G.R. No.

L-29059 December 15, 1987

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
CEBU PORTLAND CEMENT COMPANY and COURT OF TAX APPEALS, respondents.

CRUZ, J.:

By virtue of a decision of the Court of Tax Appeals rendered on June 21, 1961, as modified on
appeal by the Supreme Court on February 27, 1965, the Commissioner of Internal Revenue
was ordered to refund to the Cebu Portland Cement Company the amount of P 359,408.98,
representing overpayments of ad valorem taxes on cement produced and sold by it after
October 1957. 1

On March 28, 1968, following denial of motions for reconsideration filed by both the petitioner
and the private respondent, the latter moved for a writ of execution to enforce the said judgment
.2

The motion was opposed by the petitioner on the ground that the private respondent had an
outstanding sales tax liability to which the judgment debt had already been credited. In fact, it
was stressed, there was still a balance owing on the sales taxes in the amount of P
4,789,279.85 plus 28% surcharge. 3

On April 22, 1968, the Court of Tax Appeals * granted the motion, holding that the alleged sales
tax liability of the private respondent was still being questioned and therefore could not be set-
off against the refund. 4

In his petition to review the said resolution, the Commissioner of Internal Revenue claims that
the refund should be charged against the tax deficiency of the private respondent on the sales
of cement under Section 186 of the Tax Code. His position is that cement is a manufactured
and not a mineral product and therefore not exempt from sales taxes. He adds that enforcement
of the said tax deficiency was properly effected through his power of distraint of personal
property under Sections 316 and 318 5 of the said Code and, moreover, the collection of any
national internal revenue tax may not be enjoined under Section 305, 6 subject only to the
exception prescribed in Rep. Act No. 1125. 7 This is not applicable to the instant case. The
petitioner also denies that the sales tax assessments have already prescribed because the
prescriptive period should be counted from the filing of the sales tax returns, which had not yet
been done by the private respondent.

For its part, the private respondent disclaims liability for the sales taxes, on the ground that
cement is not a manufactured product but a mineral product. 8 As such, it was exempted from
sales taxes under Section 188 of the Tax Code after the effectivity of Rep. Act No. 1299 on
June 16, 1955, in accordance with Cebu Portland Cement Co. v. Collector of Internal Revenue,
9 decided in 1968. Here Justice Eugenio Angeles declared that "before the effectivity of Rep.
Act No. 1299, amending Section 246 of the National Internal Revenue Code, cement was
taxable as a manufactured product under Section 186, in connection with Section 194(4) of the
said Code," thereby implying that it was not considered a manufactured product afterwards.
Also, the alleged sales tax deficiency could not as yet be enforced against it because the tax
assessment was not yet final, the same being still under protest and still to be definitely resolved
on the merits. Besides, the assessment had already prescribed, not having been made within
the reglementary five-year period from the filing of the tax returns. 10

Our ruling is that the sales tax was properly imposed upon the private respondent for the reason
that cement has always been considered a manufactured product and not a mineral product.
This matter was extensively discussed and categorically resolved in Commissioner of Internal
Revenue v. Republic Cement Corporation, 11 decided on August 10, 1983, where Justice Efren
L. Plana, after an exhaustive review of the pertinent cases, declared for a unanimous Court:

From all the foregoing cases, it is clear that cement qua cement was never
considered as a mineral product within the meaning of Section 246 of the Tax
Code, notwithstanding that at least 80% of its components are minerals, for the
simple reason that cement is the product of a manufacturing process and is no
longer the mineral product contemplated in the Tax Code (i.e.; minerals
subjected to simple treatments) for the purpose of imposing the ad valorem tax.

What has apparently encouraged the herein respondents to maintain their

present posture is the case of Cebu Portland Cement Co. v. Collector of Internal
Revenue, L-20563, Oct. 29, 1968 (28 SCRA 789) penned by Justice Eugenio
Angeles. For some portions of that decision give the impression that Republic Act
No. 1299, which amended Section 246, reclassified cement as a mineral product
that was not subject to sales tax. ...

xxx xxx xxx

After a careful study of the foregoing, we conclude that reliance on the decision
penned by Justice Angeles is misplaced. The said decision is no authority for the
proposition that after the enactment of Republic Act No. 1299 in 1955 (defining
mineral product as things with at least 80% mineral content), cement became a
'mineral product," as distinguished from a "manufactured product," and therefore
ceased to be subject to sales tax. It was not necessary for the Court to so rule. It
was enough for the Court to say in effect that even assuming Republic Act No.
1299 had reclassified cement was a mineral product, the reclassification could
not be given retrospective application (so as to justify the refund of sales taxes
paid before Republic Act 1299 was adopted) because laws operate prospectively
only, unless the legislative intent to the contrary is manifest, which was not so in
the case of Republic Act 1266. [The situation would have been different if the
Court instead had ruled in favor of refund, in which case it would have been
absolutely necessary (1) to make an unconditional ruling that Republic Act 1299
re-classified cement as a mineral product (not subject to sales tax), and (2) to
declare the law retroactive, as a basis for granting refund of sales tax paid before
Republic Act 1299.]

In any event, we overrule the CEPOC decision of October 29, 1968 (G.R. No. L-
20563) insofar as its pronouncements or any implication therefrom conflict with
the instant decision.

The above views were reiterated in the resolution 12 denying reconsideration of the said
decision, thus:
 The nature of cement as a "manufactured product" (rather than a "mineral
product") is well-settled. The issue has repeatedly presented itself as a threshold
question for determining the basis for computing the ad valorem mining tax to be
paid by cement Companies. No pronouncement was made in these cases that as
a "manufactured product" cement is subject to sales tax because this was not at
issue.

The decision sought to be reconsidered here referred to the legislative history of

Republic Act No. 1299 which introduced a definition of the terms "mineral" and
"mineral products" in Sec. 246 of the Tax Code. Given the legislative intent, the
holding in the CEPOC case (G.R. No. L-20563) that cement was subject to sales
tax prior to the effectivity •f Republic Act No. 1299 cannot be construed to mean
that, after the law took effect, cement ceased to be so subject to the tax. To
erase any and all misconceptions that may have been spawned by reliance on
the case of Cebu Portland Cement Co. v. Collector of Internal Revenue, L-20563,
October 29, 1968 (28 SCRA 789) penned by Justice Eugenio Angeles, the Court
has expressly overruled it insofar as it may conflict with the decision of August
10, 1983, now subject of these motions for reconsideration.

On the question of prescription, the private respondent claims that the five-year reglementary
period for the assessment of its tax liability started from the time it filed its gross sales returns on
June 30, 1962. Hence, the assessment for sales taxes made on January 16, 1968 and March 4,
1968, were already out of time. We disagree. This contention must fail for what CEPOC filed
was not the sales returns required in Section 183(n) but the ad valorem tax returns required
under Section 245 of the Tax Code. As Justice Irene R. Cortes emphasized in the aforestated
resolution:

In order to avail itself of the benefits of the five-year prescription period under
Section 331 of the Tax Code, the taxpayer should have filed the required return
for the tax involved, that is, a sales tax return. (Butuan Sawmill, Inc. v. CTA, et
al., G.R. No. L-21516, April 29, 1966, 16 SCRA 277). Thus CEPOC should have
filed sales tax returns of its gross sales for the subject periods. Both parties admit
that returns were made for the ad valorem mining tax. CEPOC argues that said
returns contain the information necessary for the assessment of the sales tax.
The Commissioner does not consider such returns as compliance with the
requirement for the filing of tax returns so as to start the running of the five-year
prescriptive period.

We agree with the Commissioner. It has been held in Butuan Sawmill Inc. v.
CTA, supra, that the filing of an income tax return cannot be considered as
substantial compliance with the requirement of filing sales tax returns, in the
same way that an income tax return cannot be considered as a return for
compensating tax for the purpose of computing the period of prescription under
Sec. 331. (Citing Bisaya Land Transportation Co., Inc. v. Collector of Internal
Revenue, G.R. Nos. L-12100 and L-11812, May 29, 1959). There being no sales
tax returns filed by CEPOC, the statute of stations in Sec. 331 did not begin to
run against the government. The assessment made by the Commissioner in
1968 on CEPOC's cement sales during the period from July 1, 1959 to
December 31, 1960 is not barred by the five-year prescriptive period. Absent a
return or when the return is false or fraudulent, the applicable period is ten (10)
 days from the discovery of the fraud, falsity or omission. The question in this
case is: When was CEPOC's omission to file tha return deemed discovered by
the government, so as to start the running of said period? 13

The argument that the assessment cannot as yet be enforced because it is still being contested
loses sight of the urgency of the need to collect taxes as "the lifeblood of the government." If the
payment of taxes could be postponed by simply questioning their validity, the machinery of the
state would grind to a halt and all government functions would be paralyzed. That is the reason
why, save for the exception already noted, the Tax Code provides:

Sec. 291. Injunction not available to restrain collection of tax. — No court shall
have authority to grant an injunction to restrain the collection of any national
internal revenue tax, fee or charge imposed by this Code.

It goes without saying that this injunction is available not only when the assessment is already
being questioned in a court of justice but more so if, as in the instant case, the challenge to the
assessment is still-and only-on the administrative level. There is all the more reason to apply the
rule here because it appears that even after crediting of the refund against the tax deficiency, a
balance of more than P 4 million is still due from the private respondent.

To require the petitioner to actually refund to the private respondent the amount of the judgment
debt, which he will later have the right to distrain for payment of its sales tax liability is in our
view an Idle ritual. We hold that the respondent Court of Tax Appeals erred in ordering such a
charade.

WHEREFORE, the petition is GRANTED. The resolution dated April 22, 1968, in CTA Case No.
786 is SET ASIDE, without any pronouncement as to costs.

SO ORDERED.

G.R. Nos. 89898-99 October 1, 1990

MUNICIPALITY OF MAKATI, petitioner,

vs.
THE HONORABLE COURT OF APPEALS, HON. SALVADOR P. DE GUZMAN, JR., as
Judge RTC of Makati, Branch CXLII ADMIRAL FINANCE CREDITORS CONSORTIUM, INC.,
and SHERIFF SILVINO R. PASTRANA, respondents.

Defante & Elegado for petitioner.

Roberto B. Lugue for private respondent Admiral Finance Creditors' Consortium, Inc.

RESOLUTION

CORTÉS, J.:
The present petition for review is an off-shoot of expropriation proceedings initiated by petitioner
Municipality of Makati against private respondent Admiral Finance Creditors Consortium, Inc.,
Home Building System & Realty Corporation and one Arceli P. Jo, involving a parcel of land and
improvements thereon located at Mayapis St., San Antonio Village, Makati and registered in the
name of Arceli P. Jo under TCT No. S-5499.

It appears that the action for eminent domain was filed on May 20, 1986, docketed as Civil Case
No. 13699. Attached to petitioner's complaint was a certification that a bank account (Account
No. S/A 265-537154-3) had been opened with the PNB Buendia Branch under petitioner's name
containing the sum of P417,510.00, made pursuant to the provisions of Pres. Decree No. 42.
After due hearing where the parties presented their respective appraisal reports regarding the
value of the property, respondent RTC judge rendered a decision on June 4, 1987, fixing the
appraised value of the property at P5,291,666.00, and ordering petitioner to pay this amount
minus the advanced payment of P338,160.00 which was earlier released to private respondent.

After this decision became final and executory, private respondent moved for the issuance of a
writ of execution. This motion was granted by respondent RTC judge. After issuance of the writ
of execution, a Notice of Garnishment dated January 14, 1988 was served by respondent sheriff
Silvino R. Pastrana upon the manager of the PNB Buendia Branch. However, respondent sheriff
was informed that a "hold code" was placed on the account of petitioner. As a result of this,
private respondent filed a motion dated January 27, 1988 praying that an order be issued
directing the bank to deliver to respondent sheriff the amount equivalent to the unpaid balance
due under the RTC decision dated June 4, 1987.

Petitioner filed a motion to lift the garnishment, on the ground that the manner of payment of the
expropriation amount should be done in installments which the respondent RTC judge failed to
state in his decision. Private respondent filed its opposition to the motion.

Pending resolution of the above motions, petitioner filed on July 20, 1988 a "Manifestation"
informing the court that private respondent was no longer the true and lawful owner of the
subject property because a new title over the property had been registered in the name of
Philippine Savings Bank, Inc. (PSB) Respondent RTC judge issued an order requiring PSB to
make available the documents pertaining to its transactions over the subject property, and the
PNB Buendia Branch to reveal the amount in petitioner's account which was garnished by
respondent sheriff. In compliance with this order, PSB filed a manifestation informing the court
that it had consolidated its ownership over the property as mortgagee/purchaser at an
extrajudicial foreclosure sale held on April 20, 1987. After several conferences, PSB and private
respondent entered into a compromise agreement whereby they agreed to divide between
themselves the compensation due from the expropriation proceedings.

Respondent trial judge subsequently issued an order dated September 8, 1988 which: (1)
approved the compromise agreement; (2) ordered PNB Buendia Branch to immediately release
to PSB the sum of P4,953,506.45 which corresponds to the balance of the appraised value of
the subject property under the RTC decision dated June 4, 1987, from the garnished account of
petitioner; and, (3) ordered PSB and private respondent to execute the necessary deed of
conveyance over the subject property in favor of petitioner. Petitioner's motion to lift the
garnishment was denied.

Petitioner filed a motion for reconsideration, which was duly opposed by private respondent. On
the other hand, for failure of the manager of the PNB Buendia Branch to comply with the order
dated September 8, 1988, private respondent filed two succeeding motions to require the bank
manager to show cause why he should not be held in contempt of court. During the hearings
conducted for the above motions, the general manager of the PNB Buendia Branch, a Mr.
Antonio Bautista, informed the court that he was still waiting for proper authorization from the
PNB head office enabling him to make a disbursement for the amount so ordered. For its part,
petitioner contended that its funds at the PNB Buendia Branch could neither be garnished nor
levied upon execution, for to do so would result in the disbursement of public funds without the
proper appropriation required under the law, citing the case of Republic of the Philippines v.
Palacio [G.R. No. L-20322, May 29, 1968, 23 SCRA 899].

Respondent trial judge issued an order dated December 21, 1988 denying petitioner's motion
for reconsideration on the ground that the doctrine enunciated in Republic v. Palacio did not
apply to the case because petitioner's PNB Account No. S/A 265-537154-3 was an account
specifically opened for the expropriation proceedings of the subject property pursuant to Pres.
Decree No. 42. Respondent RTC judge likewise declared Mr. Antonio Bautista guilty of
contempt of court for his inexcusable refusal to obey the order dated September 8, 1988, and
thus ordered his arrest and detention until his compliance with the said order.

Petitioner and the bank manager of PNB Buendia Branch then filed separate petitions for
certiorari with the Court of Appeals, which were eventually consolidated. In a decision
promulgated on June 28, 1989, the Court of Appeals dismissed both petitions for lack of merit,
sustained the jurisdiction of respondent RTC judge over the funds contained in petitioner's PNB
Account No. 265-537154-3, and affirmed his authority to levy on such funds.

Its motion for reconsideration having been denied by the Court of Appeals, petitioner now files
the present petition for review with prayer for preliminary injunction.

On November 20, 1989, the Court resolved to issue a temporary restraining order enjoining
respondent RTC judge, respondent sheriff, and their representatives, from enforcing and/or
carrying out the RTC order dated December 21, 1988 and the writ of garnishment issued
pursuant thereto. Private respondent then filed its comment to the petition, while petitioner filed
its reply.

Petitioner not only reiterates the arguments adduced in its petition before the Court of Appeals,
but also alleges for the first time that it has actually two accounts with the PNB Buendia Branch,
to wit:

xxx xxx xxx

(1) Account No. S/A 265-537154-3 — exclusively for the expropriation of the
subject property, with an outstanding balance of P99,743.94.

(2) Account No. S/A 263-530850-7 — for statutory obligations and other
purposes of the municipal government, with a balance of P170,098,421.72, as of
July 12, 1989.

xxx xxx xxx

[Petition, pp. 6-7; Rollo, pp. 11-12.]

Because the petitioner has belatedly alleged only in this Court the existence of two bank
accounts, it may fairly be asked whether the second account was opened only for the purpose
of undermining the legal basis of the assailed orders of respondent RTC judge and the decision
of the Court of Appeals, and strengthening its reliance on the doctrine that public funds are
exempted from garnishment or execution as enunciated in Republic v. Palacio [supra.] At any
rate, the Court will give petitioner the benefit of the doubt, and proceed to resolve the principal
issues presented based on the factual circumstances thus alleged by petitioner.

Admitting that its PNB Account No. S/A 265-537154-3 was specifically opened for expropriation
proceedings it had initiated over the subject property, petitioner poses no objection to the
garnishment or the levy under execution of the funds deposited therein amounting to
P99,743.94. However, it is petitioner's main contention that inasmuch as the assailed orders of
respondent RTC judge involved the net amount of P4,965,506.45, the funds garnished by
respondent sheriff in excess of P99,743.94, which are public funds earmarked for the municipal
government's other statutory obligations, are exempted from execution without the proper
appropriation required under the law.

There is merit in this contention. The funds deposited in the second PNB Account No. S/A 263-
530850-7 are public funds of the municipal government. In this jurisdiction, well-settled is the
rule that public funds are not subject to levy and execution, unless otherwise provided for by
statute [Republic v. Palacio, supra.; The Commissioner of Public Highways v. San Diego, G.R.
No. L-30098, February 18, 1970, 31 SCRA 616]. More particularly, the properties of a
municipality, whether real or personal, which are necessary for public use cannot be attached
and sold at execution sale to satisfy a money judgment against the municipality. Municipal
revenues derived from taxes, licenses and market fees, and which are intended primarily and
exclusively for the purpose of financing the governmental activities and functions of the
municipality, are exempt from execution [See Viuda De Tan Toco v. The Municipal Council of
Iloilo, 49 Phil. 52 (1926): The Municipality of Paoay, Ilocos Norte v. Manaois, 86 Phil. 629
(1950); Municipality of San Miguel, Bulacan v. Fernandez, G.R. No. 61744, June 25, 1984, 130
SCRA 56]. The foregoing rule finds application in the case at bar. Absent a showing that the
municipal council of Makati has passed an ordinance appropriating from its public funds an
amount corresponding to the balance due under the RTC decision dated June 4, 1987, less the
sum of P99,743.94 deposited in Account No. S/A 265-537154-3, no levy under execution may
be validly effected on the public funds of petitioner deposited in Account No. S/A 263-530850-7.

Nevertheless, this is not to say that private respondent and PSB are left with no legal recourse.
Where a municipality fails or refuses, without justifiable reason, to effect payment of a final
money judgment rendered against it, the claimant may avail of the remedy of mandamus in
order to compel the enactment and approval of the necessary appropriation ordinance, and the
corresponding disbursement of municipal funds therefor [See Viuda De Tan Toco v. The
Municipal Council of Iloilo, supra; Baldivia v. Lota, 107 Phil. 1099 (1960); Yuviengco v.
Gonzales, 108 Phil. 247 (1960)].

In the case at bar, the validity of the RTC decision dated June 4, 1987 is not disputed by
petitioner. No appeal was taken therefrom. For three years now, petitioner has enjoyed
possession and use of the subject property notwithstanding its inexcusable failure to comply
with its legal obligation to pay just compensation. Petitioner has benefited from its possession of
the property since the same has been the site of Makati West High School since the school year
1986-1987. This Court will not condone petitioner's blatant refusal to settle its legal obligation
arising from expropriation proceedings it had in fact initiated. It cannot be over-emphasized that,
within the context of the State's inherent power of eminent domain,

. . . [j]ust compensation means not only the correct determination of the amount
to be paid to the owner of the land but also the payment of the land within a
reasonable time from its taking. Without prompt payment, compensation cannot
be considered "just" for the property owner is made to suffer the consequence of
being immediately deprived of his land while being made to wait for a decade or
more before actually receiving the amount necessary to cope with his loss
[Cosculluela v. The Honorable Court of Appeals, G.R. No. 77765, August 15,
1988, 164 SCRA 393, 400. See also Provincial Government of Sorsogon v. Vda.
de Villaroya, G.R. No. 64037, August 27, 1987, 153 SCRA 291].

The State's power of eminent domain should be exercised within the bounds of fair play and
justice. In the case at bar, considering that valuable property has been taken, the compensation
to be paid fixed and the municipality is in full possession and utilizing the property for public
purpose, for three (3) years, the Court finds that the municipality has had more than reasonable
time to pay full compensation.

WHEREFORE, the Court Resolved to ORDER petitioner Municipality of Makati to immediately

pay Philippine Savings Bank, Inc. and private respondent the amount of P4,953,506.45.
Petitioner is hereby required to submit to this Court a report of its compliance with the foregoing
order within a non-extendible period of SIXTY (60) DAYS from the date of receipt of this
resolution.

The order of respondent RTC judge dated December 21, 1988, which was rendered in Civil
Case No. 13699, is SET ASIDE and the temporary restraining order issued by the Court on
November 20, 1989 is MADE PERMANENT.

SO ORDERED.

G.R. Nos. L-49839-46 April 26, 1991

JOSE B. L. REYES and EDMUNDO A. REYES, petitioners,

vs.
PEDRO ALMANZOR, VICENTE ABAD SANTOS, JOSE ROÑO, in their capacities as
appointed and Acting Members of the CENTRAL BOARD OF ASSESSMENT APPEALS;
TERESITA H. NOBLEJAS, ROMULO M. DEL ROSARIO, RAUL C. FLORES, in their
capacities as appointed and Acting Members of the BOARD OF ASSESSMENT APPEALS
of Manila; and NICOLAS CATIIL in his capacity as City Assessor of Manila, respondents.

Barcelona, Perlas, Joven & Academia Law Offices for petitioners.

PARAS, J.:

This is a petition for review on certiorari to reverse the June 10, 1977 decision of the Central
Board of Assessment Appeals1 in CBAA Cases Nos. 72-79 entitled "J.B.L. Reyes, Edmundo
Reyes, et al. v. Board of Assessment Appeals of Manila and City Assessor of Manila" which
affirmed the March 29, 1976 decision of the Board of Tax Assessment Appeals2 in BTAA Cases
Nos. 614, 614-A-J, 615, 615-A, B, E, "Jose Reyes, et al. v. City Assessor of Manila" and
"Edmundo Reyes and Milagros Reyes v. City Assessor of Manila" upholding the classification
and assessments made by the City Assessor of Manila.

The facts of the case are as follows:

Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners of parcels of land situated
in Tondo and Sta. Cruz Districts, City of Manila, which are leased and entirely occupied as
dwelling sites by tenants. Said tenants were paying monthly rentals not exceeding three
hundred pesos (P300.00) in July, 1971. On July 14, 1971, the National Legislature enacted
Republic Act No. 6359 prohibiting for one year from its effectivity, an increase in monthly rentals
of dwelling units or of lands on which another's dwelling is located, where such rentals do not
exceed three hundred pesos (P300.00) a month but allowing an increase in rent by not more
than 10% thereafter. The said Act also suspended paragraph (1) of Article 1673 of the Civil
Code for two years from its effectivity thereby disallowing the ejectment of lessees upon the
expiration of the usual legal period of lease. On October 12, 1972, Presidential Decree No. 20
amended R.A. No. 6359 by making absolute the prohibition to increase monthly rentals below
P300.00 and by indefinitely suspending the aforementioned provision of the Civil Code,
excepting leases with a definite period. Consequently, the Reyeses, petitioners herein, were
precluded from raising the rentals and from ejecting the tenants. In 1973, respondent City
Assessor of Manila re-classified and reassessed the value of the subject properties based on
the schedule of market values duly reviewed by the Secretary of Finance. The revision, as
expected, entailed an increase in the corresponding tax rates prompting petitioners to file a
Memorandum of Disagreement with the Board of Tax Assessment Appeals. They averred that
the reassessments made were "excessive, unwarranted, inequitable, confiscatory and
unconstitutional" considering that the taxes imposed upon them greatly exceeded the annual
income derived from their properties. They argued that the income approach should have been
used in determining the land values instead of the comparable sales approach which the City
Assessor adopted (Rollo, pp. 9-10-A). The Board of Tax Assessment Appeals, however,
considered the assessments valid, holding thus:

WHEREFORE, and considering that the appellants have failed to submit concrete
evidence which could overcome the presumptive regularity of the classification and
assessments appear to be in accordance with the base schedule of market values and
of the base schedule of building unit values, as approved by the Secretary of Finance,
the cases should be, as they are hereby, upheld.

SO ORDERED. (Decision of the Board of Tax Assessment Appeals, Rollo, p. 22).

The Reyeses appealed to the Central Board of Assessment Appeals.1âwphi1 They submitted,
among others, the summary of the yearly rentals to show the income derived from the
properties. Respondent City Assessor, on the other hand, submitted three (3) deeds of sale
showing the different market values of the real property situated in the same vicinity where the
subject properties of petitioners are located. To better appreciate the locational and physical
features of the land, the Board of Hearing Commissioners conducted an ocular inspection with
the presence of two representatives of the City Assessor prior to the healing of the case. Neither
the owners nor their authorized representatives were present during the said ocular inspection
despite proper notices served them. It was found that certain parcels of land were below street
level and were affected by the tides (Rollo, pp. 24-25).

On June 10, 1977, the Central Board of Assessment Appeals rendered its decision, the
dispositive portion of which reads:

WHEREFORE, the appealed decision insofar as the valuation and assessment of the
lots covered by Tax Declaration Nos. (5835) PD-5847, (5839), (5831) PD-5844 and PD-
3824 is affirmed.

For the lots covered by Tax Declaration Nos. (1430) PD-1432, PD-1509, 146 and (1)
PD-266, the appealed Decision is modified by allowing a 20% reduction in their
respective market values and applying therein the assessment level of 30% to arrive at
the corresponding assessed value.

SO ORDERED. (Decision of the Central Board of Assessment Appeals, Rollo, p. 27)

Petitioner's subsequent motion for reconsideration was denied, hence, this petition.

The Reyeses assigned the following error:

THE HONORABLE BOARD ERRED IN ADOPTING THE "COMPARABLE SALES

APPROACH" METHOD IN FIXING THE ASSESSED VALUE OF APPELLANTS'
PROPERTIES.

The petition is impressed with merit.

The crux of the controversy is in the method used in tax assessment of the properties in
question. Petitioners maintain that the "Income Approach" method would have been more
realistic for in disregarding the effect of the restrictions imposed by P.D. 20 on the market value
of the properties affected, respondent Assessor of the City of Manila unlawfully and unjustifiably
set increased new assessed values at levels so high and successive that the resulting annual
real estate taxes would admittedly exceed the sum total of the yearly rentals paid or payable by
the dweller tenants under P.D. 20. Hence, petitioners protested against the levels of the values
assigned to their properties as revised and increased on the ground that they were arbitrarily
excessive, unwarranted, inequitable, confiscatory and unconstitutional (Rollo, p. 10-A).

On the other hand, while respondent Board of Tax Assessment Appeals admits in its decision
that the income approach is used in determining land values in some vicinities, it maintains that
when income is affected by some sort of price control, the same is rejected in the consideration
and study of land values as in the case of properties affected by the Rent Control Law for they
do not project the true market value in the open market (Rollo, p. 21). Thus, respondents opted
instead for the "Comparable Sales Approach" on the ground that the value estimate of the
properties predicated upon prices paid in actual, market transactions would be a uniform and a
more credible standards to use especially in case of mass appraisal of properties (Ibid.).
Otherwise stated, public respondents would have this Court completely ignore the effects of the
restrictions of P.D. No. 20 on the market value of properties within its coverage. In any event, it
is unquestionable that both the "Comparable Sales Approach" and the "Income Approach" are
generally acceptable methods of appraisal for taxation purposes (The Law on Transfer and
Business Taxation by Hector S. De Leon, 1988 Edition). However, it is conceded that the
propriety of one as against the other would of course depend on several factors. Hence, as
early as 1923 in the case of Army & Navy Club, Manila v. Wenceslao Trinidad, G.R. No. 19297
(44 Phil. 383), it has been stressed that the assessors, in finding the value of the property, have
to consider all the circumstances and elements of value and must exercise a prudent discretion
in reaching conclusions.

Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the rule of taxation must not
only be uniform, but must also be equitable and progressive.

Uniformity has been defined as that principle by which all taxable articles or kinds of property of
the same class shall be taxed at the same rate (Churchill v. Concepcion, 34 Phil. 969 [1916]).

Notably in the 1935 Constitution, there was no mention of the equitable or progressive aspects
of taxation required in the 1973 Charter (Fernando "The Constitution of the Philippines", p. 221,
Second Edition). Thus, the need to examine closely and determine the specific mandate of the
Constitution.

Taxation is said to be equitable when its burden falls on those better able to pay. Taxation is
progressive when its rate goes up depending on the resources of the person affected (Ibid.).

The power to tax "is an attribute of sovereignty". In fact, it is the strongest of all the powers of
government. But for all its plenitude the power to tax is not unconfined as there are restrictions.
Adversely effecting as it does property rights, both the due process and equal protection
clauses of the Constitution may properly be invoked to invalidate in appropriate cases a revenue
measure. If it were otherwise, there would be truth to the 1903 dictum of Chief Justice Marshall
that "the power to tax involves the power to destroy." The web or unreality spun from Marshall's
famous dictum was brushed away by one stroke of Mr. Justice Holmes pen, thus: "The power to
tax is not the power to destroy while this Court sits. So it is in the Philippines " (Sison, Jr. v.
Ancheta, 130 SCRA 655 [1984]; Obillos, Jr. v. Commissioner of Internal Revenue, 139 SCRA
439 [1985]).

In the same vein, the due process clause may be invoked where a taxing statute is so arbitrary
that it finds no support in the Constitution. An obvious example is where it can be shown to
amount to confiscation of property. That would be a clear abuse of power (Sison v. Ancheta,
supra).

The taxing power has the authority to make a reasonable and natural classification for purposes
of taxation but the government's act must not be prompted by a spirit of hostility, or at the very
least discrimination that finds no support in reason. It suffices then that the laws operate equally
and uniformly on all persons under similar circumstances or that all persons must be treated in
the same manner, the conditions not being different both in the privileges conferred and the
liabilities imposed (Ibid., p. 662).

Finally under the Real Property Tax Code (P.D. 464 as amended), it is declared that the first
Fundamental Principle to guide the appraisal and assessment of real property for taxation
purposes is that the property must be "appraised at its current and fair market value."

By no strength of the imagination can the market value of properties covered by P.D. No. 20 be
equated with the market value of properties not so covered. The former has naturally a much
lesser market value in view of the rental restrictions.
Ironically, in the case at bar, not even the factors determinant of the assessed value of subject
properties under the "comparable sales approach" were presented by the public respondents,
namely: (1) that the sale must represent a bonafide arm's length transaction between a willing
seller and a willing buyer and (2) the property must be comparable property (Rollo, p. 27).
Nothing can justify or support their view as it is of judicial notice that for properties covered by
P.D. 20 especially during the time in question, there were hardly any willing buyers. As a
general rule, there were no takers so that there can be no reasonable basis for the conclusion
that these properties were comparable with other residential properties not burdened by P.D.
20. Neither can the given circumstances be nonchalantly dismissed by public respondents as
imposed under distressed conditions clearly implying that the same were merely temporary in
character. At this point in time, the falsity of such premises cannot be more convincingly
demonstrated by the fact that the law has existed for around twenty (20) years with no end to it
in sight.

Verily, taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance. However, such collection should be made in accordance with law as
any arbitrariness will negate the very reason for government itself It is therefore necessary to
reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real
purpose of taxations, which is the promotion of the common good, may be achieved
(Commissioner of Internal Revenue v. Algue Inc., et al., 158 SCRA 9 [1988]). Consequently, it
stands to reason that petitioners who are burdened by the government by its Rental Freezing
Laws (then R.A. No. 6359 and P.D. 20) under the principle of social justice should not now be
penalized by the same government by the imposition of excessive taxes petitioners can ill afford
and eventually result in the forfeiture of their properties.

By the public respondents' own computation the assessment by income approach would
amount to only P10.00 per sq. meter at the time in question.

PREMISES CONSIDERED, (a) the petition is GRANTED; (b) the assailed decisions of public
respondents are REVERSED and SET ASIDE; and (e) the respondent Board of Assessment
Appeals of Manila and the City Assessor of Manila are ordered to make a new assessment by
the income approach method to guarantee a fairer and more realistic basis of computation
(Rollo, p. 71).

SO ORDERED.

G.R. No. 78780 July 23, 1987

DAVID G. NITAFAN, WENCESLAO M. POLO, and MAXIMO A. SAVELLANO, JR.,

petitioners,
vs.
COMMISSIONER OF INTERNAL REVENUE and THE FINANCIAL OFFICER, SUPREME
COURT OF THE PHILIPPINES, respondents.

RESOLUTION

MELENCIO-HERRERA, J.:

Petitioners, the duly appointed and qualified Judges presiding over Branches 52, 19 and 53,
respectively, of the Regional Trial Court, National Capital Judicial Region, all with stations in
Manila, seek to prohibit and/or perpetually enjoin respondents, the Commissioner of Internal
Revenue and the Financial Officer of the Supreme Court, from making any deduction of
withholding taxes from their salaries.

In a nutshell, they submit that "any tax withheld from their emoluments or compensation as
judicial officers constitutes a decrease or diminution of their salaries, contrary to the provision of
Section 10, Article VIII of the 1987 Constitution mandating that "(d)uring their continuance in
office, their salary shall not be decreased," even as it is anathema to the Ideal of an
independent judiciary envisioned in and by said Constitution."

It may be pointed out that, early on, the Court had dealt with the matter administratively in
response to representations that the Court direct its Finance Officer to discontinue the
withholding of taxes from salaries of members of the Bench. Thus, on June 4, 1987, the Court
en banc had reaffirmed the Chief Justice's directive as follows:

RE: Question of exemption from income taxation. — The Court REAFFIRMED the Chief
Justice's previous and standing directive to the Fiscal Management and Budget Office of
this Court to continue with the deduction of the withholding taxes from the salaries of the
Justices of the Supreme Court as well as from the salaries of all other members of the
judiciary.

That should have resolved the question. However, with the filing of this petition, the Court has
deemed it best to settle the legal issue raised through this judicial pronouncement. As will be
shown hereinafter, the clear intent of the Constitutional Commission was to delete the proposed
express grant of exemption from payment of income tax to members of the Judiciary, so as to
"give substance to equality among the three branches of Government" in the words of
Commissioner Rigos. In the course of the deliberations, it was further expressly made clear,
specially with regard to Commissioner Joaquin F. Bernas' accepted amendment to the
amendment of Commissioner Rigos, that the salaries of members of the Judiciary would be
subject to the general income tax applied to all taxpayers.

This intent was somehow and inadvertently not clearly set forth in the final text of the
Constitution as approved and ratified in February, 1987 (infra, pp. 7-8). Although the intent may
have been obscured by the failure to include in the General Provisions a proscription against
exemption of any public officer or employee, including constitutional officers, from payment of
income tax, the Court since then has authorized the continuation of the deduction of the
withholding tax from the salaries of the members of the Supreme Court, as well as from the
salaries of all other members of the Judiciary. The Court hereby makes of record that it had then
discarded the ruling in Perfecto vs. Meer and Endencia vs. David, infra, that declared the
salaries of members of the Judiciary exempt from payment of the income tax and considered
such payment as a diminution of their salaries during their continuance in office. The Court
hereby reiterates that the salaries of Justices and Judges are properly subject to a general
income tax law applicable to all income earners and that the payment of such income tax by
Justices and Judges does not fall within the constitutional protection against decrease of their
salaries during their continuance in office.

A comparison of the Constitutional provisions involved is called for. The 1935 Constitution
provided:
 ... (The members of the Supreme Court and all judges of inferior courts) shall receive
such compensation as may be fixed by law, which shall not be diminished during their
continuance in office ... 1 (Emphasis supplied).

Under the 1973 Constitution, the same provision read:

The salary of the Chief Justice and of the Associate Justices of the Supreme court, and
of judges of inferior courts shall be fixed by law, which shall not be decreased during
their continuance in office. ... 2 (Emphasis ours).

And in respect of income tax exemption, another provision in the same 1973 Constitution
specifically stipulated:

No salary or any form of emolument of any public officer or employee, including

constitutional officers, shall be exempt from payment of income tax. 3

The provision in the 1987 Constitution, which petitioners rely on, reads:

The salary of the Chief Justice and of the Associate Justices of the Supreme Court, and
of judges of lower courts shall be fixed by law. During their continuance in office, their
salary shall not be decreased. 4 (Emphasis supplied).

The 1987 Constitution does not contain a provision similar to Section 6, Article XV of the 1973
Constitution, for which reason, petitioners claim that the intent of the framers is to revert to the
original concept of "non-diminution "of salaries of judicial officers.

The deliberations of the 1986 Constitutional Commission relevant to Section 10, Article VIII,
negate such contention.

The draft proposal of Section 10, Article VIII, of the 1987 Constitution read:

Section 13. The salary of the Chief Justice and the Associate Justices of the Supreme
Court and of judges of the lower courts shall be fixed by law. During their continuance in
office, their salary shall not be diminished nor subjected to income tax. Until the National
Assembly shall provide otherwise, the Chief Justice shall receive an annual salary of
_____________ and each Associate Justice ______________ pesos. 5 (Emphasis
ours)

During the debates on the draft Article (Committee Report No. 18), two Commissioners
presented their objections to the provision on tax exemption, thus:

MS. AQUINO. Finally, on the matter of exemption from tax of the salary of justices, does
this not violate the principle of the uniformity of taxation and the principle of equal
protection of the law? After all, tax is levied not on the salary but on the combined
income, such that when the judge receives a salary and it is comingled with the other
income, we tax the income, not the salary. Why do we have to give special privileges to
the salary of justices?
 MR. CONCEPCION. It is the independence of the judiciary. We prohibit the increase or
decrease of their salary during their term. This is an indirect way of decreasing their
salary and affecting the independence of the judges.

MS. AQUINO. I appreciate that to be in the nature of a clause to respect tenure, but the
special privilege on taxation might, in effect, be a violation of the principle of uniformity in
taxation and the equal protection clause. 6

xxx xxx xxx

MR. OPLE. x x x

Of course, we share deeply the concern expressed by the sponsor, Commissioner

Roberto Concepcion, for whom we have the highest respect, to surround the Supreme
Court and the judicial system as a whole with the whole armor of defense against the
executive and legislative invasion of their independence. But in so doing, some of the
citizens outside, especially the humble government employees, might say that in trying
to erect a bastion of justice, we might end up with the fortress of privileges, an island of
extra territoriality under the Republic of the Philippines, because a good number of
powers and rights accorded to the Judiciary here may not be enjoyed in the remotest
degree by other employees of the government.

An example is the exception from income tax, which is a kind of economic immunity,
which is, of course, denied to the entire executive department and the legislative. 7

And during the period of amendments on the draft Article, on July 14, 1986, Commissioner Cirilo
A. Rigos proposed that the term "diminished" be changed to "decreased" and that the words
"nor subjected to income tax" be deleted so as to "give substance to equality among the three
branches in the government.

Commissioner Florenz D. Regalado, on behalf of the Committee on the Judiciary, defended the
original draft and referred to the ruling of this Court in Perfecto vs. Meer 8 that "the
independence of the judges is of far greater importance than any revenue that could come from
taxing their salaries." Commissioner Rigos then moved that the matter be put to a vote.
Commissioner Joaquin G. Bernas stood up "in support of an amendment to the amendment with
the request for a modification of the amendment," as follows:

FR. BERNAS. Yes. I am going to propose an amendment to the amendment saying that
it is not enough to drop the phrase "shall not be subjected to income tax," because if that
is all that the Gentleman will do, then he will just fall back on the decision in Perfecto vs.
Meer and in Dencia vs. David [should be Endencia and Jugo vs. David, etc., 93 Phil.
696[ which excludes them from income tax, but rather I would propose that the
statement will read: "During their continuance in office, their salary shall not be
diminished BUT MAY BE SUBJECT TO GENERAL INCOME TAX."IN support of this
position, I would say that the argument seems to be that the justice and judges should
not be subjected to income tax because they already gave up the income from their
practice. That is true also of Cabinet members and all other employees. And I know right
now, for instance, there are many people who have accepted employment in the
government involving a reduction of income and yet are still subject to income tax. So,
 they are not the only citizens whose income is reduced by accepting service in
government.

Commissioner Rigos accepted the proposed amendment to the amendment. Commissioner

Rustico F. de los Reyes, Jr. then moved for a suspension of the session. Upon resumption,
Commissioner Bernas announced:

During the suspension, we came to an understanding with the original proponent,

Commissioner Rigos, that his amendment on page 6,. line 4 would read: "During their
continuance in office, their salary shall not be DECREASED."But this is on the
understanding that there will be a provision in the Constitution similar to Section 6 of
Article XV, the General Provisions of the 1973 Constitution, which says:

No salary or any form of emolument of any public officer or employee, including

constitutional officers, shall be exempt from payment of income tax.

So, we put a period (.) after "DECREASED" on the understanding that the salary of
justices is subject to tax.

When queried about the specific Article in the General Provisions on non-exemption from tax of
salaries of public officers, Commissioner Bernas replied:

FR BERNAS. Yes, I do not know if such an article will be found in the General
Provisions. But at any rate, when we put a period (.) after "DECREASED," it is on the
understanding that the doctrine in Perfecto vs. Meer and Dencia vs. David will not apply
anymore.

The amendment to the original draft, as discussed and understood, was finally approved without
objection.

THE PRESIDING OFFICER (Mr. Bengzon). The understanding, therefore, is that there
will be a provision under the Article on General Provisions. Could Commissioner Rosario
Braid kindly take note that the salaries of officials of the government including
constitutional officers shall not be exempt from income tax? The amendment proposed
herein and accepted by the Committee now reads as follows: "During their continuance
in office, their salary shall not be DECREASED"; and the phrase "nor subjected to
income tax" is deleted.9

The debates, interpellations and opinions expressed regarding the constitutional provision in
question until it was finally approved by the Commission disclosed that the true intent of the
framers of the 1987 Constitution, in adopting it, was to make the salaries of members of the
Judiciary taxable. The ascertainment of that intent is but in keeping with the fundamental
principle of constitutional construction that the intent of the framers of the organic law and of the
people adopting it should be given effect.10 The primary task in constitutional construction is to
ascertain and thereafter assure the realization of the purpose of the framers and of the people in
the adoption of the Constitution.11 it may also be safely assumed that the people in ratifying the
Constitution were guided mainly by the explanation offered by the framers.12 1avvphi1

Besides, construing Section 10, Articles VIII, of the 1987 Constitution, which, for clarity, is again
reproduced hereunder:
 The salary of the Chief Justice and of the Associate Justices of the Supreme Court, and
of judges of lower courts shall be fixed by law. During their continuance in office, their
salary shall not be decreased. (Emphasis supplied).

it is plain that the Constitution authorizes Congress to pass a law fixing another rate of
compensation of Justices and Judges but such rate must be higher than that which they are
receiving at the time of enactment, or if lower, it would be applicable only to those appointed
after its approval. It would be a strained construction to read into the provision an exemption
from taxation in the light of the discussion in the Constitutional Commission.

With the foregoing interpretation, and as stated heretofore, the ruling that "the imposition of
income tax upon the salary of judges is a dimunition thereof, and so violates the Constitution" in
Perfecto vs. Meer,13 as affirmed in Endencia vs. David 14 must be declared discarded. The
framers of the fundamental law, as the alter ego of the people, have expressed in clear and
unmistakable terms the meaning and import of Section 10, Article VIII, of the 1987 Constitution
that they have adopted

Stated otherwise, we accord due respect to the intent of the people, through the discussions
and deliberations of their representatives, in the spirit that all citizens should bear their aliquot
part of the cost of maintaining the government and should share the burden of general income
taxation equitably.

WHEREFORE, the instant petition for Prohibition is hereby dismissed.

A. Claims of Press Freedom, Freedom of Thought

and Religious Freedom

The Philippine Press Institute (PPI), petitioner in G.R. No. 115544, is a nonprofit organization of
newspaper publishers established for the improvement of journalism in the Philippines. On the
other hand, petitioner in G.R. No. 115781, the Philippine Bible Society (PBS), is a nonprofit
organization engaged in the printing and distribution of bibles and other religious articles. Both
petitioners claim violations of their rights under § § 4 and 5 of the Bill of Rights as a result of the
enactment of the VAT Law.

The PPI questions the law insofar as it has withdrawn the exemption previously granted to the
press under § 103 (f) of the NIRC. Although the exemption was subsequently restored by
administrative regulation with respect to the circulation income of newspapers, the PPI presses
its claim because of the possibility that the exemption may still be removed by mere revocation
of the regulation of the Secretary of Finance. On the other hand, the PBS goes so far as to
question the Secretary's power to grant exemption for two reasons: (1) The Secretary of
Finance has no power to grant tax exemption because this is vested in Congress and requires
for its exercise the vote of a majority of all its members 26 and (2) the Secretary's duty is to
execute the law.

§ 103 of the NIRC contains a list of transactions exempted from VAT. Among the transactions
previously granted exemption were:
 (f) Printing, publication, importation or sale of books and any newspaper,
magazine, review, or bulletin which appears at regular intervals with fixed prices
for subscription and sale and which is devoted principally to the publication of
advertisements.

Republic Act No. 7716 amended § 103 by deleting ¶ (f) with the result that print media became
subject to the VAT with respect to all aspects of their operations. Later, however, based on a
memorandum of the Secretary of Justice, respondent Secretary of Finance issued Revenue
Regulations No. 11-94, dated June 27, 1994, exempting the "circulation income of print media
pursuant to § 4 Article III of the 1987 Philippine Constitution guaranteeing against abridgment of
freedom of the press, among others." The exemption of "circulation income" has left income
from advertisements still subject to the VAT.

It is unnecessary to pass upon the contention that the exemption granted is beyond the
authority of the Secretary of Finance to give, in view of PPI's contention that even with the
exemption of the circulation revenue of print media there is still an unconstitutional abridgment
of press freedom because of the imposition of the VAT on the gross receipts of newspapers
from advertisements and on their acquisition of paper, ink and services for publication. Even on
the assumption that no exemption has effectively been granted to print media transactions, we
find no violation of press freedom in these cases.

To be sure, we are not dealing here with a statute that on its face operates in the area of press
freedom. The PPI's claim is simply that, as applied to newspapers, the law abridges press
freedom. Even with due recognition of its high estate and its importance in a democratic society,
however, the press is not immune from general regulation by the State. It has been held:

The publisher of a newspaper has no immunity from the application of general

laws. He has no special privilege to invade the rights and liberties of others. He
must answer for libel. He may be punished for contempt of court. . . . Like others,
he must pay equitable and nondiscriminatory taxes on his business. . . . 27

The PPI does not dispute this point, either.

What it contends is that by withdrawing the exemption previously granted to print media
transactions involving printing, publication, importation or sale of newspapers, Republic Act No.
7716 has singled out the press for discriminatory treatment and that within the class of mass
media the law discriminates against print media by giving broadcast media favored treatment.
We have carefully examined this argument, but we are unable to find a differential treatment of
the press by the law, much less any censorial motivation for its enactment. If the press is now
required to pay a value-added tax on its transactions, it is not because it is being singled out,
much less targeted, for special treatment but only because of the removal of the exemption
previously granted to it by law. The withdrawal of exemption is all that is involved in these
cases. Other transactions, likewise previously granted exemption, have been delisted as part of
the scheme to expand the base and the scope of the VAT system. The law would perhaps be
open to the charge of discriminatory treatment if the only privilege withdrawn had been that
granted to the press. But that is not the case.

The situation in the case at bar is indeed a far cry from those cited by the PPI in support of its
claim that Republic Act No. 7716 subjects the press to discriminatory taxation. In the cases
cited, the discriminatory purpose was clear either from the background of the law or from its
operation. For example, in Grosjean v. American Press Co., 28 the law imposed a license tax
equivalent to 2% of the gross receipts derived from advertisements only on newspapers which
had a circulation of more than 20,000 copies per week. Because the tax was not based on the
volume of advertisement alone but was measured by the extent of its circulation as well, the law
applied only to the thirteen large newspapers in Louisiana, leaving untaxed four papers with
circulation of only slightly less than 20,000 copies a week and 120 weekly newspapers which
were in serious competition with the thirteen newspapers in question. It was well known that the
thirteen newspapers had been critical of Senator Huey Long, and the Long-dominated
legislature of Louisiana respondent by taxing what Long described as the "lying newspapers" by
imposing on them "a tax on lying." The effect of the tax was to curtail both their revenue and
their circulation. As the U.S. Supreme Court noted, the tax was "a deliberate and calculated
device in the guise of a tax to limit the circulation of information to which the public is entitled in
virtue of the constitutional guaranties." 29 The case is a classic illustration of the warning that
the power to tax is the power to destroy.

In the other case 30 invoked by the PPI, the press was also found to have been singled out
because everything was exempt from the "use tax" on ink and paper, except the press.
Minnesota imposed a tax on the sales of goods in that state. To protect the sales tax, it enacted
a complementary tax on the privilege of "using, storing or consuming in that state tangible
personal property" by eliminating the residents' incentive to get goods from outside states where
the sales tax might be lower. The Minnesota Star Tribune was exempted from both taxes from
1967 to 1971. In 1971, however, the state legislature amended the tax scheme by imposing the
"use tax" on the cost of paper and ink used for publication. The law was held to have singled out
the press because (1) there was no reason for imposing the "use tax" since the press was
exempt from the sales tax and (2) the "use tax" was laid on an "intermediate transaction rather
than the ultimate retail sale." Minnesota had a heavy burden of justifying the differential
treatment and it failed to do so. In addition, the U.S. Supreme Court found the law to be
discriminatory because the legislature, by again amending the law so as to exempt the first
$100,000 of paper and ink used, further narrowed the coverage of the tax so that "only a
handful of publishers pay any tax at all and even fewer pay any significant amount of tax." 31
The discriminatory purpose was thus very clear.

More recently, in Arkansas Writers' Project, Inc. v. Ragland, 32 it was held that a law which
taxed general interest magazines but not newspapers and religious, professional, trade and
sports journals was discriminatory because while the tax did not single out the press as a whole,
it targeted a small group within the press. What is more, by differentiating on the basis of
contents (i.e., between general interest and special interests such as religion or sports) the law
became "entirely incompatible with the First Amendment's guarantee of freedom of the press."

These cases come down to this: that unless justified, the differential treatment of the press
creates risks of suppression of expression. In contrast, in the cases at bar, the statute applies to
a wide range of goods and services. The argument that, by imposing the VAT only on print
media whose gross sales exceeds P480,000 but not more than P750,000, the law discriminates
33 is without merit since it has not been shown that as a result the class subject to tax has been
unreasonably narrowed. The fact is that this limitation does not apply to the press along but to
all sales. Nor is impermissible motive shown by the fact that print media and broadcast media
are treated differently. The press is taxed on its transactions involving printing and publication,
which are different from the transactions of broadcast media. There is thus a reasonable basis
for the classification.
The cases canvassed, it must be stressed, eschew any suggestion that "owners of newspapers
are immune from any forms of ordinary taxation." The license tax in the Grosjean case was
declared invalid because it was "one single in kind, with a long history of hostile misuse against
the freedom of the
press." 34 On the other hand, Minneapolis Star acknowledged that "The First Amendment does
not prohibit all regulation of the press [and that] the States and the Federal Government can
subject newspapers to generally applicable economic regulations without creating constitutional
problems." 35

What has been said above also disposes of the allegations of the PBS that the removal of the
exemption of printing, publication or importation of books and religious articles, as well as their
printing and publication, likewise violates freedom of thought and of conscience. For as the U.S.
Supreme Court unanimously held in Jimmy Swaggart Ministries v. Board of Equalization, 36 the
Free Exercise of Religion Clause does not prohibit imposing a generally applicable sales and
use tax on the sale of religious materials by a religious organization.

This brings us to the question whether the registration provision of the law, 37 although of
general applicability, nonetheless is invalid when applied to the press because it lays a prior
restraint on its essential freedom. The case of American Bible Society v. City of Manila 38 is
cited by both the PBS and the PPI in support of their contention that the law imposes
censorship. There, this Court held that an ordinance of the City of Manila, which imposed a
license fee on those engaged in the business of general merchandise, could not be applied to
the appellant's sale of bibles and other religious literature. This Court relied on Murdock v.
Pennsylvania, 39 in which it was held that, as a license fee is fixed in amount and unrelated to
the receipts of the taxpayer, the license fee, when applied to a religious sect, was actually being
imposed as a condition for the exercise of the sect's right under the Constitution. For that
reason, it was held, the license fee "restrains in advance those constitutional liberties of press
and religion and inevitably tends to suppress their exercise." 40

But, in this case, the fee in § 107, although a fixed amount (P1,000), is not imposed for the
exercise of a privilege but only for the purpose of defraying part of the cost of registration. The
registration requirement is a central feature of the VAT system. It is designed to provide a
record of tax credits because any person who is subject to the payment of the VAT pays an
input tax, even as he collects an output tax on sales made or services rendered. The
registration fee is thus a mere administrative fee, one not imposed on the exercise of a privilege,
much less a constitutional right.

For the foregoing reasons, we find the attack on Republic Act No. 7716 on the ground that it
offends the free speech, press and freedom of religion guarantees of the Constitution to be
without merit. For the same reasons, we find the claim of the Philippine Educational Publishers
Association (PEPA) in G.R. No. 115931 that the increase in the price of books and other
educational materials as a result of the VAT would violate the constitutional mandate to the
government to give priority to education, science and technology (Art. II, § 17) to be untenable.

B. Claims of Regressivity, Denial of Due Process,

Equal Protection, and Impairment
of Contracts
There is basis for passing upon claims that on its face the statute violates the guarantees of
freedom of speech, press and religion. The possible "chilling effect" which it may have on the
essential freedom of the mind and conscience and the need to assure that the channels of
communication are open and operating importunately demand the exercise of this Court's
power of review.

There is, however, no justification for passing upon the claims that the law also violates the rule
that taxation must be progressive and that it denies petitioners' right to due process and that
equal protection of the laws. The reason for this different treatment has been cogently stated by
an eminent authority on constitutional law thus: "[W]hen freedom of the mind is imperiled by law,
it is freedom that commands a momentum of respect; when property is imperiled it is the
lawmakers' judgment that commands respect. This dual standard may not precisely reverse the
presumption of constitutionality in civil liberties cases, but obviously it does set up a hierarchy of
values within the due process clause." 41

Indeed, the absence of threat of immediate harm makes the need for judicial intervention less
evident and underscores the essential nature of petitioners' attack on the law on the grounds of
regressivity, denial of due process and equal protection and impairment of contracts as a mere
academic discussion of the merits of the law. For the fact is that there have even been no
notices of assessments issued to petitioners and no determinations at the administrative levels
of their claims so as to illuminate the actual operation of the law and enable us to reach sound
judgment regarding so fundamental questions as those raised in these suits.

Thus, the broad argument against the VAT is that it is regressive and that it violates the
requirement that "The rule of taxation shall be uniform and equitable [and] Congress shall
evolve a progressive system of taxation." 42 Petitioners in G.R. No. 115781 quote from a paper,
entitled "VAT Policy Issues: Structure, Regressivity, Inflation and Exports" by Alan A. Tait of the
International Monetary Fund, that "VAT payment by low-income households will be a higher
proportion of their incomes (and expenditures) than payments by higher-income households.
That is, the VAT will be regressive." Petitioners contend that as a result of the uniform 10%
VAT, the tax on consumption goods of those who are in the higher-income bracket, which
before were taxed at a rate higher than 10%, has been reduced, while basic commodities, which
before were taxed at rates ranging from 3% to 5%, are now taxed at a higher rate.

Just as vigorously as it is asserted that the law is regressive, the opposite claim is pressed by
respondents that in fact it distributes the tax burden to as many goods and services as possible
particularly to those which are within the reach of higher-income groups, even as the law
exempts basic goods and services. It is thus equitable. The goods and properties subject to the
VAT are those used or consumed by higher-income groups. These include real properties held
primarily for sale to customers or held for lease in the ordinary course of business, the right or
privilege to use industrial, commercial or scientific equipment, hotels, restaurants and similar
places, tourist buses, and the like. On the other hand, small business establishments, with
annual gross sales of less than P500,000, are exempted. This, according to respondents,
removes from the coverage of the law some 30,000 business establishments. On the other
hand, an occasional paper 43 of the Center for Research and Communication cities a NEDA
study that the VAT has minimal impact on inflation and income distribution and that while
additional expenditure for the lowest income class is only P301 or 1.49% a year, that for a family
earning P500,000 a year or more is P8,340 or 2.2%.
Lacking empirical data on which to base any conclusion regarding these arguments, any
discussion whether the VAT is regressive in the sense that it will hit the "poor" and middle-
income group in society harder than it will the "rich," as the Cooperative Union of the Philippines
(CUP) claims in G.R. No. 115873, is largely an academic exercise. On the other hand, the
CUP's contention that Congress' withdrawal of exemption of producers cooperatives, marketing
cooperatives, and service cooperatives, while maintaining that granted to electric cooperatives,
not only goes against the constitutional policy to promote cooperatives as instruments of social
justice (Art. XII, § 15) but also denies such cooperatives the equal protection of the law is
actually a policy argument. The legislature is not required to adhere to a policy of "all or none" in
choosing the subject of taxation. 44

Nor is the contention of the Chamber of Real Estate and Builders Association (CREBA),
petitioner in G.R. 115754, that the VAT will reduce the mark up of its members by as much as
85% to 90% any more concrete. It is a mere allegation. On the other hand, the claim of the
Philippine Press Institute, petitioner in G.R. No. 115544, that the VAT will drive some of its
members out of circulation because their profits from advertisements will not be enough to pay
for their tax liability, while purporting to be based on the financial statements of the newspapers
in question, still falls short of the establishment of facts by evidence so necessary for
adjudicating the question whether the tax is oppressive and confiscatory.

Indeed, regressivity is not a negative standard for courts to enforce. What Congress is required
by the Constitution to do is to "evolve a progressive system of taxation." This is a directive to
Congress, just like the directive to it to give priority to the enactment of laws for the
enhancement of human dignity and the reduction of social, economic and political inequalities
(Art. XIII, § 1), or for the promotion of the right to "quality education" (Art. XIV, § 1). These
provisions are put in the Constitution as moral incentives to legislation, not as judicially
enforceable rights.

At all events, our 1988 decision in Kapatiran 45 should have laid to rest the questions now
raised against the VAT. There similar arguments made against the original VAT Law (Executive
Order No. 273) were held to be hypothetical, with no more basis than newspaper articles which
this Court found to be "hearsay and [without] evidentiary value." As Republic Act No. 7716
merely expands the base of the VAT system and its coverage as provided in the original VAT
Law, further debate on the desirability and wisdom of the law should have shifted to Congress.

Only slightly less abstract but nonetheless hypothetical is the contention of CREBA that the
imposition of the VAT on the sales and leases of real estate by virtue of contracts entered into
prior to the effectivity of the law would violate the constitutional provision that "No law impairing
the obligation of contracts shall be passed." It is enough to say that the parties to a contract
cannot, through the exercise of prophetic discernment, fetter the exercise of the taxing power of
the State. For not only are existing laws read into contracts in order to fix obligations as between
parties, but the reservation of essential attributes of sovereign power is also read into contracts
as a basic postulate of the legal order. The policy of protecting contracts against impairment
presupposes the maintenance of a government which retains adequate authority to secure the
peace and good order of society. 46

In truth, the Contract Clause has never been thought as a limitation on the exercise of the
State's power of taxation save only where a tax exemption has been granted for a valid
consideration. 47 Such is not the case of PAL in G.R. No. 115852, and we do not understand it
to make this claim. Rather, its position, as discussed above, is that the removal of its tax
exemption cannot be made by a general, but only by a specific, law.

The substantive issues raised in some of the cases are presented in abstract, hypothetical form
because of the lack of a concrete record. We accept that this Court does not only adjudicate
private cases; that public actions by "non-Hohfeldian" 48 or ideological plaintiffs are now
cognizable provided they meet the standing requirement of the Constitution; that under Art. VIII,
§ 1, ¶ 2 the Court has a "special function" of vindicating constitutional rights. Nonetheless the
feeling cannot be escaped that we do not have before us in these cases a fully developed
factual record that alone can impart to our adjudication the impact of actuality 49 to insure that
decision-making is informed and well grounded. Needless to say, we do not have power to
render advisory opinions or even jurisdiction over petitions for declaratory judgment. In effect we
are being asked to do what the Conference Committee is precisely accused of having done in
these cases — to sit as a third legislative chamber to review legislation.

We are told, however, that the power of judicial review is not so much power as it is duty
imposed on this Court by the Constitution and that we would be remiss in the performance of
that duty if we decline to look behind the barriers set by the principle of separation of powers.
Art. VIII, § 1, ¶ 2 is cited in support of this view:

Judicial power includes the duty of the courts of justice to settle actual
controversies involving rights which are legally demandable and enforceable, and
to determine whether or not there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the Government.

To view the judicial power of review as a duty is nothing new. Chief Justice Marshall said so in
1803, to justify the assertion of this power in Marbury v. Madison:

It is emphatically the province and duty of the judicial department to say what the
law is. Those who apply the rule to particular cases must of necessity expound
and interpret that rule. If two laws conflict with each other, the courts must decide
on the operation of each. 50

Justice Laurel echoed this justification in 1936 in Angara v. Electoral Commission:

And when the judiciary mediates to allocate constitutional boundaries, it does not
assert any superiority over the other departments; it does not in reality nullify or
invalidate an act of the legislature, but only asserts the solemn and sacred
obligation assigned to it by the Constitution to determine conflicting claims of
authority under the Constitution and to establish for the parties in an actual
controversy the rights which that instrument secures and guarantees to them. 51

This conception of the judicial power has been affirmed in several

cases 52 of this Court following Angara.

It does not add anything, therefore, to invoke this "duty" to justify this Court's intervention in
what is essentially a case that at best is not ripe for adjudication. That duty must still be
performed in the context of a concrete case or controversy, as Art. VIII, § 5(2) clearly defines
our jurisdiction in terms of "cases," and nothing but "cases." That the other departments of the
government may have committed a grave abuse of discretion is not an independent ground for
exercising our power. Disregard of the essential limits imposed by the case and controversy
requirement can in the long run only result in undermining our authority as a court of law. For,
as judges, what we are called upon to render is judgment according to law, not according to
what may appear to be the opinion of the day.

_______________________________

In the preceeding pages we have endeavored to discuss, within limits, the validity of Republic
Act No. 7716 in its formal and substantive aspects as this has been raised in the various cases
before us. To sum up, we hold:

(1) That the procedural requirements of the Constitution have been complied with by Congress
in the enactment of the statute;

(2) That judicial inquiry whether the formal requirements for the enactment of statutes — beyond
those prescribed by the Constitution — have been observed is precluded by the principle of
separation of powers;

(3) That the law does not abridge freedom of speech, expression or the press, nor interfere with
the free exercise of religion, nor deny to any of the parties the right to an education; and

(4) That, in view of the absence of a factual foundation of record, claims that the law is
regressive, oppressive and confiscatory and that it violates vested rights protected under the
Contract Clause are prematurely raised and do not justify the grant of prospective relief by writ
of prohibition.

WHEREFORE, the petitions in these cases are DISMISSED.

Bidin, Quiason, and Kapunan, JJ., concur.