1

G.R. No. 204429 February 18, 2014 This is to formally submit to your good office your schedule of payments in
the Municipal Treasury of the Local Government Unit of Malvar, province of
SMART COMMUNICATIONS, INC., Petitioner, Batangas which corresponds to the tower of your company built in the
vs. premises of the municipality, to wit:
MUNICIPALITY OF MALVAR, BATANGAS, Respondent.
TOTAL PROJECT COST: PHP
DECISION 11,000,000.00

CARPIO, J.: For the Year 2001-2003

50% of 1% of the total project cost Php55,000.00

The Case
Add: 45% surcharge 24,750.00
This petition for review1 challenges the 26 June 2012 Decision2 and 13
November 2012 Resolution3 of the Court of Tax. Appeals (CTA) En Banc. Php79,750.00

Multiply by 3 yrs. (2001, 2002, 2003) Php239,250.00

Th e CTA En Banc affirmed the 17 December 2010 Decision4 and 7 April
2011 Resolution5 of the CTA First Division, which in turn affirmed the 2 For the year 2004
December 2008 Decision6 and 21 May 2009 Order7 of the Regional Trial
Court of Tanauan City, Batangas, Branch 6. The trial court declared void the 1% of the total project cost Php110,000.00
assessment imposed by respondent Municipality of Malvar, Batangas against
petitioner Smart Communications, Inc. for its telecommunications tower for 37% surcharge 40,700.00
2001 to July 2003 and directed respondent to assess petitioner only for the ==========
period starting 1 October 2003.
Php150,700.00
The Facts TOTAL Php389,950.00

Petitioner Smart Communications, Inc. (Smart) is a domestic corporation

engaged in the business of providing telecommunications services to the
general public while respondent Municipality of Malvar, Batangas
(Municipality) is a local government unit created by law.
In the course of its business, Smart constructed a telecommunications tower
within the territorial jurisdiction of the Municipality. The construction of the
tower was for the purpose of receiving and transmitting cellular
communications within the covered area.
On 30 July 2003, the Municipality passed Ordinance No. 18, series of 2003,
entitled "An Ordinance Regulating the Establishment of Special Projects."
On 24 August 2004, Smart received from the Permit and Licensing Division
of the Office of the Mayor of the Municipality an assessment letter with a
schedule of payment for the total amount of ₱389,950.00 for Smart’s
telecommunications tower. The letter reads as follows:
Hoping that you will give this matter your preferential attention.8
Due to the alleged arrears in the payment of the assessment, the
Municipality also caused the posting of a closure notice on the
telecommunications tower.
On 9 September 2004, Smart filed a protest, claiming lack of due process in
the issuance of the assessment and closure notice. In the same protest,
Smart challenged the validity of Ordinance No. 18 on which the assessment
was based.
In a letter dated 28 September 2004, the Municipality denied Smart’s protest.
On 17 November 2004, Smart filed with Regional Trial Court of Tanauan
City, Batangas, Branch 6, an "Appeal/Petition" assailing the validity of
Ordinance No. 18. The case was docketed as SP Civil Case No. 04-11-1920.

On 2 December 2008, the trial court rendered a Decision partly granting
Smart’s Appeal/Petition. The trial court confined its resolution of the case to
the validity of the assessment, and did not rule on the legality of Ordinance
No. 18. The trial court held that the assessment covering the period from
2001 to July 2003 was void since Ordinance No. 18 was approved only on 30
July 2003. However, the trial court declared valid the assessment starting 1
October 2003, citing Article 4 of the Civil Code of the Philippines,9 in relation
to the provisions of Ordinance No. 18 and Section 166 of Republic Act No.
7160 or the Local Government Code of 1991 (LGC).10 The dispositive portion
of the trial court’s Decision reads:
WHEREFORE, in light of the foregoing, the Petition is partly GRANTED. The
assessment dated August 24, 2004 against petitioner is hereby declared null
and void insofar as the assessment made from year 2001 to July 2003 and
respondent is hereby prohibited from assessing and collecting, from
petitioner, fees during the said period and the Municipal Government of
Malvar, Batangas is directed to assess Smart Communications, Inc. only for
the period starting October 1, 2003.
No costs.
SO ORDERED.11
The trial court denied the motion for reconsideration in its Order of 21 May
2009.
On 8 July 2009, Smart filed a petition for review with the CTA First Division,
docketed as CTA AC No. 58.
On 17 December 2010, the CTA First Division denied the petition for review.
The dispositive portion of the decision reads:
WHEREFORE, the Petition for Review is hereby DENIED, for lack of merit.
Accordingly, the assailed Decision dated December 2, 2008 and the Order
dated May 21, 2009 of Branch 6 of the Regional Trial Court of Tanauan City,
Batangas in SP. Civil Case No. 04-11-1920 entitled "Smart Communications,
Inc. vs. Municipality of Malvar, Batangas" are AFFIRMED.
SO ORDERED.12
On 7 April 2011, the CTA First Division issued a Resolution denying the
motion for reconsideration.
2
Smart filed a petition for review with the CTA En Banc, which affirmed the
CTA First Division’s decision and resolution. The dispositive portion of the
CTA En Banc’s 26 June 2012 decision reads:
WHEREFORE, premises considered, the present Petition for Review is hereby
DISMISSED for lack of merit.1âwphi1
Accordingly, the assailed Decision dated December 17, 2010 and Resolution
dated April 7, 2011 are hereby AFFIRMED.
SO ORDERED.13
The CTA En Banc denied the motion for reconsideration.
Hence, this petition.
The Ruling of the CTA En Banc
The CTA En Banc dismissed the petition on the ground of lack of jurisdiction.
The CTA En Banc declared that it is a court of special jurisdiction and as
such, it can take cognizance only of such matters as are clearly within its
jurisdiction. Citing Section 7(a), paragraph 3, of Republic Act No. 9282, the
CTA En Banc held that the CTA has exclusive appellate jurisdiction to review
on appeal, decisions, orders or resolutions of the Regional Trial Courts in
local tax cases originally resolved by them in the exercise of their original or
appellate jurisdiction. However, the same provision does not confer on the
CTA jurisdiction to resolve cases where the constitutionality of a law or rule
is challenged.
The Issues
The petition raises the following arguments:
1. The [CTA En Banc Decision and Resolution] should be reversed
and set aside for being contrary to law and jurisprudence considering
that the CTA En Banc should have exercised its jurisdiction and
declared the Ordinance as illegal.
2. The [CTA En Banc Decision and Resolution] should be reversed
and set aside for being contrary to law and jurisprudence considering
that the doctrine of exhaustion of administrative remedies does not
apply in [this case].

3. The [CTA En Banc Decision and Resolution] should be reversed
and set aside for being contrary to law and jurisprudence considering
that the respondent has no authority to impose the so-called "fees"
on the basis of the void ordinance.14
The Ruling of the Court
The Court denies the petition.
On whether the CTA has jurisdiction over the present case
Smart contends that the CTA erred in dismissing the case for lack of
jurisdiction. Smart maintains that the CTA has jurisdiction over the present
case considering the "unique" factual circumstances involved.
The CTA refuses to take cognizance of this case since it challenges the
constitutionality of Ordinance No. 18, which is outside the province of the
CTA.
Jurisdiction is conferred by law. Republic Act No. 1125, as amended by
Republic Act No. 9282, created the Court of Tax Appeals. Section 7,
paragraph (a), sub-paragraph (3)15 of the law vests the CTA with the exclusive
appellate jurisdiction over "decisions, orders or resolutions of the Regional
Trial Courts in local tax cases originally decided or resolved by them in the
exercise of their original or appellate jurisdiction."
The question now is whether the trial court resolved a local tax case in order
to fall within the ambit of the CTA’s appellate jurisdiction This question, in
turn, depends ultimately on whether the fees imposed under Ordinance No.
18 are in fact taxes.
Smart argues that the "fees" in Ordinance No. 18 are actually taxes since
they are not regulatory, but revenue-raising. Citing Philippine Airlines, Inc. v.
Edu,16 Smart contends that the designation of "fees" in Ordinance No. 18 is
not controlling.
The Court finds that the fees imposed under Ordinance No. 18 are not taxes.
Section 5, Article X of the 1987 Constitution provides that "each local
government unit shall have the power to create its own sources of revenues
and to levy taxes, fees, and charges subject to such guidelines and
limitations as the Congress may provide, consistent with the basic policy of
local autonomy. Such taxes, fees, and charges shall accrue exclusively to the
local government."
3
Consistent with this constitutional mandate, the LGC grants the taxing
powers to each local government unit. Specifically, Section 142 of the LGC
grants municipalities the power to levy taxes, fees, and charges not otherwise
levied by provinces. Section 143 of the LGC provides for the scale of taxes on
business that may be imposed by municipalities17 while Section 14718 of the
same law provides for the fees and charges that may be imposed by
municipalities on business and occupation.
The LGC defines the term "charges" as referring to pecuniary liability, as
rents or fees against persons or property, while the term "fee" means "a
charge fixed by law or ordinance for the regulation or inspection of a
business or activity."19
In this case, the Municipality issued Ordinance No. 18, which is entitled "An
Ordinance Regulating the Establishment of Special Projects," to regulate the
"placing, stringing, attaching, installing, repair and construction of all gas
mains, electric, telegraph and telephone wires, conduits, meters and other
apparatus, and provide for the correction, condemnation or removal of the
same when found to be dangerous, defective or otherwise hazardous to the
welfare of the inhabitant[s]."20 It was also envisioned to address the foreseen
"environmental depredation" to be brought about by these "special projects"
to the Municipality.21 Pursuant to these objectives, the Municipality imposed
fees on various structures, which included telecommunications towers.
As clearly stated in its whereas clauses, the primary purpose of Ordinance
No. 18 is to regulate the "placing, stringing, attaching, installing, repair and
construction of all gas mains, electric, telegraph and telephone wires,
conduits, meters and other apparatus" listed therein, which included Smart’s
telecommunications tower. Clearly, the purpose of the assailed Ordinance is
to regulate the enumerated activities particularly related to the construction
and maintenance of various structures. The fees in Ordinance No. 18 are not
impositions on the building or structure itself; rather, they are impositions
on the activity subject of government regulation, such as the installation and
construction of the structures.22
Since the main purpose of Ordinance No. 18 is to regulate certain
construction activities of the identified special projects, which included "cell
sites" or telecommunications towers, the fees imposed in Ordinance No. 18
are primarily regulatory in nature, and not primarily revenue-raising. While
the fees may contribute to the revenues of the Municipality, this effect is
merely incidental. Thus, the fees imposed in Ordinance No. 18 are not taxes.
In Progressive Development Corporation v. Quezon City,23 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,24 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. 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."
Contrary to Smart’s contention, Ordinance No. 18 expressly provides for the
standards which Smart must satisfy prior to the issuance of the specified
permits, clearly indicating that the fees are regulatory in nature.
These requirements are as follows:
SECTION 5. Requirements and Procedures in Securing Preliminary
Development Permit.
The following documents shall be submitted to the SB Secretary in triplicate:
a) zoning clearance
b) Vicinity Map
c) Site Plan
d) Evidence of ownership
e) Certificate true copy of NTC Provisional Authority in case of
Cellsites, telephone or telegraph line, ERB in case of gasoline station,
power plant, and other concerned national agencies
f) Conversion order from DAR is located within agricultural zone.
g) Radiation Protection Evaluation.
4
h) Written consent from subdivision association or the residence of
the area concerned if the special projects is located within the
residential zone.
i) Barangay Council Resolution endorsing the special projects.
SECTION 6. Requirement for Final Development Permit – Upon the expiration
of 180 days and the proponents of special projects shall apply for final
[development permit] and they are require[d] to submit the following:
a) evaluation from the committee where the Vice Mayor refers the
special project
b) Certification that all local fees have been paid.
Considering that the fees in Ordinance No. 18 are not in the nature of local
taxes, and Smart is questioning the constitutionality of the ordinance, the
CTA correctly dismissed the petition for lack of jurisdiction. Likewise, Section
187 of the LGC,25 which outlines the procedure for questioning the
constitutionality of a tax ordinance, is inapplicable, rendering unnecessary
the resolution of the issue on non-exhaustion of administrative remedies.
On whether the imposition of the fees in Ordinance No. 18 is ultra vire Smart
argues that the Municipality exceeded its power to impose taxes and fees as
provided in Book II, Title One, Chapter 2, Article II of the LGC. Smart
maintains that the mayor’s permit fees in Ordinance No. 18 (equivalent to 1%
of the project cost) are not among those expressly enumerated in the LGC.
As discussed, the fees in Ordinance No.18 are not taxes. Logically, the
imposition does not appear in the enumeration of taxes under Section 143 of
the LGC.
Moreover, even if the fees do not appear in Section 143 or any other provision
in the LGC, the Municipality is empowered to impose taxes, fees and charges,
not specifically enumerated in the LGC or taxed under the Tax Code or other
applicable law. Section 186 of the LGC, granting local government units wide
latitude in imposing fees, expressly provides:
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.
Smart further argues that the Municipality is encroaching on the regulatory
powers of the National Telecommunications Commission (NTC). Smart cites
Section 5(g) of Republic Act No. 7925 which provides that the National
Telecommunications Commission (NTC), in the exercise of its regulatory
powers, shall 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. Thus, Smart alleges that the
regulation of telecommunications entities and all aspects of its operations is
specifically lodged by law on the NTC.
To repeat, Ordinance No. 18 aims to regulate the "placing, stringing,
attaching, installing, repair and construction of all gas mains, electric,
telegraph and telephone wires, conduits, meters and other apparatus" within
the Municipality. The fees are not imposed to regulate the administrative,
technical, financial, or marketing operations of telecommunications entities,
such as Smart’s; rather, to regulate the installation and maintenance of
physical structures – Smart’s cell sites or telecommunications tower. The
regulation of the installation and maintenance of such physical structures is
an exercise of the police power of the Municipality. Clearly, the Municipality
does not encroach on NTC’s regulatory powers.
The Court likewise rejects Smart’s contention that the power to fix the fees
for the issuance of development permits and locational clearances is
exercised by the Housing and Land Use Regulatory Board (HLURB). Suffice it
to state that the HLURB itself recognizes the local government units’ power to
collect fees related to land use and development. Significantly, the HLURB
issued locational guidelines governing telecommunications
infrastructure.1âwphi1Guideline No. VI relates to the collection of locational
clearance fees either by the HLURB or the concerned local government unit,
to wit:
VI. Fees
The Housing and Land Use Regulatory Board in the performance of its
functions shall collect the locational clearance fee based on the revised
schedule of fees under the special use project as per Resolution No. 622,
series of 1998 or by the concerned LGUs subject to EO 72.26
On whether Ordinance No. 18 is valid and constitutional
Smart contends that Ordinance No. 18 violates Sections 130(b)(3)27 and 186
of the LGC since the fees are unjust, excessive, oppressive and confiscatory.
Aside from this bare allegation, Smart did not present any evidence
5
substantiating its claims. In Victorias Milling Co., Inc. v. Municipality of
Victorias,28 the Court rejected the argument that the fees imposed by
respondent therein are excessive for lack of evidence supporting such claim,
to wit:
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.
Plaintiff, has however not sufficiently proven that, taking these factors
together, the license taxes are unreasonable. The presumption of validity
subsists. For, plaintiff has limited itself to insisting that the amounts levied
exceed the cost of regulation and the municipality has adequate funds for the
alleged purposes as evidenced by the municipality’s cash surplus for the
fiscal year ending 1956.
On the constitutionality issue, Smart merely pleaded for the declaration of
unconstitutionality of Ordinance No. 18 in the Prayer of the Petition, without
any argument or evidence to support its plea. Nowhere in the body of the
Petition was this issue specifically raised and discussed. Significantly, Smart
failed to cite any constitutional provision allegedly violated by respondent
when it issued Ordinance No. 18.
Settled is the rule that every law, in this case an ordinance, is presumed
valid. To strike down a law as unconstitutional, Smart has the burden to
prove a clear and unequivocal breach of the Constitution, which Smart
miserably failed to do. In Lawyers Against Monopoly and Poverty (LAMP) v.
Secretary of Budget and Management,29 the Court held, thus:
To justify the nullification of the law or its implementation, there must be a
clear and unequivocal, not a doubtful, breach of the Constitution. In case of
doubt in the sufficiency of proof establishing unconstitutionality, the Court
must sustain legislation because "to invalidate [a law] based on xx x baseless
supposition is an affront to the wisdom not only of the legislature that passed
it but also of the executive which approved it." This presumption of
constitutionality can be overcome only by the clearest showing that there was
indeed an infraction of the Constitution, and only when such a conclusion is
reached by the required majority may the Court pronounce, in the discharge
of the duty it cannot escape, that the challenged act must be struck down.
WHEREFORE, the Court DENIES the petition.

SO ORDERED.
G.R. No. 194561, September 14, 2016
DRUGSTORES ASSOCIATION OF THE PHILIPPINES, INC. AND
NORTHERN LUZON DRUG CORPORATION, Petitioners, v. NATIONAL
COUNCIL ON DISABILITY AFFAIRS; DEPARTMENT OF HEALTH;
DEPARTMENT OF FINANCE; BUREAU OF INTERNAL REVENUE;
DEPARTMENT OF THE INTERIOR AND LOCAL GOVERNMENT; AND
DEPARTMENT OF SOCIAL WELFARE AND DEVELOPMENT, Respondent.
DECISION
PERALTA, J.:
Before us is a Petition for Review on Certiorari1 with a Prayer for a Temporary
Restraining Order and/or Writ of Preliminary Injunction which seeks to
annul and set aside the Decision2 dated July 26, 2010, and the
Resolution3 dated November 19, 2010 of the Court of Appeals (CA) in CA-G.R.
SP No. 109903. The CA dismissed petitioners' Petition for Prohibition4 and
upheld the constitutionality of the mandatory twenty percent (20%) discount
on the purchase of medicine by persons with disability (PWD).
The antecedents are as follows:
chanRoblesvirtualLawlibraryOn March 24, 1992, Republic Act (R.A.) No.
7277, entitled "An Act Providing for the Rehabilitation, Self-Development and
Self-Reliance of Disabled Persons and their Integration into the Mainstream
of Society and for Other Purposes," otherwise known as the "Magna Carta for
Disabled Persons," was passed into law.5 The law defines "disabled persons",
"impairment" and "disability" as follows:ChanRoblesVirtualawlibrary
SECTION 4. Definition of Terms. - For purposes of this Act, these terms are
defined as follows:
chanRoblesvirtualLawlibrary(a) Disabled Persons are those suffering from
restriction of different abilities, as a result of a mental, physical or sensory
impairment, to perform an activity in the manner or within the range
considered normal for a human being;
(b) Impairment is any loss, diminution or aberration of psychological,
6
physiological, or anatomical structure of function;
(c) Disability shall mean (1) a physical or mental impairment that
substantially limits one or more psychological, physiological or anatomical
function of an individual or activities of such individual; (2) a record of such
an impairment; or (3) being regarded as having such an
impairment.6chanroblesvirtuallawlibrary
On April 30, 2007, Republic Act No. 94427 was enacted amending R.A. No.
7277. The Title of R.A. No. 7277 was amended to read as "Magna Carta for
Persons with Disability" and all references on the law to "disabled persons"
were amended to read as "persons with disability" (PWD).8 Specifically, R.A.
No. 9442 granted the PWDs a twenty (20) percent discount on the purchase
of medicine, and a tax deduction scheme was adopted wherein covered
establishments may deduct the discount granted from gross income based on
the net cost of goods sold or services rendered:ChanRoblesVirtualawlibrary
CHAPTER 8. Other Privileges and Incentives. SEC. 32. Persons with disability
shall be entitled to the following:
chanRoblesvirtualLawlibraryx x x x
�
(d) At least twenty percent (20%) discount for the purchase of medicines in
all drugstores for the exclusive use or enjoyment of persons with
disability;
xxxx
The abovementioned privileges are available only to persons with disability
who are Filipino citizens upon submission of any of the following as proof of
his/her entitlement thereto:
chanRoblesvirtualLawlibrary
(i) An identification card issued by the city or municipal mayor or the
barangay captain of the place where the person with disability resides;
(ii) The passport of the person with disability concerned; or
(ii) Transportation discount fare Identification Card (ID) issued by the
National Council for the Welfare of Disabled Persons (NCWDP).
xxxx
The establishments may claim the discounts granted in sub�sections (a), (b),
(c), (f) and (g) as tax deductions based on the net cost of the goods sold or

services rendered: Provided, however, 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
(NIRC), as amended.9chanroblesvirtuallawlibrary
The Implementing Rules and Regulations (IRR) of R.A. No. 944210 was jointly
promulgated by the Department of Social Welfare and Development (DSWD),
Department of Education, Department of Finance (DOF), Department of
Tourism, Department of Transportation and Communication, Department of
the Interior and Local Government (DILG) and Department of Agriculture.
Insofar as pertinent to this petition, the salient portions of the IRR are
hereunder quoted:11
RULE III. DEFINITION OF TERMS
Section 5. Definition of Terms. For purposes of these Rules and Regulations,
these terms are defined as follows:
chanRoblesvirtualLawlibrary5.1. Persons with Disability - are those
individuals defined under Section 4 of RA 7277 "An Act Providing for the
Rehabilitation, Self-Development and Self-Reliance of Persons with Disability
as amended and their integration into the Mainstream of Society and for
Other Purposes". This is defined as a person suffering from restriction or
different abilities, as a result of a mental, physical or sensory impairment, to
perform an activity in a manner or within the range considered normal for
human being. Disability shall mean (1) a physical or mental impairment that
substantially limits one or more psychological, physiological or anatomical
function of an individual or activities of such individual; (2) a record of such
an impairment; or (3) being regarded as having such an impairment.
xxxx
RULE IV. PRIVILEGES AND INCENTIVES FOR THE PERSONS WITH
DISABILITY
Section 6. Other Privileges and Incentives. Persons with disability shall be
entitled to the following:
chanRoblesvirtualLawlibraryx x x x
6.1.d. Purchase of Medicine - at least twenty percent (20%) discount on the
purchase of medicine for the exclusive use and enjoyment of persons with
disability. All drugstores, hospital, pharmacies, clinics and other similar
establishments selling medicines are required to provide at least twenty
percent (20%) discount subject to the guidelines issued by DOH and
PHILHEALTH.12chanrobleslaw
7
xxxx
6.11 The abovementioned privileges are available only to persons with
disability who are Filipino citizens upon submission of any of the following as
proof of his/her entitlement thereto subject to the guidelines issued by the
NCWDP in coordination with DSWD, DOH and DILG.
6.11.1 An identification card issued by the city or municipal mayor or the
barangay captain of the place where the person with disability resides;
6.11.2 The passport of the persons with disability concerned; or
6.11.3 Transportation discount fare Identification Card (ID) issued by the
National Council for the Welfare of Disabled Persons (NCWDP). However,
upon effectivity of this Implementing Rules and Regulations, NCWDP will
already adopt the Identification Card issued by the Local Government Unit
for purposes of uniformity in the implementation. NCWDP will provide the
design and specification of the identification card that will be issued by the
Local Government Units.13chanroblesvirtuallawlibrary
6.14. Availmenl of Tax Deductions by Establishment Granting Twenty Percent.
20% Discount - The establishments may claim the discounts granted in sub-
sections (6.1), (6.2), (6.4), (6.5) and (6.6) as tax deductions based on the net
cost of the goods sold or services rendered: Provided, however, 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.
On April 23, 2008, the National Council on Disability Affairs (NCDA)14 issued
Administrative Order (A.O.) No. 1, Series of 2008,15 prescribing guidelines
which should serve as a mechanism for the issuance of a PWD Identification
Card (IDC) which shall be the basis for providing privileges and discounts
to bona fidePWDs in accordance with R.A. 9442:ChanRoblesVirtualawlibrary
IV. INSTITUTIONAL ARRANGEMENTS
A. The Local Government Unit of the City or Municipal Office shall
implement these guidelines in the issuance of the PWD-IDC
xxxx
D. Issuance of the appropriate document to confirm the medical condition of
the applicant is as follows:ChanRoblesVirtualawlibrary
Disability Document Issuing Entity
Apparent Medical Licensed Private or Government
Disability Certificate Physician
 8

Injunction21 before the Court of Appeals to annul and enjoin the

School Licensed Teacher duly signed by the
� implementation of the following laws:ChanRoblesVirtualawlibrary
Assessment School Principal
1) Section 32 of R.A. No. 7277 as amended by R.A. No. 9442;
Certificate of Head of the Business Establishment or 2) Section 6, Rule IV of the Implementing Rules and Regulations of R.A. No.
�
Disability Head of Non-Government Organization 9442;
Non-Apparent Medical Licensed Private or Government 3) NCDA A.O. No. 1;
Disability Certificate Physician

E. PWD Registration Forms and ID Cards shall be issued and signed by the 4) DOF Revenue Regulation No. 1-2009;
City or Municipal Mayor, or Barangay Captain.
5) DOH A.O. No. 2009-0011.
xxxx On July 26, 2010, the CA rendered a Decision upholding the
V. IMPLEMENTING GUIDELINES AND PROCEDURES constitutionality of R.A. 7277 as amended, as well as the assailed
Any bonafide person with permanent disability can apply for the issuance of administrative issuances. However, the CA suspended the effectivity of NCDA
the PWD-IDC. His/her caregiver can assist in the application process. A.O. No. 1 pending proof of respondent NCDA's compliance with filing of said
Procedures for the issuance of the ID Cards are as follows: administrative order with the Office of the National Administrative Register
(ONAR) and its publication in a newspaper of general circulation. The
chanRoblesvirtualLawlibraryA. Completion of the Requirements. Complete dispositive portion of the Decision states:ChanRoblesVirtualawlibrary
and/or make available the following WHEREFORE, the petition is PARTLY GRANTED. The effectivity of NCDA
requirements:ChanRoblesVirtualawlibrary Administrative Order No. 1 is hereby SUSPENDED pending Respondent's
compliance with the proof of filing of NCDA Administrative Order No. 1 with
the Office of the National Administrative Register and its publication in a
1. Two "1x1" recent ID pictures with the names, and signatures or newspaper of general circulation.
thumbmarks at the back of the picture Respondent NCDA filed a motion for reconsideration before the CA to lift the
suspension of the implementation of NCDA A.O. No. 1 attaching thereto proof
2. One (1) Valid ID of its publication in the Philippine Star and Daily Tribune on August 12,
2010, as well as a certification from the ONAR showing that the same was
3. Document to confirm the medical or disability condition (See Section filed with the said office on October 22, 2009.22 Likewise, petitioners filed a
IV, D for the required document). motion for reconsideration of the CA Decision.

On December 9, 2008, the DOF issued Revenue Regulations No. 1-
200916 prescribing rules and regulations to implement R.A. 9442 relative to
the tax privileges of PWDs and tax incentives for establishments granting the
discount. Section 4 of Revenue Regulations No. 001-09 states that drugstores
can only deduct the 20% discount from their gross income subject to some
conditions.17chanrobleslaw
On May 20, 2009, the DOH issued A.O. No. 2009-001118 specifically stating
that the grant of 20% discount shall be provided in the purchase of branded
medicines and unbranded generic medicines from all establishments
dispensing medicines for the exclusive use of the PWDs.19 It also detailed the
guidelines for the provision of medical and related discounts and special
privileges to PWDs pursuant to R.A. 9442.20chanrobleslaw
In a Resolution dated November 19, 2010, the CA dismissed petitioners'
motion for reconsideration and lifted the suspension of the effectivity of
NCDA A.O. No. 1 considering the filing of the same with ONAR and its
publication in a newspaper of general circulation.
Hence, the instant petition raising the following
issues:ChanRoblesVirtualawlibrary
I. THE CA SERIOUSLY ERRED ON A QUESTION OF SUBSTANCE WHEN IT
RULED THAT THE MANDATED PWD DISCOUNT IS A VALID EXERCISE OF
POLICE POWER. ON THE CONTRARY, IT IS AN INVALID EXERCISE OF THE
POWER OF EMINENT DOMAIN BECAUSE IT FAILS TO PROVIDE JUST
COMPENSATION TO PETITIONERS AND OTHER SIMILARLY SITUATED
DRUGSTORES;

On July 28, 2009, petitioners filed a Petition for Prohibition with application II. THE CA SERIOUSLY ERRED WHEN IT RULED THAT SECTION 32 OF RA
for a Temporary Restraining Order and/or a Writ of Preliminary 7277 AS AMENDED BY RA 9442, NCDA AO 1 AND THE OTHER
IMPLEMENTING REGULATIONS DID NOT VIOLATE THE DUE PROCESS

CLAUSE;
III. THE CA SERIOUSLY ERRED WHEN IT RULED THAT THE DEFINITIONS
OF DISABILITIES UNDER SECTION 4(A), SECTION 4(B) AND SECTION 4(C)
OF RA 7277 AS AMENDED BY RA 9442, RULE 1 OF THE IMPLEMENTING
RULES AND REGULATIONS23 OF RA 7277, SECTION 5.1 OF THE
IMPLEMENTING RULES AND REGULATIONS OF RA 9442, NCDA AO 1 AND
DOH AO 2009-11 ARE NOT VAGUE, AMBIGUOUS AND
UNCONSTITUTIONAL;
IV. THE CA SERIOUSLY ERRED WHEN IT RULED THAT THE MANDATED
PWD DISCOUNT DOES NOT VIOLATE THE EQUAL PROTECTION CLAUSE.
We deny the petition.
The CA is correct when it applied by analogy the case of Carlos Superdrug
Corporation et al. v. DSWD, et al.24 wherein We pronouced that Section 4 of
R.A. No. 9257 which grants 20% discount on the purchase of medicine of
senior citizens is a legitimate exercise of police
power:ChanRoblesVirtualawlibrary
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.25cralawredAccordingly, 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.26 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.27chanrobleslaw
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.28chanrobleslaw
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.29chanroblesvirtuallawlibrary
Police power is the power of the state to promote public welfare by restraining
and regulating the use of liberty and property. On the other hand, the power
of eminent domain is the inherent right of the state (and of those entities to
9
which the power has been lawfully delegated) to condemn private property to
public use upon payment of just compensation. In the exercise of police
power, property rights of private individuals are subjected to restraints and
burdens in order to secure the general comfort, health, and prosperity of the
state.30 A legislative act based on the police power requires the concurrence
of a lawful subject and a lawful method. In more familiar words, (a) the
interests of the public generally, as distinguished from those of a particular
class, should justify the interference of the state; and (b) the means employed
are reasonably necessary for the accomplishment of the purpose and not
unduly oppressive upon individuals.31chanrobleslaw
R.A. No. 7277 was enacted primarily to provide full support to the
improvement of the total well-being of PWDs and their integration into the
mainstream of society. The priority given to PWDs finds its basis in the
Constitution:ChanRoblesVirtualawlibrary
ARTICLE XII
NATIONAL ECONOMY AND PATRIMONY
xxxx
Section 6. The use of property bears a social function, and all economic
agents shall contribute to the common good. Individuals and private groups,
including corporations, cooperatives, and similar collective organizations,
shall have the right to own, establish, and operate economic enterprises,
subject to the duty of the State to promote distributive justice and
to intervene when the common good so demands.32chanrobleslaw
ARTICLE XIII
SOCIAL JUSTICE AND HUMAN RIGHTS
xxxx
Section 11. 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 needsof the underprivileged, sick, elderly, disabled,
women, and children. The State shall endeavor to provide free medical care to
paupers.33chanroblesvirtuallawlibrary
Thus, R.A. No. 7277 provides:ChanRoblesVirtualawlibrary
SECTION 2. Declaration of Policy. The grant of the rights and privileges for
disabled persons shall be guided by the following principles:
chanRoblesvirtualLawlibrary(a). Disabled persons are part of the Philippine
society, thus the Senate shall give full support to the improvement of the
total well-being of disabled persons and their integration into the mainstream
of society.

Toward this end, the State shall adopt policies ensuring the rehabilitation,
self-development and self-reliance of disabled persons.
It shall develop their skills and potentials to enable them to compete
favorably for available opportunities.
(b). Disabled persons have the same rights as other people to take their
proper place in society. They should be able to live freely and as
independently as possible. This must be the concern of everyone - the family,
community and all government and non-government organizations.
Disabled person's rights must never be perceived as welfare services by the
Government.
xxxx
(d). The State also recognizes the role of the private sector in promoting the
welfare of disabled persons and shall encourage partnership in programs
that address their needs and concerns.34chanroblesvirtuallawlibrary
To implement the above policies, R.A. No. 9442 which amended R.A. No.
7277 grants incentives and benefits including a twenty percent (20%)
discount to PWDs in the purchase of medicines; fares for domestic air, sea
and land travels including public railways and skyways; recreation and
amusement centers including theaters, food chains and restaurants.35 This is
specifically stated in Section 4 of the IRR of R.A. No.
9442:ChanRoblesVirtualawlibrary
Section 4. Policies and Objectives - It is the objective of Republic Act No.
9442 to provide persons with disability, the opportunity to participate
fully into the mainstream of society by granting them at least twenty
percent (20%) discount in all basic services. It is a declared policy of RA
7277 that persons with disability are part of Philippine society, and thus the
State shall give full support to the improvement of their total wellbeing
and their integration into the mainstream of society. They have the same
rights as other people to take their proper place in society. They should be
able to live freely and as independently as possible. This must be the concern
of everyone the family, community and all government and non-government
organizations. Rights of persons with disability must never be perceived as
welfare services. Prohibitions on verbal, non-verbal ridicule and vilification
against persons with disability shall always be observed at all
times.36chanroblesvirtuallawlibrary
Hence, the PWD mandatory discount on the purchase of medicine is
supported by a valid objective or purpose as aforementioned. It has a valid
subject considering that 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. As in the case
of senior citizens,37 the discount privilege to which the PWDs are entitled is
actually a benefit enjoyed by the general public to which these citizens
belong. The means employed in invoking the active participation of the
10
private sector, in order to achieve the purpose or objective of the law, is
reasonably and directly related.38 Also, the means employed to provide a fair,
just and quality health care to PWDs are reasonably related to its
accomplishment, and are not oppressive, considering that as a form of
reimbursement, the discount extended to PWDs in the purchase of medicine
can be claimed by the establishments as allowable tax deductions pursuant
to Section 32 of R.A. No. 9442 as implemented in Section 4 of DOF Revenue
Regulations No. 1-2009. Otherwise stated, the discount reduces taxable
income upon which the tax liability of the establishments is computed.
Further, petitioners aver that Section 32 of R.A. No. 7277 as amended by
R.A. No. 9442 is unconstitutional and void for violating the due process
clause of the Constitution since entitlement to the 20% discount is allegedly
merely based on any of the three documents mentioned in the provision,
namely: (i) an identification card issued by the city or municipal mayor or the
barangay captain of the place where the PWD resides; (ii) the passport of the
PWD; or (iii) transportation discount fare identification card issued by NCDA.
Petitioners, thus, maintain that none of the said documents has any relation
to a medical finding of disability, and the grant of the discount is allegedly
without any process for the determination of a PWD in accordance with law.
Section 32 of R.A. No. 7277, as amended by R.A. No. 9442, must be read
with its IRR which stated that upon its effectivity, NCWDP (which is the
government agency tasked to ensure the implementation of RA 7277), would
adopt the IDC issued by the local government units for purposes of
uniformity in the implementation.39 Thus, NCDA A.O. No. 1 provides the
reasonable guidelines in the issuance of IDCs to PWDs as proof of their
entitlement to the privileges and incentives under the law40 and fills the
details in the implementation of the law.
As stated in NCDA A.O. No. 1, before an IDC is issued by the city or
municipal mayor or the barangay captain,41 or the Chairman of the
NCDA,42 the applicant must first secure a medical certificate issued by a
licensed private or government physician that will confirm his medical or
disability condition. If an applicant is an employee with apparent disability, a
"certificate of disability" issued by the head of the business establishment or
the head of the non-governmental organization is needed for him to be issued
a PWD-IDC. For a student with apparent disability, the "school assessment"
issued by the teacher and signed by the school principal should be presented
to avail of a PWD-ID.
Petitioners' insistence that Part IV (D) of NCDA Administrative Order No. 1 is
void because it allows allegedly non-competent persons like teachers, head of
establishments and heads of Non-Governmental Organizations (NGOs) to
confirm the medical condition of the applicant is misplaced. It must be
stressed that only for apparent disabilities can the teacher or head of a
business establishment validly issue the mentioned required document
because, obviously, the disability is easily seen or clearly visible. It is,

therefore, not an unqualified grant of authority for the said non-medical
persons as it is simply limited to apparent disabilities. For a non-apparent
disability or a disability condition that is not easily seen or clearly visible, the
disability can only be validated by a licensed private or government
physician, and a medical certificate has to be presented in the procurement
of an IDC. Relative to this issue, the CA validly ruled,
thus:ChanRoblesVirtualawlibrary
We agree with the Office of the Solicitor General's (OSG) ratiocination that
teachers, heads of business establishments and heads of NGOs can validly
confirm the medical condition of their students/employees with apparent
disability for obvious reasons as compared to non-apparent disability which
can only be determined by licensed physicians. Under the Labor
Code, disabled persons are eligible as apprentices or learners provided
that their handicap are not as much as to effectively impede the performance
of their job. We find that heads of business establishments can validly issue
certificates of disability of their employees because aside from the fact that
they can obviously validate the disability, they also have medical records of
the employees as a pre-requisite in the hiring of employees. Hence, Part IV
(D) of NCDA AO No. 1 is logical and valid.43chanroblesvirtuallawlibrary
Furthermore, DOH A.O. No. 2009-11 prescribes additional guidelines for the
20% discount in the purchase of all medicines for the exclusive use of
PWD.44 To avail of the discount, the PWD must not only present his I.D. but
also the doctor's prescription stating, among others, the generic name of the
medicine, the physician's address, contact number and professional license
number, professional tax receipt number and narcotic license number, if
applicable. A purchase booklet issued by the local social/health office is also
required in the purchase of over-the-counter medicines. Likewise, any single
dispensing of medicine must be in accordance with the prescription issued
by the physician and should not exceed a one (1) month supply. Therefore, as
correctly argued by the respondents, Section 32 of R.A. No. 7277 as amended
by R.A. No. 9442 complies with the standards of substantive due process.
We are likewise not persuaded by the argument of petitioners that the
definition of "disabilities" under the subject laws is vague and ambiguous
because it is allegedly so general and broad that the person tasked with
implementing the law will undoubtedly arrive at different interpretations and
applications of the law. Aside from the definitions of a "person with disability"
or "disabled persons" under Section 4 of R.A. No. 7277 as amended by R.A.
No. 9442 and in the IRR of RA 9442, NCDA A.O. No. 1 also
provides:ChanRoblesVirtualawlibrary
4. Identification Cards shall be issued to any bonafide PWD with
permanent disabilities due to any one or more of the following
conditions: psychosocial, chronic illness, learning, mental, visual,
orthopedic, speech and hearing conditions. This includes persons
suffering from disabling diseases resulting to the person's limitations
to do day to day activities as normally as possible such as but not
limited to those undergoing dialysis, heart disorders, severe cancer
11
cases and such other similar cases resulting to temporary or
permanent disability.45
Similarly, DOH A.O. No. 2009-0011 defines the different categories of
disability as follows:ChanRoblesVirtualawlibrary
Rule IV, Section 4, Paragraph B of the Implementing Rules and Regulations
(IRR) of this Act required the Department of Health to address the health
concerns of seven (7) different categories of disability, which include the
following: (1) Psychological and behavioral disabilities (2) Chronic illness with
disabilities (3)Learning(cognitive or intellectual) disabilities (4) Mental
disabilities (5) Visual/seeing disabilities (6) Orthopedic/moving, and (7)
communication deficits.46chanroblesvirtuallawlibrary
Elementary is the rule that when laws or rules are clear, when the law is
unambiguous and unequivocal, application not interpretation thereof is
imperative. However, where the language of a statute is vague and
ambiguous, an interpretation thereof is resorted to. A law is deemed
ambiguous when it is capable of being understood by reasonably well-
informed persons in either of two or more senses. The fact that a law admits
of different interpretations is the best evidence that it is vague and
ambiguous.47chanrobleslaw
In the instant case, We do not find the aforestated definition of terms as
vague and ambiguous. Settled is the rule that courts will not interfere in
matters which are addressed to the sound discretion of the government
agency entrusted with the regulation of activities coming under the special
and technical training and knowledge of such agency.48 As a matter of policy,
We accord great respect to the decisions and/or actions of administrative
authorities not only because of the doctrine of separation of powers but also
for their presumed knowledge, ability, and expertise in the enforcement of
laws and regulations entrusted to their jurisdiction. The rationale for this
rule relates not only to the emergence of the multifarious needs of a modern
or modernizing society and the establishment of diverse administrative
agencies for addressing and satisfying those needs; it also relates to the
accumulation of experience and growth of specialized capabilities by the
administrative agency charged with implementing a particular
statute.49chanrobleslaw
Lastly, petitioners contend that R.A. No. 7227, as amended by R.A. No. 9442,
violates the equal protection clause of the Constitution because it fairly
singles out drugstores to bear the burden of the discount, and that it can
hardly be said to "rationally" meet a legitimate government objective which is
the purpose of the law. The law allegedly targets only retailers such as
petitioners, and that the other enterprises in the drug industry are not
imposed with similar burden. This same argument had been raised in the
case of Carlos Superdrug Corp., et al. v. DSWD, et al.,50 and We reaffirm and
apply the ruling therein in the case at bar:ChanRoblesVirtualawlibrary
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.51chanroblesvirtuallawlibrary
Under the equal protection clause, all persons or things similarly situated
must be treated alike, both in the privileges conferred and the obligations
imposed. Conversely, all persons or things differently situated should be
treated differently.52 In the case of ABAKADA Guro Party List, et al. v. Hon.
Purisima, et al.,53We held:ChanRoblesVirtualawlibrary
Equality guaranteed under the equal protection clause is equality under the
same conditions and among persons similarly situated; it is equality among
equals, not similarity of treatment of persons who are classified based on
substantial differences in relation to the object to be accomplished. When
things or persons are different in fact or circumstance, they may be treated
in law differently. In Victoriano v. Elizalde Rope Workers' Union, this Court
declared:ChanRoblesVirtualawlibrary
The guaranty of equal protection of the laws is not a guaranty of equality in
the application of the laws upon all citizens of the State. It is not, therefore, a
requirement, in order to avoid the constitutional prohibition against
inequality, that every man, woman and child should be affected alike by a
statute. Equality of operation of statutes does not mean indiscriminate
operation on persons merely as such, but on persons according to the
circumstances surrounding them. It guarantees equality, not identity of
rights. The Constitution does not require that things which are different
in fact be treated in law as though they were the same. The equal
protection clause does not forbid discrimination as to things that are
different. It does not prohibit legislation which is limited either in the
object to which it is directed or by the territory within which it is to
operate.
The equal protection of the laws clause of the Constitution allows
classification. Classification in law, as in the other departments of knowledge
or practice, is the grouping of things in speculation or practice because they
agree with one another in certain particulars. A law is not invalid because of
simple inequality. The very idea of classification is that of inequality, so that
it goes without saying that the mere fact of inequality in no manner
determines the matter of constitutionality. All that is required of a valid
classification is that it be reasonable, which means that the
classification should be based on substantial distinctions which make
for real differences, that it must be germane to the purpose of the law;
that it must not be limited to existing conditions only; and that it must
12
apply equally to each member of the class. This Court has held that the
standard is satisfied if the classification or distinction is based on a
reasonable foundation or rational basis and is not palpably arbitrary.
In the exercise of its power to make classifications for the purpose of enacting
laws over matters within its jurisdiction, the state is recognized as enjoying a
wide range of discretion. It is not necessary that the classification be based
on scientific or marked differences of things or in their relation. Neither is it
necessary that the classification be made with mathematical nicety. Hence,
legislative classification may in many cases properly rest on narrow
distinctions, for the equal protection guaranty does not preclude the
legislature from recognizing degrees of evil or harm, and legislation is
addressed to evils as they may appear.
The equal protection clause recognizes a valid classification, that is, a
classification that has a reasonable foundation or rational basis and not
arbitrary.54 With respect to R.A. No. 9442, its expressed public policy is the
rehabilitation, self-development and self-reliance of PWDs. Persons with
disability form a class separate and distinct from the other citizens of the
country. Indubitably, such substantial distinction is germane and intimately
related to the purpose of the law. Hence, the classification and treatment
accorded to the PWDs fully satisfy the demands of equal protection. Thus,
Congress may pass a law providing for a different treatment to persons with
disability apart from the other citizens of the country.
Subject to the determination of the courts as to what is a proper exercise of
police power using the due process clause and the equal protection clause as
yardsticks, the State may interfere wherever the public interests demand it,
and in this particular, a large discretion is necessarily vested in the
legislature to determine, not only what interests of the public require, but
what measures are necessary for the protection of such interests.55 Thus, We
are mindful of the fundamental criteria in cases of this nature that all
reasonable doubts should be resolved in favor of the constitutionality of a
statute.56 The burden of proof is on him who claims that a statute is
unconstitutional. Petitioners failed to discharge such burden of proof.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals
dated July 26, 2010, and the Resolution dated November 19, 2010, in CA-
G.R. SP No. 109903 are AFFIRMED.
SO ORDERED.chanRoblesvirtualLawlibrary
G.R. No. L-7859 December 22, 1955

WALTER LUTZ, as Judicial Administrator of the Intestate Estate of the
deceased Antonio Jayme Ledesma,plaintiff-appellant,
vs.
J. ANTONIO ARANETA, as the Collector of Internal Revenue, defendant-
appellee.
Ernesto J. Gonzaga for appellant.
Office of the Solicitor General Ambrosio Padilla, First Assistant Solicitor General
Guillermo E. Torres and Solicitor Felicisimo R. Rosete for appellee.
REYES, J.B L., J.:
This case was initiated in the Court of First Instance of Negros Occidental to
test the legality of the taxes imposed by Commonwealth Act No. 567,
otherwise known as the Sugar Adjustment Act.
Promulgated in 1940, the law in question opens (section 1) with a declaration
of emergency, due to the threat to our industry by the imminent imposition
of export taxes upon sugar as provided in the Tydings-McDuffe Act, and the
"eventual loss of its preferential position in the United States market";
wherefore, the national policy was expressed "to obtain a readjustment of the
benefits derived from the sugar industry by the component elements thereof"
and "to stabilize the sugar industry so as to prepare it for the eventuality of
the loss of its preferential position in the United States market and the
imposition of the export taxes."
In section 2, Commonwealth Act 567 provides for an increase of the existing
tax on the manufacture of sugar, on a graduated basis, on each picul of
sugar manufactured; while section 3 levies on owners or persons in control of
lands devoted to the cultivation of sugar cane and ceded to others for a
consideration, on lease or otherwise —
a tax equivalent to the difference between the money value of the
rental or consideration collected and the amount representing 12 per
centum of the assessed value of such land.
According to section 6 of the law —
SEC. 6. All collections made under this Act shall accrue to a special
fund in the Philippine Treasury, to be known as the 'Sugar
Adjustment and Stabilization Fund,' and shall be paid out only for
13
any or all of the following purposes or to attain any or all of the
following objectives, as may be provided by law.
First, to place the sugar industry in a position to maintain itself,
despite the gradual loss of the preferntial position of the Philippine
sugar in the United States market, and ultimately to insure its
continued existence notwithstanding the loss of that market and the
consequent necessity of meeting competition in the free markets of
the world;
Second, to readjust the benefits derived from the sugar industry by
all of the component elements thereof — the mill, the landowner, the
planter of the sugar cane, and the laborers in the factory and in the
field — so that all might continue profitably to engage
therein;lawphi1.net
Third, to limit the production of sugar to areas more economically
suited to the production thereof; and
Fourth, to afford labor employed in the industry a living wage and to
improve their living and working conditions: Provided, That the
President of the Philippines may, until the adjourment of the next
regular session of the National Assembly, make the necessary
disbursements from the fund herein created (1) for the establishment
and operation of sugar experiment station or stations and the
undertaking of researchers (a) to increase the recoveries of the
centrifugal sugar factories with the view of reducing manufacturing
costs, (b) to produce and propagate higher yielding varieties of sugar
cane more adaptable to different district conditions in the
Philippines, (c) to lower the costs of raising sugar cane, (d) to improve
the buying quality of denatured alcohol from molasses for motor fuel,
(e) to determine the possibility of utilizing the other by-products of
the industry, (f) to determine what crop or crops are suitable for
rotation and for the utilization of excess cane lands, and (g) on other
problems the solution of which would help rehabilitate and stabilize
the industry, and (2) for the improvement of living and working
conditions in sugar mills and sugar plantations, authorizing him to
organize the necessary agency or agencies to take charge of the
expenditure and allocation of said funds to carry out the purpose
hereinbefore enumerated, and, likewise, authorizing the
disbursement from the fund herein created of the necessary amount
or amounts needed for salaries, wages, travelling expenses,
equipment, and other sundry expenses of said agency or agencies.
Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the
Intestate Estate of Antonio Jayme Ledesma, seeks to recover from the
Collector of Internal Revenue the sum of P14,666.40 paid by the estate as

taxes, under section 3 of the Act, for the crop years 1948-1949 and 1949-
1950; alleging that such tax is unconstitutional and void, being levied for the
aid and support of the sugar industry exclusively, which in plaintiff's opinion
is not a public purpose for which a tax may be constitutioally levied. The
action having been dismissed by the Court of First Instance, the plaintifs
appealed the case directly to this Court (Judiciary Act, section 17).
The basic defect in the plaintiff's position is his assumption that the tax
provided for in Commonwealth Act No. 567 is a pure exercise of the taxing
power. Analysis of the Act, and particularly of section 6 (heretofore quoted in
full), will show that the tax is levied with a regulatory purpose, to provide
means for the rehabilitation and stabilization of the threatened sugar
industry. In other words, the act is primarily an exercise of the police power.
This Court can take judicial notice of the fact that sugar production is one of
the great industries of our nation, sugar occupying a leading position among
its export products; that it gives employment to thousands of laborers in
fields and factories; that it is a great source of the state's wealth, is one of the
important sources of foreign exchange needed by our government, and is
thus pivotal in the plans of a regime committed to a policy of currency
stability. Its promotion, protection and advancement, therefore redounds
greatly to the general welfare. Hence it was competent for the legislature to
find that the general welfare demanded that the sugar industry should be
stabilized in turn; and in the wide field of its police power, the lawmaking
body could provide that the distribution of benefits therefrom be readjusted
among its components to enable it to resist the added strain of the increase
in taxes that it had to sustain (Sligh vs. Kirkwood, 237 U. S. 52, 59 L. Ed.
835; Johnson vs. State ex rel. Marey, 99 Fla. 1311, 128 So. 853; Maxcy Inc.
vs. Mayo, 103 Fla. 552, 139 So. 121).
As stated in Johnson vs. State ex rel. Marey, with reference to the citrus
industry in Florida —
The protection of a large industry constituting one of the great
sources of the state's wealth and therefore directly or indirectly
affecting the welfare of so great a portion of the population of the
State is affected to such an extent by public interests as to be within
the police power of the sovereign. (128 Sp. 857).
Once it is conceded, as it must, that the protection and promotion of the
sugar industry is a matter of public concern, it follows that the Legislature
may determine within reasonable bounds what is necessary for its protection
and expedient for its promotion. Here, the legislative discretion must be
allowed fully play, subject only to the test of reasonableness; and it is not
contended that the means provided in section 6 of the law (above quoted)
bear no relation to the objective pursued or are oppressive in character. If
objective and methods are alike constitutionally valid, no reason is seen why
14
the state may not levy taxes to raise funds for their prosecution and
attainment. Taxation may be made the implement of the state's police power
(Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U. S. 412, 81 L. Ed. 1193; U. S.
vs. Butler, 297 U. S. 1, 80 L. Ed. 477; M'Culloch vs. Maryland, 4 Wheat. 316,
4 L. Ed. 579).
That the tax to be levied should burden the sugar producers themselves can
hardly be a ground of complaint; indeed, it appears rational that the tax be
obtained precisely from those who are to be benefited from the expenditure of
the funds derived from it. At any rate, it is inherent in the power to tax that a
state be free to select the subjects of taxation, and it has been repeatedly
held that "inequalities which result from a singling out of one particular class
for taxation, or exemption infringe no constitutional limitation" (Carmichael
vs. Southern Coal & Coke Co., 301 U. S. 495, 81 L. Ed. 1245, citing
numerous authorities, at p. 1251).
From the point of view we have taken it appears of no moment that the funds
raised under the Sugar Stabilization Act, now in question, should be
exclusively spent in aid of the sugar industry, since it is that very enterprise
that is being protected. It may be that other industries are also in need of
similar protection; that the legislature is not required by the Constitution to
adhere to a policy of "all or none." As ruled in Minnesota ex rel. Pearson vs.
Probate Court, 309 U. S. 270, 84 L. Ed. 744, "if the law presumably hits the
evil where it is most felt, it is not to be overthrown because there are other
instances to which it might have been applied;" and that "the legislative
authority, exerted within its proper field, need not embrace all the evils
within its reach" (N. L. R. B. vs. Jones & Laughlin Steel Corp. 301 U. S. 1, 81
L. Ed. 893).
Even from the standpoint that the Act is a pure tax measure, it cannot be
said that the devotion of tax money to experimental stations to seek increase
of efficiency in sugar production, utilization of by-products and solution of
allied problems, as well as to the improvements of living and working
conditions in sugar mills or plantations, without any part of such money
being channeled directly to private persons, constitutes expenditure of tax
money for private purposes, (compare Everson vs. Board of Education, 91 L.
Ed. 472, 168 ALR 1392, 1400).
The decision appealed from is affirmed, with costs against appellant. So
ordered.
COMMISSIONER OF INTERNAL G.R. No. 159647
 15

REVENUE,
Petitioner, Present:
Before us is a Petition for Review[1] under Rule 45 of the Rules of
Panganiban
, J.,
Chairman, Court, seeking to set aside the August 29, 2002 Decision [2] and the August
Sandoval-Gutierrez,
- versus - Corona, 11, 2003 Resolution[3] of the Court of Appeals (CA) in CA-GR SP No. 67439.
Carpio Morales, and
Garcia, JJ
CENTRAL LUZON DRUG Promulgated: The assailed Decision reads as follows:
CORPORATION,
Respondent. April 15, 2005 WHEREFORE, premises considered, the Resolution
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x appealed from is AFFIRMED in toto. No costs.[4]

DECISION

PANGANIBAN, J.: The assailed Resolution denied petitioners Motion for Reconsideration.

he 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 The Facts

T
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 CA narrated the antecedent facts as follows:

Respondent is a domestic corporation primarily engaged in

the tax is computed. RA 7432 unconditionally grants a tax credit to all retailing of medicines and other pharmaceutical products. In
1996, it operated six (6) drugstores under the business name
covered entities. Thus, the provisions of the revenue regulation that withdraw and style Mercury Drug.

From January to December 1996, respondent granted twenty

or modify such grant are void. Basic is the rule that administrative
regulations cannot amend or revoke the law.
(20%) 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.

The Case On April 15, 1997, respondent filed its Annual Income Tax
Return for taxable year 1996 declaring therein that it
incurred net losses from its operations.
 16

On January 16, 1998, respondent filed with petitioner a
claim for tax 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
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]

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.
Ruling of the Court of Appeals
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. The CA affirmed in toto the Resolution of the Court of Tax Appeals (CTA)
Commissioner of Internal Revenue promulgated on May 31,
2001, to wit: ordering petitioner to issue a tax credit certificate in favor of respondent in

However, Sec. 229 clearly does not apply in

the instant case because the tax sought to the reduced amount of P903,038.39. It reasoned that Republic Act No. (RA)
be refunded or credited by petitioner was not
erroneously paid or illegally collected. We 7432 required neither a tax liability nor a payment of taxes by private
take exception to the CTAs sweeping but
unfounded statement that both tax refund
and tax credit are modes of recovering taxes establishments prior to the availment of a tax credit. Moreover, such credit is
 17

Sole Issue:
not tantamount to an unintended benefit from the law, but rather a just
Claim of 20 Percent Sales Discount
as Tax Credit Despite Net Loss
compensation for the taking of private property for public use.

Hence this Petition.[8] 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

The Issues
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

Petitioner raises the following issues for our consideration:

establishment operates at a loss?
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.
We answer in the affirmative.
Whether the Court of Appeals erred in holding that
respondent is entitled to a refund.[9]

Tax Credit versus

Tax Deduction

These two issues may be summed up in only one: whether respondent,

Although the term is not specifically defined in our Tax Code,[13] tax
despite incurring a net loss, may still claim the 20 percent sales discount as

credit generally refers to an amount that is subtracted directly from ones

a tax credit.

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

The Courts Ruling

credits are withheld taxes, payments of estimated tax, and investment tax
The Petition is not meritorious.
credits.[17]
 18

Since a tax credit is used to reduce directly the tax that is due, there ought to

Tax credit should be understood in relation to other tax concepts. One of be a tax liability before the tax credit can be applied. Without that liability,

these is tax deduction -- defined as a subtraction from income for tax any tax credit application will be useless. There will be no reason for

purposes,[18] or an amount that is allowed by law to reduce income prior to deducting the latter when there is, to begin with, no existing obligation to the

[the] application of the tax rate to compute the amount of tax which is government. However, as will be presented shortly, the existence of a tax

due.[19] An example of a tax deduction is any of the allowable deductions credit or its grant by law is not the same as the availment or use of such

enumerated in Section 34[20] of the Tax Code. credit. While the grant is mandatory, the availment or use is not.

A tax credit differs from a tax deduction. On the one hand, a tax If a net loss is reported by, and no other taxes are currently due from, a

credit reduces the tax due, including -- whenever applicable -- the income business establishment, there will obviously be no tax liability against which

tax that is determined after applying the corresponding tax rates to taxable any tax creditcan be applied.[24] For the establishment to choose the

income.[21] A tax deduction, on the other, reduces the income that is subject immediate availment of a tax credit will be premature and impracticable.

to tax[22] in order to arrive at taxable income.[23] To think of the former as the Nevertheless, the irrefutable fact remains that, under RA 7432, Congress has

latter is to avoid, if not entirely confuse, the issue. A tax credit is used granted without conditions a tax credit benefit to all covered establishments.

only after the tax has been computed; a tax deduction, before.

Although this tax credit benefit is available, it need not be used by losing
Tax Liability Required
for Tax Credit
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

 19

nature, the tax creditmay still be deducted from a future, not a present, tax Under Section 110, a VAT (Value-Added Tax)- registered person engaging in

liability, without which it does not have any use. In the meantime, it need not transactions -- whether or not subject to the VAT -- is also allowed a tax

move. But it breathes. 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
Prior Tax Payments Not
Required for Tax Credit
importation of goods or services that is merely due from -- not necessarily

paid by -- such VAT-registered person in the course of trade or

While a tax liability is essential to the availment or use of any tax credit, prior
business; or the transitional input tax determined in accordance with Section

tax payments are not. On the contrary, for the existence or grant solely of
111(A). The latter type may in fact be an amount equivalent to only eight

such credit, neither a tax liability nor a prior tax payment is needed. The Tax
percent of the value of a VAT-registered persons beginning inventory of

Code is in fact replete with provisions granting or allowing tax credits, even
goods, materials and supplies, when such amount -- as computed -- is

though no taxes have been previously paid.

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

For example, in computing the estate tax due, Section 86(E) allows a tax
a value by mere comparison with the VAT actually paid -- then later prorated.

credit -- subject to certain limitations -- for estate taxes paid to a foreign

No tax is actually paid prior to the availment of such credit.

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.
In Section 111(B), a one and a half percent input tax credit that is merely

The tax credits in both instances allude to the prior payment of taxes, even if
presumptive is allowed. For the purchase of primary agricultural products

not made to our government.

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
 20

price of public work contracts entered into with the government, again, no required. Specifically, in this provision, the imposition of a final withholding

prior tax payments are needed for the use of the tax credit. 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

More important, a VAT-registered person whose sales are zero-rated or foreign tax credit will be given by the domiciliary country in an amount

effectively zero-rated may, under Section 112(A), apply for the issuance of equivalent to taxes that are merely deemed paid.[27] Although true, this

a tax creditcertificate for the amount of creditable input taxes merely due -- provision actually refers to the tax credit as a condition only for the

again not necessarily paid to -- the government and attributable to such imposition of a lower tax rate, not as a deductionfrom the corresponding tax

sales, to the extent that the input taxes have not been applied against output liability. Besides, it is not our government but the domiciliary country that

taxes.[26] Where a taxpayer credits against the income tax payable to the latter by the foreign

is engaged in zero-rated or effectively zero-rated sales and also in taxable or corporation, the tax to be foregone or spared.[28]

exempt sales, the amount of creditable input taxes due that are not directly

and entirely attributable to any one of these transactions shall be In contrast, Section 34(C)(3), in relation to Section 34(C)(7)(b), categorically

proportionately allocated on the basis of the volume of sales. Indeed, in allows as credits, against the income tax imposable under Title II, the

availing of such tax credit for VAT purposes, this provision -- as well as the amount of income taxes merely incurred -- not necessarily paid -- by a

one earlier mentioned -- shows that the prior payment of taxes is not a domestic corporation during a taxable year in any foreign country. Moreover,

requisite. Section 34(C)(5) provides that for such taxes incurred but not paid, a tax

credit may be allowed, subject to the condition precedent that the taxpayer

It may be argued that Section 28(B)(5)(b) of the Tax Code is another shall simply give a bond with sureties satisfactory to and approved by

illustration of a tax credit allowed, even though no prior tax payments are not petitioner, in such sum as may be required; and further conditioned upon
 21

payment by the taxpayer of any tax found due, upon petitioners avail of such credits under the said law and still achieve its objectives, no

redetermination of it. prior tax payments are necessary.

In addition to the above-cited provisions in the Tax Code, there are also tax From all the foregoing instances, it is evident that prior tax payments are not

treaties and special laws that grant or allow tax credits, even though no prior indispensable to the availment of a tax credit. Thus, the CA correctly held

tax payments have been made. that the availment under RA 7432 did not require prior tax payments by

private establishments concerned.[31] However, we do not agree with its

Under the treaties in which the tax credit method is used as a relief to avoid finding[32] that the carry-over of tax credits under the said special law to

double taxation, income that is taxed in the state of source is also taxable in succeeding taxable periods, and even their application against internal

the state of residence, but the tax paid in the former is merely allowed as a revenue taxes, did not necessitate the existence of a tax liability.

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 The examples above show that a tax liability is certainly important in

been previously paid to the latter. the availment or use, not the existence or grant, of a tax credit. Regarding this

matter, a private establishment reporting a net loss in its financial

Under special laws that particularly affect businesses, there can also be tax statements is no different from another that presents a net income. Both are

credit incentives. To illustrate, the incentives provided for in Article 48 of entitled to the tax credit provided for under RA 7432, since the law itself

Presidential Decree No. (PD) 1789, as amended by Batas Pambansa Blg. (BP) accords that unconditional benefit. However, for the losing establishment to

391, include tax credits equivalent to either five percent of the net value immediately apply such credit, where no tax is due, will be an improvident

earned, or five or ten percent of the net local content of exports. [30] In order to usance.
 22

business parlance a deduction or lowering of an amount of money; [37] or a

Sections 2.i and 4 of Revenue
Regulations No. 2-94 Erroneous
reduction from the full amount or value of something, especially a price.[38] In

business there are many kinds of discount, the most common of which is

RA 7432 specifically allows private establishments to claim as tax credit the

that affecting the income statement[39] or financial report upon which

amount of discounts they grant.[33] In turn, the Implementing Rules and

the income tax is based.

Regulations, issued pursuant thereto, provide the procedures for its

Business Discounts
availment.[34] To deny such credit, despite the plain mandate of the law and Deducted from Gross Sales

the regulations carrying out that mandate, is indefensible.

A cash discount, for example, is one granted by business establishments

First, the definition given by petitioner is erroneous. It refers to tax credit as to credit customers for their prompt payment.[40] It is a reduction in price

the amount representing the 20 percent discount that shall be deducted by offered to the purchaser if payment is made within a shorter period of time

the said establishments from their gross income for income tax purposes and than the maximum time specified.[41] Also referred to as a sales discount on

from their gross sales for value-added tax or other percentage tax the part of the seller and a purchase discount on the part of the buyer, it may

purposes.[35] In ordinary business language, the tax credit represents the be expressed in such

amount of such discount. However, the manner by which the discount shall terms as 5/10, n/30.[42]

be credited against taxes has not been clarified by the revenue regulations.

A quantity discount, however, is a reduction in price allowed for purchases

By ordinary acceptation, a discount is an abatement or reduction made from made in large quantities, justified by savings in packaging, shipping, and

the gross amount or value of anything.[36] To be more precise, it is in handling.[43] It is also called a volume or bulk discount.[44]
 23

presentation is resorted to, because the accounts receivable and sales figures

A percentage reduction from the list price x x x allowed by manufacturers to that arise from sales discounts, -- as well as from quantity, volume or bulk

wholesalers and by wholesalers to retailers[45] is known as a trade discount. discounts -- are recorded in the manual and computerized books of

No entry for it need be made in the manual or computerized books of accounts and reflected in the financial statements at the gross amounts of

accounts, since the purchase or sale is already valued at the net price the invoices.[52] This manner of recording credit sales -- known as the gross

actually charged the buyer.[46] The purpose for the discount is to encourage method -- is most widely used, because it is simple, more convenient to apply

trading or increase sales, and the prices at which the purchased goods may than the net method, and produces no material errors over time.[53]

be resold are also suggested.[47] Even a chain discount -- a series of discounts

from one list price -- is recorded at net.[48] However, under the net method used in recording trade, chain or functional

discounts, only the net amounts of the invoices -- after the discounts have

Finally, akin to a trade discount is a functional discount. It is a suppliers price been deducted -- are recorded in the books of accounts[54] and reflected in the

discount given to a purchaser based on the [latters] role in the [formers] financial statements. A separate line item cannot be shown,[55] because the

distribution system.[49] This role usually involves warehousing or advertising. transactions themselves involving both accounts receivable and sales have

already been entered into, net of the said discounts.

Based on this discussion, we find that the nature of a sales discount is

peculiar. Applying generally accepted accounting principles (GAAP) in the The term sales discounts is not expressly defined in the Tax Code, but one

country, this type of discount is reflected in the income statement[50] as a line provision adverts to amounts whose sum -- along with sales

item deducted -- along with returns, allowances, rebates and other similar returns, allowances and cost of goods sold[56] -- is deducted from gross

expenses -- from gross sales to arrive at net sales.[51] This type of sales to come up with the gross income, profit or margin[57] derived from
 24

business.[58] In another provision therein, sales discounts that are granted compelling reason for the private establishment giving the discount is that

and indicated in the invoices at the time of sale -- and that do not depend the law itself makes it mandatory.

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 What RA 7432 grants the senior citizen is a mere discount privilege, not

the VAT, the latter provision also appears as a suitable reference point for a sales discount or any of the above discounts in particular. Prompt payment

income tax purposes already embraced in the former. After all, these two is not the reason for (although a necessary consequence of) such grant. To be

provisions affirm that sales discounts are amounts that are always deductible sure, the privilege enjoyed by the senior citizen must be equivalent to the tax

from gross sales. credit benefit enjoyed by the private establishment granting the discount. Yet,

under the revenue regulations promulgated by our tax authorities, this

Reason for the Senior Citizen Discount:
The Law, Not Prompt Payment
benefit has been erroneously likened and confined to a sales discount.

A distinguishing feature of the implementing rules of RA 7432 is the private

To a senior citizen, the monetary effect of the privilege may be the same as

establishments outright deduction of the discount from the invoice price of

that resulting from a sales discount. However, to a private establishment, the

the medicine sold to the senior citizen.[60] It is, therefore, expected that for
effect is different from a simple reduction in price that results from such

each retail sale made under this law, the discount period lasts no more than
discount. In other words, the tax credit benefit is not the same as a sales

a day, because such discount is given -- and the net amount thereof collected
discount. To repeat from our earlier discourse, this benefit cannot and should

-- immediately upon perfection of the sale.[61] Although prompt payment is

not be treated as a tax deduction.

made for an arms-length transaction by the senior citizen, the real and
 25

To stress, the effect of a sales discount on the income statement and income When the law says that the cost of the discount may be claimed as a tax

tax return of an establishment covered by RA 7432 is different from that credit, it means that the amount -- when claimed -- shall be treated as a

resulting from the availment or use of its tax credit benefit. While the former reduction from any tax liability, plain and simple. The option to avail of

is a deduction before, the latter is a deduction after, the income tax is the tax credit benefit depends upon the existence of a tax liability, but to limit

computed. As mentioned earlier, a discount is not necessarily a sales the benefit to a sales discount-- which is not even identical to the discount

discount, and a tax credit for a simple discount privilege should not be privilege that is granted by law -- does not define it at all and serves no

automatically treated like a sales discount. Ubi lex non distinguit, nec nos useful purpose. The definition must, therefore, be stricken down.

distinguere debemus. Where the law does not distinguish, we ought not to
Laws Not Amended
by Regulations
distinguish.

Second, the law cannot be amended by a mere regulation. In fact,

Sections 2.i and 4 of Revenue Regulations No. (RR) 2-94 define tax credit as

a regulation that operates to create a rule out of harmony with

the 20 percent discount deductible from gross income for income

the statute is a mere nullity;[62] it cannot prevail.

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.

It is a cardinal rule that courts will and should respect the contemporaneous
This contrived definition is improper, considering that the latter has to be

construction placed upon a statute by the executive officers whose duty it is

deducted from gross sales in order to compute the gross income in the income

to enforce it x x x.[63] In the scheme of judicial tax administration, the need

statement and cannot be deducted again, even for purposes of computing

for certainty and predictability in the implementation of tax laws is

the income tax.

crucial.[64] Our tax authorities fill in the details that Congress may not have
 26

the opportunity or competence to provide.[65] The regulations these

authorities issue are relied upon by taxpayers, who are certain that these will Third, the word may in the text of the statute[71] implies that the

be followed by the courts.[66] Courts, however, will not uphold these availability of the tax credit benefit is neither unrestricted nor

authorities interpretations when clearly absurd, erroneous or improper. 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;

In the present case, the tax authorities have given the term tax neither does it impose a duty on the part of the government to sit back and

credit in Sections 2.i and 4 of RR 2-94 a meaning utterly in contrast to what allow an important facet of tax collection to be at the sole control and

RA 7432 provides. Their interpretation has muddled up the intent of discretion of the taxpayer.[73] For the tax authorities to compel respondent to

Congress in granting a mere discount privilege, not a sales discount. The deduct the 20 percent discount from either its gross income or its gross

administrative agency issuing these regulations may not enlarge, alter or sales[74] is, therefore, not only to make an imposition without basis in law,

restrict the provisions of the law it administers; it cannot engraft additional but also to blatantly contravene the law itself.

requirements not contemplated by the legislature.[67]

What Section 4.a of RA 7432 means is that the tax credit benefit is merely

In case of conflict, the law must prevail.[68] A regulation adopted pursuant to permissive, not imperative. Respondent is given two options -- either to claim

law is law.[69] Conversely, a regulation or any portion thereof not adopted or not to claim the cost of the discounts as a tax credit. In fact, it may even

pursuant to law is no law and has neither the force nor the effect of law.[70] ignore the credit and simply consider the gesture as an act of beneficence, an

expression of its social conscience.

Availment of Tax
Credit Voluntary
 27

Granting that there is a tax liability and respondent claims such cost as a tax Fourth, Sections 2.i and 4 of RR 2-94 deny the exercise by the State of its

credit, then the tax credit can easily be applied. If there is none, the credit power of eminent domain. Be it stressed that the privilege enjoyed by senior

cannot be used and will just have to be carried over and citizens does not come directly from the State, but rather from the private

revalidated[75] accordingly. If, however, the business continues to operate at a establishments concerned. Accordingly, the tax credit benefit granted to these

loss and no other taxes are due, thus compelling it to close shop, the credit establishments can be deemed as their just compensation for private property

can never be applied and will be lost altogether. taken by the State for public use.[77]

In other words, it is the existence or the lack of a tax liability that determines The concept of public use is no longer confined to the traditional notion of use

whether the cost of the discounts can be used as a tax credit. RA 7432 does by the public, but held synonymous with public interest, public benefit, public

not give respondent the unfettered right to avail itself of the credit whenever welfare, and public convenience.[78] The discount privilege to which our senior

it pleases. Neither does it allow our tax administrators to expand or contract citizens are entitled is actually a benefit enjoyed by the general public to

the legislative mandate. The plain meaning rule or verba legis in statutory which these citizens belong. The discounts given would have entered the

construction is thus applicable x x x. Where the words of a statute are clear, coffers and formed part of the gross sales of the private establishments

plain and free from ambiguity, it must be given its literal meaning and concerned, were it not for RA 7432. The permanent reduction in their total

applied without attempted interpretation.[76] revenues is a forced subsidy corresponding to the taking of private property

for public use or benefit.

Tax Credit Benefit

Deemed Just Compensation
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
 28

issuance of a tax credit certificate indicating the correct amount of the consecrated in our [C]onstitution [is] not intended to take away rights from a

discounts given, but also to the promptness in its release. Equivalent to the person and give them to another who is not entitled thereto. [84] For this

payment of property taken by the State, such issuance -- when not done reason, a just compensation for income that is taken away from respondent

within a reasonable time from the grant of the discounts -- cannot be becomes necessary. It is in the tax credit that our legislators find support to

considered as just compensation. In effect, respondent is made to suffer the realize social justice, and no administrative body can alter that fact.

consequences of being immediately deprived of its revenues while awaiting

actual receipt, through the certificate, of the equivalent amount it needs to To put it differently, a private establishment that merely breaks even [85] --

cope with the reduction in its revenues.[79] 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,

Besides, the taxation power can also be used as an implement for the and if all its sales come from retail purchases by senior citizens. Aside from

exercise of the power of eminent domain.[80] Tax measures are but enforced the observation we have already raised earlier, it will also be grossly unfair to

contributions exacted on pain of penal sanctions[81] and clearly imposed for an establishment if the discounts will be treated merely as deductions from

a public purpose.[82] In recent years, the power to tax has indeed become a either its gross income or its gross sales. Operating at a loss through no fault

most effective tool to realize social justice, public welfare, and the equitable of its own, it will realize that the tax credit limitation under RR 2-94 is inutile,

distribution of wealth.[83] 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,

While it is a declared commitment under Section 1 of RA 7432, social justice because no taxes are due from the latter.

cannot be invoked to trample on the rights of property owners who under our
Grant of Tax Credit
Intended by the Legislature
Constitution and laws are also entitled to protection. The social justice
 29

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

also a provision here about the
deductions from taxable income of
Fifth, RA 7432 itself seeks to adopt measures whereby senior citizens are that private hospitals, di ba ganon
'yan?
assisted by the community as a whole and to establish a program beneficial
MS. ADVENTO. Kaya lang po sir, and mga discounts po nila
affecting government and public
to them.[86]These objectives are consonant with the constitutional policy of institutions, so, puwede na po
nating hindi isama yung mga less
making health x x x services available to all the people at affordable deductions ng taxable income.

THE CHAIRMAN. (Rep. Unico). Puwede na. Yung about the

cost[87] and of giving priority for the needs of the x x x elderly.[88] Sections 2.i private hospitals. Yung isiningit
natin?
and 4 of RR 2-94, however, contradict these constitutional policies and
MS. ADVENTO. Singit na po ba yung 15% on credit.
(inaudible/did not use the
statutory objectives. microphone).

SEN. ANGARA. Hindi pa, hindi pa.

THE CHAIRMAN. (Rep. Unico) Ah, 'di pa ba naisama natin?

Furthermore, Congress has allowed all private establishments a simple tax
SEN. ANGARA. Oo. You want to insert that?
credit, not a deduction. In fact, no cash outlay is required from the
THE CHAIRMAN (Rep. Unico). Yung ang proposal ni Senator
Shahani, e.
government for the availment or use of such credit. The deliberations on
SEN. ANGARA. In the case of private hospitals they got the
February 5, 1992 of the Bicameral Conference Committee Meeting on Social grant of 15% discount, provided
that, the private hospitals can claim
the expense as a tax credit.
Justice, which finalized RA 7432, disclose the true intent of our legislators to
REP. AQUINO. Yah could be allowed as deductions in the
treat the sales discounts as a tax credit, rather than as a deduction perpetrations of (inaudible) income.

from gross income. We quote from those deliberations as follows: SEN. ANGARA. I-tax credit na lang natin para walang cash-
out ano?
"THE CHAIRMAN (Rep. Unico). By the way, before that ano,
about deductions from taxable REP. AQUINO. Oo, tax credit. Tama, Okay. Hospitals ba o
income. I think we incorporated lahat ng establishments na covered.
there a provision na - on the
responsibility of the private THE CHAIRMAN. (Rep. Unico). Sa kuwan lang yon, as
hospitals and drugstores, hindi ba? private hospitals lang.

SEN. ANGARA. Oo. REP. AQUINO. Ano ba yung establishments na covered?

 30

SEN. ANGARA. Restaurant lodging houses, recreation

shall prevail over the general law, which shall
centers.

REP. AQUINO. All establishments covered siguro? be resorted to only to supply deficiencies in the former.[90] In addition, [w]here

SEN. ANGARA. From all establishments. Alisin na natin there are two statutes, the earlier special and the later general -- the terms of
'Yung kuwan kung ganon. Can we
go back to Section 4 ha?
the general broad enough to include the matter provided for in the special --
REP. AQUINO. Oho.
the fact that one is special and the other is general creates a presumption
SEN. ANGARA. Letter A. To capture that thought, we'll say
the grant of 20% discount from all
establishments et cetera, et cetera, that the special is to be considered as remaining an exception to the
provided that said establishments -
provided that private establishments general,[91] one as a general law of the land, the other as the law of a
may claim the cost as a tax credit.
Ganon ba 'yon?
particular case.[92] It is a canon of statutory construction that a
REP. AQUINO. Yah.
later statute, general in its terms and not expressly repealing a prior
SEN. ANGARA. Dahil kung government, they don't need to
claim it.
special statute, will ordinarily not affect the special provisions of such earlier
THE CHAIRMAN. (Rep. Unico). Tax credit.
statute.[93]
SEN. ANGARA. As a tax credit [rather] than a kuwan -
deduction, Okay.

REP. AQUINO Okay.

RA 7432 is an earlier law not expressly repealed by, and therefore remains an
SEN. ANGARA. Sige Okay. Di subject to style na lang sa
Letter A".[89]
exception to, the Tax Code -- a later law. When the former states that a tax

creditmay be claimed, then the requirement of prior tax payments under

Special Law
Over General Law 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

Sixth and last, RA 7432 is a special law that should prevail over the Tax Code Code[94] be made to restrict RA 7432. No provision of any revenue regulation

-- a general law. x x x [T]he rule is that on a specific matter the special law can supplant or modify the acts of Congress.
 31

May toll fees collected by tollway operators be subjected to value- added tax?

WHEREFORE, the Petition is hereby DENIED. The assailed Decision and

Resolution of the Court of Appeals AFFIRMED. No pronouncement as to

The Facts and the Case

costs.
Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners)

filed this petition for declaratory relief[1] assailing the validity of the

SO ORDERED. impending imposition of value-added tax (VAT) by the Bureau of Internal

Revenue (BIR) on the collections of tollway operators.

Petitioners claim that, since the VAT would result in increased toll
RENATO V. DIAZ and G.R. No. 193007
AURORA MA. F. TIMBOL, fees, they have an interest as regular users of tollways in stopping the BIR
Petitioners, Present:
action. Additionally, Diaz claims that he sponsored the approval of Republic
CORONA, C.J.,
CARPIO, Act 7716 (the 1994 Expanded VAT Law or EVAT Law) and Republic Act 8424
VELASCO, JR.,
LEONARDO-DE CASTRO, (the 1997 National Internal Revenue Code or the NIRC) at the House of
BRION,
- versus - PERALTA, Representatives. Timbol, on the other hand, claims that she served as
BERSAMIN,* Assistant Secretary of the Department of Trade and Industry and consultant
DEL CASTILLO,
ABAD, of the Toll Regulatory Board (TRB) in the past administration.
VILLARAMA, JR.,
PEREZ,
MENDOZA, and
Petitioners allege that the BIR attempted during the administration
SERENO,** JJ.
THE SECRETARY OF FINANCE of President Gloria Macapagal-Arroyo to impose VAT on toll fees. The
and THE COMMISSIONER OF Promulgated:
INTERNAL REVENUE, imposition was deferred, however, in view of the consistent opposition of Diaz
Respondents. July 19, 2011
and other sectors to such move. But, upon President Benigno C. Aquino IIIs
x ---------------------------------------------------------------------------------------- x assumption of office in 2010, the BIR revived the idea and would impose the
challenged tax on toll fees beginning August 16, 2010 unless judicially
DECISION
enjoined.
ABAD, J.:

Petitioners hold the view that Congress did not, when it enacted the
NIRC, intend to include toll fees within the meaning of sale of services that
are subject to VAT; that a toll fee is a users tax, not a sale of services; that to
impose VAT on toll fees would amount to a tax on public service; and that,
since VAT was never factored into the formula for computing toll fees, its
imposition would violate the non-impairment clause of the constitution.
On August 13, 2010 the Court issued a temporary restraining order
(TRO), enjoining the implementation of the VAT. The Court required the
government, represented by respondents Cesar V. Purisima, Secretary of the
Department of Finance, and Kim S. Jacinto-Henares, Commissioner of
Internal Revenue, to comment on the petition within 10 days from
notice.[2] Later, the Court issued another resolution treating the petition as
one for prohibition.[3]
On August 23, 2010 the Office of the Solicitor General filed the governments
comment.[4] The government avers that the NIRC imposes VAT on all kinds of
services of franchise grantees, including tollway operations, except where the
law provides otherwise; that the Court should seek the meaning and intent of
the law from the words used in the statute; and that the imposition of VAT
on tollway operations has been the subject as early as 2003 of several BIR
rulings and circulars.[5]
The government also argues that petitioners have no right to invoke
the non-impairment of contracts clause since they clearly have no personal
interest in existing toll operating agreements (TOAs) between the government
and tollway operators. At any rate, the non-impairment clause cannot limit
the States sovereign taxing power which is generally read into contracts.
32
Finally, the government contends that the non-inclusion of VAT in the
parametric formula for computing toll rates cannot exempt tollway operators
from VAT. In any event, it cannot be claimed that the rights of tollway
operators to a reasonable rate of return will be impaired by the VAT since
this is imposed on top of the toll rate. Further, the imposition of VAT on toll
fees would have very minimal effect on motorists using the tollways.
In their reply[6] to the governments comment, petitioners point out
that tollway operators cannot be regarded as franchise grantees under the
NIRC since they do not hold legislative franchises. Further, the BIR intends
to collect the VAT by rounding off the toll rate and putting any excess
collection in an escrow account. But this would be illegal since only the
Congress can modify VAT rates and authorize its disbursement. Finally, BIR
Revenue Memorandum Circular 63-2010 (BIR RMC 63-2010), which directs
toll companies to record an accumulated input VAT of zero balance in their
books as of August 16, 2010, contravenes Section 111 of the NIRC which
grants entities that first become liable to VAT a transitional input tax credit
of 2% on beginning inventory. For this reason, the VAT on toll fees cannot be
implemented.
The Issues Presented
The case presents two procedural issues:
1. Whether or not the Court may treat the petition for declaratory
relief as one for prohibition; and
2. Whether or not petitioners Diaz and Timbol have legal standing to
file the action.
The case also presents two substantive issues:
 33

petition for prohibition is a proper remedy to prohibit or nullify acts of

1. Whether or not the government is unlawfully expanding VAT
coverage by including tollway operators and tollway operations in the terms executive officials that amount to usurpation of legislative authority.[9]
franchise grantees and sale of services under Section 108 of the Code; and

2. Whether or not the imposition of VAT on tollway operators a) Here, the imposition of VAT on toll fees has far-reaching
amounts to a tax on tax and not a tax on services; b) will impair the tollway
operators right to a reasonable return of investment under their TOAs; and c) implications. Its imposition would impact, not only on the more than half a
is not administratively feasible and cannot be implemented.
million motorists who use the tollways everyday, but more so on the

governments effort to raise revenue for funding various projects and for
The Courts Rulings
reducing budgetary deficits.

A. On the Procedural Issues:

To dismiss the petition and resolve the issues later, after the

challenged VAT has been imposed, could cause more mischief both to the
On August 24, 2010 the Court issued a resolution, treating the
tax-paying public and the government. A belated declaration of nullity of the
petition as one for prohibition rather than one for declaratory relief, the
BIR action would make any attempt to refund to the motorists what they
characterization that petitioners Diaz and Timbol gave their action. The
paid an administrative nightmare with no solution.Consequently, it is not
government has sought reconsideration of the Courts resolution,[7] however,
only the right, but the duty of the Court to take cognizance of and resolve the
arguing that petitioners allegations clearly made out a case for declaratory
issues that the petition raises.
relief, an action over which the Court has no original jurisdiction. The

government adds, moreover, that the petition does not meet the requirements
Although the petition does not strictly comply with the requirements
of Rule 65 for actions for prohibition since the BIR did not exercise judicial,
of Rule 65, the Court has ample power to waive such technical requirements
quasi-judicial, or ministerial functions when it sought to impose VAT on toll
when the legal questions to be resolved are of great importance to the public.
fees. Besides, petitioners Diaz and Timbol has a plain, speedy, and adequate
The same may be said of the requirement of locus standi which is a mere
remedy in the ordinary course of law against the BIR action in the form of an
procedural requisite.[10]
appeal to the Secretary of Finance.

B. On the Substantive Issues:

But there are precedents for treating a petition for declaratory relief as one
One. The relevant law in this case is Section 108 of the NIRC, as
for prohibition if the case has far-reaching implications and raises questions
amended. VAT is levied, assessed, and collected, according to Section 108, on
that need to be resolved for the public good.[8] The Court has also held that a
the gross receipts derived from the sale or exchange of services as well as
 34

from the use or lease of properties. The third paragraph of Section 108 illustrate how pervasive and broad is the VATs reach rather than establish

defines sale or exchange of services as follows: concrete limits to its application. Thus, every activity that can be imagined as
a form of service rendered for a fee should be deemed included unless some
The phrase sale or exchange of services means
the performance of all kinds of services in the provision of law especially excludes it.
Philippines for others for a fee, remuneration or
consideration, including those performed or rendered by
construction and service contractors; stock, real estate, Now, do tollway operators render services for a fee? Presidential Decree (P.D.)
commercial, customs and immigration brokers; lessors of
property, whether personal or real; warehousing services; 1112 or the Toll Operation Decree establishes the legal basis for the services
lessors or distributors of cinematographic films; persons
that tollway operators render. Essentially, tollway operators construct,
engaged in milling, processing, manufacturing or
repacking goods for others; proprietors, operators or maintain, and operate expressways, also called tollways, at the operators
keepers of hotels, motels, resthouses, pension houses,
inns, resorts; proprietors or operators of restaurants, expense. Tollways serve as alternatives to regular public highways that
refreshment parlors, cafes and other eating places,
including clubs and caterers; dealers in securities; meander through populated areas and branch out to local roads. Traffic in
lending investors; transportation contractors on their the regular public highways is for this reason slow-moving. In consideration
transport of goods or cargoes, including persons who
transport goods or cargoes for hire and other domestic for constructing tollways at their expense, the operators are allowed to collect
common carriers by land relative to their transport of
goods or cargoes; common carriers by air and sea government-approved fees from motorists using the tollways until such
relative to their transport of passengers, goods or
operators could fully recover their expenses and earn reasonable returns
cargoes from one place in the Philippines to another
place in the Philippines; sales of electricity by from their investments.
generation companies, transmission, and distribution
companies; services of franchise grantees of electric
utilities, telephone and telegraph, radio and television
When a tollway operator takes a toll fee from a motorist, the fee is in effect for
broadcasting and all other franchise grantees except
those under Section 119 of this Code and non-life the latters use of the tollway facilities over which the operator enjoys private
insurance companies (except their crop insurances),
including surety, fidelity, indemnity and bonding proprietary rights[12]that its contract and the law recognize. In this sense, the
companies; and similar services regardless of whether or
not the performance thereof calls for the exercise or use tollway operator is no different from the following service providers under
of the physical or mental faculties. (Underscoring Section 108 who allow others to use their properties or facilities for a fee:
supplied)

1. Lessors of property, whether personal or real;

It is plain from the above that the law imposes VAT on all kinds of 2. Warehousing service operators;
3. Lessors or distributors of cinematographic films;
services rendered in the Philippines for a fee, including those specified in the 4. Proprietors, operators or keepers of hotels, motels,
resthouses, pension houses, inns, resorts;
list. The enumeration of affected services is not exclusive.[11] By qualifying 5. Lending investors (for use of money);
6. Transportation contractors on their transport of
services with the words all kinds, Congress has given the term services an
goods or cargoes, including persons who transport goods or
all-encompassing meaning. The listing of specific services are intended to

cargoes for hire and other domestic common carriers by land
relative to their transport of goods or cargoes; and
7. Common carriers by air and sea relative to their
transport of passengers, goods or cargoes from one place in
the Philippines to another place in the Philippines.
It does not help petitioners cause that Section 108 subjects to VAT
all kinds of services rendered for a fee regardless of whether or not the
performance thereof calls for the exercise or use of the physical or mental
faculties. This means that services to be subject to VAT need not fall under
the traditional concept of services, the personal or professional kinds that
require the use of human knowledge and skills.
And not only do tollway operators come under the broad term all kinds of
services, they also come under the specific class described in Section 108 as
all other franchise grantees who are subject to VAT, except those under
Section 119 of this Code.
Tollway operators are franchise grantees and they do not belong to
exceptions (the low-income radio and/or television broadcasting companies
with gross annual incomes of less than P10 million and gas and water
utilities) that Section 119[13] spares from the payment of VAT. The word
franchise broadly covers government grants of a special right to do an act or
series of acts of public concern.[14]
Petitioners of course contend that tollway operators cannot be
considered franchise grantees under Section 108 since they do not hold
legislative franchises. But nothing in Section 108 indicates that the franchise
grantees it speaks of are those who hold legislative franchises. Petitioners
give no reason, and the Court cannot surmise any, for making a distinction
35
between franchises granted by Congress and franchises granted by some
other government agency. The latter, properly constituted, may grant
franchises. Indeed, franchises conferred or granted by local authorities, as
agents of the state, constitute as much a legislative franchise as though the
grant had been made by Congress itself.[15] The term franchise has been
broadly construed as referring, not only to authorizations that Congress
directly issues in the form of a special law, but also to those granted by
administrative agencies to which the power to grant franchises has been
delegated by Congress.[16]
Tollway operators are, owing to the nature and object of their
business, franchise grantees. The construction, operation, and maintenance
of toll facilities on public improvements are activities of public consequence
that necessarily require a special grant of authority from the state. Indeed,
Congress granted special franchise for the operation of tollways to the
Philippine National Construction Company, the former tollway concessionaire
for the North and South Luzon Expressways. Apart from Congress, tollway
franchises may also be granted by the TRB, pursuant to the exercise of its
delegated powers under P.D. 1112.[17] The franchise in this case is evidenced
by a Toll Operation Certificate.[18]
Petitioners contend that the public nature of the services rendered by
tollway operators excludes such services from the term sale of services under
Section 108 of the Code.But, again, nothing in Section 108 supports this
contention. The reverse is true. In specifically including by way of example
electric utilities, telephone, telegraph, and broadcasting companies in its list
of VAT-covered businesses, Section 108 opens other companies rendering
public service for a fee to the imposition of VAT. Businesses of a public

nature such as public utilities and the collection of tolls or charges for its use
or service is a franchise.[19]
Nor can petitioners cite as binding on the Court statements made by
certain lawmakers in the course of congressional deliberations of the would-
be law. As the Court said in South African Airways v. Commissioner of
Internal Revenue,[20] statements made by individual members of Congress in
the consideration of a bill do not necessarily reflect the sense of that body
and are, consequently, not controlling in the interpretation of law. The
congressional will is ultimately determined by the language of the law that
the lawmakers voted on. Consequently, the meaning and intention of the law
must first be sought in the words of the statute itself, read and considered in
their natural, ordinary, commonly accepted and most obvious significations,
according to good and approved usage and without resorting to forced or
subtle construction.
Two. Petitioners argue that a toll fee is a users tax and to impose
VAT on toll fees is tantamount to taxing a tax.[21] Actually, petitioners base
this argument on the following discussion in Manila International Airport
Authority (MIAA) v. Court of Appeals:[22]
No one can dispute that properties of public
dominion mentioned in Article 420 of the Civil Code,
like roads, canals, rivers, torrents, ports and bridges
constructed by the State,are owned by the State. The
term ports includes seaports and airports.
The MIAA Airport Lands and Buildings constitute a port
constructed by the State. Under Article 420 of the Civil
Code, the MIAA Airport Lands and Buildings are
properties of public dominion and thus owned by the
State or the Republic of the Philippines.
36
x x x The operation by the government of a
tollway does not change the character of the road as one
for public use. Someone must pay for the maintenance of
the road, either the public indirectly through the taxes
they pay the government, or only those among the
public who actually use the road through the toll fees
they pay upon using the road. The tollway system is
even a more efficient and equitable manner of taxing the
public for the maintenance of public roads.
The charging of fees to the public does not
determine the character of the property whether it is for
public dominion or not. Article 420 of the Civil Code
defines property of public dominion as one intended for
public use. Even if the government collects toll fees, the
road is still intended for public use if anyone can use the
road under the same terms and conditions as the rest of
the public. The charging of fees, the limitation on the
kind of vehicles that can use the road, the speed
restrictions and other conditions for the use of the road
do not affect the public character of the road.
The terminal fees MIAA charges to passengers, as
well as the landing fees MIAA charges to airlines,
constitute the bulk of the income that maintains the
operations of MIAA. The collection of such fees does not
change the character of MIAA as an airport for public
use. Such fees are often termed users tax. This means
taxing those among the public who actually use a public
facility instead of taxing all the public including those
who never use the particular public facility. A users tax
is more equitable a principle of taxation mandated in the
1987 Constitution.[23] (Underscoring supplied)
Petitioners assume that what the Court said above, equating
terminal fees to a users tax must also pertain to tollway fees. But the main
issue in the MIAA case was whether or not Paraaque City could sell airport
lands and buildings under MIAA administration at public auction to satisfy
unpaid real estate taxes. Since local governments have no power to tax the
national government, the Court held that the City could not proceed with the
auction sale. MIAA forms part of the national government although not
integrated in the department framework.[24] Thus, its airport lands and
 37

buildings are properties of public dominion beyond the commerce of man them a reasonable margin of income. Although toll fees are charged for the

under Article 420(1)[25] of the Civil Code and could not be sold at public use of public facilities, therefore, they are not government exactions that can
auction. be properly treated as a tax. Taxes may be imposed only by the government

under its sovereign authority, toll fees may be demanded by either the

As can be seen, the discussion in the MIAA case on toll roads and toll government or private individuals or entities, as an attribute of ownership.[28]

fees was made, not to establish a rule that tollway fees are users tax, but to

make the point that airport lands and buildings are properties of public Parenthetically, VAT on tollway operations cannot be deemed a tax on tax

dominion and that the collection of terminal fees for their use does not make due to the nature of VAT as an indirect tax. In indirect taxation, a distinction

them private properties. Tollway fees are not taxes.Indeed, they are not is made between the liability for the tax and burden of the tax. The seller who

assessed and collected by the BIR and do not go to the general coffers of the is liable for the VAT may shift or pass on the amount of VAT it paid on goods,

government. properties or services to the buyer. In such a case, what is transferred is not

It would of course be another matter if Congress enacts a law the sellers liability but merely the burden of the VAT.[29]

imposing a users tax, collectible from motorists, for the construction and

maintenance of certain roadways.The tax in such a case goes directly to the Thus, the seller remains directly and legally liable for payment of the

government for the replenishment of resources it spends for the VAT, but the buyer bears its burden since the amount of VAT paid by the

roadways. This is not the case here. What the government seeks to tax here former is added to the selling price. Once shifted, the VAT ceases to be a

are fees collected from tollways that are constructed, maintained, and tax[30] and simply becomes part of the cost that the buyer must pay in order

operated by private tollway operators at their own expense under the build, to purchase the good, property or service.

operate, and transfer scheme that the government has adopted for

expressways.[26] Except for a fraction given to the government, the toll fees Consequently, VAT on tollway operations is not really a tax on the

essentially end up as earnings of the tollway operators. tollway user, but on the tollway operator. Under Section 105 of the

Code, [31] VAT is imposed on any person who, in the course of trade or

In sum, fees paid by the public to tollway operators for use of the tollways, business, sells or renders services for a fee. In other words, the seller of

are not taxes in any sense. A tax is imposed under the taxing power of the services, who in this case is the tollway operator, is the person liable for VAT.

government principally for the purpose of raising revenues to fund public The latter merely shifts the burden of VAT to the tollway user as part of the
expenditures.[27] Toll fees, on the other hand, are collected by private tollway toll fees.

operators as reimbursement for the costs and expenses incurred in the For this reason, VAT on tollway operations cannot be a tax on tax

construction, maintenance and operation of the tollways, as well as to assure even if toll fees were deemed as a users tax. VAT is assessed against the
 38

tollway operators gross receipts and not necessarily on the toll fees. Although alternative of giving change to thousands of motorists in order to meet the

the tollway operator may shift the VAT burden to the tollway user, it will not exact toll rate would be a logistical nightmare. Thus, according to them, the
make the latter directly liable for the VAT. The shifted VAT burden simply VAT on tollway operations is not administratively feasible.[33]

becomes part of the toll fees that one has to pay in order to use the

tollways.[32] Administrative feasibility is one of the canons of a sound tax system.

It simply means that the tax system should be capable of being effectively

Three. Petitioner Timbol has no personality to invoke the non-impairment of administered and enforced with the least inconvenience to the taxpayer. Non-

contract clause on behalf of private investors in the tollway projects. She will observance of the canon, however, will not render a tax imposition invalid

neither be prejudiced by nor be affected by the alleged diminution in return except to the extent that specific constitutional or statutory limitations are

of investments that may result from the VAT imposition. She has no interest impaired.[34] Thus, even if the imposition of VAT on tollway operations may

at all in the profits to be earned under the TOAs. The interest in and right to seem burdensome to implement, it is not necessarily invalid unless some

recover investments solely belongs to the private tollway investors. aspect of it is shown to violate any law or the Constitution.

Besides, her allegation that the private investors rate of recovery will Here, it remains to be seen how the taxing authority will actually

be adversely affected by imposing VAT on tollway operations is purely implement the VAT on tollway operations. Any declaration by the Court that

speculative. Equally presumptuous is her assertion that a stipulation in the the manner of its implementation is illegal or unconstitutional would be

TOAs known as the Material Adverse Grantor Action will be activated if VAT premature. Although the transcript of the August 12, 2010 Senate hearing

is thus imposed. The Court cannot rule on matters that are manifestly provides some clue as to how the BIR intends to go about it,[35] the facts

conjectural. Neither can it prohibit the State from exercising its sovereign pertaining to the matter are not sufficiently established for the Court to pass

taxing power based on uncertain, prophetic grounds. judgment on. Besides, any concern about how the VAT on tollway operations

will be enforced must first be addressed to the BIR on whom the task of

Four. Finally, petitioners assert that the substantiation requirements implementing tax laws primarily and exclusively rests. The Court cannot

for claiming input VAT make the VAT on tollway operations impractical and preempt the BIRs discretion on the matter, absent any clear violation of law

incapable of implementation. They cite the fact that, in order to claim input or the Constitution.

VAT, the name, address and tax identification number of the tollway user
must be indicated in the VAT receipt or invoice. The manner by which the For the same reason, the Court cannot prematurely declare as illegal,

BIR intends to implement the VAT by rounding off the toll rate and putting BIR RMC 63-2010 which directs toll companies to record an accumulated

any excess collection in an escrow account is also illegal, while the input VAT of zero balance in their books as of August 16, 2010, the date
 39

when the VAT imposition was supposed to take effect. The issuance allegedly based on language in the law too plain to be mistaken.[37] But as the law is

violates Section 111(A)[36] of the Code which grants first time VAT payers a written, no such exemption obtains for tollway operators. The Court is thus
transitional input VAT of 2% on beginning inventory. duty-bound to simply apply the law as it is found.

In this connection, the BIR explained that BIR RMC 63-2010 is Lastly, the grant of tax exemption is a matter of legislative policy that

actually the product of negotiations with tollway operators who have been is within the exclusive prerogative of Congress. The Courts role is to merely

assessed VAT as early as 2005, but failed to charge VAT-inclusive toll fees uphold this legislative policy, as reflected first and foremost in the language

which by now can no longer be collected. The tollway operators agreed to of the tax statute. Thus, any unwarranted burden that may be perceived to

waive the 2% transitional input VAT, in exchange for cancellation of their result from enforcing such policy must be properly referred to Congress. The

past due VAT liabilities. Notably, the right to claim the 2% transitional input Court has no discretion on the matter but simply applies the law.

VAT belongs to the tollway operators who have not questioned the circulars

validity. They are thus the ones who have a right to challenge the circular in The VAT on franchise grantees has been in the statute books since

a direct and proper action brought for the purpose. 1994 when R.A. 7716 or the Expanded Value-Added Tax law was passed. It is

only now, however, that the executive has earnestly pursued the VAT

Conclusion imposition against tollway operators. The executive exercises exclusive

discretion in matters pertaining to the implementation and execution of tax

In fine, the Commissioner of Internal Revenue did not usurp laws. Consequently, the executive is more properly suited to deal with the

legislative prerogative or expand the VAT laws coverage when she sought to immediate and practical consequences of the VAT imposition.

impose VAT on tollway operations. Section 108(A) of the Code clearly states

that services of all other franchise grantees are subject to VAT, except as may WHEREFORE, the Court DENIES respondents Secretary of Finance

be provided under Section 119 of the Code.Tollway operators are not among and Commissioner of Internal Revenues motion for reconsideration of its

the franchise grantees subject to franchise tax under the latter August 24, 2010 resolution, DISMISSES the petitioners Renato V. Diaz and

provision. Neither are their services among the VAT-exempt transactions Aurora Ma. F. Timbols petition for lack of merit, and SETS ASIDE the Courts

under Section 109 of the Code. temporary restraining order dated August 13, 2010.

SO ORDERED.
If the legislative intent was to exempt tollway operations from VAT,

as petitioners so strongly allege, then it would have been well for the law to

clearly say so. Tax exemptions must be justified by clear statutory grant and