPI to refund Fertiphil if it does not
declare the LOI unconstitutional. It is the unconstitutionality of the LOI which triggers
the refund. The issue of constitutionality is the very lis mota of the complaint with
the RTC.
The P10 levy under LOI No.
1465 is an exercise of the
power of taxation.
At any rate, the Court holds that the RTC and the CA did not err in ruling against the
constitutionality of the LOI.
PPI insists that LOI No. 1465 is a valid exercise either of the police power or
the power of taxation. It claims that the LOI was implemented for the purpose of
assuring the fertilizer supply and distribution in the country and for benefiting a
foundation created by law to hold in trust for millions of farmers their stock ownership
in PPI.
Fertiphil counters that the LOI is unconstitutional because it was enacted to
give benefit to a private company. The levy was imposed to pay the corporate debt of
PPI. Fertiphil also argues that, even if the LOI is enacted under the police power, it is
still unconstitutional because it did not promote the general welfare of the people or
public interest.
Police power and the power of taxation are inherent powers of the State. These
powers are distinct and have different tests for validity. Police power is the power of the
State to enact legislation that may interfere with personal liberty or property in order
to promote the general welfare,[39] while the power of taxation is the power to levy taxes
to be used for public purpose. The main purpose of police power is the regulation of a
behavior or conduct, while taxation is revenue generation. The lawful subjects and
lawful means tests are used to determine the validity of a law enacted under the police
power.[40] The power of taxation, on the other hand, is circumscribed by inherent and
constitutional limitations.
We agree with the RTC that the imposition of the levy was an exercise by the
State of its taxation power. While it is true that the power of taxation can be used as an
implement of police power,[41] the primary purpose of the levy is revenue generation. If
the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial
purposes, then the exaction is properly called a tax.[42]
In Philippine Airlines, Inc. v. Edu,[43] it was held that the imposition of a vehicle
registration fee is not an exercise by the State of its police power, but of its taxation
power, thus:
It is clear from the provisions of Section 73 of
Commonwealth Act 123 and Section 61 of the Land Transportation
and Traffic Code that the legislative intent and purpose behind the
law requiring owners of vehicles to pay for their registration is mainly
to raise funds for the construction and maintenance of highways and
to a much lesser degree, pay for the operating expenses of the
administering agency. x x x Fees may be properly regarded as taxes
even though they also serve as an instrument of regulation.
Taxation may be made the implement of the state's police
power (Lutz v. Araneta, 98 Phil. 148). If the purpose is primarily
revenue, or if revenue is, at least, one of the real and substantial
purposes, then the exaction is properly called a tax. Such is the case
of motor vehicle registration fees. The same provision appears as
Section 59(b) in the Land Transportation Code. It is patent therefrom
that the legislators had in mind a regulatory tax as the law refers to
the imposition on the registration, operation or ownership of a motor
vehicle as a tax or fee. x x x Simply put, if the exaction under Rep. Act
4136 were merely a regulatory fee, the imposition in Rep. Act 5448
need not be an additional tax. Rep. Act 4136 also speaks of other fees
such as the special permit fees for certain types of motor vehicles
(Sec. 10) and additional fees for change of registration (Sec.
11). These are not to be understood as taxes because such fees are
very minimal to be revenue-raising. Thus, they are not mentioned by
Sec. 59(b) of the Code as taxes like the motor vehicle registration fee
and chauffeurs license fee. Such fees are to go into the expenditures
of the Land Transportation Commission as provided for in the last
proviso of Sec. 61.[44] (Underscoring supplied)
The P10 levy under LOI No. 1465 is too excessive to serve a mere regulatory
purpose. The levy, no doubt, was a big burden on the seller or the ultimate consumer. It
increased the price of a bag of fertilizer by as much as five percent.[45] A plain reading
of the LOI also supports the conclusion that the levy was for revenue generation. The
LOI expressly provided that the levy was imposed until adequate capital is raised to
make PPI viable.
Taxes are exacted only for a
public purpose. The P10 levy
is unconstitutional because it
was not for a public purpose.
The levy was imposed to give
undue benefit to PPI.
An inherent limitation on the power of taxation is public purpose. Taxes are
exacted only for a public purpose. They cannot be used for purely private purposes or
for the exclusive benefit of private persons.[46] The reason for this is simple. The power
to tax exists for the general welfare; hence, implicit in its power is the limitation that it
should be used only for a public purpose. It would be a robbery for the State to tax its
citizens and use the funds generated for a private purpose. As an old United States case
bluntly put it: To lay with one hand, the power of the government on the property of
the citizen, and with the other to bestow it upon favored individuals to aid private
enterprises and build up private fortunes, is nonetheless a robbery because it is done
under the forms of law and is called taxation.[47]
The term public purpose is not defined. It is an elastic concept that can be
hammered to fit modern standards. Jurisprudence states that public purpose should be
given a broad interpretation. It does not only pertain to those purposes which are
traditionally viewed as essentially government functions, such as building roads and
delivery of basic services, but also includes those purposes designed to promote social
justice. Thus, public money may now be used for the relocation of illegal settlers, low-
cost housing and urban or agrarian reform.
While the categories of what may constitute a public purpose are continually
expanding in light of the expansion of government functions, the inherent requirement
that taxes can only be exacted for a public purpose still stands. Public purpose is the
heart of a tax law. When a tax law is only a mask to exact funds from the public when
its true intent is to give undue benefit and advantage to a private enterprise, that law
will not satisfy the requirement of public purpose.
 The purpose of a law is evident from its text or inferable from other secondary
sources. Here, We agree with the RTC and that CA that the levy imposed under LOI No.
1465 was not for a public purpose.
First, the LOI expressly provided that the levy be imposed to benefit PPI, a
private company. The purpose is explicit from Clause 3 of the law, thus:
3. The Administrator of the Fertilizer Pesticide Authority to include in
its fertilizer pricing formula a capital contribution component of
not less than P10 per bag. This capital contribution shall be
collected until adequate capital is raised to make PPI
viable. Such capital contribution shall be applied by FPA to all
domestic sales of fertilizers in the Philippines.[48] (Underscoring
supplied)
It is a basic rule of statutory construction that the text of a statute should be
given a literal meaning. In this case, the text of the LOI is plain that the levy was imposed
in order to raise capital for PPI. The framers of the LOI did not even hide the insidious
purpose of the law. They were cavalier enough to name PPI as the ultimate beneficiary
of the taxes levied under the LOI. We find it utterly repulsive that a tax law would
expressly name a private company as the ultimate beneficiary of the taxes to be levied
from the public. This is a clear case of crony capitalism.
Second, the LOI provides that the imposition of the P10 levy was conditional
and dependent upon PPI becoming financially viable. This suggests that the levy was
actually imposed to benefit PPI. The LOI notably does not fix a maximum amount when
PPI is deemed financially viable. Worse, the liability of Fertiphil and other domestic
sellers of fertilizer to pay the levy is made indefinite. They are required to continuously
pay the levy until adequate capital is raised for PPI.
Third, the RTC and the CA held that the levies paid under the LOI were directly
remitted and deposited by FPA to Far East Bank and Trust Company, the depositary
bank of PPI.[49] This proves that PPI benefited from the LOI. It is also proves that the
main purpose of the law was to give undue benefit and advantage to PPI.
Fourth, the levy was used to pay the corporate debts of PPI. A reading of the
Letter of Understanding[50] dated May 18, 1985 signed by then Prime Minister Cesar
Virata reveals that PPI was in deep financial problem because of its huge corporate
debts. There were pending petitions for rehabilitation against PPI before the Securities
and Exchange Commission. The government guaranteed payment of PPIs debts to its
foreign creditors. To fund the payment, President Marcos issued LOI No. 1465. The
pertinent portions of the letter of understanding read:
Republic of the Philippines
Office of the Prime Minister
Manila
LETTER OF UNDERTAKING
May 18, 1985
TO: THE BANKING AND FINANCIAL INSTITUTIONS
LISTED IN ANNEX A HERETO WHICH ARE
CREDITORS (COLLECTIVELY, THE CREDITORS)
OF PLANTERS PRODUCTS, INC. (PLANTERS)
Gentlemen:
This has reference to Planters which is the principal importer and
distributor of fertilizer, pesticides and agricultural chemicals in the
Philippines. As regards Planters, the Philippine Government confirms
its awareness of the following: (1) that Planters has outstanding
obligations in foreign currency and/or pesos, to the Creditors, (2)
that Planters is currently experiencing financial difficulties, and (3)
that there are presently pending with the Securities and Exchange
Commission of the Philippines a petition filed at Planters own behest
for the suspension of payment of all its obligations, and a separate
petition filed by Manufacturers Hanover Trust Company, Manila
Offshore Branch for the appointment of a rehabilitation receiver for
Planters.
In connection with the foregoing, the Republic of the Philippines (the
Republic) confirms that it considers and continues to consider
Planters as a major fertilizer distributor. Accordingly, for and in
consideration of your expressed willingness to consider and
participate in the effort to rehabilitate Planters, the Republic hereby
manifests its full and unqualified support of the successful
rehabilitation and continuing viability of Planters, and to that end,
 hereby binds and obligates itself to the creditors and Planters, as
follows:
xxxx
2. Upon the effective date of this Letter of Undertaking, the
Republic shall cause FPA to include in its fertilizer pricing formula a
capital recovery component, the proceeds of which will be used
initially for the purpose of funding the unpaid portion of the
outstanding capital stock of Planters presently held in trust by
Planters Foundation, Inc. (Planters Foundation), which unpaid capital
is estimated at approximately P206 million (subject to validation by
Planters and Planters Foundation) such unpaid portion of the
outstanding capital stock of Planters being hereafter referred to as
the Unpaid Capital), and subsequently for such capital increases as
may be required for the continuing viability of Planters.
xxxx
The capital recovery component shall continue to be
charged and collected until payment in full of (a) the Unpaid Capital
and/or (b) any shortfall in the payment of the Subsidy Receivables,
(c) any carrying cost accruing from the date hereof on the amounts
which may be outstanding from time to time of the Unpaid Capital
and/or the Subsidy Receivables, and (d) the capital increases
contemplated in paragraph 2 hereof. For the purpose of the
foregoing clause (c), the carrying cost shall be at such rate as will
represent the full and reasonable cost to Planters of servicing its
debts, taking into account both its peso and foreign currency-
denominated obligations.
REPUBLIC OF THE PHILIPPINES
By:
(signed)
CESAR E. A. VIRATA
Prime Minister and Minister of Finance[51]
It is clear from the Letter of Understanding that the levy was imposed precisely
to pay the corporate debts of PPI. We cannot agree with PPI that the levy was imposed
to ensure the stability of the fertilizer industry in the country. The letter of
understanding and the plain text of the LOI clearly indicate that the levy was exacted
for the benefit of a private corporation.
All told, the RTC and the CA did not err in holding that the levy imposed under
LOI No. 1465 was not for a public purpose. LOI No. 1465 failed to comply with the public
purpose requirement for tax laws.
The LOI is still
unconstitutional even if
enacted under the police
power; it did not promote
public interest.
Even if We consider LOI No. 1695 enacted under the police power of the State, it would
still be invalid for failing to comply with the test of lawful subjects and lawful
means. Jurisprudence states the test as follows: (1) the interest of the public generally,
as distinguished from those of particular class, requires its exercise; and (2) the means
employed are reasonably necessary for the accomplishment of the purpose and not
unduly oppressive upon individuals.[52]
For the same reasons as discussed, LOI No. 1695 is invalid because it did not promote
public interest. The law was enacted to give undue advantage to a private
corporation. We quote with approval the CA ratiocination on this point, thus:
It is upon applying this established tests that We sustain the
trial courts holding LOI 1465 unconstitutional. To be sure, ensuring
the continued supply and distribution of fertilizer in the country is an
undertaking imbued with public interest. However, the method by
which LOI 1465 sought to achieve this is by no means a measure that
will promote the public welfare. The governments commitment to
support the successful rehabilitation and continued viability of PPI, a
private corporation, is an unmistakable attempt to mask the subject
statutes impartiality. There is no way to treat the self-interest of a
favored entity, like PPI, as identical with the general interest of the
countrys farmers or even the Filipino people in general. Well to stress,
substantive due process exacts fairness and equal protection
disallows distinction where none is needed. When a statutes public
purpose is spoiled by private interest, the use of police power
becomes a travesty which must be struck down for being an arbitrary
exercise of government power. To rule in favor of appellant would
contravene the general principle that revenues derived from taxes
cannot be used for purely private purposes or for the exclusive
benefit of private individuals. (Underscoring supplied)
The general rule is that an
unconstitutional law is void;
the doctrine of operative fact
is inapplicable.
PPI also argues that Fertiphil cannot seek a refund even if LOI No. 1465 is
declared unconstitutional. It banks on the doctrine of operative fact, which provides
that an unconstitutional law has an effect before being declared unconstitutional. PPI
wants to retain the levies paid under LOI No. 1465 even if it is subsequently declared to
be unconstitutional.
We cannot agree. It is settled that no question, issue or argument will be
entertained on appeal, unless it has been raised in the court a quo.[53] PPI did not raise
the applicability of the doctrine of operative fact with the RTC and the CA. It cannot
belatedly raise the issue with Us in order to extricate itself from the dire effects of an
unconstitutional law.
Here, We do not find anything iniquitous in ordering PPI to refund the
amounts paid by Fertiphil under LOI No. 1465. It unduly benefited from the levy. It was
proven during the trial that the levies paid were remitted and deposited to its bank
account. Quite the reverse, it would be inequitable and unjust not to order a refund. To
do so would unjustly enrich PPI at the expense of Fertiphil. Article 22 of the Civil Code
explicitly provides that every person who, through an act of performance by another
comes into possession of something at the expense of the latter without just or legal
ground shall return the same to him. We cannot allow PPI to profit from an
unconstitutional law. Justice and equity dictate that PPI must refund the amounts paid
by Fertiphil.
WHEREFORE, the petition is DENIED. The Court of Appeals Decision dated November
28, 2003 is AFFIRMED.
SO ORDERED.

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

ART. 7. Laws are repealed only by subsequent ones, and

their violation or non-observance shall not be excused by disuse or
custom or practice to the contrary.

When the courts declare a law to be inconsistent with the

Constitution, the former shall be void and the latter shall govern.

The doctrine of operative fact, as an exception to the general rule, only

applies as a matter of equity and fair play.[55] It nullifies the effects of an unconstitutional
law by recognizing that the existence of a statute prior to a determination of
unconstitutionality is an operative fact and may have consequences which cannot
always be ignored. The past cannot always be erased by a new judicial declaration.[56]

The doctrine is applicable when a declaration of unconstitutionality will

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

Petitioner-Organizations, namely: G.R. Nos. 147036-37 TEODORO J. AMOR, representing the Peasant G.R. No. 147811
PAMBANSANG KOALISYON NG MGA Alliance of Samar and Leyte (PASALEY),
SAMAHANG MAGSASAKA AT MANGGAGAWA DOMINGO C. ENCALLADO, representing
SA NIYUGAN (PKSMMN), COCONUT INDUSTRY
REFORM MOVEMENT (COIR), BUKLOD NG Aniban ng Magsasaka at Manggagawa sa Niyugan
MALAYANG MAGBUBUKID, PAMBANSANG
KILUSAN NG MGA SAMAHANG MAGSASAKA (AMMANI), and VIDAL M. PILIIN, representing
(PAKISAMA), CENTER FOR AGRARIAN REFORM,
the Laguna Coalition,
EMPOWERMENT AND TRANSFORMATION
(CARET), PAMBANSANG KATIPUNAN NG MGA Petitioners,
SAMAHAN SA KANAYUNAN (PKSK); Petitioner-
Legislator: REPRESENTATIVE LORETA ANN
ROSALES; and Petitioner-Individuals, namely:
VIRGILIO V. DAVID, JOSE MARIE FAUSTINO, - versus -
JOSE CONCEPCION, ROMEO ROYANDOYAN,
JOSE V. ROMERO, JR., ATTY. CAMILO L.
SABIO, and ATTY. ANTONIO T. CARPIO, EXECUTIVE SECRETARY, SECRETARY OF
Petitioners, Present:
AGRICULTURE, SECRETARY OF AGRARIAN
CORONA, C.J.,
REFORM, PRESIDENTIAL COMMISSION ON
CARPIO,
GOOD GOVERNMENT, THE SOLICITOR
VELASCO, JR.,
GENERAL, PHILIPPINE COCONUT
LEONARDO-DE CASTRO,
PRODUCERS FEDERATION, UNITED Promulgated:
BRION,
COCONUT PLANTERS BANK,
- versus - PERALTA, BERSAMIN, DEL CASTILLO, ABAD, VILLARAMA, JR., PEREZ,
MENDOZA, SERENO, REYES, and PERLAS-BERNABE, JJ. Respondents. April 10, 2012

EXECUTIVE SECRETARY, SECRETARY OF

AGRICULTURE, SECRETARY OF AGRARIAN x ---------------------------------------------------------------------------------------- x

REFORM, PRESIDENTIAL COMMISSION ON

GOOD GOVERNMENT, THE SOLICITOR DECISION

GENERAL, PHILIPPINE COCONUT PRODUCERS
ABAD, J.:
FEDERATION, INC. (COCOFED), and UNITED

COCONUT PLANTERS BANK (UCPB),

Respondents.

x ------------------------------------------------------ x
These are consolidated petitions to declare unconstitutional certain presidential
decrees and executive orders of the martial law era relating to the raising and use of
coco-levy funds.
The Facts and the Case
On June 19, 1971 Congress enacted Republic Act (R.A.) 6260[1] that established a
Coconut Investment Fund (CI Fund) for the development of the coconut industry
through capital financing.[2] Coconut farmers were to capitalize and administer the Fund
through the Coconut Investment Company (CIC)[3] whose objective was, among others,
to advance the coconut farmers interests. For this purpose, the law imposed a levy
of P0.55 on the coconut farmers first domestic sale of every 100 kilograms of copra, or
its equivalent, for which levy he was to get a receipt convertible into CIC shares of
stock.[4]
About a year following his proclamation of martial law in the country or on August 20,
1973 President Ferdinand E. Marcos issued Presidential Decree (P.D.) 276,[5] which
established a Coconut Consumers Stabilization Fund (CCS Fund), to address the crisis
at that time in the domestic market for coconut-based consumer goods. The CCS Fund
was to be built up through the imposition of a P15.00-levy for every first sale of 100
kilograms of copra resecada.[6] The levy was to cease after a year or earlier provided the
crisis was over. Any remaining balance of the Fund was to revert to the CI Fund
established under R.A. 6260.[7]
A year later or on November 14, 1974 President Marcos issued P.D. 582,[8] creating a
permanent fund called the Coconut Industry Development Fund (CID Fund) to channel
for the ultimate direct benefit of coconut farmers part of the levies that they were
already paying. The Philippine Coconut Authority (PCA) was to provide P100 million as
initial capital of the CID Fund and, thereafter, give the Fund at least P0.20 per kilogram
of copra resecada out of the PCAs collection of coconut consumers stabilization levy. In
case of the lifting of this levy, the PCA was then to impose a permanent levy of P0.20
on the first sale of every kilogram of copra to form part of the CID Fund.[9] Also, under
P.D. 582, the Philippine National Bank (PNB), then owned by the Government, was to
receive on deposit, administer, and use the CID Fund.[10] P.D. 582 authorized the PNB
to invest the unused portion of the CID Fund in easily convertible investments, the
earnings of which were to form part of the Fund.[11]
In 1975 President Marcos enacted P.D. 755[12] which approved the acquisition of a
commercial bank for the benefit of the coconut farmers to enable such bank to
promptly and efficiently realize the industrys credit policy.[13] Thus, the PCA bought
72.2% of the shares of stock of First United Bank, headed
by Pedro Cojuangco.[14] Due to changes in its corporate identity and purpose, the banks
articles of incorporation were amended in July 1975, resulting in a change in the banks
name from First United Bank to United Coconut Planters Bank (UCPB).[15]
On July 14, 1976 President Marcos enacted P.D. 961,[16] the Coconut Industry Code,
which consolidated and codified existing laws relating to the coconut industry. The
Code provided that surpluses from the CCS Fund and the CID Fund collections, not used
for replanting and other authorized purposes, were to be invested by acquiring shares
of stock of corporations, including the San Miguel Corporation (SMC), engaged in
undertakings related to the coconut and palm oil industries.[17] UCPB was to make such
investments and equitably distribute these for free to coconut farmers.[18] These
investments constituted the Coconut Industry Investment Fund (CIIF). P.D. 961 also
provided that the coconut levy funds (coco-levy funds) shall be owned by the coconut
farmers in their private capacities.[19] This was reiterated in the PD 1468[20] amendment
of June 11, 1978.
In 1980, President Marcos issued P.D. 1699,[21] suspending the collections of the CCS
Fund and the CID Fund. But in 1981 he issued P.D. 1841[22] which revived the collection
of coconut levies. P.D. 1841 renamed the CCS Fund into the Coconut Industry
Stabilization Fund (CIS Fund).[23] This Fund was to be earmarked proportionately among
several development programs, such as coconut hybrid replanting program, insurance
coverage for the coconut farmers, and scholarship program for their children.[24]
In November 2000 then President Joseph Estrada issued Executive Order (E.O.)
312,[25] establishing a Sagip Niyugan Program which sought to provide immediate
income supplement to coconut farmers and encourage the creation of a sustainable
local market demand for coconut oil and other coconut products.[26] The Executive
Order sought to establish a P1-billion fund by disposing of assets acquired using coco-
levy funds or assets of entities supported by those funds.[27] A committee was created
to manage the fund under this program.[28] A majority vote of its members could
engage the services of a reputable auditing firm to conduct periodic audits. [29]
At about the same time, President Estrada issued E.O. 313,[30] which created an
irrevocable trust fund known as the Coconut Trust Fund (the Trust Fund). This aimed to
provide financial assistance to coconut farmers, to the coconut industry, and to other
agri-related programs.[31] The shares of stock of SMC were to serve as the Trust Funds
initial capital.[32] These shares were acquired with CII Funds and constituted
approximately 27% of the outstanding capital stock of SMC. E.O. 313 designated UCPB,
through its Trust Department, as the Trust Funds trustee bank. The Trust Fund
Committee would administer, manage, and supervise the operations of the Trust
Fund.[33] The Committee would designate an external auditor to do an annual audit or
as often as needed but it may also request the Commission on Audit (COA) to
intervene.[34]
To implement its mandate, E.O. 313 directed the Presidential Commission on Good
Government, the Office of the Solicitor General, and other government agencies to
exclude the 27% CIIF SMC shares from Civil Case 0033, entitled Republic of the
Philippines v. Eduardo Cojuangco, Jr., et al., which was then pending before the
Sandiganbayan and to lift the sequestration over those shares.[35]
On January 26, 2001, however, former President Gloria Macapagal-Arroyo ordered the
suspension of E.O.s 312 and 313.[36] This notwithstanding, on March 1, 2001 petitioner
organizations and individuals brought the present action in G.R. 147036-37 to
declare E.O.s 312 and 313 as well as Article III, Section 5 of P.D. 1468
unconstitutional. On April 24, 2001 the other sets of petitioner organizations and
individuals instituted G.R. 147811 to nullify Section 2 of P.D. 755 and Article III, Section
5 of P.D.s 961 and 1468 also for being unconstitutional.
The Issues Presented
The parties submit the following issues for adjudication:
Procedurally
1. Whether or not petitioners special civil actions of certiorari under Rule 65
constituted the proper remedy for their actions; and
2. Whether or not petitioners have legal standing to bring the same to court.
On the substance
3. Whether or not the coco-levy funds are public funds; and
4. Whether or not (a) Section 2 of P.D. 755, (b) Article III, Section 5 of P.D.s 961
and 1468, (c) E.O. 312, and (d) E.O. 313 are unconstitutional.
The Rulings of the Court
First. UCPB questions the propriety of the present petitions
for certiorari and mandamus under Rule 65 on the ground that there are no ongoing
proceedings in any tribunal or board or before a government official exercising judicial,
quasi-judicial, or ministerial functions.[37] UCPB insists that the Court exercises appellate
jurisdiction with respect to issues of constitutionality or validity of laws and presidential
orders.[38]
But, as the Court previously held, where there are serious allegations that a
law has infringed the Constitution, it becomes not only the right but the duty of the
Court to look into such allegations and, when warranted, uphold the supremacy of the
Constitution.[39] Moreover, where the issues raised are of paramount importance to the
public, as in this case, the Court has the discretion to brush aside technicalities of
procedure.[40]
Second. The Court has to uphold petitioners right to institute these
petitions. The petitioner organizations in these cases represent coconut farmers on
whom the burden of the coco-levies attaches. It is also primarily for their benefit that
the levies were imposed.
The individual petitioners, on the other hand, join the petitions as
taxpayers. The Court recognizes their right to restrain officials from wasting public
funds through the enforcement of an unconstitutional statute.[41] This so-called
taxpayers suit is based on the theory that expenditure of public funds for the purpose
of executing an unconstitutional act is a misapplication of such funds.[42]
Besides, the 1987 Constitution accords to the citizens a greater participation
in the affairs of government. Indeed, it provides for people's initiative, the right to
information on matters of public concern (including the right to know the state of health
of their President), as well as the right to file cases questioning the factual bases for the
suspension of the privilege of writ of habeas corpus or declaration of martial law. These
provisions enlarge the peoples right in the political as well as the judicial field. It grants
them the right to interfere in the affairs of government and challenge any act tending
to prejudice their interest.
Third. For some time, different and conflicting notions had been formed as to
the nature and ownership of the coco-levy funds. The Court, however, finally put an end
to the dispute when it categorically ruled in Republic of the Philippines v.
COCOFED[43] that these funds are not only affected with public interest; they are, in
fact, prima facie public funds. Prima facie means a fact presumed to be true unless
disproved by some evidence to the contrary.[44]
The Court was satisfied that the coco-levy funds were raised pursuant to law
to support a proper governmental purpose. They were raised with the use of the police
and taxing powers of the State for the benefit of the coconut industry and its farmers
in general. The COA reviewed the use of the funds. The Bureau of Internal Revenue (BIR)
treated them as public funds and the very laws governing coconut levies recognize their
public character.[45]
 The Court has also recently declared that the coco-levy funds are in the nature
of taxes and can only be used for public purpose.[46] Taxes are enforced proportional
contributions from persons and property, levied by the State by virtue of its sovereignty
for the support of the government and for all its public needs.[47] Here, the coco-levy
funds were imposed pursuant to law, namely, R.A. 6260 and P.D. 276. The funds were
collected and managed by the PCA, an independent government corporation directly
under the President.[48] And, as the respondent public officials pointed out,
the pertinent laws used the term levy,[49] which means to tax,[50] in describing the
exaction.
Court held that the oil price stabilization fund was a special fund mainly because this
was segregated from the general fund and placed in what the law referred to as a trust
account. Yet it remained subject to COA scrutiny and review. The Court finds no
substantial distinction between these funds and the coco-levy funds, except as to the
industry they each support.
Fourth. Petitioners in G.R. 147811 assert that Section 2 of P.D. 755 above is
void and unconstitutional for disregarding the public character of coco-levy funds. The
subject section provides:

Of course, unlike ordinary revenue laws, R.A. 6260 and P.D. 276 did not raise
Section 2. Financial Assistance. x x x and since the
money to boost the governments general funds but to provide means for the
operations, and activities of the Philippine Coconut Authority are all
rehabilitation and stabilization of a threatened industry, the coconut industry, which is
in accord with the present social economic plans and programs of
so affected with public interest as to be within the police power of the State.[51] The
the Government, all collections and levies which the Philippine
funds sought to support the coconut industry, one of the main economic backbones of
Coconut Authority is authorized to levy and collect such as but not
the country, and to secure economic benefits for the coconut farmers and farm
limited to the Coconut Consumers Stabilization Levy, and the
workers. The subject laws are akin to the sugar liens imposed by Sec. 7(b) of P.D.
Coconut Industry Development Fund as prescribed by Presidential
388,[52] and the oil price stabilization funds under P.D. 1956,[53] as amended by E.O.
Decree No. 582 shall not be considered or construed, under any
137.[54]
law or regulation, special and/or fiduciary funds and do not form
Respondent UCPB suggests that the coco-levy funds are closely similar to the part of the general funds of the national government within the
Social Security System (SSS) funds, which have been declared to be not public funds contemplation of Presidential Decree No. 711. (Emphasis ours)
but properties of the SSS members and held merely in trust by the government.[55] But
the SSS Law[56] collects premium contributions. It does not collect taxes from members
The Court has, however, already passed upon this question in Philippine
for a specific public purpose. They pay contributions in exchange for insurance
Coconut Producers Federation, Inc. (COCOFED) v. Republic of the Philippines.[62] It held
protection and benefits like loans, medical or health services, and retirement
as unconstitutional Section 2 of P.D. 755 for effectively authorizing the PCA to utilize
packages. The benefits accrue to every SSS member, not to the public, in general.[57]
portions of the CCS Fund to pay the financial commitment of the farmers to acquire
UCPB and to deposit portions of the CCS Fund levies with UCPB interest free. And as
Furthermore, SSS members do not lose ownership of their contributions. The
there also provided, the CCS Fund, CID Fund and like levies that PCA is authorized to
government merely holds these in trust, together with his employers contribution, to
collect shall be considered as non-special or fiduciary funds to be transferred to the
answer for his future benefits.[58] The coco-levy funds, on the other hand, belong to the
general fund of the Government, meaning they shall be deemed private funds.
government and are subject to its administration and disposition. Thus, these funds,
including its incomes, interests, proceeds, or profits, as well as all its assets, properties, Identical provisions of subsequent presidential decrees likewise declared
and shares of stocks procured with such funds must be treated, used, administered, and coco-levy funds private properties of coconut farmers. Article III, Section 5 of P.D. 961
managed as public funds.[59] reads:

Lastly, the coco-levy funds are evidently special funds. In Gaston v. Republic
Planters Bank,[60] the Court held that the State collected stabilization fees from sugar
Section 5. Exemptions. The Coconut Consumers
millers, planters, and producers for a special purpose: to finance the growth and
Stabilization Fund and the Coconut Industry Development Fund as
development of the sugar industry and all its components. The fees were levied for a
well as all disbursements of said funds for the benefit of the coconut
special purpose and, therefore, constituted special fund when collected. Its character as
farmers as herein authorized shall not be construed or interpreted,
such fund was made clear by the fact that they were deposited in the PNB (then a wholly
under any law or regulation, as special and/or fiduciary funds, or
owned government bank) and not in the Philippine Treasury. In Osmea v. Orbos,[61] the
as part of the general funds of the national government within
 the contemplation of P.D. No. 711; nor as a subsidy, donation, levy,
government funded investment, or government share within the
contemplation of P.D. 898, the intention being that said Fund Section 2 of P.D. 755, Article III, Section 5 of P.D. 961, and Article III, Section 5
and the disbursements thereof as herein authorized for the of P.D. 1468 completely ignore the fact that coco-levy funds are public funds raised
benefit of the coconut farmers shall be owned by them in their through taxation. And since taxes could be exacted only for a public purpose, they
own private capacities. (Emphasis ours) cannot be declared private properties of individuals although such individuals fall within
a distinct group of persons.[65]
Section 5 of P.D. 1468 basically reproduces the above provision, thus
The Court of course grants that there is no hard-and-fast rule for determining
what constitutes public purpose. It is an elastic concept that could be made to fit into
Section 5. Exemption. The Coconut Consumers
modern standards. Public purpose, for instance, is no longer restricted to traditional
Stabilization Fund and the Coconut Industry Development Fund, as
government functions like building roads and school houses or safeguarding public
well as all disbursements as herein authorized, shall not be
health and safety. Public purpose has been construed as including the promotion of
construed or interpreted, under any law or regulation, as special
social justice. Thus, public funds may be used for relocating illegal settlers, building
and/or fiduciary funds, or as part of the general funds of the
low-cost housing for them, and financing both urban and agrarian reforms that benefit
national government within the contemplation of P.D. 711; nor as
subsidy, donation, levy government funded investment, or certain poor individuals. Still, these uses relieve volatile iniquities in society and,
government share within the contemplation of P.D. 898, the therefore, impact on public order and welfare as a whole.
intention being that said Fund and the disbursements thereof as
But the assailed provisions, which removed the coco-levy funds from the
herein authorized for the benefit of the coconut farmers shall be
general funds of the government and declared them private properties of coconut
owned by them in their private capacities: Provided, however, That
farmers, do not appear to have a color of social justice for their purpose. The levy on
the President may at any time authorize the Commission on Audit or
copra that farmers produce appears, in the first place, to be a business tax judging by
any other officer of the government to audit the business affairs,
its tax base. The concept of farmers-businessmen is incompatible with the idea that
administration, and condition of persons and entities who receive
coconut farmers are victims of social injustice and so should be beneficiaries of the
subsidy for coconut-based consumer products x x x. (Emphasis ours)
taxes raised from their earnings.

It would altogether be different of course if the laws mentioned set apart a

Notably, the raising of money by levy on coconut farm production, a form of
portion of the coco-levy fund for improving the lives of destitute coconut farm owners
taxation as already stated, began in 1971 for the purpose of developing the coconut
or workers for their social amelioration to establish a proper government purpose. The
industry and promoting the interest of coconut farmers. The use of the fund was
support for the poor is generally recognized as a public duty and has long been an
expanded in 1973 to include the stabilization of the domestic market for coconut-based
accepted exercise of police power in the promotion of the common good.[66] But the
consumer goods and in 1974 to divert part of the funds for obtaining direct benefit to
declarations do not distinguish between wealthy coconut farmers and the impoverished
coconut farmers. After five years or in 1976, however, P.D. 961 declared the coco-levy
ones. And even if they did, the Government cannot just embark on a philanthropic orgy
funds private property of the farmers. P.D. 1468 reiterated this declaration in 1978. But
of inordinate dole-outs for motives political or otherwise.[67] Consequently, such
neither presidential decree actually turned over possession or control of the funds to
declarations are void since they appropriate public funds for private purpose and,
the farmers in their private capacity. The government continued to wield undiminished
therefore, violate the citizens right to substantive due process.[68]
authority over the management and disposition of those funds.
On another point, in stating that the coco-levy fund shall not be construed or
In any event, such declaration is void. There is ownership when a thing
interpreted, under any law or regulation, as special and/or fiduciary funds, or as part of
pertaining to a person is completely subjected to his will in everything that is not
the general funds of the national government, P.D.s 961 and 1468 seek to remove such
prohibited by law or the concurrence with the rights of another.[63] An owner is free to
fund from COA scrutiny.
exercise all attributes of ownership: the right, among others, to possess, use and enjoy,
abuse or consume, and dispose or alienate the thing owned.[64] The owner is of course This is also the fault of President Estradas E.O. 312 which deals with P1 billion
free to waive all or some of these rights in favor of others. But in the case of the coconut to be generated out of the sale of coco-fund acquired assets. Thus
farmers, they could not, individually or collectively, waive what have not been and could
not be legally imparted to them.
 Section 5. Audit of Fund and Submission of Report. The
Committee, by a majority vote, shall engage the services of a
reputable auditing firm to conduct periodic audits of the fund. It
shall render a quarterly report on all pertinent transactions and
availments of the fund to the Office of the President within the first
three (3) working days of the succeeding quarter. (Emphasis ours)
E.O. 313 has a substantially identical provision governing the management
and disposition of the Coconut Trust Fund capitalized with the substantial SMC shares
of stock that the coco-fund acquired. Thus
Section 13. Accounting. x x x
The Fund shall be audited annually or as often as
necessary by an external auditor designated by the
Committee. The Committee may also request the Commission on
Audit to conduct an audit of the Fund. (Emphasis ours)
But, since coco-levy funds are taxes, the provisions of P.D.s 755, 961 and 1468
as well as those of E.O.s 312 and 313 that remove such funds and the assets acquired
through them from the jurisdiction of the COA violate Article IX-D, Section 2(1)[69] of
the 1987 Constitution. Section 2(1) vests in the COA the power and authority to examine
uses of government money and property. The cited P.D.s and E.O.s also contravene
Section 2[70] of P.D. 898 (Providing for the Restructuring of the Commission on Audit),
which has the force of a statute.
And there is no legitimate reason why such funds should be shielded from
COA review and audit. The PCA, which implements the coco-levy laws and collects the
coco-levy funds, is a government-owned and controlled corporation subject to COA
review and audit.
E.O. 313 suffers from an additional infirmity. Its title, Rationalizing the Use of
the Coconut Levy Funds by Constituting a Fund for Assistance to Coconut Farmers as
an Irrevocable Trust Fund and Creating a Coconut Trust Fund Committee for the
Management thereof tends to mislead. Apparently, it intends to create a trust fund out
of the coco-levy funds to provide economic assistance to the coconut farmers and,
ultimately, benefit the coconut industry.[71] But on closer look, E.O. 313 strays from the
special purpose for which the law raises coco-levy funds in that it permits the use of
coco-levy funds for improving productivity in other food areas. Thus:
Section 2. Purpose of the Fund. The Fund shall be
established for the purpose of financing programs of assistance for
the benefit of the coconut farmers, the coconut industry, and other
agri-related programs intended to maximize food productivity,
develop business opportunities in the countryside, provide
livelihood alternatives, and promote anti-poverty
programs. (Emphasis ours)
xxxx
Section 9. Use and Disposition of the Trust Income. The
Coconut Trust Fund Committee, on an annual basis, shall determine
and establish the amount comprising the Trust Income. After such
determination, the Committee shall earmark, allocate and disburse
the Trust Income for the following purposes, namely:
xxxx
(d) Thirty percent (30%) of the Trust Income shall be
used to assist and fund agriculturally-related programs for the
Government, as reasonably determined by the Trust Fund
Committee, implemented for the purpose of: (i) maximizing food
productivity in the agriculture areas of the country, (ii) enhancing the
upliftment and well-being of the living conditions of farmers and
agricultural workers, (iii) developing viable industries and business
opportunities in the countryside, (iv) providing alternative means of
livelihood to the direct dependents of agriculture businesses and
enterprises, and (v) providing financial assistance and support to
coconut farmers in times of economic hardship due to extremely low
prices of copra and other coconut products, natural calamities, world
market dislocation and similar occurrences, including financial
support to the ERAPs Sagip Niyugan Program established under
Executive Order No. 312 dated November 3, 2000; x x x. (Emphasis
ours)
Clearly, E.O. 313 above runs counter to the constitutional provision which
directs that all money collected on any tax levied for a special purpose shall be treated
as a special fund and paid out for such purpose only.[72] Assisting other agriculturally-
related programs is way off the coco-funds objective of promoting the general interests
of the coconut industry and its farmers.
A final point, the E.O.s also transgress P.D. 1445,[73] Section 84(2),[74] the first
part by the previously mentioned sections of E.O. 313 and the second part by Section
4 of E.O. 312 and Sections 6 and 7 of E.O. 313. E.O. 313 vests the power to administer,
manage, and supervise the operations and disbursements of the Trust Fund it
established (capitalized with SMC shares bought out of coco-levy funds) in a Coconut
Trust Fund Committee. Thus
Section 6. Creation of the Coconut Trust Fund
Committee. A Committee is hereby created to administer,
manage and supervise the operations of the Trust Fund, chaired
by the President with ten (10) members, as follows:
(a) four (4) representatives from the government
sector, two of whom shall be the Secretary of
Agriculture and the Secretary of Agrarian Reform
who shall act as Vice Chairmen;
(b) four (4) representatives from coconut farmers
organizations, one of whom shall come from a list
of nominees from the Philippine Coconut
Producers Federation Inc. (COCOFED);
(c) a representative from the CIIF; and
(d) a representative from a non-government
organization (NGO) involved in agricultural and
rural development.
and disposition of the assistance fund generated from the sale of coco-levy fund-
acquired assets into a Committee of five members. Thus, Section 4 of E.O. 312 provides
All decisions of the Coconut Trust Fund Committee shall be
determined by a majority vote of all the members.
The Coconut Trust Fund Committee shall perform the functions and
duties set forth in Section 7 hereof, with the skill, care, prudence and
diligence necessary under the circumstances then prevailing that a
prudent man acting in like capacity would exercise.
The members of the Coconut Trust Fund Committee shall be
appointed by the President and shall hold office at his pleasure.
(b) establish priorities for assistance giving preference to
small coconut farmers and farmworkers which shall be
reviewed periodically and revised as necessary in
accordance with changing conditions;
(c) receive, process and approve project proposals for
financing by the Trust Fund;
(d) decide on the use of the Trust Funds income or net
earnings including final action on applications for
assistance, grants and/or loans;
(e) avail of professional counsel and services by retaining an
investment and financial manager, if desired;
(f) formulate the rules and regulations governing the
allocation, utilization and disbursement of the Fund; and
(g) perform such other acts and things as may be necessary
proper or conducive to attain the purposes of the
Fund. (Emphasis ours)
Section 4 of E.O. 312 does essentially the same thing. It vests the management
Section 4. Funding. Assets acquired through the coconut
levy funds or by entities financed by the coconut levy funds identified
by the President for appropriate disposal or sale, shall be sold or
disposed to generate a maximum fund of ONE BILLION PESOS
(P1,000,000,000.00) which shall be managed by a Committee
composed of a Chairman and four (4) members to be appointed
by the President whose term shall be co-terminus with the
Program. x x x (Emphasis ours)

The Coconut Trust Fund Committee is authorized to hire
administrative, technical and/or support staff as may be required to
enable it to effectively perform its functions
responsibilities. (Emphasis ours)
Section 7. Functions and Responsibilities of the
Committee. The Coconut Trust Fund Committee shall have the
following functions and responsibilities:
(a) set the investment policy of the Trust Fund;
In effect, the above transfers the power to allocate, use, and disburse coco-
levy funds that P.D. 232 vested in the PCA and transferred the same, without
legislative authorization and in violation of P.D. 232, to the Committees mentioned
and
above. An executive order cannot repeal a presidential decree which has the same
standing as a statute enacted by Congress.
UCPB invokes the principle of separability to save the assailed laws from being
struck down. The general rule is that where part of a statute is void as repugnant to the
Constitution, while another part is valid, the valid portion, if susceptible to being
separated from the invalid, may stand and be enforced. When the parts of a statute,
however, are so mutually dependent and connected, as conditions, considerations, or
compensations for each other, as to warrant a belief that the legislature intended them
as a whole, the nullity of one part will vitiate the rest. In which case, if some parts are
unconstitutional, all the other provisions which are thus dependent, conditional, or
connected must consequently fall with them.[75]

But, given that the provisions of E.O.s 312 and 313, which as already stated
invalidly transferred powers over the funds to two committees that President Estrada
created, the rest of their provisions became non-operational. It is evident that President
Estrada would not have created the new funding programs if they were to be managed
by some other entity. Indeed, he made himself Chairman of the Coconut Trust Fund
and left to his discretion the appointment of the members of the other committee.

WHEREFORE, the Court GRANTS the petition in G.R. 147036-37, PARTLY

GRANTS the petition in G.R. 147811, and declares the following VOID:

a) E.O. 312, for being repugnant to Section 84(2) of P.D.

1445, and Article IX-D, Section 2(1) of the Constitution; and

b) E.O. 313, for being in contravention of Section 84(2) of

P.D. 1445, and Article IX-D, Section 2(1) and Article VI, Section 29(3)
of the Constitution.

The Court has previously declared Section 2 of P.D. 755 and Article III, Section
5 of P.D.s 961 and 1468 unconstitutional.

SO ORDERED.
EN BANC
G.R. No. 175356 December 3, 2013
MANILA MEMORIAL PARK, INC. AND LA FUNERARIA PAZ-SUCAT,
INC., Petitioners,
vs.
SECRETARY OF THE DEPARTMENT OF SOCIAL WELFARE AND DEVELOPMENT and
THE SECRETARY OF THE DEPARTMENT OF FINANCE, Respondents.
DECISION
DEL CASTILLO, J.:
When a party challeges the constitutionality of a law, the burden of proof rests upon
him.
Before us is a Petition for Prohibition2 under Rule 65 of the Rules of Court filed by
petitioners Manila Memorial Park, Inc. and La Funeraria Paz-Sucat, Inc., domestic
corporations engaged in the business of providing funeral and burial services, against
public respondents Secretaries of the Department of Social Welfare and Development
(DSWD) and the Department of Finance (DOF).
Petitioners assail the constitutionality of Section 4 of Republic Act (RA) No. 7432,3 as
amended by RA 9257,4 and the implementing rules and regulations issued by the DSWD
and DOF insofar as these allow business establishments to claim the 20% discount given
to senior citizens as a tax deduction.
Factual Antecedents
On April 23, 1992, RA 7432 was passed into law, granting senior citizens the following
privileges:
SECTION 4. Privileges for the Senior Citizens. – The senior citizens shall be entitled to
the following:
a) the grant of twenty percent (20%) discount from all establishments relative
to utilization of transportation services, hotels and similar lodging
establishment[s], restaurants and recreation centers and purchase of medicine
anywhere in the country: Provided, That private establishments may claim the
cost as tax credit;
b) a minimum of twenty percent (20%) discount on admission fees charged by
theaters, cinema houses and concert halls, circuses, carnivals and other similar
places of culture, leisure, and amusement;
c) exemption from the payment of individual income taxes: Provided, That
their annual taxable income does not exceed the property level as determined
by the National Economic and Development Authority (NEDA) for that year;
d) exemption from training fees for socioeconomic programs undertaken by
the OSCA as part of its work;
e) free medical and dental services in government establishment[s] anywhere
in the country, subject to guidelines to be issued by the Department of Health,
the Government Service Insurance System and the Social Security System;
f) to the extent practicable and feasible, the continuance of the same benefits
and privileges given by the Government Service Insurance System (GSIS),
Social Security System (SSS) and PAG-IBIG, as the case may be, as are enjoyed
by those in actual service.
On August 23, 1993, Revenue Regulations (RR) No. 02-94 was issued to implement RA
7432. Sections 2(i) and 4 of RR No. 02-94 provide:
Sec. 2. DEFINITIONS. – For purposes of these regulations: i. Tax Credit – refers to the
amount representing the 20% discount granted to a qualified senior citizen by all
establishments relative to their utilization of transportation services, hotels and similar
lodging establishments, restaurants, drugstores, recreation centers, theaters, cinema
houses, concert halls, circuses, carnivals and other similar places of culture, leisure and
amusement, which discount shall be deducted by the said establishments from their
gross income for income tax purposes and from their gross sales for value-added tax
or other percentage tax purposes. x x x x Sec. 4. RECORDING/BOOKKEEPING
REQUIREMENTS FOR PRIVATE ESTABLISHMENTS. – Private establishments, i.e.,
transport services, hotels and similar lodging establishments, restaurants, recreation
centers, drugstores, theaters, cinema houses, concert halls, circuses, carnivals and other
similar places of culture[,] leisure and amusement, giving 20% discounts to qualified
senior citizens are required to keep separate and accurate record[s] of sales made to
senior citizens, which shall include the name, identification number, gross sales/receipts,
discounts, dates of transactions and invoice number for every transaction. The amount
of 20% discount shall be deducted from the gross income for income tax purposes and
from gross sales of the business enterprise concerned for purposes of the VAT and
other percentage taxes.
In Commissioner of Internal Revenue v. Central Luzon Drug Corporation,5 the Court
declared Sections 2(i) and 4 of RR No. 02-94 as erroneous because these contravene
RA 7432,6 thus:
RA 7432 specifically allows private establishments to claim as tax credit the amount of
discounts they grant. In turn, the Implementing Rules and Regulations, issued pursuant
thereto, provide the procedures for its availment. To deny such credit, despite the plain
mandate of the law and the regulations carrying out that mandate, is indefensible. First,
the definition given by petitioner is erroneous. It refers to tax credit as the amount
representing the 20 percent discount that "shall be deducted by the said establishments
from their gross income for income tax purposes and from their gross sales for value-
added tax or other percentage tax purposes." In ordinary business language, the tax
credit represents the amount of such discount. However, the manner by which the
discount shall be credited against taxes has not been clarified by the revenue
regulations. By ordinary acceptation, a discount is an "abatement or reduction made
from the gross amount or value of anything." To be more precise, it is in business
parlance "a deduction or lowering of an amount of money;" or "a reduction from the
full amount or value of something, especially a price." In business there are many kinds
of discount, the most common of which is that affecting the income statement or
financial report upon which the income tax is based.
xxxx
Sections 2.i and 4 of Revenue Regulations No. (RR) 2-94 define tax credit as the 20
percent discount deductible from gross income for income tax purposes, or from gross
sales for VAT or other percentage tax purposes. In effect, the tax credit benefit under
RA 7432 is related to a sales discount. This contrived definition is improper, considering
that the latter has to be deducted from gross sales in order to compute the gross
income in the income statement and cannot be deducted again, even for purposes of
computing the income tax. When the law says that the cost of the discount may be
claimed as a tax credit, it means that the amount — when claimed — shall be treated
as a reduction from any tax liability, plain and simple. The option to avail of the tax
credit benefit depends upon the existence of a tax liability, but to limit the benefit to a
sales discount — which is not even identical to the discount privilege that is granted by
law — does not define it at all and serves no useful purpose. The definition must,
therefore, be stricken down.
Laws Not Amended by Regulations
Second, the law cannot be amended by a mere regulation. In fact, a regulation that
"operates to create a rule out of harmony with the statute is a mere nullity;" it cannot
prevail. It is a cardinal rule that courts "will and should respect the contemporaneous
construction placed upon a statute by the executive officers whose duty it is to enforce
it x x x." In the scheme of judicial tax administration, the need for certainty and
predictability in the implementation of tax laws is crucial. Our tax authorities fill in the
details that "Congress may not have the opportunity or competence to provide." The
regulations these authorities issue are relied upon by taxpayers, who are certain that
these will be followed by the courts. Courts, however, will not uphold these authorities’
interpretations when clearly absurd, erroneous or improper. In the present case, the tax
authorities have given the term tax credit in Sections 2.i and 4 of RR 2-94 a meaning
utterly in contrast to what RA 7432 provides. Their interpretation has muddled x x x the
intent of Congress in granting a mere discount privilege, not a sales discount. The
administrative agency issuing these regulations may not enlarge, alter or restrict the
provisions of the law it administers; it cannot engraft additional requirements not
contemplated by the legislature.
In case of conflict, the law must prevail. A "regulation adopted pursuant to law is law."
Conversely, a regulation or any portion thereof not adopted pursuant to law is no law
and has neither the force nor the effect of law.7
On February 26, 2004, RA 92578 amended certain provisions of RA 7432, to wit:
SECTION 4. Privileges for the Senior Citizens. – The senior citizens shall be entitled to
the following:
(a) the grant of twenty percent (20%) discount from all establishments relative to the
utilization of services in hotels and similar lodging establishments, restaurants and
recreation centers, and purchase of medicines in all establishments for the exclusive use
or enjoyment of senior citizens, including funeral and burial services for the death of
senior citizens;
xxxx
The establishment may claim the discounts granted under (a), (f), (g) and (h) as tax
deduction based on the net cost of the goods sold or services rendered: Provided, That
the cost of the discount shall be allowed as deduction from gross income for the same
taxable year that the discount is granted. Provided, further, That the total amount of
the claimed tax deduction net of value added tax if applicable, shall be included in their
gross sales receipts for tax purposes and shall be subject to proper documentation and
to the provisions of the National Internal Revenue Code, as amended.
To implement the tax provisions of RA 9257, the Secretary of Finance issued RR No. 4-
2006, the pertinent provision of which provides:
SEC. 8. AVAILMENT BY ESTABLISHMENTS OF SALES DISCOUNTS AS DEDUCTION FROM
GROSS INCOME. – Establishments enumerated in subparagraph (6) hereunder granting
sales discounts to senior citizens on the sale of goods and/or services specified
thereunder are entitled to deduct the said discount from gross income subject to the
following conditions:
(1) Only that portion of the gross sales EXCLUSIVELY USED, CONSUMED OR
ENJOYED BY THE SENIOR CITIZEN shall be eligible for the deductible sales
discount.
(2) The gross selling price and the sales discount MUST BE SEPARATELY
INDICATED IN THE OFFICIAL RECEIPT OR SALES INVOICE issued by the
establishment for the sale of goods or services to the senior citizen.
(3) Only the actual amount of the discount granted or a sales discount not
exceeding 20% of the gross selling price can be deducted from the gross
income, net of value added tax, if applicable, for income tax purposes, and
from gross sales or gross receipts of the business enterprise concerned, for
VAT or other percentage tax purposes.
(4) The discount can only be allowed as deduction from gross income for the
same taxable year that the discount is granted.
(5) The business establishment giving sales discounts to qualified senior
citizens is required to keep separate and accurate record[s] of sales, which shall
include the name of the senior citizen, TIN, OSCA ID, gross sales/receipts, sales
discount granted, [date] of [transaction] and invoice number for every sale
transaction to senior citizen.
(6) Only the following business establishments which granted sales discount
to senior citizens on their sale of goods and/or services may claim the said
discount granted as deduction from gross income, namely:
xxxx
(i) Funeral parlors and similar establishments – The beneficiary or any person who shall
shoulder the funeral and burial expenses of the deceased senior citizen shall claim the
discount, such as casket, embalmment, cremation cost and other related services for
the senior citizen upon payment and presentation of [his] death certificate.
The DSWD likewise issued its own Rules and Regulations Implementing RA 9257, to wit:
RULE VI DISCOUNTS AS TAX DEDUCTION OF ESTABLISHMENTS
Article 8. Tax Deduction of Establishments. – The establishment may claim the discounts
granted under Rule V, Section 4 – Discounts for Establishments, Section 9, Medical and
Dental Services in Private Facilities and Sections 10 and 11 – Air, Sea and Land
Transportation as tax deduction based on the net cost of the goods sold or services
rendered.
Provided, That the cost of the discount shall be allowed as deduction from gross income
for the same taxable year that the discount is granted; Provided, further, That the total
amount of the claimed tax deduction net of value added tax if applicable, shall be
included in their gross sales receipts for tax purposes and shall be subject to proper
documentation and to the provisions of the National Internal Revenue Code, as
amended; Provided, finally, that the implementation of the tax deduction shall be
subject to the Revenue Regulations to be issued by the Bureau of Internal Revenue (BIR)
and approved by the Department of Finance (DOF).
Feeling aggrieved by the tax deduction scheme, petitioners filed the present recourse,
praying that Section 4 of RA 7432, as amended by RA 9257, and the implementing rules
and regulations issued by the DSWD and the DOF be declared unconstitutional insofar
as these allow business establishments to claim the 20% discount given to senior
citizens as a tax deduction; that the DSWD and the DOF be prohibited from enforcing
the same; and that the tax credit treatment of the 20% discount under the former
Section 4 (a) of RA 7432 be reinstated.
Issues
Petitioners raise the following issues:
A.
WHETHER THE PETITION PRESENTS AN ACTUAL CASE OR CONTROVERSY.
B.
WHETHER SECTION 4 OF REPUBLIC ACT NO. 9257 AND X X X ITS IMPLEMENTING
RULES AND REGULATIONS, INSOFAR AS THEY PROVIDE THAT THE TWENTY PERCENT
(20%) DISCOUNT TO SENIOR CITIZENS MAY BE CLAIMED AS A TAX DEDUCTION BY
THE PRIVATE ESTABLISHMENTS, ARE INVALID AND UNCONSTITUTIONAL.9
Petitioners’ Arguments
Petitioners emphasize that they are not questioning the 20% discount granted to senior
citizens but are only assailing the constitutionality of the tax deduction scheme
prescribed under RA 9257 and the implementing rules and regulations issued by the
DSWD and the DOF.10
Petitioners posit that the tax deduction scheme contravenes Article III, Section 9 of the
Constitution, which provides that: "[p]rivate property shall not be taken for public use
without just compensation."11
In support of their position, petitioners cite Central Luzon Drug Corporation,12 where it
was ruled that the 20% discount privilege constitutes taking of private property for
public use which requires the payment of just compensation,13 and Carlos Superdrug
Corporation v. Department of Social Welfare and Development,14 where it was
acknowledged that the tax deduction scheme does not meet the definition of just
compensation.15
Petitioners likewise seek a reversal of the ruling in Carlos Superdrug Corporation16 that
the tax deduction scheme adopted by the government is justified by police power.17
They assert that "[a]lthough both police power and the power of eminent domain have
the general welfare for their object, there are still traditional distinctions between the
two"18 and that "eminent domain cannot be made less supreme than police power."19
Petitioners further claim that the legislature, in amending RA 7432, relied on an
erroneous contemporaneous construction that prior payment of taxes is required for
tax credit.20
Petitioners also contend that the tax deduction scheme violates Article XV, Section
421 and Article XIII, Section 1122of the Constitution because it shifts the State’s
constitutional mandate or duty of improving the welfare of the elderly to the private
sector.23
Under the tax deduction scheme, the private sector shoulders 65% of the discount
because only 35%24 of it is actually returned by the government.25
Consequently, the implementation of the tax deduction scheme prescribed under
Section 4 of RA 9257 affects the businesses of petitioners.26
Thus, there exists an actual case or controversy of transcendental importance which
deserves judicious disposition on the merits by the highest court of the land.27
Respondents’ Arguments
Respondents, on the other hand, question the filing of the instant Petition directly with
the Supreme Court as this disregards the hierarchy of courts. 28
They likewise assert that there is no justiciable controversy as petitioners failed to prove
that the tax deduction treatment is not a "fair and full equivalent of the loss sustained"
by them.29
As to the constitutionality of RA 9257 and its implementing rules and regulations,
respondents contend that petitioners failed to overturn its presumption of
constitutionality.30
More important, respondents maintain that the tax deduction scheme is a legitimate
exercise of the State’s police power.31
Our Ruling
The Petition lacks merit.
There exists an actual case or controversy.
We shall first resolve the procedural issue. When the constitutionality of a law is put in
issue, judicial review may be availed of only if the following requisites concur: "(1) the
existence of an actual and appropriate case; (2) the existence of personal and substantial
interest on the part of the party raising the [question of constitutionality]; (3) recourse
to judicial review is made at the earliest opportunity; and (4) the [question of
constitutionality] is the lis mota of the case."32
In this case, petitioners are challenging the constitutionality of the tax deduction
scheme provided in RA 9257 and the implementing rules and regulations issued by the
DSWD and the DOF. Respondents, however, oppose the Petition on the ground that
there is no actual case or controversy. We do not agree with respondents. An actual
case or controversy exists when there is "a conflict of legal rights" or "an assertion of
opposite legal claims susceptible of judicial resolution."33
The Petition must therefore show that "the governmental act being challenged has a
direct adverse effect on the individual challenging it."34
In this case, the tax deduction scheme challenged by petitioners has a direct adverse
effect on them. Thus, it cannot be denied that there exists an actual case or controversy.
The validity of the 20% senior citizen discount and tax deduction scheme under
RA 9257, as an exercise of police power of the State, has already been settled in
Carlos Superdrug Corporation.
Petitioners posit that the resolution of this case lies in the determination of whether the
legally mandated 20% senior citizen discount is an exercise of police power or eminent
domain. If it is police power, no just compensation is warranted. But if it is eminent
domain, the tax deduction scheme is unconstitutional because it is not a peso for peso
reimbursement of the 20% discount given to senior citizens. Thus, it constitutes taking
of private property without payment of just compensation. At the outset, we note that
this question has been settled in Carlos Superdrug Corporation.35
In that case, we ruled:
Petitioners assert that Section 4(a) of the law is unconstitutional because it constitutes
deprivation of private property. Compelling drugstore owners and establishments to
grant the discount will result in a loss of profit and capital because 1) drugstores impose
a mark-up of only 5% to 10% on branded medicines; and 2) the law failed to provide a
scheme whereby drugstores will be justly compensated for the discount. Examining
petitioners’ arguments, it is apparent that what petitioners are ultimately questioning is
the validity of the tax deduction scheme as a reimbursement mechanism for the twenty
percent (20%) discount that they extend to senior citizens. Based on the afore-stated
DOF Opinion, the tax deduction scheme does not fully reimburse petitioners for the
discount privilege accorded to senior citizens. This is because the discount is treated as
a deduction, a tax-deductible expense that is subtracted from the gross income and
results in a lower taxable income. Stated otherwise, it is an amount that is allowed by
law to reduce the income prior to the application of the tax rate to compute the amount
of tax which is due. Being a tax deduction, the discount does not reduce taxes owed on
a peso for peso basis but merely offers a fractional reduction in taxes owed.
Theoretically, the treatment of the discount as a deduction reduces the net income of
the private establishments concerned. The discounts given would have entered the
coffers and formed part of the gross sales of the private establishments, were it not for
R.A. No. 9257. The permanent reduction in their total revenues is a forced subsidy
corresponding to the taking of private property for public use or benefit. This
constitutes compensable taking for which petitioners would ordinarily become entitled
to a just compensation. Just compensation is defined as the full and fair equivalent of
the property taken from its owner by the expropriator. The measure is not the taker’s
gain but the owner’s loss. The word just is used to intensify the meaning of the word
compensation, and to convey the idea that the equivalent to be rendered for the
property to be taken shall be real, substantial, full and ample. A tax deduction does not
offer full reimbursement of the senior citizen discount. As such, it would not meet the
definition of just compensation. Having said that, this raises the question of whether
the State, in promoting the health and welfare of a special group of citizens, can impose
upon private establishments the burden of partly subsidizing a government program.
The Court believes so. The Senior Citizens Act was enacted primarily to maximize the
contribution of senior citizens to nation-building, and to grant benefits and privileges
to them for their improvement and well-being as the State considers them an integral
part of our society. The priority given to senior citizens finds its basis in the Constitution
as set forth in the law itself.1âwphi1 Thus, the Act provides: SEC. 2. Republic Act No.
7432 is hereby amended to read as follows:
SECTION 1. Declaration of Policies and Objectives. — Pursuant to Article XV, Section 4
of the Constitution, it is the duty of the family to take care of its elderly members while
the State may design programs of social security for them. In addition to this, Section
10 in the Declaration of Principles and State Policies provides: "The State shall provide
social justice in all phases of national development." Further, Article XIII, Section 11,
provides: "The State shall adopt an integrated and comprehensive approach to health
development which shall endeavor to make essential goods, health and other social
services available to all the people at affordable cost. There shall be priority for the
needs of the underprivileged sick, elderly, disabled, women and children." Consonant
with these constitutional principles the following are the declared policies of this Act:
xxx xxx xxx
(f) To recognize the important role of the private sector in the improvement of the
welfare of senior citizens and to actively seek their partnership.
To implement the above policy, the law grants a twenty percent discount to senior
citizens for medical and dental services, and diagnostic and laboratory fees; admission
fees charged by theaters, concert halls, circuses, carnivals, and other similar places of
culture, leisure and amusement; fares for domestic land, air and sea travel; utilization of
services in hotels and similar lodging establishments, restaurants and recreation
centers; and purchases of medicines for the exclusive use or enjoyment of senior
citizens. As a form of reimbursement, the law provides that business establishments
extending the twenty percent discount to senior citizens may claim the discount as a
tax deduction. The law is a legitimate exercise of police power which, similar to the
power of eminent domain, has general welfare for its object. Police power is not capable
of an exact definition, but has been purposely veiled in general terms to underscore its
comprehensiveness to meet all exigencies and provide enough room for an efficient
and flexible response to conditions and circumstances, thus assuring the greatest
benefits. Accordingly, it has been described as "the most essential, insistent and the
least limitable of powers, extending as it does to all the great public needs." It is "[t]he
power vested in the legislature by the constitution to make, ordain, and establish all
manner of wholesome and reasonable laws, statutes, and ordinances, either with
penalties or without, not repugnant to the constitution, as they shall judge to be for the
good and welfare of the commonwealth, and of the subjects of the same." For this
reason, when the conditions so demand as determined by the legislature, property
rights must bow to the primacy of police power because property rights, though
sheltered by due process, must yield to general welfare. Police power as an attribute to
promote the common good would be diluted considerably if on the mere plea of
petitioners that they will suffer loss of earnings and capital, the questioned provision is
invalidated. Moreover, in the absence of evidence demonstrating the alleged
confiscatory effect of the provision in question, there is no basis for its nullification in
view of the presumption of validity which every law has in its favor. Given these, it is
incorrect for petitioners to insist that the grant of the senior citizen discount is unduly
oppressive to their business, because petitioners have not taken time to calculate
correctly and come up with a financial report, so that they have not been able to show
properly whether or not the tax deduction scheme really works greatly to their
disadvantage. In treating the discount as a tax deduction, petitioners insist that they will
incur losses because, referring to the DOF Opinion, for every ₱1.00 senior citizen
discount that petitioners would give, P0.68 will be shouldered by them as only P0.32
will be refunded by the government by way of a tax deduction. To illustrate this point,
petitioner Carlos Super Drug cited the anti-hypertensive maintenance drug Norvasc as
an example. According to the latter, it acquires Norvasc from the distributors at ₱37.57
per tablet, and retails it at ₱39.60 (or at a margin of 5%). If it grants a 20% discount to
senior citizens or an amount equivalent to ₱7.92, then it would have to sell Norvasc at
₱31.68 which translates to a loss from capital of ₱5.89 per tablet. Even if the government
will allow a tax deduction, only ₱2.53 per tablet will be refunded and not the full amount
of the discount which is ₱7.92. In short, only 32% of the 20% discount will be reimbursed
to the drugstores. Petitioners’ computation is flawed. For purposes of reimbursement,
the law states that the cost of the discount shall be deducted from gross income, the
amount of income derived from all sources before deducting allowable expenses, which
will result in net income. Here, petitioners tried to show a loss on a per transaction basis,
which should not be the case. An income statement, showing an accounting of
petitioners' sales, expenses, and net profit (or loss) for a given period could have
accurately reflected the effect of the discount on their income. Absent any financial
statement, petitioners cannot substantiate their claim that they will be operating at a
loss should they give the discount. In addition, the computation was erroneously based
on the assumption that their customers consisted wholly of senior citizens. Lastly, the
32% tax rate is to be imposed on income, not on the amount of the discount.
business and the State, in the exercise of police power, can intervene in the operations
of a business which may result in an impairment of property rights in the process.
Moreover, the right to property has a social dimension. While Article XIII of the
Constitution provides the precept for the protection of property, various laws and
jurisprudence, particularly on agrarian reform and the regulation of contracts and public
utilities, continuously serve as x x x reminder[s] that the right to property can be
relinquished upon the command of the State for the promotion of public good.
Undeniably, the success of the senior citizens program rests largely on the support
imparted by petitioners and the other private establishments concerned. This being the
case, the means employed in invoking the active participation of the private sector, in
order to achieve the purpose or objective of the law, is reasonably and directly related.
Without sufficient proof that Section 4 (a) of R.A. No. 9257 is arbitrary, and that the
continued implementation of the same would be unconscionably detrimental to
petitioners, the Court will refrain from quashing a legislative act.36 (Bold in the original;
underline supplied)
We, thus, found that the 20% discount as well as the tax deduction scheme is a valid
exercise of the police power of the State.
No compelling reason has been proffered to overturn, modify or abandon the
ruling in Carlos Superdrug Corporation.
Petitioners argue that we have previously ruled in Central Luzon Drug
Corporation37 that the 20% discount is an exercise of the power of eminent domain,
thus, requiring the payment of just compensation. They urge us to re-examine our
ruling in Carlos Superdrug Corporation38 which allegedly reversed the ruling in Central
Luzon Drug Corporation.39
They also point out that Carlos Superdrug Corporation40 recognized that the tax
deduction scheme under the assailed law does not provide for sufficient just
compensation. We agree with petitioners’ observation that there are statements in
Central Luzon Drug Corporation41 describing the 20% discount as an exercise of the
power of eminent domain, viz.:

Furthermore, it is unfair for petitioners to criticize the law because they cannot raise the
[T]he privilege enjoyed by senior citizens does not come directly from the State, but
prices of their medicines given the cutthroat nature of the players in the industry. It is a
rather from the private establishments concerned. Accordingly, the tax credit benefit
business decision on the part of petitioners to peg the mark-up at 5%. Selling the
granted to these establishments can be deemed as their just compensation for private
medicines below acquisition cost, as alleged by petitioners, is merely a result of this
property taken by the State for public use. The concept of public use is no longer
decision. Inasmuch as pricing is a property right, petitioners cannot reproach the law
confined to the traditional notion of use by the public, but held synonymous with public
for being oppressive, simply because they cannot afford to raise their prices for fear of
interest, public benefit, public welfare, and public convenience. The discount privilege
losing their customers to competition. The Court is not oblivious of the retail side of the
to which our senior citizens are entitled is actually a benefit enjoyed by the general
pharmaceutical industry and the competitive pricing component of the business. While
public to which these citizens belong. The discounts given would have entered the
the Constitution protects property rights, petitioners must accept the realities of
coffers and formed part of the gross sales of the private establishments concerned,
were it not for RA 7432. The permanent reduction in their total revenues is a forced
subsidy corresponding to the taking of private property for public use or benefit. As a
result of the 20 percent discount imposed by RA 7432, respondent becomes entitled to
a just compensation. This term refers not only to the issuance of a tax credit certificate
indicating the correct amount of the discounts given, but also to the promptness in its
release. Equivalent to the payment of property taken by the State, such issuance —
when not done within a reasonable time from the grant of the discounts — cannot be
considered as just compensation. In effect, respondent is made to suffer the
consequences of being immediately deprived of its revenues while awaiting actual
receipt, through the certificate, of the equivalent amount it needs to cope with the
reduction in its revenues. Besides, the taxation power can also be used as an implement
for the exercise of the power of eminent domain. Tax measures are but "enforced
contributions exacted on pain of penal sanctions" and "clearly imposed for a public
purpose." In recent years, the power to tax has indeed become a most effective tool to
realize social justice, public welfare, and the equitable distribution of wealth. While it is
a declared commitment under Section 1 of RA 7432, social justice "cannot be invoked
to trample on the rights of property owners who under our Constitution and laws are
also entitled to protection. The social justice consecrated in our [C]onstitution [is] not
intended to take away rights from a person and give them to another who is not entitled
thereto." For this reason, a just compensation for income that is taken away from
respondent becomes necessary. It is in the tax credit that our legislators find support to
realize social justice, and no administrative body can alter that fact. To put it differently,
a private establishment that merely breaks even — without the discounts yet — will
surely start to incur losses because of such discounts. The same effect is expected if its
mark-up is less than 20 percent, and if all its sales come from retail purchases by senior
citizens. Aside from the observation we have already raised earlier, it will also be grossly
unfair to an establishment if the discounts will be treated merely as deductions from
either its gross income or its gross sales.1âwphi1 Operating at a loss through no fault
of its own, it will realize that the tax credit limitation under RR 2-94 is inutile, if not
improper. Worse, profit-generating businesses will be put in a better position if they
avail themselves of tax credits denied those that are losing, because no taxes are due
from the latter.42 (Italics in the original; emphasis supplied)
The above was partly incorporated in our ruling in Carlos Superdrug
Corporation43 when we stated preliminarily that—
Petitioners assert that Section 4(a) of the law is unconstitutional because it constitutes
deprivation of private property. Compelling drugstore owners and establishments to
grant the discount will result in a loss of profit and capital because 1) drugstores impose
a mark-up of only 5% to 10% on branded medicines; and 2) the law failed to provide a
scheme whereby drugstores will be justly compensated for the discount. Examining
petitioners’ arguments, it is apparent that what petitioners are ultimately questioning is
the validity of the tax deduction scheme as a reimbursement mechanism for the twenty
percent (20%) discount that they extend to senior citizens. Based on the afore-stated
DOF Opinion, the tax deduction scheme does not fully reimburse petitioners for the
discount privilege accorded to senior citizens. This is because the discount is treated as
a deduction, a tax-deductible expense that is subtracted from the gross income and
results in a lower taxable income. Stated otherwise, it is an amount that is allowed by
law to reduce the income prior to the application of the tax rate to compute the amount
of tax which is due. Being a tax deduction, the discount does not reduce taxes owed on
a peso for peso basis but merely offers a fractional reduction in taxes owed.
Theoretically, the treatment of the discount as a deduction reduces the net income of
the private establishments concerned. The discounts given would have entered the
coffers and formed part of the gross sales of the private establishments, were it not for
R.A. No. 9257. The permanent reduction in their total revenues is a forced subsidy
corresponding to the taking of private property for public use or benefit. This
constitutes compensable taking for which petitioners would ordinarily become entitled
to a just compensation. Just compensation is defined as the full and fair equivalent of
the property taken from its owner by the expropriator. The measure is not the taker’s
gain but the owner’s loss. The word just is used to intensify the meaning of the word
compensation, and to convey the idea that the equivalent to be rendered for the
property to be taken shall be real, substantial, full and ample. A tax deduction does not
offer full reimbursement of the senior citizen discount. As such, it would not meet the
definition of just compensation. Having said that, this raises the question of whether
the State, in promoting the health and welfare of a special group of citizens, can impose
upon private establishments the burden of partly subsidizing a government program.
The Court believes so.44
This, notwithstanding, we went on to rule in Carlos Superdrug Corporation45 that the
20% discount and tax deduction scheme is a valid exercise of the police power of the
State. The present case, thus, affords an opportunity for us to clarify the above-quoted
statements in Central Luzon Drug Corporation46 and Carlos Superdrug Corporation.47
First, we note that the above-quoted disquisition on eminent domain in Central Luzon
Drug Corporation48 is obiter dicta and, thus, not binding precedent. As stated earlier, in
Central Luzon Drug Corporation,49 we ruled that the BIR acted ultra vires when it
effectively treated the 20% discount as a tax deduction, under Sections 2.i and 4 of RR
No. 2-94, despite the clear wording of the previous law that the same should be treated
as a tax credit. We were, therefore, not confronted in that case with the issue as to
whether the 20% discount is an exercise of police power or eminent domain. Second,
although we adverted to Central Luzon Drug Corporation50 in our ruling in Carlos
Superdrug Corporation,51 this referred only to preliminary matters. A fair reading of
Carlos Superdrug Corporation52would show that we categorically ruled therein that the
20% discount is a valid exercise of police power. Thus, even if the current law, through
its tax deduction scheme (which abandoned the tax credit scheme under the previous
law), does not provide for a peso for peso reimbursement of the 20% discount given by
private establishments, no constitutional infirmity obtains because, being a valid
exercise of police power, payment of just compensation is not warranted. We have
carefully reviewed the basis of our ruling in Carlos Superdrug Corporation53 and we find
no cogent reason to overturn, modify or abandon it. We also note that petitioners’
arguments are a mere reiteration of those raised and resolved in Carlos Superdrug
Corporation.54 Thus, we sustain Carlos Superdrug Corporation.55
Nonetheless, we deem it proper, in what follows, to amplify our explanation in Carlos
Superdrug Corporation56 as to why the 20% discount is a valid exercise of police power
and why it may not, under the specific circumstances of this case, be considered as an
exercise of the power of eminent domain contrary to the obiter in Central Luzon Drug
Corporation.57
Police power versus eminent domain.
Police power is the inherent power of the State to regulate or to restrain the use of
liberty and property for public welfare.58
The only limitation is that the restriction imposed should be reasonable, not
oppressive.59
In other words, to be a valid exercise of police power, it must have a lawful subject or
objective and a lawful method of accomplishing the goal.60
Under the police power of the State, "property rights of individuals may be subjected
to restraints and burdens in order to fulfill the objectives of the government."61
The State "may interfere with personal liberty, property, lawful businesses and
occupations to promote the general welfare [as long as] the interference [is] reasonable
and not arbitrary."62
Eminent domain, on the other hand, is the inherent power of the State to take or
appropriate private property for public use.63
The Constitution, however, requires that private property shall not be taken without due
process of law and the payment of just compensation.64
Traditional distinctions exist between police power and eminent domain. In the exercise
of police power, a property right is impaired by regulation,65 or the use of property is
merely prohibited, regulated or restricted66 to promote public welfare. In such cases,
there is no compensable taking, hence, payment of just compensation is not required.
Examples of these regulations are property condemned for being noxious or intended
for noxious purposes (e.g., a building on the verge of collapse to be demolished for
public safety, or obscene materials to be destroyed in the interest of public morals)67 as
well as zoning ordinances prohibiting the use of property for purposes injurious to the
health, morals or safety of the community (e.g., dividing a city’s territory into residential
and industrial areas).68
It has, thus, been observed that, in the exercise of police power (as distinguished from
eminent domain), although the regulation affects the right of ownership, none of the
bundle of rights which constitute ownership is appropriated for use by or for the benefit
of the public.69
On the other hand, in the exercise of the power of eminent domain, property interests
are appropriated and applied to some public purpose which necessitates the payment
of just compensation therefor. Normally, the title to and possession of the property are
transferred to the expropriating authority. Examples include the acquisition of lands for
the construction of public highways as well as agricultural lands acquired by the
government under the agrarian reform law for redistribution to qualified farmer
beneficiaries. However, it is a settled rule that the acquisition of title or total destruction
of the property is not essential for "taking" under the power of eminent domain to be
present.70
Examples of these include establishment of easements such as where the land owner is
perpetually deprived of his proprietary rights because of the hazards posed by electric
transmission lines constructed above his property71 or the compelled interconnection
of the telephone system between the government and a private company.72
In these cases, although the private property owner is not divested of ownership or
possession, payment of just compensation is warranted because of the burden placed
on the property for the use or benefit of the public.
The 20% senior citizen discount is an exercise of police power.
It may not always be easy to determine whether a challenged governmental act is an
exercise of police power or eminent domain. The very nature of police power as elastic
and responsive to various social conditions73 as well as the evolving meaning and scope
of public use74 and just compensation75 in eminent domain evinces that these are not
static concepts. Because of the exigencies of rapidly changing times, Congress may be
compelled to adopt or experiment with different measures to promote the general
welfare which may not fall squarely within the traditionally recognized categories of
police power and eminent domain. The judicious approach, therefore, is to look at the
nature and effects of the challenged governmental act and decide, on the basis thereof,
whether the act is the exercise of police power or eminent domain. Thus, we now look
at the nature and effects of the 20% discount to determine if it constitutes an exercise
of police power or eminent domain. The 20% discount is intended to improve the
welfare of senior citizens who, at their age, are less likely to be gainfully employed, more
prone to illnesses and other disabilities, and, thus, in need of subsidy in purchasing
basic commodities. It may not be amiss to mention also that the discount serves to
honor senior citizens who presumably spent the productive years of their lives on
contributing to the development and progress of the nation. This distinct cultural
Filipino practice of honoring the elderly is an integral part of this law. As to its nature
and effects, the 20% discount is a regulation affecting the ability of private
establishments to price their products and services relative to a special class of
individuals, senior citizens, for which the Constitution affords preferential concern.76
In turn, this affects the amount of profits or income/gross sales that a private
establishment can derive from senior citizens. In other words, the subject regulation
affects the pricing, and, hence, the profitability of a private establishment. However, it
does not purport to appropriate or burden specific properties, used in the operation or
conduct of the business of private establishments, for the use or benefit of the public,
or senior citizens for that matter, but merely regulates the pricing of goods and services
relative to, and the amount of profits or income/gross sales that such private
establishments may derive from, senior citizens. The subject regulation may be said to
be similar to, but with substantial distinctions from, price control or rate of return on
investment control laws which are traditionally regarded as police power measures.77
These laws generally regulate public utilities or industries/enterprises imbued with
public interest in order to protect consumers from exorbitant or unreasonable pricing
as well as temper corporate greed by controlling the rate of return on investment of
these corporations considering that they have a monopoly over the goods or services
that they provide to the general public. The subject regulation differs therefrom in that
(1) the discount does not prevent the establishments from adjusting the level of prices
of their goods and services, and (2) the discount does not apply to all customers of a
given establishment but only to the class of senior citizens. Nonetheless, to the degree
material to the resolution of this case, the 20% discount may be properly viewed as
belonging to the category of price regulatory measures which affect the profitability of
establishments subjected thereto. On its face, therefore, the subject regulation is a
police power measure. The obiter in Central Luzon Drug Corporation,78 however,
describes the 20% discount as an exercise of the power of eminent domain and the tax
credit, under the previous law, equivalent to the amount of discount given as the just
compensation therefor. The reason is that (1) the discount would have formed part of
the gross sales of the establishment were it not for the law prescribing the 20%
discount, and (2) the permanent reduction in total revenues is a forced subsidy
corresponding to the taking of private property for public use or benefit. The flaw in
this reasoning is in its premise. It presupposes that the subject regulation, which impacts
the pricing and, hence, the profitability of a private establishment, automatically
amounts to a deprivation of property without due process of law. If this were so, then
all price and rate of return on investment control laws would have to be invalidated
because they impact, at some level, the regulated establishment’s profits or
income/gross sales, yet there is no provision for payment of just compensation. It would
also mean that overnment cannot set price or rate of return on investment limits, which
reduce the profits or income/gross sales of private establishments, if no just
compensation is paid even if the measure is not confiscatory. The obiter is, thus, at odds
with the settled octrine that the State can employ police power measures to regulate
the pricing of goods and services, and, hence, the profitability of business
establishments in order to pursue legitimate State objectives for the common good,
provided that the regulation does not go too far as to amount to "taking."79
In City of Manila v. Laguio, Jr.,80 we recognized that— x x x a taking also could be found
if government regulation of the use of property went "too far." When regulation reaches
a certain magnitude, in most if not in all cases there must be an exercise of eminent
domain and compensation to support the act. While property may be regulated to a
certain extent, if regulation goes too far it will be recognized as a taking. No formula or
rule can be devised to answer the questions of what is too far and when regulation
becomes a taking. In Mahon, Justice Holmes recognized that it was "a question of
degree and therefore cannot be disposed of by general propositions." On many other
occasions as well, the U.S. Supreme Court has said that the issue of when regulation
constitutes a taking is a matter of considering the facts in each case. The Court asks
whether justice and fairness require that the economic loss caused by public action
must be compensated by the government and thus borne by the public as a whole, or
whether the loss should remain concentrated on those few persons subject to the public
action.81
The impact or effect of a regulation, such as the one under consideration, must, thus,
be determined on a case-to-case basis. Whether that line between permissible
regulation under police power and "taking" under eminent domain has been crossed
must, under the specific circumstances of this case, be subject to proof and the one
assailing the constitutionality of the regulation carries the heavy burden of proving that
the measure is unreasonable, oppressive or confiscatory. The time-honored rule is that
the burden of proving the unconstitutionality of a law rests upon the one assailing it
and "the burden becomes heavier when police power is at issue."82
The 20% senior citizen discount has not been shown to be unreasonable, oppressive or
confiscatory.
In Alalayan v. National Power Corporation,83 petitioners, who were franchise holders of
electric plants, challenged the validity of a law limiting their allowable net profits to no
more than 12% per annum of their investments plus two-month operating expenses. In
rejecting their plea, we ruled that, in an earlier case, it was found that 12% is a
reasonable rate of return and that petitioners failed to prove that the aforesaid rate is
confiscatory in view of the presumption of constitutionality.84
We adopted a similar line of reasoning in Carlos Superdrug Corporation85 when we
ruled that petitioners therein failed to prove that the 20% discount is arbitrary,
oppressive or confiscatory. We noted that no evidence, such as a financial report, to
establish the impact of the 20% discount on the overall profitability of petitioners was
presented in order to show that they would be operating at a loss due to the subject
regulation or that the continued implementation of the law would be unconscionably
detrimental to the business operations of petitioners. In the case at bar, petitioners
proceeded with a hypothetical computation of the alleged loss that they will suffer
similar to what the petitioners in Carlos Superdrug Corporation86 did. Petitioners went
directly to this Court without first establishing the factual bases of their claims. Hence,
the present recourse must, likewise, fail. Because all laws enjoy the presumption of
constitutionality, courts will uphold a law’s validity if any set of facts may be conceived
to sustain it.87
On its face, we find that there are at least two conceivable bases to sustain the subject
regulation’s validity absent clear and convincing proof that it is unreasonable,
oppressive or confiscatory. Congress may have legitimately concluded that business
establishments have the capacity to absorb a decrease in profits or income/gross sales
due to the 20% discount without substantially affecting the reasonable rate of return
on their investments considering (1) not all customers of a business establishment are
senior citizens and (2) the level of its profit margins on goods and services offered to
the general public. Concurrently, Congress may have, likewise, legitimately concluded
that the establishments, which will be required to extend the 20% discount, have the
capacity to revise their pricing strategy so that whatever reduction in profits or
income/gross sales that they may sustain because of sales to senior citizens, can be
recouped through higher mark-ups or from other products not subject of discounts. As
a result, the discounts resulting from sales to senior citizens will not be confiscatory or
unduly oppressive. In sum, we sustain our ruling in Carlos Superdrug Corporation88 that
the 20% senior citizen discount and tax deduction scheme are valid exercises of police
power of the State absent a clear showing that it is arbitrary, oppressive or confiscatory.
Conclusion
In closing, we note that petitioners hypothesize, consistent with our previous
ratiocinations, that the discount will force establishments to raise their prices in order
to compensate for its impact on overall profits or income/gross sales. The general
public, or those not belonging to the senior citizen class, are, thus, made to effectively
shoulder the subsidy for senior citizens. This, in petitioners’ view, is unfair.
As already mentioned, Congress may be reasonably assumed to have foreseen this
eventuality. But, more importantly, this goes into the wisdom, efficacy and expediency
of the subject law which is not proper for judicial review. In a way, this law pursues its
social equity objective in a non-traditional manner unlike past and existing direct
subsidy programs of the government for the poor and marginalized sectors of our
society. Verily, Congress must be given sufficient leeway in formulating welfare
legislations given the enormous challenges that the government faces relative to,
among others, resource adequacy and administrative capability in implementing social
reform measures which aim to protect and uphold the interests of those most
vulnerable in our society. In the process, the individual, who enjoys the rights, benefits
and privileges of living in a democratic polity, must bear his share in supporting
measures intended for the common good. This is only fair. In fine, without the requisite
showing of a clear and unequivocal breach of the Constitution, the validity of the
assailed law must be sustained.
Refutation of the Dissent
The main points of Justice Carpio’s Dissent may be summarized as follows: (1) the
discussion on eminent domain in Central Luzon Drug Corporation89 is not obiter dicta ;
(2) allowable taking, in police power, is limited to property that is destroyed or placed
outside the commerce of man for public welfare; (3) the amount of mandatory discount
is private property within the ambit of Article III, Section 990 of the Constitution; and (4)
the permanent reduction in a private establishment’s total revenue, arising from the
mandatory discount, is a taking of private property for public use or benefit, hence, an
exercise of the power of eminent domain requiring the payment of just compensation.
I We maintain that the discussion on eminent domain in Central Luzon Drug
Corporation91 is obiter dicta. As previously discussed, in Central Luzon Drug
Corporation,92 the BIR, pursuant to Sections 2.i and 4 of RR No. 2-94, treated the senior
citizen discount in the previous law, RA 7432, as a tax deduction instead of a tax credit
despite the clear provision in that law which stated –
SECTION 4. Privileges for the Senior Citizens. – The senior citizens shall be entitled to
the following:
a) The grant of twenty percent (20%) discount from all establishments relative
to utilization of transportation services, hotels and similar lodging
establishment, restaurants and recreation centers and purchase of medicines
anywhere in the country: Provided, That private establishments may claim the
cost as tax credit; (Emphasis supplied)
Thus, the Court ruled that the subject revenue regulation violated the law, viz:
The 20 percent discount required by the law to be given to senior citizens is a tax credit,
not merely a tax deduction from the gross income or gross sale of the establishment
concerned. A tax credit is used by a private establishment only after the tax has been
computed; a tax deduction, before the tax is computed. RA 7432 unconditionally grants
a tax credit to all covered entities. Thus, the provisions of the revenue regulation that
withdraw or modify such grant are void. Basic is the rule that administrative regulations
cannot amend or revoke the law.93
As can be readily seen, the discussion on eminent domain was not necessary in order
to arrive at this conclusion. All that was needed was to point out that the revenue
regulation contravened the law which it sought to implement. And, precisely, this was
done in Central Luzon Drug Corporation94 by comparing the wording of the previous
law vis-à-vis the revenue regulation; employing the rules of statutory construction; and
applying the settled principle that a regulation cannot amend the law it seeks to
implement. A close reading of Central Luzon Drug Corporation95 would show that the
Court went on to state that the tax credit "can be deemed" as just compensation only
to explain why the previous law provides for a tax credit instead of a tax deduction. The
Court surmised that the tax credit was a form of just compensation given to the
establishments covered by the 20% discount. However, the reason why the previous
law provided for a tax credit and not a tax deduction was not necessary to resolve the
issue as to whether the revenue regulation contravenes the law. Hence, the discussion
on eminent domain is obiter dicta.
A court, in resolving cases before it, may look into the possible purposes or reasons
that impelled the enactment of a particular statute or legal provision. However,
statements made relative thereto are not always necessary in resolving the actual
controversies presented before it. This was the case in Central Luzon Drug
Corporation96resulting in that unfortunate statement that the tax credit "can be
deemed" as just compensation. This, in turn, led to the erroneous conclusion, by
deductive reasoning, that the 20% discount is an exercise of the power of eminent
domain. The Dissent essentially adopts this theory and reasoning which, as will be
shown below, is contrary to settled principles in police power and eminent domain
analysis. II The Dissent discusses at length the doctrine on "taking" in police power
which occurs when private property is destroyed or placed outside the commerce of
man. Indeed, there is a whole class of police power measures which justify the
destruction of private property in order to preserve public health, morals, safety or
welfare. As earlier mentioned, these would include a building on the verge of collapse
or confiscated obscene materials as well as those mentioned by the Dissent with regard
to property used in violating a criminal statute or one which constitutes a nuisance. In
such cases, no compensation is required. However, it is equally true that there is another
class of police power measures which do not involve the destruction of private property
but merely regulate its use. The minimum wage law, zoning ordinances, price control
laws, laws regulating the operation of motels and hotels, laws limiting the working
hours to eight, and the like would fall under this category. The examples cited by the
Dissent, likewise, fall under this category: Article 157 of the Labor Code, Sections 19 and
18 of the Social Security Law, and Section 7 of the Pag-IBIG Fund Law. These laws merely
regulate or, to use the term of the Dissent, burden the conduct of the affairs of business
establishments. In such cases, payment of just compensation is not required because
they fall within the sphere of permissible police power measures. The senior citizen
discount law falls under this latter category. III The Dissent proceeds from the theory
that the permanent reduction of profits or income/gross sales, due to the 20% discount,
is a "taking" of private property for public purpose without payment of just
compensation. At the outset, it must be emphasized that petitioners never presented
any evidence to establish that they were forced to suffer enormous losses or operate at
a loss due to the effects of the assailed law. They came directly to this Court and
provided a hypothetical computation of the loss they would allegedly suffer due to the
operation of the assailed law. The central premise of the Dissent’s argument that the
20% discount results in a permanent reduction in profits or income/gross sales, or
forces a business establishment to operate at a loss is, thus, wholly unsupported by
competent evidence. To be sure, the Court can invalidate a law which, on its face, is
arbitrary, oppressive or confiscatory.97
But this is not the case here.
In the case at bar, evidence is indispensable before a determination of a constitutional
violation can be made because of the following reasons. First, the assailed law, by
imposing the senior citizen discount, does not take any of the properties used by a
business establishment like, say, the land on which a manufacturing plant is constructed
or the equipment being used to produce goods or services. Second, rather than taking
specific properties of a business establishment, the senior citizen discount law merely
regulates the prices of the goods or services being sold to senior citizens by mandating
a 20% discount. Thus, if a product is sold at ₱10.00 to the general public, then it shall
be sold at ₱8.00 ( i.e., ₱10.00 less 20%) to senior citizens. Note that the law does not
impose at what specific price the product shall be sold, only that a 20% discount shall
be given to senior citizens based on the price set by the business establishment. A
business establishment is, thus, free to adjust the prices of the goods or services it
provides to the general public. Accordingly, it can increase the price of the above
product to ₱20.00 but is required to sell it at ₱16.00 (i.e. , ₱20.00 less 20%) to senior
citizens. Third, because the law impacts the prices of the goods or services of a particular
establishment relative to its sales to senior citizens, its profits or income/gross sales are
affected. The extent of the impact would, however, depend on the profit margin of the
business establishment on a particular good or service. If a product costs ₱5.00 to
produce and is sold at ₱10.00, then the profit98 is ₱5.0099 or a profit margin100 of 50%.101
Under the assailed law, the aforesaid product would have to be sold at ₱8.00 to senior
citizens yet the business would still earn ₱3.00102 or a 30%103 profit margin. On the other
hand, if the product costs ₱9.00 to produce and is required to be sold at ₱8.00 to senior
citizens, then the business would experience a loss of ₱1.00.104
But note that since not all customers of a business establishment are senior citizens, the
business establishment may continue to earn ₱1.00 from non-senior citizens which, in
turn, can offset any loss arising from sales to senior citizens.
Fourth, when the law imposes the 20% discount in favor of senior citizens, it does not
prevent the business establishment from revising its pricing strategy.
By revising its pricing strategy, a business establishment can recoup any reduction of
profits or income/gross sales which would otherwise arise from the giving of the 20%
discount. To illustrate, suppose A has two customers: X, a senior citizen, and Y, a non-
senior citizen. Prior to the law, A sells his products at ₱10.00 a piece to X and Y resulting
in income/gross sales of ₱20.00 (₱10.00 + ₱10.00). With the passage of the law, A must
now sell his product to X at ₱8.00 (i.e., ₱10.00 less 20%) so that his income/gross sales
would be ₱18.00 (₱8.00 + ₱10.00) or lower by ₱2.00. To prevent this from happening, A
decides to increase the price of his products to ₱11.11 per piece. Thus, he sells his
product to X at ₱8.89 (i.e. , ₱11.11 less 20%) and to Y at ₱11.11. As a result, his
income/gross sales would still be ₱20.00105 (₱8.89 + ₱11.11). The capacity, then, of
business establishments to revise their pricing strategy makes it possible for them not
to suffer any reduction in profits or income/gross sales, or, in the alternative, mitigate
the reduction of their profits or income/gross sales even after the passage of the law.
In other words, business establishments have the capacity to adjust their prices so that
they may remain profitable even under the operation of the assailed law.
The Dissent, however, states that – The explanation by the majority that private
establishments can always increase their prices to recover the mandatory discount will
only encourage private establishments to adjust their prices upwards to the prejudice
of customers who do not enjoy the 20% discount. It was likewise suggested that if a
company increases its prices, despite the application of the 20% discount, the
establishment becomes more profitable than it was before the implementation of R.A.
7432. Such an economic justification is self-defeating, for more consumers will suffer
from the price increase than will benefit from the 20% discount. Even then, such ability
to increase prices cannot legally validate a violation of the eminent domain clause.106
But, if it is possible that the business establishment, by adjusting its prices, will suffer
no reduction in its profits or income/gross sales (or suffer some reduction but continue
to operate profitably) despite giving the discount, what would be the basis to strike
down the law? If it is possible that the business establishment, by adjusting its prices,
will not be unduly burdened, how can there be a finding that the assailed law is an
unconstitutional exercise of police power or eminent domain? That there may be a
burden placed on business establishments or the consuming public as a result of the
operation of the assailed law is not, by itself, a ground to declare it unconstitutional for
this goes into the wisdom and expediency of the law.
The cost of most, if not all, regulatory measures of the government on business
establishments is ultimately passed on to the consumers but that, by itself, does not
justify the wholesale nullification of these measures. It is a basic postulate of our
democratic system of government that the Constitution is a social contract whereby the
people have surrendered their sovereign powers to the State for the common good.107
All persons may be burdened by regulatory measures intended for the common good
or to serve some important governmental interest, such as protecting or improving the
welfare of a special class of people for which the Constitution affords preferential
concern. Indubitably, the one assailing the law has the heavy burden of proving that
the regulation is unreasonable, oppressive or confiscatory, or has gone "too far" as to
amount to a "taking." Yet, here, the Dissent would have this Court nullify the law without
any proof of such nature.
Further, this Court is not the proper forum to debate the economic theories or realities
that impelled Congress to shift from the tax credit to the tax deduction scheme. It is not
within our power or competence to judge which scheme is more or less burdensome
to business establishments or the consuming public and, thereafter, to choose which
scheme the State should use or pursue. The shift from the tax credit to tax deduction
scheme is a policy determination by Congress and the Court will respect it for as long
as there is no showing, as here, that the subject regulation has transgressed
constitutional limitations. Unavoidably, the lack of evidence constrains the Dissent to
rely on speculative and hypothetical argumentation when it states that the 20%
discount is a significant amount and not a minimal loss (which erroneously assumes
that the discount automatically results in a loss when it is possible that the profit margin
is greater than 20% and/or the pricing strategy can be revised to prevent or mitigate
any reduction in profits or income/gross sales as illustrated above),108 and not all private
establishments make a 20% profit margin (which conversely implies that there are those
who make more and, thus, would not be greatly affected by this regulation).109
In fine, because of the possible scenarios discussed above, we cannot assume that the
20% discount results in a permanent reduction in profits or income/gross sales, much
less that business establishments are forced to operate at a loss under the assailed law.
And, even if we gratuitously assume that the 20% discount results in some degree of
reduction in profits or income/gross sales, we cannot assume that such reduction is
arbitrary, oppressive or confiscatory. To repeat, there is no actual proof to back up this
claim, and it could be that the loss suffered by a business establishment was occasioned
through its fault or negligence in not adapting to the effects of the assailed law. The
law uniformly applies to all business establishments covered thereunder. There is,
therefore, no unjust discrimination as the aforesaid business establishments are faced
with the same constraints. The necessity of proof is all the more pertinent in this case
because, as similarly observed by Justice Velasco in his Concurring Opinion, the law has
been in operation for over nine years now. However, the grim picture painted by
petitioners on the unconscionable losses to be indiscriminately suffered by business
establishments, which should have led to the closure of numerous business
establishments, has not come to pass. Verily, we cannot invalidate the assailed law
based on assumptions and conjectures. Without adequate proof, the presumption of
constitutionality must prevail. IV At this juncture, we note that the Dissent modified its
original arguments by including a new paragraph, to wit:
Section 9, Article III of the 1987 Constitution speaks of private property without any
distinction. It does not state that there should be profit before the taking of property is
subject to just compensation. The private property referred to for purposes of taking
could be inherited, donated, purchased, mortgaged, or as in this case, part of the gross
sales of private establishments. They are all private property and any taking should be
attended by corresponding payment of just compensation. The 20% discount granted
to senior citizens belong to private establishments, whether these establishments make
a profit or suffer a loss. In fact, the 20% discount applies to non-profit establishments
like country, social, or golf clubs which are open to the public and not only for exclusive
membership. The issue of profit or loss to the establishments is immaterial.110
Two things may be said of this argument. First, it contradicts the rest of the arguments
of the Dissent. After it states that the issue of profit or loss is immaterial, the Dissent
proceeds to argue that the 20% discount is not a minimal loss111 and that the 20%
discount forces business establishments to operate at a loss.112
Even the obiter in Central Luzon Drug Corporation,113 which the Dissent essentially
adopts and relies on, is premised on the permanent reduction of total revenues and the
loss that business establishments will be forced to suffer in arguing that the 20%
discount constitutes a "taking" under the power of eminent domain. Thus, when the
Dissent now argues that the issue of profit or loss is immaterial, it contradicts itself
because it later argues, in order to justify that there is a "taking" under the power of
eminent domain in this case, that the 20% discount forces business establishments to
suffer a significant loss or to operate at a loss. Second, this argument suffers from the
same flaw as the Dissent's original arguments. It is an erroneous characterization of the
20% discount. According to the Dissent, the 20% discount is part of the gross sales and,
hence, private property belonging to business establishments. However, as previously
discussed, the 20% discount is not private property actually owned and/or used by the
business establishment. It should be distinguished from properties like lands or
buildings actually used in the operation of a business establishment which, if
appropriated for public use, would amount to a "taking" under the power of eminent
domain. Instead, the 20% discount is a regulatory measure which impacts the pricing
and, hence, the profitability of business establishments. At the time the discount is
imposed, no particular property of the business establishment can be said to be "taken."
That is, the State does not acquire or take anything from the business establishment in
the way that it takes a piece of private land to build a public road. While the 20%
discount may form part of the potential profits or income/gross sales114 of the business
establishment, as similarly characterized by Justice Bersamin in his Concurring Opinion,
potential profits or income/gross sales are not private property, specifically cash or
money, already belonging to the business establishment. They are a mere expectancy
because they are potential fruits of the successful conduct of the business. Prior to the
sale of goods or services, a business establishment may be subject to State regulations,
such as the 20% senior citizen discount, which may impact the level or amount of profits
or income/gross sales that can be generated by such establishment. For this reason, the
validity of the discount is to be determined based on its overall effects on the operations
of the business establishment.
Again, as previously discussed, the 20% discount does not automatically result in a 20%
reduction in profits, or, to align it with the term used by the Dissent, the 20% discount
does not mean that a 20% reduction in gross sales necessarily results. Because (1) the
profit margin of a product is not necessarily less than 20%, (2) not all customers of a
business establishment are senior citizens, and (3) the establishment may revise its
pricing strategy, such reduction in profits or income/gross sales may be prevented or,
in the alternative, mitigated so that the business establishment continues to operate
profitably. Thus, even if we gratuitously assume that some degree of reduction in profits
or income/gross sales occurs because of the 20% discount, it does not follow that the
regulation is unreasonable, oppressive or confiscatory because the business
establishment may make the necessary adjustments to continue to operate profitably.
No evidence was presented by petitioners to show otherwise. In fact, no evidence was
presented by petitioners at all. Justice Leonen, in his Concurring and Dissenting
Opinion, characterizes "profits" (or income/gross sales) as an inchoate right. Another
way to view it, as stated by Justice Velasco in his Concurring Opinion, is that the business
establishment merely has a right to profits. The Constitution adverts to it as the right of
an enterprise to a reasonable return on investment.115
Undeniably, this right, like any other right, may be regulated under the police power of
the State to achieve important governmental objectives like protecting the interests
and improving the welfare of senior citizens. It should be noted though that potential
profits or income/gross sales are relevant in police power and eminent domain analyses
because they may, in appropriate cases, serve as an indicia when a regulation has gone
"too far" as to amount to a "taking" under the power of eminent domain. When the
deprivation or reduction of profits or income/gross sales is shown to be unreasonable,
oppressive or confiscatory, then the challenged governmental regulation may be
nullified for being a "taking" under the power of eminent domain. In such a case, it is
not profits or income/gross sales which are actually taken and appropriated for public
use. Rather, when the regulation causes an establishment to incur losses in an
unreasonable, oppressive or confiscatory manner, what is actually taken is capital and
the right of the business establishment to a reasonable return on investment. If the
business losses are not halted because of the continued operation of the regulation,
this eventually leads to the destruction of the business and the total loss of the capital
invested therein. But, again, petitioners in this case failed to prove that the subject
regulation is unreasonable, oppressive or confiscatory.
V.
The Dissent further argues that we erroneously used price and rate of return on
investment control laws to justify the senior citizen discount law. According to the
Dissent, only profits from industries imbued with public interest may be regulated
because this is a condition of their franchises. Profits of establishments without
franchises cannot be regulated permanently because there is no law regulating their
profits. The Dissent concludes that the permanent reduction of total revenues or gross
sales of business establishments without franchises is a taking of private property under
the power of eminent domain. In making this argument, it is unfortunate that the
Dissent quotes only a portion of the ponencia – The subject regulation may be said to
be similar to, but with substantial distinctions from, price control or rate of return on
investment control laws which are traditionally regarded as police power measures.
These laws generally regulate public utilities or industries/enterprises imbued with
public interest in order to protect consumers from exorbitant or unreasonable pricing
as well as temper corporate greed by controlling the rate of return on investment of
these corporations considering that they have a monopoly over the goods or services
that they provide to the general public. The subject regulation differs therefrom in that
(1) the discount does not prevent the establishments from adjusting the level of prices
of their goods and services, and (2) the discount does not apply to all customers of a
given establishment but only to the class of senior citizens. x x x116
The above paragraph, in full, states –
The subject regulation may be said to be similar to, but with substantial distinctions
from, price control or rate of return on investment control laws which are traditionally
regarded as police power measures. These laws generally regulate public utilities or
industries/enterprises imbued with public interest in order to protect consumers from
exorbitant or unreasonable pricing as well as temper corporate greed by controlling the
rate of return on investment of these corporations considering that they have a
monopoly over the goods or services that they provide to the general public. The
subject regulation differs therefrom in that (1) the discount does not prevent the
establishments from adjusting the level of prices of their goods and services, and (2)
the discount does not apply to all customers of a given establishment but only to the
class of senior citizens.
Nonetheless, to the degree material to the resolution of this case, the 20% discount
may be properly viewed as belonging to the category of price regulatory measures
which affects the profitability of establishments subjected thereto. (Emphasis supplied)
The point of this paragraph is to simply show that the State has, in the past, regulated
prices and profits of business establishments. In other words, this type of regulatory
measures is traditionally recognized as police power measures so that the senior citizen
discount may be considered as a police power measure as well. What is more, the
substantial distinctions between price and rate of return on investment control laws vis-
à-vis the senior citizen discount law provide greater reason to uphold the validity of the
senior citizen discount law. As previously discussed, the ability to adjust prices allows
the establishment subject to the senior citizen discount to prevent or mitigate any
reduction of profits or income/gross sales arising from the giving of the discount. In
contrast, establishments subject to price and rate of return on investment control laws
cannot adjust prices accordingly. Certainly, there is no intention to say that price and
rate of return on investment control laws are the justification for the senior citizen
discount law. Not at all. The justification for the senior citizen discount law is the plenary
powers of Congress. The legislative power to regulate business establishments is broad
and covers a wide array of areas and subjects. It is well within Congress’ legislative
powers to regulate the profits or income/gross sales of industries and enterprises, even
those without franchises. For what are franchises but mere legislative enactments?
There is nothing in the Constitution that prohibits Congress from regulating the profits
or income/gross sales of industries and enterprises without franchises. On the contrary,
the social justice provisions of the Constitution enjoin the State to regulate the
"acquisition, ownership, use, and disposition" of property and its increments.117
This may cover the regulation of profits or income/gross sales of all businesses, without
qualification, to attain the objective of diffusing wealth in order to protect and enhance
the right of all the people to human dignity.118
Thus, under the social justice policy of the Constitution, business establishments may
be compelled to contribute to uplifting the plight of vulnerable or marginalized groups
in our society provided that the regulation is not arbitrary, oppressive or confiscatory,
or is not in breach of some specific constitutional limitation. When the Dissent,
therefore, states that the "profits of private establishments which are non-franchisees
cannot be regulated permanently, and there is no such law regulating their profits
permanently,"119 it is assuming what it ought to prove. First, there are laws which, in
effect, permanently regulate profits or income/gross sales of establishments without
franchises, and RA 9257 is one such law. And, second, Congress can regulate such
profits or income/gross sales because, as previously noted, there is nothing in the
Constitution to prevent it from doing so. Here, again, it must be emphasized that
petitioners failed to present any proof to show that the effects of the assailed law on
their operations has been unreasonable, oppressive or confiscatory. The permanent
regulation of profits or income/gross sales of business establishments, even those Police power as an attribute to promote the common good would be diluted
without franchises, is not as uncommon as the Dissent depicts it to be. For instance, the considerably if on the mere plea of petitioners that they will suffer loss of earnings and
minimum wage law allows the State to set the minimum wage of employees in a given capital, the questioned provision is invalidated. Moreover, in the absence of evidence
region or geographical area. Because of the added labor costs arising from the demonstrating the alleged confiscatory effect of the provision in question, there is no
minimum wage, a permanent reduction of profits or income/gross sales would result, basis for its nullification in view of the presumption of validity which every law has in its
assuming that the employer does not increase the prices of his goods or services. To favor.
illustrate, suppose it costs a company ₱5.00 to produce a product and it sells the same
at ₱10.00 with a 50% profit margin. Later, the State increases the minimum wage. As a xxxx
result, the company incurs greater labor costs so that it now costs ₱7.00 to produce the
same product. The profit per product of the company would be reduced to ₱3.00 with The Court is not oblivious of the retail side of the pharmaceutical industry and the
a profit margin of 30%. The net effect would be the same as in the earlier example of competitive pricing component of the business. While the Constitution protects
granting a 20% senior citizen discount. As can be seen, the minimum wage law could, property rights petitioners must the realities of business and the State, in the exercise
likewise, lead to a permanent reduction of profits. Does this mean that the minimum of police power, can intervene in the operations of a business which may result in an
wage law should, likewise, be declared unconstitutional on the mere plea that it results impairment of property rights in the process.
in a permanent reduction of profits? Taking it a step further, suppose the company
decides to increase the price of its product in order to offset the effects of the increase
Moreover, the right to property has a social dimension. While Article XIII of the
in labor cost; does this mean that the minimum wage law, following the reasoning of
Constitution provides the percept for the protection of property, various laws and
the Dissent, is unconstitutional because the consuming public is effectively made to
jurisprudence, particularly on agrarian reform and the regulation of contracts and public
subsidize the wage of a group of laborers, i.e., minimum wage earners? The same
utilities, continously serve as a reminder for the promotion of public good.
reasoning can be adopted relative to the examples cited by the Dissent which,
according to it, are valid police power regulations. Article 157 of the Labor Code,
Undeniably, the success of the senior citizens program rests largely on the support
Sections 19 and 18 of the Social Security Law, and Section 7 of the Pag-IBIG Fund Law
imparted by petitioners and the other private establishments concerned. This being the
would effectively increase the labor cost of a business establishment.1âwphi1 This
case, the means employed in invoking the active participation of the private sector, in
would, in turn, be integrated as part of the cost of its goods or services. Again, if the
order to achieve the purpose or objective of the law, is reasonably and directly related.
establishment does not increase its prices, the net effect would be a permanent
Without sufficient proof that Section 4(a) of R.A. No. 9257 is arbitrary, and that the
reduction in its profits or income/gross sales. Following the reasoning of the Dissent
continued implementation of the same would be unconscionably detrimental to
that "any form of permanent taking of private property (including profits or
petitioners, the Court will refrain form quashing a legislative act.125
income/gross sales)120 is an exercise of eminent domain that requires the State to pay
just compensation,"121 then these statutory provisions would, likewise, have to be
declared unconstitutional. It does not matter that these benefits are deemed part of the In conclusion, we maintain that the correct rule in determining whether the subject
employees’ legislated wages because the net effect is the same, that is, it leads to higher regulatory measure has amounted to a "taking" under the power of eminent domain is
labor costs and a permanent reduction in the profits or income/gross sales of the the one laid down in Alalayan v. National Power Corporation126 and followed in Carlos
business establishments.122 Superdurg Corporation127 consistent with long standing principles in police power and
eminent domain analysis. Thus, the deprivation or reduction of profits or income. Gross
sales must be clearly shown to be unreasonable, oppressive or confiscatory. Under the
The point then is this – most, if not all, regulatory measures imposed by the State on
specific circumstances of this case, such determination can only be made upon the
business establishments impact, at some level, the latter’s prices and/or profits or
presentation of competent proof which petitioners failed to do. A law, which has been
income/gross sales.123
in operation for many years and promotes the welfare of a group accorded special
concern by the Constitution, cannot and should not be summarily invalidated on a mere
If the Court were to sustain the Dissent’s theory, then a wholesale nullification of such
allegation that it reduces the profits or income/gross sales of business establishments.
measures would inevitably result. The police power of the State and the social justice
provisions of the Constitution would, thus, be rendered nugatory. There is nothing
WHEREFORE, the Petition is hereby DISMISSED for lack of merit.
sacrosanct about profits or income/gross sales. This, we made clear in Carlos Superdrug
Corporation:124
SO ORDERED.
EN BANC
G.R. No. 210551 June 30, 2015
JOSE J. FERRER, JR., Petitioner,
vs.
CITY MAYOR HERBERT BAUTISTA, CITY COUNCIL OF QUEZON CITY, CITY
TREASURER OF QUEZON CITY, and CITY ASSESSOR OF QUEZON
CITY, Respondents.
DECISION
PERALTA, J.:
Before this Court is a petition for certiorari under Rule 65 of the Rules of Court with
prayer for the issuance of a temporary restraining order (TRO) seeking to declare
unconstitutional and illegal Ordinance Nos. SP-2095, S-2011 and SP-2235, S-2013 on
the Socialized Housing Tax and Garbage Fee, respectively, which are being imposed by
the respondents.
The Case
On October 17, 2011,1 respondent Quezon City Council enacted Ordinance No. SP-
2095, S-2011,2 or the Socialized Housing Tax of Quezon City, Section 3 of which
provides:
SECTION 3. IMPOSITION. A special assessment equivalent to one-half percent (0.5%)
on the assessed value of land in excess of One Hundred Thousand Pesos
(Php100,000.00) shall be collected by the City Treasurer which shall accrue to the
Socialized Housing Programs of the Quezon City Government. The special assessment
shall accrue to the General Fund under a special account to be established for the
purpose.
Effective for five (5) years, the Socialized Housing Tax ( SHT ) shall be utilized by the
Quezon City Government for the following projects: (a) land purchase/land banking; (b)
improvement of current/existing socialized housing facilities; (c) land development; (d)
construction of core houses, sanitary cores, medium-rise buildings and other similar
structures; and (e) financing of public-private partners hip agreement of the Quezon
City Government and National Housing Authority ( NHA ) with the private sector.3
Under certain conditions, a tax credit shall be enjoyed by taxpayers regularly paying the
special assessment:
SECTION 7. TAX CREDIT. Taxpayers dutifully paying the special assessment tax as
imposed by this ordinance shall enjoy a tax credit. The tax credit may be availed of only
after five (5) years of continue[d] payment. Further, the taxpayer availing this tax credit
must be a taxpayer in good standing as certified by the City Treasurer and City Assessor.
The tax credit to be granted shall be equivalent to the total amount of the special
assessment paid by the property owner, which shall be given as follows:
1. 6th year - 20%
2. 7th year - 20%
3. 8th year - 20%
4. 9th year - 20%
5. 10th year - 20%
Furthermore, only the registered owners may avail of the tax credit and may not be
continued by the subsequent property owners even if they are buyers in good faith,
heirs or possessor of a right in whatever legal capacity over the subject property.4
On the other hand, Ordinance No. SP-2235, S-20135 was enacted on December 16, 2013
and took effect ten days after when it was approved by respondent City Mayor.6 The
proceeds collected from the garbage fees on residential properties shall be deposited
solely and exclusively in an earmarked special account under the general fund to be
utilized for garbage collections.7 Section 1 of the Ordinance se t forth the schedule and
manner for the collection of garbage fees:
SECTION 1. The City Government of Quezon City in conformity with and in relation to
Republic Act No. 7160, otherwise known as the Local Government Code of 1991 HEREBY
IMPOSES THE FOLLOWING SCHEDULE AND MANNER FOR THE ANNUAL COLLECTION
OF GARBAGE FEES, AS FOLLOWS: On all domestic households in Quezon City;
LAND AREA IMPOSABLE FEE
Less than 200 sq. m. PHP 100.00
201 sq. m. – 500 sq. m. PHP 200.00
501 sq. m. – 1,000 sq. m. PHP 300.00
1,001 sq. m. – 1,500 sq. m. PHP 400.00
 1,501 sq. m. – 2,000 sq. m. or more PHP 500.00
On all condominium unit and socialized housing projects/units in Quezon City;
FLOOR AREA IMPOSABLE FEE
Less than 40 sq. m. PHP 25.00
41 sq. m. – 60 sq. m. PHP 50.00
61 sq. m. – 100 sq. m. PHP 75.00
101 sq. m. – 150 sq. m. PHP 100.00
151 sq. m. – 200 sq. [m.] or more PHP 200.00
On high-rise Condominium Units
a) High-rise Condominium – The Homeowners Association of high- rise
condominiums shall pay the annual garbage fee on the total size of the entire
condominium and socialized Housing Unit and an additional garbage fee shall
be collected based on area occupied for every unit already so ld or being
amortized.
b) High-rise apartment units – Owners of high-rise apartment units shall pay
the annual garbage fee on the total lot size of the entire apartment and an
additional garbage fee based on the schedule prescribed herein for every unit
occupied.
The collection of the garbage fee shall accrue on the first day of January and shall be
paid simultaneously with the payment of the real property tax, but not later than the
first quarter installment.8 In case a household owner refuses to pay, a penalty of 25% of
the garbage fee due, plus an interest of 2% per month or a fraction thereof, shall be
charged.9
Petitioner alleges that he is a registered co-owner of a 371-square-meter residential
property in Quezon City which is covered by Transfer Certificate of Title (TCT ) No.
216288, and that, on January 7, 2014, he paid his realty tax which already included the
garbage fee in the sum of
Php100.00.10
The instant petition was filed on January 17, 2014. We issued a TRO on February 5, 2014,
which enjoined the enforcement of Ordinance Nos. SP-2095 and SP-2235 and required
respondents to comment on the petition without necessarily giving due course
thereto.11
Respondents filed their Comment12 with urgent motion to dissolve the TRO on February
17, 2014. Thereafter, petitioner filed a Reply and a Memorandum on March 3, 2014 and
September 8, 2014, respectively.
Procedural Matters
A. Propriety of a Petition for Certiorari
Respondents are of the view that this petition for certiorari is improper since they are
not tribunals, boards or officers exercising judicial or quasi-judicial functions. Petitioner,
however, counters that in enacting Ordinance Nos. SP-2095 and SP-2235, the Quezon
City Council exercised quasi-judicial function because the ordinances ruled against the
property owners who must pay the SHT and the garbage fee, exacting from them funds
for basic essential public services that they should not be held liable. Even if a Rule 65
petition is improper, petitioner still asserts that this Court, in a number of cases like in
Rosario v. Court of Appeals,13 has taken cognizance of an improper remedy in the
interest of justice.
We agree that respondents neither acted in any judicial or quasi-judicial capacity nor
arrogated unto themselves any judicial or quasi-judicial prerogatives.
A respondent is said to be exercising judicial function where he has the power to
determine what the law is and what the legal rights of the parties are, and then
undertakes to determine these questions and adjudicate upon the rights of the parties.
Quasi-judicial function, on the other hand, is "a term which applies to the actions,
discretion, etc., of public administrative officers or bodies … required to investigate facts
or ascertain the existence of facts, hold hearings, and draw conclusions from them as a
basis for their official action and to exercise discretion of a judicial nature."
Before a tribunal, board, or officer may exercise judicial or quasi-judicial acts, it is
necessary that there be a law that gives rise to some specific rights of person s or
property under which adverse claims to such rights are made, and the controversy en
suing therefrom is brought before a tribunal, board, or officer clothed with power and
authority to determine the law and adjudicate the respective rights of the contending
parties.14
For a writ of certiorari to issue, the following requisites must concur: (1) it must be
directed against a tribunal, board, or officer exercising judicial or quasi-judicial
functions; (2) the tribunal, board, or officer must have acted without or in excess of
jurisdiction or with grave abuse of discretion amounting to lack or excess of jurisdiction;
and (3) there is no appeal or any plain, speedy, and adequate remedy in the ordinary
course of law. The enactment by the Quezon City Council of the assailed ordinances
was done in the exercise of its legislative, not judicial or quasi-judicial, function. Under
Republic Act (R.A.) No.7160, or the Local Government Code of 1991 (LGC), local
legislative power shall be exercised by the Sangguniang Panlungsod for the city.15Said
law likewise is specific in providing that the power to impose a tax, fee, or charge , or
to generate revenue shall be exercised by the sanggunian of the local government unit
concerned through an appropriate ordinance.16
Also, although the instant petition is styled as a petition for certiorari, it essentially seeks
to declare the unconstitutionality and illegality of the questioned ordinances. It, thus,
partakes of the nature of a petition for declaratory relief, over which this Court has only
appellate, not original, jurisdiction.17
Despite these, a petition for declaratory relief may be treated as one for prohibition or
mandamus, over which we exercise original jurisdiction, in cases with far-reaching
implications or one which raises transcendental issues or questions that need to be
resolved for the public good.18The judicial policy is that this Court will entertain direct
resort to it when the redress sought cannot be obtained in the proper courts or when
exceptional and compelling circumstances warrant availment of a remedy within and
calling for the exercise of Our primary jurisdiction.19
Section 2, Rule 65 of the Rules of Court lay down under what circumstances a petition
for prohibition may be filed:
SEC. 2. Petition for prohibition. - When the proceedings of any tribunal, corporation,
board, officer or person, whether exercising judicial, quasi-judicial or ministerial
functions, are without or in excess of its or his jurisdiction, or with grave abuse of
discretion amounting to lack or excess of jurisdiction, and there is no appeal or any
other plain, speedy, and adequate remedy in the ordinary course of law, a person
aggrieved thereby may file a verified petition in the proper court, alleging the facts with
certainty and praying that judgment be rendered commanding the respondent to desist
from further proceeding in the action or matter specified therein, or otherwise granting
such incidental reliefs as law and justice may require.
In a petition for prohibition against any tribunal, corporation, board, or person –
whether exercising judicial, quasi-judicial, or ministerial functions – who has acted
without or in excess of jurisdiction or with grave abuse of discretion, the petitioner prays
that judgment be rendered, commanding the respondents to desist from further
proceeding in the action or matter specified in the petition. In this case, petitioner's
primary intention is to prevent respondents from implementing Ordinance Nos. SP-
2095 and SP-2235. Obviously, the writ being sought is in the nature of a prohibition,
commanding desistance.
We consider that respondents City Mayor, City Treasurer, and City Assessor are
performing ministerial functions. A ministerial function is one that an officer or tribunal
performs in the context of a given set of facts, in a prescribed manner and without
regard for the exercise of his or its own judgment, upon the propriety or impropriety of
the act done.20 Respondent Mayor, as chief executive of the city government, exercises
such powers and performs such duties and functions as provided for by the LGC and
other laws.21 Particularly, he has the duty to ensure that all taxes and other revenues of
the city are collected, and that city funds are applied to the payment of expenses and
settlement of obligations of the city, in accordance with law or ordinance.22 On the
other hand, under the LGC, all local taxes, fees, and charges shall be collected by the
provincial, city, municipal, or barangay treasurer, or their duly-authorized deputies,
while the assessor shall take charge, among others, of ensuring that all laws and policies
governing the appraisal and assessment of real properties for taxation purposes are
properly executed.23 Anent the SHT, the Department of Finance (DOF) Local Finance
Circular No. 1-97, dated April 16, 1997, is more specific:
6.3 The Assessor’s office of the Identified LGU shall:
a. immediately undertake an inventory of lands within its
jurisdiction which shall be subject to the levy of the Social
Housing Tax (SHT) by the local sanggunian concerned;
b. inform the affected registered owners of the effectivity of
the SHT; a list of the lands and registered owners shall also
be posted in 3 conspicuous places in the city/municipality;
c. furnish the Treasurer’s office and the local sanggunian
concerned of the list of lands affected;
6.4 The Treasurer’s office shall:
a. collect the Social Housing Tax on top of the Real Property
Tax, SEF Tax and other special assessments;
b. report to the DOF, thru the Bureau of Local Government
Finance, and the Mayor’s office the monthly collections on
Social Housing Tax (SHT). An annual report should likewise
be submitted to the HUDCC on the total revenues raised
 during the year pursuant to Sec. 43, R.A. 7279 and the
manner in which the same was disbursed.
Petitioner has adduced special and important reasons as to why direct recourse to us
should be allowed. Aside from presenting a novel question of law, this case calls for
immediate resolution since the challenged ordinances adversely affect the property
interests of all paying constituents of Quezon City. As well, this petition serves as a test
case for the guidance of other local government units (LGUs).Indeed, the petition at bar
is of transcendental importance warranting a relaxation of the doctrine of hierarchy of
courts. In Social Justice Society (SJS) Officers, et al. v. Lim ,24the Court cited the case of
Senator Jaworski v. Phil. Amusement & Gaming Corp.,25 where We ratiocinated:
Granting arguendo that the present action cannot be properly treated as a petition for
prohibition, the transcendental importance of the issues involved in this case warrants
that we set aside the technical defects and take primary jurisdiction over the petition at
bar . x x x This is in accordance with the well entrenched principle that rules of procedure
are not inflexible tools designed to hinder or delay, but to facilitate and promote the
administration of justice. Their strict and rigid application, which would result in
technicalities that tend to frustrate, rather than promote substantial justice, must always
be eschewed.26
B. Locus Standi of Petitioner
Respondents challenge petitioner’s legal standing to file this case on the ground that,
in relation to Section 3 of Ordinance No. SP-2095, petitioner failed to allege his
ownership of a property that has an assessed value of more than Php100,000.00 and,
with respect to Ordinance No. SP-2335, by what standing or personality he filed the
case to nullify the same. According to respondents, the petition is not a class suit, and
that, for not having specifically alleged that petitioner filed the case as a taxpayer, it
could only be surmised whether he is a party-in-interest who stands to be directly
benefited or injured by the judgment in this case.
It is a general rule that every action must be prosecuted or defended in the name of
the real party-in-interest, who stands to be benefited or injured by the judgment in the
suit, or the party entitled to the avails of the suit.
Jurisprudence defines interest as "material interest, an interest in issue and to be
affected by the decree, as distinguished from mere interest in the question involved, or
a mere incidental interest. By real interest is meant a present substantial interest, as
distinguished from a mere expectancy or a future, contingent, subordinate, or
consequential interest." "To qualify a person to be a real party-in-interest in whose
name an action must be prosecuted, he must appear to be the present real owner of
the right sought to be enforced."27
"Legal standing" or locus standi calls for more than just a generalized grievance.28 The
concept has been define d as a personal and substantial interest in the case such that
the party has sustained or will sustain direct injury as a result of the government al act
that is being challenged.29 The gist of the question of standing is whether a party alleges
such personal stake in the outcome of the controversy as to assure that concrete
adverseness which sharpens the presentation of issues upon which the court depends
for illumination of difficult constitutional questions.30
A party 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 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." It must be shown that he has been, or
is about to be, denied some right or privilege to which he is lawfully entitled, or that he
is about to be subjected to some burdens or penalties by reason of the statute
complained of.31
Tested by the foregoing, petitioner in this case clearly has legal standing to file the
petition. He is a real party-in-interest to assail the constitutionality and legality of
Ordinance Nos. SP-2095 and SP-2235 because respondents did not dispute that he is
a registered co-owner of a residential property in Quezon City an d that he paid
property tax which already included the SHT and the garbage fee. He has substantial
right to seek a refund of the payments he made and to stop future imposition. While
he is a lone petitioner, his cause of action to declare the validity of the subject
ordinances is substantial and of paramount interest to similarly situated property
owners in Quezon City.
C. Litis Pendentia
Respondents move for the dismissal of this petition on the ground of litis pendentia.
They claim that, as early as February 22, 2012, a case entitled Alliance of Quezon City
Homeowners, Inc., et al., v. Hon. Herbert Bautista, et al. , docketed as Civil Case No. Q-
12- 7-820, has been pending in the Quezon City Regional Trial Court, Branch 104, which
assails the legality of Ordinance No. SP-2095. Relying on City of Makati, et al. v.
Municipality (now City) of Taguig, et al.,32 respondents assert that there is substantial
identity of parties between the two cases because petitioner herein and plaintiffs in the
civil case filed their respective cases as taxpayers of Quezon City.
For petitioner, however, respondents’ contention is untenable since he is not a party in
Alliance and does not even have the remotest identity or association with the plaintiffs
in said civil case. Moreover, respondents’ arguments would deprive this Court of its
jurisdiction to determine the constitutionality of laws under Section 5, Article VIII of the
1987 Constitution.33
Litis pendentia is a Latin term which literally means "a pending suit" and is variously
referred to in some decisions as lis pendens and auter action pendant.34 While it is
normally connected with the control which the court has on a property involved in a
suit during the continuance proceedings, it is more interposed as a ground for the
dismissal of a civil action pending in court.35 In Film Development Council of the
Philippines v. SM Prime Holdings, Inc.,36 We elucidated:
Litis pendentia, as a ground for the dismissal of a civil action, refers to a situation where
two actions are pending between the same parties for the same cause of action, so that
one of them becomes unnecessary and vexatious. It is based on the policy against
multiplicity of suit and authorizes a court to dismiss a case motu proprio.
xxxx
The requisites in order that an action may be dismissed on the ground of litis pendentia
are: (a) the identity of parties, or at least such as representing the same interest in both
actions; (b) the identity of rights asserted and relief prayed for, the relief being founded
on the same facts, and (c) the identity of the two cases such that judgment in one,
regardless of which party is successful, would amount to res judicata in the other.
The underlying principle of litis pendentia is the theory that a party is not allowed to
vex another more than once regarding the same subject matter and for the same cause
of action. This theory is founded on the public policy that the same subject matter
should not be the subject of controversy in courts more than once, in order that possible
conflicting judgments may be avoided for the sake of the stability of the rights and
status of persons, and also to avoid the costs and expenses incident to numerous suits.
Among the several tests resorted to in ascertaining whether two suits relate to a single
or common cause of action are: (1) whether the same evidence would support and
sustain both the first and second causes of action; and (2) whether the defenses in one
case may be used to substantiate the complaint in the other.
The determination of whether there is an identity of causes of action for purposes of
litis pendentia is inextricably linked with that of res judicata , each constituting an
element of the other. In either case, both relate to the sound practice of including, in a
single litigation, the disposition of all issues relating to a cause of action that is before
a court.37
There is substantial identity of the parties when there is a community of interest
between a party in the first case and a party in the second case albeit the latter was not
impleaded in the first case.38Moreover, the fact that the positions of the parties are
reversed, i.e., the plaintiffs in the first case are the defendants in the second case or
vice-versa, does not negate the identity of parties for purposes of determining whether
the case is dismissible on the ground of litis pendentia .39
In this case, it is notable that respondents failed to attach any pleading connected with
the alleged civil case pending before the Quezon City trial court.1âwphi1 Granting that
there is substantial identity of parties between said case and this petition, dismissal on
the ground of litis pendentia still cannot be had in view of the absence of the second
and third requisites. There is no way for us to determine whether both cases are based
on the same set of facts that require the presentation of the same evidence. Even if
founded on the same set of facts, the rights asserted and reliefs prayed for could be
different. Moreover, there is no basis to rule that the two cases are intimately related
and/or intertwined with one another such that the judgment that may be rendered in
one, regardless of which party would be successful, would amount to res judicata in the
other.
D. Failure to Exhaust Administrative Remedies
Respondents contend that petitioner failed to exhaust administrative remedies for his
non-compliance with Section 187 of the LGC, which mandates:
Section 187. Procedure for Approval and Effectivity of Tax Ordinances and Revenue
Measures; Mandatory Public Hearings. – The procedure for approval of local tax
ordinances and revenue measures shall be in accordance with the provisions of this
Code: Provided, That public hearings shall be conducted for the purpose prior to the
enactment thereof: Provided, further, That any question on the constitutionality or
legality of tax ordinances or revenue measures may be raised on appeal within thirty
(30) days from the effectivity thereof to the Secretary of Justice who shall render a
decision within sixty (60) days from the date of receipt of the appeal: Provided, however,
That such appeal shall not have the effect of suspending the effectivity of the ordinance
and the accrual and payment of the tax, fee, or charge levied therein: Provided, finally,
That within thirty (30) days after receipt of the decision or the lapse of the sixty-day
period without the Secretary of Justice acting upon the appeal, the aggrieved party may
file appropriate proceedings with a court of competent jurisdiction.
The provision, the constitutionality of which was sustained in Drilon v. Lim ,40 has been
construed as mandatory41 considering that –
A municipal tax ordinance empowers a local government unit to impose taxes. The
power to tax is the most effective instrument to raise needed revenues to finance and
support the myriad activities of local government units for the delivery of basic services
essential to the promotion of the general welfare and enhancement of peace, progress,
and prosperity of the people. Consequently, any delay in implementing tax measures
would be to the detriment of the public. It is for this reason that protests over tax
ordinances are required to be done within certain time frames. x x x.42
The obligatory nature of Section 187 was underscored in Hagonoy Market Vendor Asso.
v. Municipality of Hagonoy:43
x x x [T]he timeframe fixed by law fo r parties to avail of their legal remedies before
competent courts is not a "mere technicality" that can be easily brushed aside. The
periods stated in Section 187 of the Local Government Code are mandatory. x x x Being
its lifeblood, collection of revenues by the government is of paramount importance. The
funds for the operation of its agencies and provision of basic services to its inhabitants
are largely derived from its revenues and collections. Thus, it is essential that the validity
of revenue measures is not left uncertain for a considerable length of time. Hence, the
law provided a time limit for an aggrieved party to assail the legality of revenue
measures and tax ordinances."44
Despite these cases, the Court, in Ongsuco, et al. v. Hon. Malones,45held that there was
no need for petitioners therein to exhaust administrative remedies before resorting to
the courts, considering that there was only a pure question of law, the parties did not
dispute any factual matter on which they had to present evidence. Likewise, in Cagayan
Electric Power and Light Co., Inc. v. City of Cagayan de Oro,46 We relaxed the application
of the rules in view of the more substantive matters. For the same reasons, this petition
is an exception to the general rule.
Substantive Issues
Petitioner asserts that the protection of real properties from informal settlers and the
collection of garbage are basic and essential duties and functions of the Quezon City
Government. By imposing the SHT and the garbage fee, the latter has shown a penchant
and pattern to collect taxes to pay for public services that could be covered by its
revenues from taxes imposed on property, idle land, business, transfer, amusement, etc.,
as well as the Internal Revenue Allotment (IRA ) from the National Government. For
petitioner, it is noteworthy that respondents did not raise the issue that the Quezon
City Government is in dire financial state and desperately needs money to fund housing
for informal settlers and to pay for garbage collection. In fact, it has not denied that its
revenue collection in 2012 is in the sum of ₱13.69 billion.
Moreover, the imposition of the SHT and the garbage fee cannot be justified by the
Quezon City Government as an exercise of its power to create sources of income under
Section 5, Article X of the 1987 Constitution.47 According to petitioner, the
constitutional provision is not a carte blanche for the LGU to tax everything under its
territorial and political jurisdiction as the provision itself admits of guidelines and
limitations.
Petitioner further claims that the annual property tax is an ad valorem tax, a percentage
of the assessed value of the property, which is subject to revision every three (3) years
in order to reflect an increase in the market value of the property. The SHT and the
garbage fee are actually increases in the property tax which are not based on the
assessed value of the property or its reassessment every three years; hence, in violation
of Sections 232 and 233 of the LGC.48
For their part, respondents relied on the presumption in favor of the constitutionality
of Ordinance Nos. SP-2095 and SP-2235, invoking Victorias Milling Co., Inc. v.
Municipality of Victorias, etc.,49 People v. Siton, et al.,50 and Hon. Ermita v. Hon. Aldecoa-
Delorino .51 They argue that the burden of establishing the invalidity of an ordinance
rests heavily upon the party challenging its constitutionality. They insist that the
questioned ordinances are proper exercises of police power similar to Telecom. &
Broadcast Attys. of the Phils., Inc. v. COMELEC52 and Social Justice Society (SJS), et al.
v. Hon. Atienza, Jr.53 and that their enactment finds basis in the social justice principle
enshrined in Section 9,54 Article II of the 1987 Constitution.
As to the issue of publication, respondents argue that where the law provides for its
own effectivity, publication in the Official Gazette is not necessary so long as it is not
punitive in character, citing Balbuna, et al. v. Hon. Secretary of Education, et al.55 and
Askay v. Cosalan .[56]] Thus, Ordinance No. SP-2095 took effect after its publication,
while Ordinance No. SP-2235 became effective after its approval on December 26, 2013.
Additionally, the parties articulate the following positions:
On the Socialized Housing Tax
Respondents emphasize that the SHT is pursuant to the social justice principle found in
Sections 1 and 2, Article XIII57 of the 1987 Constitution and Sections 2 (a)58 and 4359 of
R.A. No. 7279, or the "Urban Development and Housing Act of 1992 ( UDHA ).
Relying on Manila Race Horse Trainers Assn., Inc. v. De La Fuente,60and Victorias Milling
Co., Inc. v. Municipality of Victorias, etc.,61respondents assert that Ordinance No. SP-
2095 applies equally to all real property owners without discrimination. There is no way
that the ordinance could violate the equal protection clause because real property
owners and informal settlers do not belong to the same class.
Ordinance No. SP-2095 is also not oppressive since the tax rate being imposed is
consistent with the UDHA. While the law authorizes LGUs to collect SHT on properties
with an assessed value of more than ₱50,000.00, the questioned ordinance only covers
properties with an assessed value exceeding ₱100,000.00. As well, the ordinance
provides for a tax credit equivalent to the total amount of the special assessment paid
by the property owner beginning in the sixth (6th) year of the effectivity of the
ordinance.
On the contrary, petitioner claims that the collection of the SHT is tantamount to a
penalty imposed on real property owners due to the failure of respondent Quezon City
Mayor and Council to perform their duty to secure and protect real property owners
from informal settlers, thereby burdening them with the expenses to provide funds for
housing. For petitioner, the SHT cannot be viewed as a "charity" from real property
owners since it is forced, not voluntary.
Also, petitioner argues that the collection of the SHT is a kind of class legislation that
violates the right of property owners to equal protection of the laws since it favors
informal settlers who occupy property not their own and pay no taxes over law-abiding
real property owners w ho pay income and realty taxes.
Petitioner further contends that respondents’ characterization of the SHT as "nothing
more than an advance payment on the real property tax" has no statutory basis.
Allegedly, property tax cannot be collected before it is due because, under the LGC,
chartered cities are authorized to impose property tax based on the assessed value and
the general revision of assessment that is made every three (3) years.
As to the rationale of SHT stated in Ordinance No. SP-2095, which, in turn, was based
on Section 43 of the UDHA, petitioner asserts that there is no specific provision in the
1987 Constitution stating that the ownership and enjoyment of property bear a social
function. And even if there is, it is seriously doubtful and far-fetched that the principle
means that property owners should provide funds for the housing of informal settlers
and for home site development. Social justice and police power, petitioner believes,
does not mean imposing a tax on one, or that one has to give up something, for the
benefit of another. At best, the principle that property ownership and enjoyment bear
a social function is but a reiteration of the Civil Law principle that property should not
be enjoyed and abused to the injury of other properties and the community, and that
the use of the property may be restricted by police power, the exercise of which is not
involved in this case.
Finally, petitioner alleges that 6 Bistekvilles will be constructed out of the SHT collected.
Bistek is the monicker of respondent City Mayor. The Bistekvilles makes it clear,
therefore, that politicians will take the credit for the tax imposed on real property
owners.
On the Garbage Fee
Respondents claim that Ordinance No. S-2235, which is an exercise of police power,
collects on the average from every household a garbage fee in the meager amount of
thirty-three (33) centavos per day compared with the sum of ₱1,659.83 that the Quezon
City Government annually spends for every household for garbage collection and waste
management.62
In addition, there is no double taxation because the ordinance involves a fee. Even
assuming that the garbage fee is a tax, the same cannot be a direct duplicate tax as it
is imposed on a different subject matter and is of a different kind or character. Based
on Villanueva, et al. v. City of Iloilo63 and Victorias Milling Co., Inc. v. Municipality of
Victorias, etc.,64 there is no "taxing twice" because the real property tax is imposed on
ownership based on its assessed value, while the garbage fee is required on the
domestic household. The only reference to the property is the determination of the
applicable rate and the facility of collection.
Petitioner argues, however, that Ordinance No. S-2235 cannot be justified as an exercise
of police power. The cases of Calalang v. Williams,65 Patalinghug v. Court of
Appeals,66 and Social Justice Society (SJS), et al. v. Hon. Atienza, Jr.,67 which were cited
by respondents, are inapplicable since the assailed ordinance is a revenue measure and
does not regulate the disposal or other aspect of garbage.
The subject ordinance, for petitioner, is discriminatory as it collects garbage fee only
from domestic households and not from restaurants, food courts, fast food chains, and
other commercial dining places that spew garbage much more than residential property
owners.
Petitioner likewise contends that the imposition of garbage fee is tantamount to double
taxation because garbage collection is a basic and essential public service that should
be paid out from property tax, business tax, transfer tax, amusement tax, community
tax certificate, other taxes, and the IRA of the Quezon City Government. To bolster the
claim, he states that the revenue collection of the Quezon City Government reached
Php13.69 billion in 2012. A small portion of said amount could be spent for garbage
collection and other essential services.
It is further noted that the Quezon City Government already collects garbage fee under
Section 4768 of R.A. No. 9003, or the Ecological Solid Waste Management Act of 2000,
which authorizes LGUs to impose fees in amounts sufficient to pay the costs of
preparing, adopting, and implementing a solid waste management plan, and that LGUs
have access to the Solid Waste Management (SWM) Fund created under Section 4669 of
the same law. Also, according to petitioner, it is evident that Ordinance No. S2235 is
inconsistent with R.A. No. 9003 for whil e the law encourages segregation, composting,
and recycling of waste, the ordinance only emphasizes the collection and payment of
garbage fee; while the law calls for an active involvement of the barangay in the
collection, segregation, and recycling of garbage, the ordinance skips such mandate.
Lastly, in challenging the ordinance, petitioner avers that the garbage fee was collected
even if the required publication of its approval had not yet elapsed. He notes that on
January 7, 2014, he paid his realty tax which already included the garbage fee.
The Court's Ruling
Respondents correctly argued that an ordinance, as in every law, is presumed valid.
An ordinance carries with it the presumption of validity. The question of reasonableness
though is open to judicial inquiry. Much should be left thus to the discretion of
municipal authorities. Courts will go slow in writing off an ordinance as unreasonable
unless the amount is so excessive as to be prohibitive, arbitrary, unreasonable,
oppressive, or confiscatory. A rule which has gained acceptance is that factors relevant
to such an inquiry are the municipal conditions as a whole and the nature of the
business made subject to imposition.70
For an ordinance to be valid though, it must not only be within the corporate powers
of the LGU to enact and must be passed according to the procedure prescribed by law,
it should also conform to the following requirements: (1) not contrary to the
Constitution or any statute; (2) not unfair or oppressive; (3) not partial or discriminatory;
(4) not prohibit but may regulate trade; (5) general and consistent with public policy;
and (6) not unreasonable.71 As jurisprudence indicates, the tests are divided into the
formal (i.e., whether the ordinance was enacted within the corporate powers of the LGU
and whether it was passed in accordance with the procedure prescribed by law), and
the substantive ( i.e., involving inherent merit, like the conformity of the ordinance with
the limitations under the Constitution and the statutes, as well as with the requirements
of fairness and reason, and its consistency with public policy).72
An ordinance must pass muster under the test of constitutionality and the test of
consistency with the prevailing laws.73 If not, it is void.74
Ordinance should uphold the principle of the supremacy of the Constitution.75 As to
conformity with existing statutes,
Batangas CATV, Inc. v. Court of Appeals76 has this to say:
It is a fundamental principle that municipal ordinances are inferior in status and
subordinate to the laws of the state. An ordinance in conflict with a state law of general
character and statewide application is universally held to be invalid. The principle is
frequently expressed in the declaration that municipal authorities, under a general grant
of power, cannot adopt ordinances which infringe the spirit of a state law or repugnant
to the general policy of the state. In every power to pass ordinances given to a
municipality, there is an implied restriction that the ordinances shall be consistent with
the general law. In the language of Justice Isagani Cruz (ret.), this Court, in Magtajas vs.
Pryce Properties Corp., Inc., ruled that:
The rationale of the requirement that the ordinances should not contravene a statute is
obvious. Municipal governments are only agents of the national government. Local
councils exercise only delegated legislative powers conferred on them by Congress as
the national lawmaking body. The delegate cannot be superior to the principal or
exercise powers higher than those of the latter. It is a heresy to suggest that the local
government units can undo the acts of Congress, from which they have derived their
power in the first place, and negate by mere ordinance the mandate of the statute.
Municipal corporations owe their origin to, and derive their powers and rights wholly
from the legislature. It breathes into them the breath of life, without which they cannot
exist. As it creates, so it may destroy. As it may destroy, it may abridge and control.
Unless there is some constitutional limitation on the right, the legislature might, by a
single act, and if we can suppose it capable of so great a folly and so great a wrong,
sweep from existence all of the municipal corporations in the State, and the corporation
could not prevent it. We know of no limitation on the right so far as to the corporation
themselves are concerned. They are so to phrase it, the mere tenants at will of the
legislature.
This basic relationship between the national legislature and the local government units
has not been enfeebled by the new provisions in the Constitution strengthening the
policy of local autonomy. Without meaning to detract from that policy, we here confirm
that Congress retains control of the local government units although in significantly
reduced degree now than under our previous Constitutions. The power to create still
includes the power to destroy. The power to grant still includes the power to withhold
or recall. True, there are certain notable innovations in the Constitution, like the direct
conferment on the local government units of the power to tax, which cannot now be
withdrawn by mere statute. By and large, however, the national legislature is still the
principal of the local government units, which cannot defy its will or modify or violate
it.77
LGUs must be reminded that they merely form part of the whole; that the policy of
ensuring the autonomy of local governments was never intended by the drafters of the
1987 Constitution to create an imperium in imperio and install an intra-sovereign
political subdivision independent of a single sovereign state.78
"[M]unicipal corporations are bodies politic and corporate, created not only as local
units of local self-government, but as governmental agencies of the state. The
legislature, by establishing a municipal corporation, does not divest the State of any of
its sovereignty; absolve itself from its right and duty to administer the public affairs of
the entire state; or divest itself of any power over the inhabitants of the district which it
possesses before the charter was granted."79
LGUs are able to legislate only by virtue of a valid delegation of legislative power from
the national legislature; they are mere agents vested with what is called the power of
subordinate legislation.80 "Congress enacted the LGC as the implementing law for the
delegation to the various LGUs of the State’s great powers, namely: the police power,
the power of eminent domain, and the power of taxation. The LGC was fashioned to
delineate the specific parameters and limitations to be complied with by each LGU in
the exercise of these delegated powers with the view of making each LGU a fully
functioning subdivision of the State subject to the constitutional and statutory
limitations."81
Specifically, with regard to the power of taxation, it is indubitably the most effective
instrument to raise needed revenues in financing and supporting myriad activities of
the LGUs 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.82 As
this Court opined in National Power Corp. v. City of Cabanatuan:83
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. Taxation assume s 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 charges 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." 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 x x x84
Fairly recently, We also stated in Pelizloy Realty Corporation v. Province of
Benguet85 that:
The rule governing the taxing power of provinces, cities, municipalities and barangays
is summarized in Icard v. City Council of Baguio :
It is settled that a municipal corporation unlike a sovereign state is clothed with no
inherent power of taxation. The charter or statute must plainly show an intent to confer
that power or the municipality, cannot assume it. And the power when granted is to be
construed in strictissimi juris . Any doubt or ambiguity arising out of the term used in
granting that power must be resolved against the municipality. Inferences, implications,
deductions – all these – have no place in the interpretation of the taxing power of a
municipal corporation. [Underscoring supplied]
xxxx
Per Section 5, Article X of the 1987 Constitution, "the power to tax is no longer vested
exclusively on Congress; local legislative bodies are now given direct authority to levy
taxes, fees and other charges." Nevertheless, such authority is "subject to such
guidelines and limitations as the Congress may provide."
In conformity with Section 3, Article X of the 1987 Constitution, Congress enacted
Republic Act No. 7160, otherwise known as the Local Government Code of 1991. Book
II of the LGC governs local taxation and fiscal matters.86
Indeed, LGUs have no inherent power to tax except to the extent that such power might
be delegated to them either by the basic law or by the statute.87 "Under the now
prevailing Constitution , where there is neither a grant nor a prohibition by statute , the
tax power must be deemed to exist although Congress may provide statutory
limitations and guidelines. The basic rationale for the current rule is to safeguard the
viability and self-sufficiency of local government units by directly granting them general
and broad tax powers. Nevertheless, the fundamental law did not intend the delegation
to be absolute and unconditional; the constitutional objective obviously is to ensure
that, while the local government units are being strengthened and made more
autonomous , the legislature must still see to it that (a) the taxpayer will not be over-
burdened or saddled with multiple and unreasonable impositions; (b) each local
government unit will have its fair share of available resources; (c) the resources of the
national government will not be unduly disturbed; and (d) local taxation will be fair,
uniform, and just."88
Subject to the provisions of the LGC and consistent with the basic policy of local
autonomy, every LGU is now empowered and authorized to create its own sources of
revenue and to levy taxes, fees, and charges which shall accrue exclusively to the local
government unit as well as to apply its resources and assets for productive,
developmental, or welfare purposes, in the exercise or furtherance of their
governmental or proprietary powers and functions.89 The relevant provisions of the LGC
which establish the parameters of the taxing power of the LGUs are as follows:
SECTION 130. Fundamental Principles. – The following fundamental principles shall
govern th e exercise of the taxing and other revenue-raising powers of local
government units:
(a) Taxation shall be uniform in each local government unit;
(b) Taxes, fees, charges and other impositions shall:
(1) be equitable and based as far as practicable on the taxpayer’s
ability to pay;
(2) be levied and collected only for public purposes;
(3) not be unjust, excessive, oppressive, or confiscatory;
(4) not be contrary to law, public policy, national economic policy, or
in restraint of trade;
(c) The collection of local taxes, fees, charges and other impositions shall in no
case be left to any private person;
(d) The revenue collected pursuant to the provisions of this Code shall inure
solely to the benefit of, and be subject to the disposition by, the local
government unit levying the tax, fee, charge or other imposition unless
otherwise specifically provided herein; and,
(e) Each local government unit shall, as far as practicable, evolve a progressive
system of taxation.
SECTION 133. Common Limitations on the Taxing Powers of Local Government Units. –
Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of the following:
(a) Income tax, except when levied on banks and other financial institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis
causa, except as otherwise provided herein;
(d) Customs duties, registration fees of vessel and wharage on wharves,
tonnage dues, and all other kinds of customs fees, charges and dues except
wharfage on wharves constructed and maintained by the local government
unit concerned;
(e) Taxes, fees, and charges and other impositions upon goods carried into or
out of, or passing through, the territorial jurisdictions of local government
units in the guise of charges for wharfage, tolls for bridges or otherwise, or
other taxes, fees, or charges in any form whatsoever upon such goods or
merchandise;
(f) Taxes, fees or charges on agricultural and aquatic products when sold by
marginal farmers or fishermen;
(g) Taxes on business enterprises certified to by the Board of Investments as
pioneer or non-pioneer for a period of six (6) and four (4) years, respectively
from the date of registration;
(h) Excise taxes on articles enumerated under the National Internal Revenue
Code, as amended, and taxes, fees or charges on petroleum products;
(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or
similar transactions on goods or services except as otherwise provided herein;
(j) Taxes on the gross receipts of transportation contractors and persons
engaged in the transportation of passengers or freight by hire and common
carriers by air, land or water, except as provided in this Code;
(k) Taxes on premiums paid by way of reinsurance or retrocession;
(l) Taxes, fees or charges for the registration of motor vehicles and for the
issuance of all kinds of licenses or permits for the driving thereof, except
tricycles;
(m) Taxes, fees, or other charges on Philippine products actually exported,
except as otherwise provided herein;
 (n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises
and cooperatives duly registered under R.A. No. 6810 and Republic Act
Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938) otherwise known as
the "Cooperative Code of the Philippines" respectively; and
(o) Taxes, fees or charges of any kind on the National Government, its agencies
and instrumentalities, and local government units.
SECTION 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.
SECTION 186. Power to Levy Other Taxes, Fees or Charges. – Local government units
may exercise the power to levy taxes, fees or charges on any base or subject not
otherwise specifically enumerated herein or taxed under the provisions of the National
Internal Revenue Code, as amended, or other applicable laws: Provided, That the taxes,
fees, or charges shall not be unjust, excessive, oppressive, confiscatory or contrary to
declared national policy: Provided, further, That the ordinance levying such taxes, fees
or charges shall not be enacted without any prior public hearing conducted for the
purpose.
On the Socialized Housing Tax
Contrary to petitioner’s submission, the 1987 Constitution explicitly espouses the view
that the use of property bears a social function and that all economic agents shall
contribute to the common good.90 The Court already recognized this in Social Justice
Society (SJS), et al. v. Hon. Atienza, Jr.:91
Property has not only an individual function, insofar as it has to provide for the needs
of the owner, but also a social function insofar as it has to provide for the needs of the
other members of society. The principle is this:
Police power proceeds from the principle that every holder of property, however
absolute and unqualified may be his title, holds it under the implied liability that his use
of it shall not be injurious to the equal enjoyment of others having an equal right to the
enjoyment of their property, no r injurious to the right of the community. Rights of
property, like all other social and conventional rights, are subject to reasonable
limitations in their enjoyment as shall prevent them from being injurious, and to such
reasonable restraints and regulations established by law as the legislature, under the
governing an d controlling power vested in them by the constitution, may think
necessary and expedient.92
Police power, which flows from the recognition that salus populi est suprema lex (the
welfare of the people is the supreme law), is the plenary power vested in the legislature
to make statutes and ordinances to promote the health, morals, peace, education, good
order or safety and general welfare of the people.93 Property rights of individuals may
be subjected to restraints and burdens in order to fulfill the objectives of the
government in the exercise of police power. 94 In this jurisdiction, it is well-entrenched
that taxation may be made the implement of the state’s police power.95
Ordinance No. SP-2095 imposes a Socialized Housing Tax equivalent to 0.5% on the
assessed value of land in excess of Php100,000.00. This special assessment is the same
tax referred to in R.A. No. 7279 or the UDHA.96 The SHT is one of the sources of funds
for urban development and housing program.97 Section 43 of the law provides:
Sec. 43. Socialized Housing Tax . – Consistent with the constitutional principle that the
ownership and enjoyment of property bear a social function and to raise funds for the
Program, all local government units are hereby authorized to impose an additional one-
half percent (0.5%) tax on the assessed value of all lands in urban areas in excess of Fifty
thousand pesos (₱50,000.00).
The rationale of the SHT is found in the preambular clauses of the subject ordinance, to
wit:
WHEREAS, the imposition of additional tax is intended to provide the City Government
with sufficient funds to initiate, implement and undertake Socialized Housing Projects
and other related preliminary activities;
WHEREAS, the imposition of 0.5% tax will benefit the Socialized Housing Programs and
Projects of the City Government, specifically the marginalized sector through the
acquisition of properties for human settlements;
WHEREAS, the removal of the urban blight will definitely increase fair market value of
properties in the city[.]
The above-quoted are consistent with the UDHA, which the LGUs are charged to
implement in their respective localities in coordination with the Housing and Urban
Development Coordinating Council, the national housing agencies, the Presidential
Commission for the Urban Poor, the private sector, and other non-government
organizations.98 It is the declared policy of the State to undertake a comprehensive and
continuing urban development and housing program that shall, among others, uplift
the conditions of the underprivileged and homeless citizens in urban areas and in
resettlement areas, and provide for the rational use and development of urban land in
order to bring a bout, among others, reduction in urban dysfunctions, particularly those
that adversely affect public health, safety and ecology, and access to land and housing
by the underprivileged and homeless citizens.99 Urban renewal and resettlement shall
include the rehabilitation and development of blighted and slum areas100 and the
resettlement of program beneficiaries in accordance with the provisions of the
UDHA.101 Under the UDHA, socialized housing102 shall be the primary strategy in
providing shelter for the underprivileged and homeless.103 The LGU or the NHA, in
cooperation with the private developers and concerned agencies, shall provide
socialized housing or re settlement areas with basic services and facilities such as
potable water, power and electricity, and an adequate power distribution system,
sewerage facilities, and an efficient and adequate solid waste disposal system; and
access to primary roads and transportation facilities.104 The provisions for health,
education, communications, security, recreation, relief and welfare shall also be planned
and be given priority for implementation by the LGU and concerned agencies in
cooperation with the private sector and the beneficiaries themselves.105
Moreover, within two years from the effectivity of the UDHA, the LGUs, in coordination
with the NHA, are directed to implement the relocation and resettlement of persons
living in danger areas such as esteros , railroad tracks, garbage dumps, riverbanks,
shorelines, waterways, and other public places like sidewalks, roads, parks, and
playgrounds.106 In coordination with the NHA, the LG Us shall provide relocation or
resettlement sites with basic services and facilities and access to employment and
livelihood opportunities sufficient to meet the basic needs of the affected families.107
Clearly, the SHT charged by the Quezon City Government is a tax which is within its
power to impose. Aside from the specific authority vested by Section 43 of the UDHA,
cities are allowed to exercise such other powers and discharge such other functions and
responsibilities as are necessary, appropriate, or incidental to efficient and effective
provision of the basic services and facilities which include, among others, programs and
projects for low-cost housing and other mass dwellings.108 The collections made accrue
to its socialized housing programs and projects.
The tax is not a pure exercise of taxing power or merely to raise revenue; it is levied with
a regulatory purpose. The levy is primarily in the exercise of the police power for the
general welfare of the entire city. It is greatly imbued with public interest. Removing
slum areas in Quezon City is not only beneficial to the underprivileged and homeless
constituents but advantageous to the real property owners as well. The situation will
improve the value of the their property investments, fully enjoying the same in view of
an orderly, secure, and safe community, and will enhance the quality of life of the poor,
making them law-abiding constituents and better consumers of business products.
Though broad and far-reaching, police power is subordinate to constitutional
limitations and is subject to the requirement that its exercise must be reasonable and
for the public good.109 In the words of City of Manila v. Hon. Laguio, Jr.:110
The police power granted to local government units must always be exercised with
utmost observance of the rights of the people to due process and equal protection of
the law. Such power cannot be exercised whimsically, arbitrarily or despotically as its
exercise is subject to a qualification, limitation or restriction demanded by the respect
and regard due to the prescription of the fundamental law, particularly those forming
part of the Bill of Rights. Individual rights, it bears emphasis, may be adversely affected
only to the extent that may fairly be required by the legitimate demands of public
interest or public welfare. Due process requires the intrinsic validity of the law in
interfering with the rights of the person to his life, liberty and property.
xxxx
To successfully invoke the exercise of police power as the rationale for the enactment
of the Ordinance, and to free it from the imputation of constitutional infirmity, not only
must it appear that the interests of the public generally, as distinguished from those of
a particular class, require an interference with private rights, but the means adopted
must be reasonably necessary for the accomplishment of the purpose and not unduly
oppressive upon individuals. It must be evident that no other alternative for the
accomplishment of the purpose less intrusive of private rights can work. A reasonable
relation must exist between the purposes of the police measure and the means
employed for its accomplishment, for even under the guise of protecting the public
interest, personal rights and those pertaining to private property will not be permitted
to be arbitrarily invaded.
Lacking a concurrence of these two requisites, the police measure shall be struck down
as an arbitrary intrusion into private rights – a violation of the due process clause.111
As with the State, LGUs may be considered as having properly exercised their police
power only if there is a lawful subject and a lawful method or, to be precise, if the
following requisites are met: (1) the interests of the public generally, as distinguished
from those of a particular class, require its exercise and (2) the mean s employed are
reasonably necessary for the accomplishment of the purpose and not unduly
oppressive upon individuals.112
In this case, petitioner argues that the SHT is a penalty imposed on real property owners
because it burdens them with expenses to provide funds for the housing of informal
settlers, and that it is a class legislation since it favors the latter who occupy properties
which is not their own and pay no taxes.
We disagree.
Equal protection requires that all persons or things similarly situated should be treated
alike, both as to rights conferred and responsibilities imposed.113 The guarantee means
that no person or class of persons shall be denied the same protection of laws which is
enjoyed by other persons or other classes in like circumstances.114 Similar subjects
should not be treated differently so as to give undue favor to some and unjustly
discriminate against others.115 The law may, therefore, treat and regulate one class
differently from another class provided there are real and substantial differences to
distinguish one class from another.116
An ordinance based on reasonable classification does not violate the constitutional
guaranty of the equal protection of the law. The requirements for a valid and reasonable
classification are: (1) it must rest on substantial distinctions; (2) it must be germane to
the purpose of the law; (3) it must not be limited to existing conditions only; and (4) it
must apply equally to all members of the same class.117For the purpose of undertaking
a comprehensive and continuing urban development and housing program, the
disparities between a real property owner and an informal settler as two distinct classes
are too obvious and need not be discussed at length. The differentiation conforms to
the practical dictates of justice and equity and is not discriminatory within the meaning
of the Constitution. Notably, the public purpose of a tax may legally exist even if the
motive which impelled the legislature to impose the tax was to favor one over
another.118 It is inherent in the power to tax that a State is free to select the subjects of
taxation.119Inequities which result from a singling out of one particular class for taxation
or exemption infringe no constitutional limitation.120
Further, the reasonableness of Ordinance No. SP-2095 cannot be disputed. It is not
confiscatory or oppressive since the tax being imposed therein is below what the UDHA
actually allows. As pointed out by respondents, while the law authorizes LGUs to collect
SHT on lands with an assessed value of more than ₱50,000.00, the questioned ordinance
only covers lands with an assessed value exceeding ₱100,000.00. Even better, on certain
conditions, the ordinance grants a tax credit equivalent to the total amount of the
special assessment paid beginning in the sixth (6th) year of its effectivity. Far from being
obnoxious, the provisions of the subject ordinance are fair and just.
On the Garbage Fee
In the United States of America, it has been held that the authority of a municipality to
regulate garbage falls within its police power to protect public health, safety, and
welfare.121 As opined, the purposes and policy underpinnings of the police power to
regulate the collection and disposal of solid waste are: (1) to preserve and protect the
public health and welfare as well as the environment by minimizing or eliminating a
source of disease and preventing and abating nuisances; and (2) to defray costs and
ensure financial stability of the system for the benefit of the entire community, with the
sum of all charges marshalled and designed to pay for the expense of a systemic refuse
disposal scheme.122
Ordinances regulating waste removal carry a strong presumption of
validity.123 Not surprisingly, the overwhelming majority of U.S. cases addressing a city's
authority to impose mandatory garbage service and fees have upheld the ordinances
against constitutional and statutory challenges.124
A municipality has an affirmative duty to supervise and control the collection of garbage
within its corporate limits.125The LGC specifically assigns the responsibility of regulation
and oversight of solid waste to local governing bodies because the Legislature
determined that such bodies were in the best position to develop efficient waste
management programs.126 To impose on local governments the responsibility to
regulate solid waste but not grant them the authority necessary to fulfill the same would
lead to an absurd result."127 As held in one U.S. case:
x x x When a municipality has general authority to regulate a particular subject matter,
the manner and means of exercising those powers, where not specifically prescribed by
the legislature, are left to the discretion of the municipal authorities. x x x Leaving the
manner of exercising municipal powers to the discretion of municipal authorities
"implies a range of reasonableness within which a municipality's exercise of discretion
will not be interfered with or upset by the judiciary."128
In this jurisdiction, pursuant to Section 16 of the LGC and in the proper exercise of its
corporate powers under Section 22 of the same, the Sangguniang Panlungsod of
Quezon City, like other local legislative bodies, is empowered to enact ordinances,
approve resolutions, and appropriate funds for the genera l welfare of the city and its
inhabitants.129Section 16 of the LGC provides:
SECTION 16. General Welfare . – Every local government unit shall exercise the powers
expressly granted, those necessarily implied therefrom, as well as powers necessary,
appropriate, or incidental for its efficient and effective governance, and those which are
essential to the promotion of the general welfare. Within their respective territorial
jurisdictions, local government units shall ensure and support, among other things, the
preservation and enrichment of culture, promote health and safety, enhance the right
of the people to a balanced ecology, encourage and support the development of
appropriate and self-reliant scientific and technological capabilities, improve public
morals, enhance economic prosperity and social justice, promote full employment
among their residents, maintain peace and order, and preserve the comfort and
convenience of their inhabitants.
The general welfare clause is the delegation in statutory form of the police power of
the State to LGUs.130 The provisions related thereto are liberally interpreted to give
more powers to LGUs in accelerating economic development and upgrading the quality
of life for the people in the community.131 Wide discretion is vested on the legislative
authority to determine not only what the interests of the public require but also what
measures are necessary for the protection of such interests since the Sanggunian is in
the best position to determine the needs of its constituents.132
One of the operative principles of decentralization is that, subject to the provisions of
the LGC and national policies, the LGUs shall share with the national government the
responsibility in the management and maintenance of ecological balance within their
territorial jurisdiction.133 In this regard, cities are allowed to exercise such other powers
and discharge such other functions and responsibilities as are necessary, appropriate,
or incidental to efficient and effective provision of the basic services and facilities which
include, among others, solid waste disposal system or environmental management
system and services or facilities related to general hygiene and sanitation.134R.A. No.
9003, or the Ecological Solid Waste Management Act of 2000,135 affirms this authority
as it expresses that the LGUs shall be primarily responsible for the implementation and
enforcement of its provisions within their respective jurisdictions while establishing a
cooperative effort among the national government, other local government units, non-
government organizations, and the private sector.136
Necessarily, LGUs are statutorily sanctioned to impose and collect such reasonable fees
and charges for services rendered.137 "Charges" refer to pecuniary liability, as rents or
fees against persons or property, while "Fee" means a charge fixed by law or ordinance
for the regulation or inspection of a business or activity.138
The fee imposed for garbage collections under Ordinance No. SP-2235 is a charge fixed
for the regulation of an activity. The basis for this could be discerned from the foreword
of said Ordinance, to wit:
WHEREAS, Quezon City being the largest and premiere city in the Philippines in terms
of population and urban geographical areas, apart from being competent and efficient
in the delivery of public service, apparently requires a big budgetary allocation in order
to address the problems relative and connected to the prompt and efficient delivery of
basic services such as the effective system of waste management, public information
programs on proper garb age and proper waste disposal, including the imposition of
waste regulatory measures;
WHEREAS, to help augment the funds to be spent for the city’s waste management
system, the City Government through the Sangguniang Panlungsod deems it necessary
to impose a schedule of reasonable fees or charges for the garbage collection services
for residential (domestic household) that it renders to the public.
Certainly, as opposed to petitioner’s opinion, the garbage fee is not a tax. In Smart
Communications, Inc. v. Municipality of Malvar, Batangas ,139the Court had the occasion
to distinguish these two concepts:
In Progressive Development Corporation v. Quezon City, the Court declared that "if the
generating of revenue is the primary purpose and regulation is merely incidental, the
imposition is a tax; but if regulation is the primary purpose, the fact that incidentally
revenue is also obtained does not make the imposition a tax."
In Victorias Milling Co., Inc. v. Municipality of Victorias, the Court reiterated that the
purpose and effect of the imposition determine whether it is a tax or a fee, and that the
lack of any standards for such imposition gives the presumption that the same is a tax.
We accordingly say that the designation given by the municipal authorities does not
decide whether the imposition is properly a license tax or a license fee.1awp++i1 The
determining factors are the purpose and effect of the imposition as may be apparent
from the provisions of the ordinance. Thus, "[w]hen no police inspection, supervision,
or regulation is provided, nor any standard set for the applicant to establish, or that he
agrees to attain or maintain, but any and all persons engaged in the business
designated, without qualification or hindrance, may come, and a license on payment of
the stipulated sum will issue, to do business, subject to no prescribed rule of conduct
and under no guardian eye, but according to the unrestrained judgment or fancy of the
applicant and licensee, the presumption is strong that the power of taxation, and not
the police power, is being exercised."
In Georgia, U.S.A., assessments for garbage collection services have been consistently
treated as a fee and not a tax.140
In another U.S. case,141 the garbage fee was considered as a "service charge" rather than
a tax as it was actually a fee for a service given by the city which had previously been
provided at no cost to its citizens.
Hence, not being a tax, the contention that the garbage fee under Ordinance No. SP-
2235 violates the rule on double taxation142 must necessarily fail.
Nonetheless, although a special charge, tax, or assessment may be imposed by a
municipal corporation, it must be reasonably commensurate to the cost of providing
the garbage service.143 To pass judicial scrutiny, a regulatory fee must not produce
revenue in excess of the cost of the regulation because such fee will be construed as an
illegal tax when the revenue generated by the regulation exceeds the cost of the
regulation.144
Petitioner argues that the Quezon City Government already collects garbage fee under
Section 47 of R.A. No. 9003, which authorizes LGUs to impose fees in amounts sufficient
to pay the costs of preparing, adopting, and implementing a solid waste management
plan, and that it has access to the SWM Fund under Section 46 of the same law.
Moreover, Ordinance No. S-2235 is inconsistent with R.A. No. 9003, because the
ordinance emphasizes the collection and payment of garbage fee with no concern for
segregation, composting and recycling of wastes. It also skips the mandate of the law
calling for the active involvement of the barangay in the collection, segregation, and
recycling of garbage.
We now turn to the pertinent provisions of R.A. No. 9003.
Under R.A. No. 9003, it is the declared policy of the State to adopt a systematic,
comprehensive and ecological solid waste management program which shall, among
others, ensure the proper segregation, collection, transport, storage, treatment and
disposal of solid waste through the formulation and adoption of the best environmental
practices in ecological waste management.145 The law provides that segregation and
collection of solid waste shall be conducted at the barangay level, specifically for
biodegradable, compostable and reusable wastes, while the collection of non-
recyclable materials and special wastes shall be the responsibility of the municipality or
city.146Mandatory segregation of solid wastes shall primarily be conducted at the
source, to include household, institutional, industrial, commercial and agricultural
sources.147 Segregation at source refers to a solid waste management practice of
separating, at the point of origin, different materials found in soli d waste in order to
promote recycling and re-use of resources and to reduce the volume of waste for
collection and disposal.148 Based on Rule XVII of the Department of Environment and
Natural Resources (DENR) Administrative Order No. 2001-34, Series of 2001,149which is
the Implementing Rules and Regulations ( IRR ) of R.A. No. 9003, barangays shall be
responsible for the collection, segregation, and recycling of biodegradable, recyclable ,
compostable and reusable wastes.150
For the purpose, a Materials Recovery Facility (MRF), which shall receive biodegradable
wastes for composting and mixed non-biodegradable wastes for final segregation, re-
use and recycling, is to be established in every barangay or cluster of barangays.151
According to R.A. 9003, an LGU, through its local solid waste management board, is
mandated by law to prepare a 10-year solid waste management plan consistent with
the National Solid Waste Management Framework.152 The plan shall be for the re-use,
recycling and composting of wastes generated in its jurisdiction; ensure the efficient
management of solid waste generated within its jurisdiction; and place primary
emphasis on implementation of all feasible re-use, recycling, and composting programs
while identifying the amount of landfill and transformation capacity that will be needed
for solid waste which cannot be re-used, recycled, or composted.153 One of the
components of the so lid waste management plan is source reduction:
(e) Source reduction – The source reduction component shall include a program and
implementation schedule which shows the methods by which the LGU will, in
combination with the recycling and composting components, reduce a sufficient
amount of solid waste disposed of in accordance with the diversion requirements of
Section 20.
The source reduction component shall describe the following:
(1) strategies in reducing the volume of solid waste generated at source;
(2) measures for implementing such strategies and the resources necessary to
carry out such activities;
(3) other appropriate waste reduction technologies that may also be
considered, provide d that such technologies conform with the standards set
pursuant to this Act;
(4) the types of wastes to be reduced pursuant to Section 15 of this Act;
(5) the methods that the LGU will use to determine the categories of solid
wastes to be diverted from disposal at a disposal facility through re-use ,
recycling and composting; and
(6) new facilities and of expansion of existing facilities which will be needed to
implement re-use, recycling and composting.
The LGU source reduction component shall include the evaluation and identification of
rate structures and fees for the purpose of reducing the amount of waste generated,
and other source reduction strategies, including but not limited to, program s and
economic incentives provided under Sec. 45 of this Act to reduce the use of non-
recyclable materials, replace disposable materials and products with reusable materials
and products, reduce packaging, and increase the efficiency of the use of paper,
cardboard, glass, metal, and other materials. The waste reduction activities of the
community shall al so take into account, among others, local capability, economic
viability, technical requirements, social concerns, disposition of residual waste and
environmental impact: Provided , That, projection of future facilities needed and
estimated cost shall be incorporated in the plan. x x x154
The solid waste management pl an shall also include an implementation schedule for
solid waste diversion:
SEC. 20. Establishing Mandatory Solid Waste Diversion. – Each LGU plan shall include
an implementation schedule which shows that within five (5) years after the effectivity
of this Act, the LGU shall divert at least 25% of all solid waste from waste disposal
facilities through re-use, recycling, and composting activities and other resource
recovery activities: Provided , That the waste diversion goals shall be increased every
three (3) years thereafter: Provided , further, That nothing in this Section prohibits a
local government unit from implementing re-use, recycling, and composting activities
designed to exceed the goal.
The baseline for the twenty-five percent (25%) shall be derived from the waste
characterization result155 that each LGU is mandated to undertake.156In accordance with
Section 46 of R.A. No. 9003, the LGUs are entitled to avail of the SWM Fund on the basis
of their approved solid waste management plan. Aside from this, they may also impose
SWM Fees under Section 47 of the law, which states:
sector and civil society groups which have been duly accredited by the Local SWM Boar
d/Local SWM Cluster Board; provided, the SWM fees shall be covered by a Contract or
Memorandum of Agreement between the respective boa rd and the private sector or
civil society group.
The fees shall pay for the costs of preparing, adopting and implementing a SWM Plan
prepared pursuant to the Act. Further, the fees shall also be used to pay the actual costs
incurred in collecting the local fees and for project sustainability.
Section 2. Basis of SWM Service Fees
Reasonable SWM service fees shall be computed based on but not limited to the
following minimum factors:
a) Types of solid waste to include special waste
b) amount/volume of waste

SEC. 47. Authority to Collect Solid Waste Management Fees – The local government
c) distance of the transfer station to the waste management facility
unit shall impose fees in amounts sufficient to pay the costs of preparing, adopting, and
implementing a solid waste management plan prepared pursuant to this Act. The fees
d) capacity or type of LGU constituency
shall be based on the following minimum factors:

e) cost of construction
(a) types of solid waste;

f) cost of management
(b) amount/volume of waste; and

g) type of technology
(c) distance of the transfer station to the waste management facility.

Section 3. Collection of Fees. – Fees may be collected corresponding to the following

The fees shall be used to pay the actual costs incurred by the LGU in collecting the local
levels:
fees. In determining the amounts of the fees, an LGU shall include only those costs
directly related to the adoption and implementation of the plan and the setting and
collection of the local fees. a) Barangay – The Barangay may impose fees for collection and segregation
of biodegradable, compostable and reusable wastes from households,
commerce, other sources of domestic wastes, and for the use of Barangay
Rule XVII of the IRR of R.A. No. 9003 sets forth the details:
MRFs. The computation of the fees shall be established by the respective SWM
boards. The manner of collection of the fees shall be dependent on the style
Section 1. Power to Collect Solid Waste Management Fees . – The Local SWM
of administration of respective Barangay Councils. However, all transactions
Board/Local SWM Cluster Board shall impose fees on the SWM services provided for by
shall follow the Commission on Audit rules on collection of fees.
the LGU and/or any authorized organization or unit. In determining the amounts of the
fees, a Local SWM Board/Local SWM Cluster Board shall include only those costs
b) Municipality – The municipal and city councils may impose fees on the
directly related to the adoption and implementation of the SWM Plan and the setting
barangay MRFs for the collection and transport of non-recyclable and special
and collection of the local fees. This power to impose fees may be ceded to the private
wastes and for the disposal of these into the sanitary landfill. The level and
 procedure for exacting fees shall be defined by the Local SWM Board/Local In the subject ordinance, the rates of the imposable fee depend on land or floor area
SWM Cluster Board and supported by LGU ordinances; however, payments and whether the payee is an occupant of a lot, condominium, social housing project or
shall be consistent with the accounting system of government. apartment. For easy reference, the relevant provision is again quoted below:

c) Private Sector/Civil Society Group – On the basis of the stipulations of On all domestic households in Quezon City;
contract or Memorandum of Agreement, the private sector or civil society
group shall impose fees for collection, transport and tipping in their SLFs.
LAND AREA IMPOSABLE FEE
Receipts and invoices shall be issued to the paying public or to the
government. Less than 200 sq. m. PHP 100.00

201 sq. m. – 500 sq. m. PHP 200.00

From the afore-quoted provisions, it is clear that the authority of a municipality or city
to impose fees is limited to the collection and transport of non-recyclable and special 501 sq. m. – 1,000 sq. m. PHP 300.00
wastes and for the disposal of these into the sanitary landfill. Barangays, on the other
hand, have the authority to impose fees for the collection and segregation of 1,001 sq. m. – 1,500 sq. m. PHP 400.00
biodegradable, compostable and reusable wastes from households, commerce, other
1,501 sq. m. – 2,000 sq. m. or more PHP 500.00
sources of domestic wastes, and for the use of barangay MRFs. This is but consistent
with
On all condominium unit and socialized housing projects/units in Quezon City;
Section 10 of R.A. No. 9003 directing that segregation and collection of biodegradable,
compostable and reusable wastes shall be conducted at the barangay level, while the FLOOR AREA IMPOSABLE FEE
collection of non-recyclable materials and special wastes shall be the responsibility of
the municipality or city. Less than 40 sq. m. PHP 25.00

41 sq. m. – 60 sq. m. PHP 50.00

In this case, the alleged bases of Ordinance No. S-2235 in imposing the garbage fee is
the volume of waste currently generated by each person in Quezon City, which 61 sq. m. – 100 sq. m. PHP 75.00
purportedly stands at 0.66 kilogram per day, and the increasing trend of waste
101 sq. m. – 150 sq. m. PH₱100.00
generation for the past three years.157 Respondents
151 sq. m. – 200 sq. [m.] or more PHP 200.00
did not elaborate any further. The figure presented does not reflect the specific types
of wastes generated – whether residential, market, commercial, industrial, On high-rise Condominium Units
construction/demolition, street waste, agricultural, agro-industrial, institutional, etc. It
is reasonable, therefore, for the Court to presume that such amount pertains to the
a) High-rise Condominium – The Homeowners Association of high rise
totality of wastes, without any distinction, generated by Quezon City constituents. To
condominiums shall pay the annual garbage fee on the total size of the entire
reiterate, however, the authority of a municipality or city to impose fees extends only
condominium and socialized Housing Unit and an additional garbage fee shall
to those related to the collection and transport of non-recyclable and special wastes.
be collected based on area occupied for every unit already so ld or being
amortized.
Granting, for the sake of argument, that the 0.66 kilogram of solid waste per day refers
only to non-recyclable and special wastes, still, We cannot sustain the validity of
b) High-rise apartment units – Owners of high-rise apartment units shall pay
Ordinance No. S-2235. It violates the equal protection clause of the Constitution and
the annual garbage fee on the total lot size of the entire apartment and an
the provisions of the LGC that an ordinance must be equitable and based as far as
additional garbage fee based on the schedule prescribed herein for every unit
practicable on the taxpayer’s ability to pay, and not unjust, excessive, oppressive,
occupied.
confiscatory.158
For the purpose of garbage collection, there is, in fact, no substantial distinction
between an occupant of a lot, on one hand, and an occupant of a unit in a
condominium, socialized housing project or apartment, on the other hand. Most likely,
garbage output produced by these types of occupants is uniform and does not vary to
a large degree; thus, a similar schedule of fee is both just and equitable.159
The rates being charged by the ordinance are unjust and inequitable: a resident of a
200 sq. m. unit in a condominium or socialized housing project has to pay twice the
amount than a resident of a lot similar in size; unlike unit occupants, all occupants of a
lot with an area of 200 sq. m. and less have to pay a fixed rate of Php100.00; and the
same amount of garbage fee is imposed regardless of whether the resident is from a
condominium or from a socialized housing project.
Indeed, the classifications under Ordinance No. S-2235 are not germane to its declared
purpose of "promoting shared responsibility with the residents to attack their common
mindless attitude in over-consuming the present resources and in generating
waste."160 Instead of simplistically categorizing the payee into land or floor occupant of
a lot or unit of a condominium, socialized housing project or apartment, respondent
City Council should have considered factors that could truly measure the amount of
wastes generated and the appropriate fee for its collection. Factors include, among
others, household age and size, accessibility to waste collection, population density of
the barangay or district, capacity to pay, and actual occupancy of the property. R.A. No.
9003 may also be looked into for guidance. Under said law, WM service fees may be
computed based on minimum factors such as type s of solid waste to include special
waste, amount/volume of waste, distance of the transfer station to the waste
management facility, capacity or type of LGU constituency, cost of construction, cost of
management, and type of technology. With respect to utility rates set by municipalities,
a municipality has the right to classify consumers under reasonable classifications based
upon factors such as the cost of service, the purpose for which the service or the product
is received, the quantity or the amount received, the different character of the service
furnished, the time of its use or any other matter which presents a substantial difference
as a ground of distinction.161[A] lack of uniformity in the rate charged is not necessarily
unlawful discrimination. The establishment of classifications and the charging of
different rates for the several classes is not unreasonable and does not violate the
requirements of equality and uniformity. Discrimination to be unlawful must draw an
unfair line or strike an unfair balance between those in like circumstances having equal
rights and privileges. Discrimination with respect to rates charged does not vitiate
unless it is arbitrary and without a reasonable fact basis or justification.162
On top of an unreasonable classification, the penalty clause of Ordinance No. SP-2235,
which states:
SECTION 3. Penalty Clause – A penalty of 25% of the garbage fee due plus an interest
of 2% per month or a fraction thereof (interest) shall be charged against a household
owner who refuses to pay the garbage fee herein imposed. lacks the limitation required
by Section 168 of the LGC, which provides:
SECTION 168. Surcharges and Penalties on Unpaid Taxes, Fees, or Charges. – The
sanggunian may impose a surcharge not exceeding twenty-five (25%) of the amount of
taxes, fees or charges not paid on time and an interest at the rate not exceeding two
percent (2%) per month of the unpaid taxes, fees or charges including surcharges, until
such amount is fully paid but in no case shall the total interest on the unpaid amount
or portion thereof exceed thirty-six (36) months. (Emphasis supplied)
Finally, on the issue of publication of the two challenged ordinances.
Petitioner argues that the garbage fee was collected even if the required publication of
its approval had not yet elapsed. He notes that he paid his realty tax on January 7, 2014
which already included the garbage fee. Respondents counter that if the law provides
for its own effectivity, publication in the Official Gazette is not necessary so long as it is
not penal in nature. Allegedly, Ordinance No. SP-2095 took effect after its publication
while Ordinance No. SP-2235 became effective after its approval on December 26, 2013.
The pertinent provisions of the LGC state:
SECTION 59. Effectivity of Ordinances or Resolutions. – (a) Unless otherwise stated in
the ordinance or the resolution approving the local development plan and public
investment program, the same shall take effect after ten (10) days from the date a copy
thereof is posted in a bulletin board at the entrance of the provincial capital or city,
municipal, or barangay hall, as the case may be, and in at least two (2) other conspicuous
places in the local government unit concerned.
(b) The secretary to the sanggunian concerned shall cause the posting of an
ordinance or resolution in the bulletin board at the entrance of the provincial
capital and the city, municipal, or barangay hall in at least two
(2) conspicuous places in the local government unit concerned not later than
five (5) days after approval thereof.
The text of the ordinance or resolution shall be disseminated and posted in
Filipino or English and in the language or dialect understood by the majority
of the people in the local government unit concerned, and the secretary to the
sanggunian shall record such fact in a book kept for the purpose, stating the
dates of approval and posting.
 (c) The gist of all ordinances with penal sanctions shall be published in a SO ORDERED.
newspaper of general circulation within the province where the local legislative
body concerned belongs. In the absence of any newspaper of general
circulation within the province, posting of such ordinances shall be made in all
municipalities and cities of the province where the sanggunian of origin is
situated.

(d) In the case of highly urbanized and independent component cities, the
main features of the ordinance or resolution duly enacted or adopted shall, in
addition to being posted, be published once in a local newspaper of general
circulation within the city: Provided, That in the absence thereof the ordinance
or resolution shall be published in any newspaper of general circulation.

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

On October 17, 2011, respondent Quezon City Council enacted Ordinance No. SP-2095,
which provides that it would take effect after its publication in a newspaper of general
circulation.163 On the other hand, Ordinance No. SP-2235, which was passed by the City
Council on December 16, 2013, provides that it would be effective upon its approval.164

Ten (10) days after its enactment, or on December 26, 2013, respondent City Mayor
approved the same.165

The case records are bereft of any evidence to prove petitioner’s negative allegation
that respondents did not comply with the posting and publication requirements of the
law. Thus, We are constrained not to give credit to his unsupported claim.

WHEREFORE, the petition is PARTIALLY GRANTED. The constitutionality and legality of

Ordinance No. SP-2095, S-2011, or the "Socialized Housing Tax of Quezon City," is·
SUSTAINED for being consistent ·with Section·43 of Republic Act No. ·7279. On the
other hand, Ordinance No. SP-2235, S-2013, which collects an annual garbage fee on
all domestic households in Quezon City, is hereby declared as UNCONSTITUTIONAL
AND ILLEGAL. Respondents are DIRECTED to REFUND with reasonable dispatch the
sums of money collected relative to its enforcement. The temporary restraining order
issued by the Court on February 5, 2014 is LIFTED with respect to Ordinance No. SP-
2095. In contrast, respondents are PERMANENTLY ENJOINED from taking any further
action to enforce Ordinance No. SP. 2235.
THIRD DIVISION
The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking
COMMISSIONER OF INTERNAL G.R. No. 159647
to set aside the August 29, 2002 Decision[2] and the August 11, 2003 Resolution[3] of the
REVENUE, Court of Appeals (CA) in CA-GR SP No. 67439. The assailed Decision reads as follows:

Petitioner, Present:

Panganiban, WHEREFORE, premises considered, the Resolution

J., appealed from is AFFIRMED in toto. No costs.[4]

Chairman,

Sandoval-Gutierrez, The assailed Resolution denied petitioners Motion for Reconsideration.

- versus - Corona,

Carpio Morales, and The Facts

Garcia, JJ

CENTRAL LUZON DRUG Promulgated: The CA narrated the antecedent facts as follows:

CORPORATION,

Respondent. April 15, 2005 Respondent is a domestic corporation primarily engaged in retailing
of medicines and other pharmaceutical products. In 1996, it operated
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x six (6) drugstores under the business name and style Mercury Drug.

From January to December 1996, respondent granted twenty (20%)

DECISION percent sales discount to qualified senior citizens on their purchases
of medicines pursuant to Republic Act No. [R.A.] 7432 and its
Implementing Rules and Regulations. For the said period, the amount
allegedly representing the 20% sales discount granted by respondent
to qualified senior citizens totaled P904,769.00.
PANGANIBAN, J.:

On April 15, 1997, respondent filed its Annual Income Tax Return for
T he 20 percent discount required by the law to be given to senior citizens is a tax
taxable year 1996 declaring therein that it incurred net losses from
credit, not merely a tax deduction from the gross income or gross sale of the
its operations.
establishment concerned. A tax credit is used by a private establishment only after the
tax has been computed; a tax deduction, before the tax is computed. RA 7432
unconditionally grants a tax credit to all covered entities. Thus, the provisions of the
revenue regulation that withdraw or modify such grant are void. Basic is the rule that On January 16, 1998, respondent filed with petitioner a claim for tax
administrative regulations cannot amend or revoke the law. refund/credit in the amount of P904,769.00 allegedly arising from the
20% sales discount granted by respondent to qualified senior citizens
in compliance with [R.A.] 7432. Unable to obtain affirmative response
from petitioner, respondent elevated its claim to the Court of Tax
Appeals [(CTA or Tax Court)] via a Petition for Review.
On February 12, 2001, the Tax Court rendered
a Decision[5] dismissing respondents Petition for lack of merit. In said
decision, the [CTA] justified its ruling with the following ratiocination:
x x x, if no tax has been paid to the government,
erroneously or illegally, or if no amount is due and
collectible from the taxpayer, tax refund or tax
credit is unavailing. Moreover, whether the
recovery of the tax is made by means of a claim for
refund or tax credit, before recovery is allowed[,] it
must be first established that there was an actual
collection and receipt by the government of the
tax sought to be recovered. x x x.
xxxxxxxxx
Prescinding from the above, it could logically be
deduced that tax credit is premised on the
existence of tax liability on the part of taxpayer. In
other words, if there is no tax liability, tax credit is
not available.
Respondent lodged a Motion for Reconsideration. The [CTA], in its
assailed resolution,[6] granted respondents motion for
reconsideration and ordered herein petitioner to issue a Tax Credit
Certificate in favor of respondent citing the decision of the then
Special Fourth Division of [the CA] in CA G.R. SP No. 60057
entitled Central [Luzon] Drug Corporation vs. Commissioner of
Internal Revenue promulgated on May 31, 2001, to wit:
However, Sec. 229 clearly does not apply in the
instant case because the tax sought to be refunded
or credited by petitioner was not erroneously paid
or illegally collected. We take exception to the
CTAs sweeping but unfounded statement that
both tax refund and tax credit are modes of
recovering taxes which are either erroneously or
illegally paid to the government. Tax refunds or
credits do not exclusively pertain to illegally
collected or erroneously paid taxes as they may be
other circumstances where a refund is warranted.
The tax refund provided under Section 229 deals
exclusively with illegally collected or erroneously
paid taxes but there are other possible situations,
such as the refund of excess estimated corporate
quarterly income tax paid, or that of excess input
tax paid by a VAT-registered person, or that of
excise tax paid on goods locally produced or
manufactured but actually exported. The
standards and mechanics for the grant of a refund
or credit under these situations are different from
that under Sec. 229. Sec. 4[.a)] of R.A. 7432, is yet
another instance of a tax credit and it does not in
any way refer to illegally collected or erroneously
paid taxes, x x x.[7]
Ruling of the Court of Appeals
The CA affirmed in toto the Resolution of the Court of Tax Appeals (CTA) ordering
petitioner to issue a tax credit certificate in favor of respondent in the reduced amount
of P903,038.39. It reasoned that Republic Act No. (RA) 7432 required neither a tax
liability nor a payment of taxes by private establishments prior to the availment of a tax
credit. Moreover, such credit is not tantamount to an unintended benefit from the law,
but rather a just compensation for the taking of private property for public use.
Hence this Petition.[8]
The Issues
 Petitioner raises the following issues for our consideration:
Whether the Court of Appeals erred in holding that respondent may
claim the 20% sales discount as a tax credit instead of as a deduction
from gross income or gross sales.
Whether the Court of Appeals erred in holding that respondent is
entitled to a refund.[9]
These two issues may be summed up in only one: whether respondent, despite incurring
a net loss, may still claim the 20 percent sales discount as a tax credit.
The Courts Ruling
The Petition is not meritorious.
Sole Issue:
Claim of 20 Percent Sales Discount
as Tax Credit Despite Net Loss
Section 4a) of RA 7432[10] grants to senior citizens the privilege of obtaining a 20
percent discount on their purchase of medicine from any private establishment in the
country.[11] The latter may then claim the cost of the discount as a tax credit.[12] But can
such credit be claimed, even though an establishment operates at a loss?
We answer in the affirmative.
Tax Credit versus
Tax Deduction
Although the term is not specifically defined in our Tax Code,[13] tax credit generally
refers to an amount that is subtracted directly from ones total tax liability.[14] It is an
allowance against the tax itself[15] or a deduction from what is owed[16] by a taxpayer to
the government. Examples of tax credits are withheld taxes, payments of estimated tax,
and investment tax credits.[17]
Tax credit should be understood in relation to other tax concepts. One of these is tax
deduction -- defined as a subtraction from income for tax purposes,[18] or an amount
that is allowed by law to reduce income prior to [the] application of the tax rate to
compute the amount of tax which is due.[19] An example of a tax deduction is any of the
allowable deductions enumerated in Section 34[20] of the Tax Code.
A tax credit differs from a tax deduction. On the one hand, a tax credit reduces the tax
due, including -- whenever applicable -- the income tax that is determined after
applying the corresponding tax rates to taxable income.[21] A tax deduction, on the
other, reduces the income that is subject to tax[22] in order to arrive at taxable
income.[23] To think of the former as the latter is to avoid, if not entirely confuse, the
issue. A tax credit is used only after the tax has been computed; a tax
deduction, before.
Tax Liability Required
for Tax Credit
Since a tax credit is used to reduce directly the tax that is due, there ought to be a tax
liability before the tax credit can be applied. Without that liability, any tax
credit application will be useless. There will be no reason for deducting the latter when
there is, to begin with, no existing obligation to the government. However, as will be
presented shortly, the existence of a tax credit or its grant by law is not the same as
the availment or useof such credit. While the grant is mandatory, the availment or use
is not.
If a net loss is reported by, and no other taxes are currently due from, a business
establishment, there will obviously be no tax liability against which any tax credit can
be applied.[24] For the establishment to choose the immediate availment of a tax
credit will be premature and impracticable. Nevertheless, the irrefutable fact remains
that, under RA 7432, Congress has granted without conditions a tax credit benefit to all
covered establishments.
Although this tax credit benefit is available, it need not be used by losing ventures, since
there is no tax liability that calls for its application. Neither can it be reduced to nil by
the quick yet callow stroke of an administrative pen, simply because no reduction of
taxes can instantly be effected. By its nature, the tax credit may still be deducted from
a future, not a present, tax liability, without which it does not have any use. In the
meantime, it need not move. But it breathes.
Prior Tax Payments Not
Required for Tax Credit
While a tax liability is essential to the availment or use of any tax credit, prior tax
payments are not. On the contrary, for the existence or grant solely of such credit,
neither a tax liability nor a prior tax payment is needed. The Tax Code is in fact replete
with provisions granting or allowing tax credits, even though no taxes have been
previously paid.
For example, in computing the estate tax due, Section 86(E) allows a tax credit -- subject
to certain limitations -- for estate taxes paid to a foreign country. Also found in Section
101(C) is a similar provision for donors taxes -- again when paid to a foreign country -
- in computing for the donors tax due. The tax credits in both instances allude to the
prior payment of taxes, even if not made to our government.
Under Section 110, a VAT (Value-Added Tax)- registered person engaging in
transactions -- whether or not subject to the VAT -- is also allowed a tax credit that
includes a ratable portion of any input tax not directly attributable to either activity. This
input tax may either be the VAT on the purchase or importation of goods or services
that is merely due from -- not necessarily paid by -- such VAT-registered person in the
course of trade or business; or the transitional input tax determined in accordance with
Section 111(A). The latter type may in fact be an amount equivalent to only eight
percent of the value of a VAT-registered persons beginning inventory of goods,
materials and supplies, when such amount -- as computed -- is higher than the actual
VAT paid on the said items.[25] Clearly from this provision, the tax credit refers to an
input tax that is either due only or given a value by mere comparison with the VAT
actually paid -- then later prorated. No tax is actually paid prior to the availment of such
credit.
In Section 111(B), a one and a half percent input tax credit that is merely presumptive
is allowed. For the purchase of primary agricultural products used as inputs -- either in
the processing of sardines, mackerel and milk, or in the manufacture of refined sugar
and cooking oil -- and for the contract price of public work contracts entered into with
the government, again, no prior tax payments are needed for the use of the tax credit.
More important, a VAT-registered person whose sales are zero-rated or effectively zero-
rated may, under Section 112(A), apply for the issuance of a tax credit certificate for the
amount of creditable input taxes merely due -- again not necessarily paid to -- the
government and attributable to such sales, to the extent that the input taxes have not
been applied against output taxes.[26] Where a taxpayer
is engaged in zero-rated or effectively zero-rated sales and also in taxable or exempt
sales, the amount of creditable input taxes due that are not directly and entirely
attributable to any one of these transactions shall be proportionately allocated on the
basis of the volume of sales. Indeed, in availing of such tax credit for VAT purposes, this
provision -- as well as the one earlier mentioned -- shows that the prior payment of
taxes is not a requisite.
It may be argued that Section 28(B)(5)(b) of the Tax Code is another illustration of a tax
credit allowed, even though no prior tax payments are not required. Specifically, in this
provision, the imposition of a final withholding tax rate on cash and/or property
dividends received by a nonresident foreign corporation from a domestic corporation
is subjected to the condition that a foreign tax credit will be given by the domiciliary
country in an amount equivalent to taxes that are merely deemed paid.[27] Although
true, this provision actually refers to the tax credit as a condition only for the imposition
of a lower tax rate, not as a deduction from the corresponding tax liability. Besides, it is
not our government but the domiciliary country that credits against the income tax
payable to the latter by the foreign corporation, the tax to be foregone or spared.[28]
In contrast, Section 34(C)(3), in relation to Section 34(C)(7)(b), categorically allows as
credits, against the income tax imposable under Title II, the amount of income taxes
merely incurred -- not necessarily paid -- by a domestic corporation during a taxable
year in any foreign country. Moreover, Section 34(C)(5) provides that for such taxes losing establishment to immediately apply such credit, where no tax is due, will be an
incurred but not paid, a tax credit may be allowed, subject to the condition precedent improvident usance.
that the taxpayer shall simply give a bond with sureties satisfactory to and approved by
petitioner, in such sum as may be required; and further conditioned upon payment by
the taxpayer of any tax found due, upon petitioners redetermination of it. Sections 2.i and 4 of Revenue

Regulations No. 2-94 Erroneous

In addition to the above-cited provisions in the Tax Code, there are also tax treaties and
special laws that grant or allow tax credits, even though no prior tax payments have
been made. RA 7432 specifically allows private establishments to claim as tax credit the amount of
discounts they grant.[33] In turn, the Implementing Rules and Regulations, issued
pursuant thereto, provide the procedures for its availment.[34] To deny such credit,
despite the plain mandate of the law and the regulations carrying out that mandate, is
Under the treaties in which the tax credit method is used as a relief to avoid double
indefensible.
taxation, income that is taxed in the state of source is also taxable in the state of
residence, but the tax paid in the former is merely allowed as a credit against the tax
levied in the latter.[29] Apparently, payment is made to the state of source, not the state
of residence. No tax, therefore, has been previously paid to the latter. First, the definition given by petitioner is erroneous. It refers to tax credit as the amount
representing the 20 percent discount that shall be deducted by the said establishments
from their gross income for income tax purposes and from their gross sales for value-
added tax or other percentage tax purposes.[35] In ordinary business language, the tax
Under special laws that particularly affect businesses, there can also be tax
credit represents the amount of such discount. However, the manner by which the
credit incentives. To illustrate, the incentives provided for in Article 48 of Presidential
discount shall be credited against taxes has not been clarified by the revenue
Decree No. (PD) 1789, as amended by Batas Pambansa Blg. (BP) 391, include tax
regulations.
credits equivalent to either five percent of the net value earned, or five or ten percent
of the net local content of exports.[30] In order to avail of such credits under the said law
and still achieve its objectives, no prior tax payments are necessary.
By ordinary acceptation, a discount is an abatement or reduction made from the gross
amount or value of anything.[36] To be more precise, it is in business parlance a
deduction or lowering of an amount of money;[37] or a reduction from the full amount
From all the foregoing instances, it is evident that prior tax payments are not
or value of something, especially a price.[38] In business there are many kinds of
indispensable to the availment of a tax credit. Thus, the CA correctly held that the
discount, the most common of which is that affecting the income statement[39] or
availment under RA 7432 did not require prior tax payments by private establishments
financial report upon which the income tax is based.
concerned.[31] However, we do not agree with its finding[32] that the carry-over of tax
credits under the said special law to succeeding taxable periods, and even their
application against internal revenue taxes, did not necessitate the existence of a tax
liability. Business Discounts

Deducted from Gross Sales

The examples above show that a tax liability is certainly important in the availment or
use, not the existence or grant, of a tax credit. Regarding this matter, a private A cash discount, for example, is one granted by business establishments to credit
establishment reporting a net loss in its financial statements is no different from
customers for their prompt payment.[40] It is a reduction in price offered to the
another that presents a net income. Both are entitled to the tax credit provided for
purchaser if payment is made within a shorter period of time than the maximum time
under RA 7432, since the law itself accords that unconditional benefit. However, for the
specified.[41] Also referred to as a sales discount on the part of the seller and a purchase
discount on the part of the buyer, it may be expressed in such
terms as 5/10, n/30.[42]
A quantity discount, however, is a reduction in price allowed for purchases made in
large quantities, justified by savings in packaging, shipping, and handling.[43] It is also
called a volume or bulk discount.[44]
A percentage reduction from the list price x x x allowed by manufacturers to wholesalers
and by wholesalers to retailers[45] is known as a trade discount. No entry for it need be
made in the manual or computerized books of accounts, since the purchase or sale is
already valued at the net price actually charged the buyer.[46] The purpose for the
discount is to encourage trading or increase sales, and the prices at which the
purchased goods may be resold are also suggested.[47] Even a chain discount -- a series
of discounts from one list price -- is recorded at net.[48]
Finally, akin to a trade discount is a functional discount. It is a suppliers price discount
given to a purchaser based on the [latters] role in the [formers] distribution
system.[49] This role usually involves warehousing or advertising.
Based on this discussion, we find that the nature of a sales discount is peculiar. Applying
generally accepted accounting principles (GAAP) in the country, this type of discount is
reflected in the income statement[50] as a line item deducted -- along with returns,
allowances, rebates and other similar expenses -- from gross sales to arrive at net
sales.[51] This type of presentation is resorted to, because the accounts
receivable and sales figures that arise from sales discounts, -- as well as from quantity,
volume or bulk discounts -- are recorded in the manual and computerized books of
accounts and reflected in the financial statements at the gross amounts of the
invoices.[52] This manner of recording credit sales -- known as the gross method -- is
most widely used, because it is simple, more convenient to apply than the net method,
and produces no material errors over time.[53]
However, under the net method used in recording trade, chain or functional discounts,
only the net amounts of the invoices -- after the discounts have been deducted -- are
recorded in the books of accounts[54] and reflected in the financial statements. A
separate line item cannot be shown,[55] because the transactions themselves involving
both accounts receivable and sales have already been entered into, net of the said
discounts.
The term sales discounts is not expressly defined in the Tax Code, but one provision
adverts to amounts whose sum -- along with sales returns, allowances and cost of
goods sold[56] -- is deducted from gross sales to come up with the gross
income, profit or margin[57] derived from business.[58] In another provision therein, sales
discounts that are granted and indicated in the invoices at the time of sale -- and that
do not depend upon the happening of any future event -- may be excluded from
the gross sales within the same quarter they were given.[59] While determinative only of
the VAT, the latter provision also appears as a suitable reference point for income tax
purposes already embraced in the former. After all, these two provisions affirm
that sales discounts are amounts that are always deductible from gross sales.
Reason for the Senior Citizen Discount:
The Law, Not Prompt Payment
A distinguishing feature of the implementing rules of RA 7432 is the private
establishments outright deduction of the discount from the invoice price of the
medicine sold to the senior citizen.[60] It is, therefore, expected that for each retail sale
made under this law, the discount period lasts no more than a day, because such
discount is given -- and the net amount thereof collected -- immediately upon
perfection of the sale.[61] Although prompt payment is made for an arms-length
transaction by the senior citizen, the real and compelling reason for the private
establishment giving the discount is that the law itself makes it mandatory.
What RA 7432 grants the senior citizen is a mere discount privilege, not a sales
discount or any of the above discounts in particular. Prompt payment is not the reason
for (although a necessary consequence of) such grant. To be sure, the privilege enjoyed
by the senior citizen must be equivalent to the tax credit benefit enjoyed by the private
establishment granting the discount. Yet, under the revenue regulations promulgated
by our tax authorities, this benefit has been erroneously likened and confined to a sales
discount.
To a senior citizen, the monetary effect of the privilege may be the same as that
resulting from a sales discount. However, to a private establishment, the effect is
different from a simple reduction in price that results from such discount. In other
words, the tax credit benefit is not the same as a sales discount. To repeat from our
earlier discourse, this benefit cannot and should not be treated as a tax deduction.

To stress, the effect of a sales discount on the income statement and income tax
return of an establishment covered by RA 7432 is different from that resulting from
the availment or use of its tax credit benefit. While the former is a deduction before, the
latter is a deduction after, the income tax is computed. As mentioned earlier, a discount
is not necessarily a sales discount, and a tax credit for a simple discount privilege should
not be automatically treated like a sales discount. Ubi lex non distinguit, nec nos
distinguere debemus. Where the law does not distinguish, we ought not to distinguish.
Sections 2.i and 4 of Revenue Regulations No. (RR) 2-94 define tax credit as the 20
percent discount deductible from gross income for income tax purposes, or from gross
sales for VAT or other percentage tax purposes. In effect, the tax credit benefit under
RA 7432 is related to a sales discount. This contrived definition is improper, considering
that the latter has to be deducted from gross sales in order to compute the gross
income in the income statement and cannot be deducted again, even for purposes of
computing the income tax.
When the law says that the cost of the discount may be claimed as a tax credit, it means
that the amount -- when claimed -- shall be treated as a reduction from any tax liability,
plain and simple. The option to avail of the tax credit benefit depends upon the
existence of a tax liability, but to limit the benefit to a sales discount -- which is not even
identical to the discount privilege that is granted by law -- does not define it at all and
serves no useful purpose. The definition must, therefore, be stricken down.
Laws Not Amended
by Regulations
Second, the law cannot be amended by a mere regulation. In fact, a regulation that
operates to create a rule out of harmony with
the statute is a mere nullity;[62] it cannot prevail.
It is a cardinal rule that courts will and should respect the contemporaneous
construction placed upon a statute by the executive officers whose duty it is to enforce
it x x x.[63] In the scheme of judicial tax administration, the need for certainty and
predictability in the implementation of tax laws is crucial.[64] Our tax authorities fill in
the details that Congress may not have the opportunity or competence to
provide.[65]The regulations these authorities issue are relied upon by taxpayers, who are
certain that these will be followed by the courts.[66] Courts, however, will not uphold
these authorities interpretations when clearly absurd, erroneous or improper.
In the present case, the tax authorities have given the term tax credit in Sections 2.i and
4 of RR 2-94 a meaning utterly in contrast to what RA 7432 provides. Their
interpretation has muddled up the intent of Congress in granting a mere discount
privilege, not a sales discount. The administrative agency issuing these regulations may
not enlarge, alter or restrict the provisions of the law it administers; it cannot engraft
additional requirements not contemplated by the legislature.[67]
In case of conflict, the law must prevail.[68] A regulation adopted pursuant to law is
law.[69] Conversely, a regulation or any portion thereof not adopted pursuant to law is
no law and has neither the force nor the effect of law.[70]
Availment of Tax
Credit Voluntary
Third, the word may in the text of the statute[71] implies that the
availability of the tax credit benefit is neither unrestricted nor mandatory.[72] There is no
absolute right conferred upon respondent, or any similar taxpayer, to avail itself of
the tax credit remedy whenever it chooses; neither does it impose a duty on the part of
the government to sit back and allow an important facet of tax collection to be at the
sole control and discretion of the taxpayer.[73] For the tax authorities to compel
respondent to deduct the 20 percent discount from either its gross income or its gross
sales[74] is, therefore, not only to make an imposition without basis in law, but also to
blatantly contravene the law itself.
What Section 4.a of RA 7432 means is that the tax credit benefit is merely permissive,
not imperative. Respondent is given two options -- either to claim or not to claim the
cost of the discounts as a tax credit. In fact, it may even ignore the credit and simply
consider the gesture as an act of beneficence, an expression of its social conscience.
Granting that there is a tax liability and respondent claims such cost as a tax credit, then
the tax credit can easily be applied. If there is none, the credit cannot be used and will
just have to be carried over and revalidated[75] accordingly. If, however, the business
continues to operate at a loss and no other taxes are due, thus compelling it to close
shop, the credit can never be applied and will be lost altogether.
In other words, it is the existence or the lack of a tax liability that determines whether
the cost of the discounts can be used as a tax credit. RA 7432 does not give respondent
the unfettered right to avail itself of the credit whenever it pleases. Neither does it allow
our tax administrators to expand or contract the legislative mandate. The plain meaning
rule or verba legis in statutory construction is thus applicable x x x. Where the words of
a statute are clear, plain and free from ambiguity, it must be given its literal meaning
and applied without attempted interpretation.[76]
Tax Credit Benefit
Deemed Just Compensation
Fourth, Sections 2.i and 4 of RR 2-94 deny the exercise by the State of its power of
eminent domain. Be it stressed that the privilege enjoyed by senior citizens does not
come directly from the State, but rather from the private establishments concerned.
Accordingly, the tax credit benefit granted to these establishments can be deemed as
their just compensation for private property taken by the State for public use.[77]
The concept of public use is no longer confined to the traditional notion of use by the
public, but held synonymous with public interest, public benefit, public welfare,
and public convenience.[78] The discount privilege to which our senior citizens are
entitled is actually a benefit enjoyed by the general public to which these citizens
belong. The discounts given would have entered the coffers and formed part of
the gross sales of the private establishments concerned, were it not for RA 7432. The
permanent reduction in their total revenues is a forced subsidy corresponding to the
taking of private property for public use or benefit.
As a result of the 20 percent discount imposed by RA 7432, respondent becomes
entitled to a just compensation. This term refers not only to the issuance of a tax
credit certificate indicating the correct amount of the discounts given, but also to the
promptness in its release. Equivalent to the payment of property taken by the State,
such issuance -- when not done within a reasonable time from the grant of the
discounts -- cannot be considered as just compensation. In effect, respondent is made
to suffer the consequences of being immediately deprived of its revenues while
awaiting actual receipt, through the certificate, of the equivalent amount it needs to
cope with the reduction in its revenues.[79]
Besides, the taxation power can also be used as an implement for the exercise of the
power of eminent domain.[80] Tax measures are but enforced contributions exacted on
pain of penal sanctions[81] and clearly imposed for a public purpose.[82] In recent years,
the power to tax has indeed become a most effective tool to realize social justice, public
welfare, and the equitable distribution of wealth.[83]
While it is a declared commitment under Section 1 of RA 7432, social justice cannot be
invoked to trample on the rights of property owners who under our Constitution and
laws are also entitled to protection. The social justice consecrated in our [C]onstitution
[is] not intended to take away rights from a person and give them to another who is
not entitled thereto.[84] For this reason, a just compensation for income that is taken
away from respondent becomes necessary. It is in the tax credit that our legislators find
support to realize social justice, and no administrative body can alter that fact.
To put it differently, a private establishment that merely breaks even[85] -- without the
discounts yet -- will surely start to incur losses because of such discounts. The same
effect is expected if its mark-up is less than 20 percent, and if all its sales come from
retail purchases by senior citizens. Aside from the observation we have already raised
earlier, it will also be grossly unfair to an establishment if the discounts will be treated
merely as deductions from either its gross income or its gross sales. Operating at a loss
through no fault of its own, it will realize that the tax credit limitation under RR 2-94 is
inutile, if not improper. Worse, profit-generating businesses will be put in a better
position if they avail themselves of tax credits denied those that are losing, because no
taxes are due from the latter.
Grant of Tax Credit
Intended by the Legislature
Fifth, RA 7432 itself seeks to adopt measures whereby senior citizens are assisted by
the community as a whole and to establish a program beneficial to them.[86] These
objectives are consonant with the constitutional policy of making health x x x services
available to all the people at affordable cost[87] and of giving priority for the needs of
the x x x elderly.[88] Sections 2.i and 4 of RR 2-94, however, contradict these
constitutional policies and statutory objectives. SEN. ANGARA. Hindi pa, hindi pa.

Furthermore, Congress has allowed all private establishments a simple tax credit, not a THE CHAIRMAN. (Rep. Unico) Ah, 'di pa ba naisama natin?
deduction. In fact, no cash outlay is required from the government for
the availment or use of such credit. The deliberations on February 5, 1992 of the
Bicameral Conference Committee Meeting on Social Justice, which finalized RA 7432, SEN. ANGARA. Oo. You want to insert that?
disclose the true intent of our legislators to treat the sales discounts as a tax credit,
rather than as a deduction from gross income. We quote from those deliberations as
follows: THE CHAIRMAN (Rep. Unico). Yung ang proposal ni Senator Shahani,
e.

"THE CHAIRMAN (Rep. Unico). By the way, before that ano, about
deductions from taxable income. I think
we incorporated there a provision na - on
the responsibility of the private hospitals
and drugstores, hindi ba?
SEN. ANGARA. In the case of private hospitals they got the grant of
15% discount, provided that, the private
hospitals can claim the expense as a tax
credit.

SEN. ANGARA. Oo. REP. AQUINO. Yah could be allowed as deductions in the
perpetrations of (inaudible) income.

THE CHAIRMAN. (Rep. Unico), So, I think we have to put in also a

provision here about the deductions SEN. ANGARA. I-tax credit na lang natin para walang cash-out ano?
from taxable income of that private
hospitals, di ba ganon 'yan?

REP. AQUINO. Oo, tax credit. Tama, Okay. Hospitals ba o lahat ng

establishments na covered.
MS. ADVENTO. Kaya lang po sir, and mga discounts po nila affecting
government and public institutions, so,
puwede na po nating hindi isama yung
THE CHAIRMAN. (Rep. Unico). Sa kuwan lang yon, as private hospitals
mga less deductions ng taxable income.
lang.

THE CHAIRMAN. (Rep. Unico). Puwede na. Yung about the private
REP. AQUINO. Ano ba yung establishments na covered?
hospitals. Yung isiningit natin?

SEN. ANGARA. Restaurant lodging houses, recreation centers.

MS. ADVENTO. Singit na po ba yung 15% on credit. (inaudible/did
not use the microphone).

REP. AQUINO. All establishments covered siguro?
SEN. ANGARA. From all establishments. Alisin na natin 'Yung kuwan
kung ganon. Can we go back to Section 4
ha?
REP. AQUINO. Oho.
SEN. ANGARA. Letter A. To capture that thought, we'll say the grant
of 20% discount from all establishments
et cetera, et cetera, provided that said
establishments - provided that private
establishments may claim the cost as a
tax credit. Ganon ba 'yon?
REP. AQUINO. Yah.
SEN. ANGARA. Dahil kung government, they don't need to claim it.
THE CHAIRMAN. (Rep. Unico). Tax credit.
SEN. ANGARA. As a tax credit [rather] than a kuwan - deduction,
Okay.
REP. AQUINO Okay.
SEN. ANGARA. Sige Okay. Di subject to style na lang sa Letter A".[89]
Special Law
Over General Law
Sixth and last, RA 7432 is a special law that should prevail over the Tax Code -- a general
law. x x x [T]he rule is that on a specific matter the special law shall prevail over the
general law, which shall
be resorted to only to supply deficiencies in the former.[90] In addition, [w]here there are
two statutes, the earlier special and the later general -- the terms of the general broad
enough to include the matter provided for in the special -- the fact that one is special
and the other is general creates a presumption that the special is to be considered as
remaining an exception to the general,[91] one as a general law of the land, the other as
the law of a particular case.[92] It is a canon of statutory construction that a
later statute, general in its terms and not expressly repealing a prior special statute, will
ordinarily not affect the special provisions of such earlier statute.[93]
RA 7432 is an earlier law not expressly repealed by, and therefore remains an exception
to, the Tax Code -- a later law. When the former states that a tax credit may be claimed,
then the requirement of prior tax payments under certain provisions of the latter, as
discussed above, cannot be made to apply. Neither can the instances of or references
to a tax deduction under the Tax Code[94] be made to restrict RA 7432. No provision of
any revenue regulation can supplant or modify the acts of Congress.
WHEREFORE, the Petition is hereby DENIED. The assailed Decision and Resolution of
the Court of Appeals AFFIRMED. No pronouncement as to costs.
SO ORDERED.
EN BANC Government (DILG) which have been specifically tasked to monitor the
drugstores compliance with the law; promulgate the implementing rules and
CARLOS SUPERDRUG CORP., G.R. No. 166494 regulations for the effective implementation of the law; and prosecute and revoke the
doing business under the name licenses of erring drugstore establishments.
and style Carlos Superdrug, Present:
ELSIE M. CANO, doing business The antecedents are as follows:
under the name and style Advance PUNO, C.J.,
Drug, Dr. SIMPLICIO L. YAP, JR., QUISUMBING,* On February 26, 2004, R.A. No. 9257, amending R.A. No. 7432,[3] was signed
doing business under the name and YNARES-SANTIAGO, into law by President Gloria Macapagal-Arroyo and it became effective on March 21,
style City Pharmacy, MELVIN S. SANDOVAL-GUTIERREZ,** 2004. Section 4(a) of the Act states:
DELA SERNA, doing business under CARPIO,
the name and style Botica dela Serna, AUSTRIA-MARTINEZ, SEC. 4. Privileges for the Senior Citizens. The senior citizens shall be
and LEYTE SERV-WELL CORP., CORONA, entitled to the following:
doing business under the name and CARPIO MORALES,
style Leyte Serv-Well Drugstore, AZCUNA, (a) the grant of twenty percent (20%) discount from all
Petitioners, TINGA, establishments relative to the utilization of services in hotels and
CHICO-NAZARIO, similar lodging establishments, restaurants and recreation centers,
- versus - GARCIA, and purchase of medicines in all establishments for the exclusive use
VELASCO, JR., and or enjoyment of senior citizens, including funeral and burial services
DEPARTMENT OF SOCIAL NACHURA, JJ. for the death of senior citizens;
WELFARE and DEVELOPMENT
(DSWD), DEPARTMENT OF Promulgated: ...
HEALTH (DOH), DEPARTMENT
OF FINANCE (DOF), DEPARTMENT June 29, 2007 The establishment may claim the discounts granted
OF JUSTICE (DOJ), and under (a), (f), (g) and (h) as tax deduction based on the net cost of
DEPARTMENT OF INTERIOR and the goods sold or services rendered: Provided, That the cost of the
LOCAL GOVERNMENT (DILG), discount shall be allowed as deduction from gross income for the
Respondents. same taxable year that the discount is granted. Provided,
x ---------------------------------------------------------------------------------------- x further, That the total amount of the claimed tax deduction net of
value added tax if applicable, shall be included in their gross sales
DECISION receipts for tax purposes and shall be subject to proper
documentation and to the provisions of the National Internal
Revenue Code, as amended.[4]
AZCUNA, J.:
This is a petition[1] for Prohibition with Prayer for Preliminary Injunction
assailing the constitutionality of Section 4(a) of Republic Act (R.A.) No. 9257, [2] otherwise On May 28, 2004, the DSWD approved and adopted the Implementing Rules
known as the Expanded Senior Citizens Act of 2003. and Regulations of R.A. No. 9257, Rule VI, Article 8 of which states:

Petitioners are domestic corporations and proprietors operating drugstores in Article 8. Tax Deduction of Establishments. The
the Philippines. establishment may claim the discounts granted under Rule V, Section
4 Discounts for Establishments;[5] Section 9, Medical and Dental
Public respondents, on the other hand, include the Department of Social Welfare and Services in Private Facilities[,][6] and Sections 10[7] and 11[8] Air, Sea
Development (DSWD), the Department of Health (DOH), the Department of Finance and Land Transportation as tax deduction based on the net cost of
(DOF), the Department of Justice (DOJ), and the Department of Interior and Local the goods sold or services rendered. Provided, That the cost of the
 discount shall be allowed as deduction from gross income for the
same taxable year that the discount is granted; Provided,
further, That the total amount of the claimed tax deduction net of
value added tax if applicable, shall be included in their gross sales
receipts for tax purposes and shall be subject to proper
documentation and to the provisions of the National Internal
Revenue Code, as amended; Provided, finally, that the
implementation of the tax deduction shall be subject to the Revenue
Regulations to be issued by the Bureau of Internal Revenue (BIR) and
approved by the Department of Finance (DOF).[9]
On July 10, 2004, in reference to the query of the Drug Stores Association of
the Philippines (DSAP) concerning the meaning of a tax deduction under the Expanded
Senior Citizens Act, the DOF, through Director IV Ma. Lourdes B. Recente, clarified as
follows:
1) The difference between the Tax Credit (under the Old
Senior Citizens Act) and Tax Deduction (under the Expanded Senior
Citizens Act).
1.1. The provision of Section 4 of R.A. No. 7432 (the
old Senior Citizens Act) grants twenty percent (20%)
discount from all establishments relative to the utilization of
transportation services, hotels and similar lodging
establishment, restaurants and recreation centers and
purchase of medicines anywhere in the country, the costs of
which may be claimed by the private establishments
concerned as tax credit.
Effectively, a tax credit is a peso-for-peso
deduction from a taxpayers tax liability due to the
government of the amount of discounts such establishment
has granted to a senior citizen. The establishment recovers
the full amount of discount given to a senior citizen and
hence, the government shoulders 100% of the discounts
granted.
It must be noted, however, that conceptually, a tax
credit scheme under the Philippine tax system, necessitates
that prior payments of taxes have been made and the
taxpayer is attempting to recover this tax payment from
his/her income tax due. The tax credit scheme under R.A.
No. 7432 is, therefore, inapplicable since no tax payments
have previously occurred.
1.2. The provision under R.A. No. 9257, on
the other hand, provides that the establishment concerned
may claim the discounts under Section 4(a), (f), (g) and (h)
as tax deduction from gross income, based on the net cost
of goods sold or services rendered.
Under this scheme, the establishment concerned is
allowed to deduct from gross income, in computing for its
tax liability, the amount of discounts granted to senior
citizens. Effectively, the government loses in terms of
foregone revenues an amount equivalent to the marginal
tax rate the said establishment is liable to pay the
government. This will be an amount equivalent to 32% of
the twenty percent (20%) discounts so granted. The
establishment shoulders the remaining portion of the
granted discounts.
It may be necessary to note that while the burden
on [the] government is slightly diminished in terms of its
percentage share on the discounts granted to senior
citizens, the number of potential establishments that may
claim tax deductions, have however, been broadened. Aside
from the establishments that may claim tax credits under
the old law, more establishments were added under the new
law such as: establishments providing medical and dental
services, diagnostic and laboratory services, including
professional fees of attending doctors in all private hospitals
and medical facilities, operators of domestic air and sea
transport services, public railways and skyways and bus
transport services.
A simple illustration might help amplify the points
discussed above, as follows:
Tax Deduction Tax
Credit
Gross Sales x x x x x x x x x x x x
Less : Cost of goods sold x x x x x x x x x x
Net Sales x x x x x x x x x x x x
Less: Operating Expenses:
Tax Deduction on Discounts x x x x --
Other deductions: x x x x x x x x
Net Taxable Income x x x x x x x x x x
 Tax Due x x x x x x
Less: Tax Credit -- ______x x
Net Tax Due -- x x
As shown above, under a tax deduction scheme, the tax
deduction on discounts was subtracted from Net Sales together
with other deductions which are considered as operating expenses
before the Tax Due was computed based on the Net Taxable Income.
On the other hand, under a tax credit scheme, the amount of
discounts which is the tax credit item, was deducted directly from
the tax due amount.[10]
Meanwhile, on October 1, 2004, Administrative Order (A.O.) No. 171 or
the Policies and Guidelines to Implement the Relevant Provisions of Republic Act 9257,
otherwise known as the Expanded Senior Citizens Act of 2003[11]was issued by the DOH,
providing the grant of twenty percent (20%) discount in the purchase of unbranded
generic medicines from all establishments dispensing medicines for the exclusive use
of the senior citizens.
On November 12, 2004, the DOH issued Administrative Order No 177[12] amending A.O.
No. 171. Under A.O. No. 177, the twenty percent discount shall not be limited to the
purchase of unbranded generic medicines only, but shall extend to both prescription
and non-prescription medicines whether branded or generic. Thus, it stated that [t]he
grant of twenty percent (20%) discount shall be provided in the purchase of medicines
from all establishments dispensing medicines for the exclusive use of the senior citizens.
Petitioners assail the constitutionality of Section 4(a) of the Expanded Senior Citizens
Act based on the following grounds:[13]
1) The law is confiscatory because it infringes Art. III, Sec.
9 of the Constitution which provides that private property
shall not be taken for public use without just compensation;
2) It violates the equal protection clause (Art. III, Sec. 1)
enshrined in our Constitution which states that no person
shall be deprived of life, liberty or property without due
process of law, nor shall any person be denied of the equal
protection of the laws; and
3) The 20% discount on medicines violates the
constitutional guarantee in Article XIII, Section 11 that
makes essential goods, health and other social services
available to all people at affordable cost.[14]
Petitioners assert that Section 4(a) of the law is unconstitutional because it constitutes
deprivation of private property. Compelling drugstore owners and establishments to
grant the discount will result in a loss of profit
and capital because 1) drugstores impose a mark-up of only 5% to 10% on branded
medicines; and 2) the law failed to provide a scheme whereby drugstores will be justly
compensated for the discount.
Examining petitioners arguments, it is apparent that what petitioners are
ultimately questioning is the validity of the tax deduction scheme as a reimbursement
mechanism for the twenty percent (20%) discount that they extend to senior citizens.
Based on the afore-stated DOF Opinion, the tax deduction scheme does not
fully reimburse petitioners for the discount privilege accorded to senior citizens. This is
because the discount is treated as a deduction, a tax-deductible expense that is
subtracted from the gross income and results in a lower taxable income. Stated
otherwise, it is an amount that is allowed by law[15] to reduce the income prior to the
application of the tax rate to compute the amount of tax which is due.[16] Being a tax
deduction, the discount does not reduce taxes owed on a peso for peso basis but
merely offers a fractional reduction in taxes owed.
Theoretically, the treatment of the discount as a deduction reduces the net
income of the private establishments concerned. The discounts given would have
entered the coffers and formed part of the gross sales of the private establishments,
were it not for R.A. No. 9257.
The permanent reduction in their total revenues is a forced subsidy
corresponding to the taking of private property for public use or benefit.[17] This
constitutes compensable taking for which petitioners would ordinarily become entitled
to a just compensation.
Just compensation is defined as the full and fair equivalent of the property
taken from its owner by the expropriator. The measure is not the takers gain but the
owners loss. The word just is used to intensify the meaning of the word compensation,
and to convey the idea that the equivalent to be rendered for the property to be taken
shall be real, substantial, full and ample.[18]
A tax deduction does not offer full reimbursement of the senior citizen
discount. As such, it would not meet the definition of just compensation.[19]
Having said that, this raises the question of whether the State, in promoting
the health and welfare of a special group of citizens, can impose upon private
establishments the burden of partly subsidizing a government program.
 The Court believes so.
The Senior Citizens Act was enacted primarily to maximize the contribution of
senior citizens to nation-building, and to grant benefits and privileges to them for their
improvement and well-being as the State considers them an integral part of our
society.[20]
The priority given to senior citizens finds its basis in the Constitution as set
forth in the law itself. Thus, the Act provides:
SEC. 2. Republic Act No. 7432 is hereby amended to read as
follows:
SECTION 1. Declaration of Policies and Objectives. Pursuant
to Article XV, Section 4 of the Constitution, it is the duty of the family
to take care of its elderly members while the State may design
programs of social security for them. In addition to this, Section 10 in
the Declaration of Principles and State Policies provides: The State
shall provide social justice in all phases of national development.
Further, Article XIII, Section 11, provides: The State shall adopt an
integrated and comprehensive approach to health development
which shall endeavor to make essential goods, health and other
social services available to all the people at affordable cost. There
shall be priority for the needs of the underprivileged sick, elderly,
disabled, women and children. Consonant with these constitutional
principles the following are the declared policies of this Act:
...
(f) To recognize the important role of the private sector
in the improvement of the welfare of senior citizens and to
actively seek their partnership.[21]
To implement the above policy, the law grants a twenty percent discount to senior
citizens for medical and dental services, and diagnostic and laboratory fees; admission
fees charged by theaters, concert halls, circuses, carnivals, and other similar places of
culture, leisure and amusement; fares for domestic land, air and sea travel; utilization of
services in hotels and similar lodging establishments, restaurants and recreation
centers; and purchases of medicines for the exclusive use or enjoyment of senior
citizens. As a form of reimbursement, the law provides that business establishments
extending the twenty percent discount to senior citizens may claim the discount as a
tax deduction.
The law is a legitimate exercise of police power which, similar to the power of eminent
domain, has general welfare for its object. Police power is not capable of an exact
definition, but has been purposely veiled in general terms to underscore its
comprehensiveness to meet all exigencies and provide enough room for an efficient
and flexible response to conditions and circumstances, thus assuring the greatest
benefits. [22] Accordingly, it has been described as the most essential, insistent and the
least limitable of powers, extending as it does to all the great public needs.[23] It is [t]he
power vested in the legislature by the constitution to make, ordain, and establish all
manner of wholesome and reasonable laws, statutes, and ordinances, either with
penalties or without, not repugnant to the constitution, as they shall judge to be for the
good and welfare of the commonwealth, and of the subjects of the same.[24]
For this reason, when the conditions so demand as determined by the
legislature, property rights must bow to the primacy of police power because property
rights, though sheltered by due process, must yield to general welfare.[25]
Police power as an attribute to promote the common good would be diluted
considerably if on the mere plea of petitioners that they will suffer loss of earnings and
capital, the questioned provision is invalidated. Moreover, in the absence of evidence
demonstrating the alleged confiscatory effect of the provision in question, there is no
basis for its nullification in view of the presumption of validity which every law has in its
favor.[26]
Given these, it is incorrect for petitioners to insist that the grant of the senior
citizen discount is unduly oppressive to their business, because petitioners have not
taken time to calculate correctly and come up with a financial report, so that they have
not been able to show properly whether or not the tax deduction scheme really works
greatly to their disadvantage.[27]
In treating the discount as a tax deduction, petitioners insist that they will incur
losses because, referring to the DOF Opinion, for every P1.00 senior citizen discount
that petitioners would give, P0.68 will be shouldered by them as only P0.32 will be
refunded by the government by way of a tax deduction.
To illustrate this point, petitioner Carlos Super Drug cited the anti-
hypertensive maintenance drug Norvasc as an example. According to the latter, it
acquires Norvasc from the distributors at P37.57 per tablet, and retails it at P39.60 (or
at a margin of 5%). If it grants a 20% discount to senior citizens or an amount equivalent
to P7.92, then it would have to sell Norvasc at P31.68 which translates to a loss from
capital of P5.89 per tablet. Even if the government will allow a tax deduction, only P2.53
per tablet will be refunded and not the full amount of the discount which is P7.92. In
short, only 32% of the 20% discount will be reimbursed to the drugstores.[28]
 Petitioners computation is flawed. For purposes of reimbursement, the law
states that the cost of the discount shall be deducted from gross income,[29] the amount
of income derived from all sources before deducting allowable expenses, which will
result in net income. Here, petitioners tried to show a loss on a per transaction basis,
which should not be the case. An income statement, showing an accounting of
petitioners sales, expenses, and net profit (or loss) for a given period could have
accurately reflected the effect of the discount on their income. Absent any financial
statement, petitioners cannot substantiate their claim that they will be operating at a
loss should they give the discount. In addition, the computation was erroneously based
on the assumption that their customers consisted wholly of senior citizens. Lastly, the
32% tax rate is to be imposed on income, not on the amount of the discount.

Furthermore, it is unfair for petitioners to criticize the law because they cannot
raise the prices of their medicines given the cutthroat nature of the players in the
industry. It is a business decision on the part of petitioners to peg the mark-up at 5%.
Selling the medicines below acquisition cost, as alleged by petitioners, is merely a result
of this decision. Inasmuch as pricing is a property right, petitioners cannot reproach the
law for being oppressive, simply because they cannot afford to raise their prices for fear
of losing their customers to competition.

The Court is not oblivious of the retail side of the pharmaceutical industry and
the competitive pricing component of the business. While the Constitution protects
property rights, petitioners must accept the realities of business and the State, in the
exercise of police power, can intervene in the operations of a business which may result
in an impairment of property rights in the process.

Moreover, the right to property has a social dimension. While Article XIII of the
Constitution provides the precept for the protection of property, various laws and
jurisprudence, particularly on agrarian reform and the regulation of contracts and public
utilities, continuously serve as a reminder that the right to property can be relinquished
upon the command of the State for the promotion of public good.[30]

Undeniably, the success of the senior citizens program rests largely on the
support imparted by petitioners and the other private establishments concerned. This
being the case, the means employed in invoking the active participation of the private
sector, in order to achieve the purpose or objective of the law, is reasonably and directly
related. Without sufficient proof that Section 4(a) of R.A. No. 9257 is arbitrary, and that
the continued implementation of the same would be unconscionably detrimental to
petitioners, the Court will refrain from quashing a legislative act.[31]
WHEREFORE, the petition is DISMISSED for lack of merit.

No costs.

SO ORDERED.