G.R. No.

L-28896 February 17, 1988 protest and it was only then that he accepted the warrant of distraint and
levy earlier sought to be served.5 Sixteen days later, on April 23, 1965, Algue
COMMISSIONER OF INTERNAL REVENUE, petitioner, filed a petition for review of the decision of the Commissioner of Internal
vs. Revenue with the Court of Tax Appeals.6
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.
The above chronology shows that the petition was filed seasonably.
CRUZ, J.: According to Rep. Act No. 1125, the appeal may be made within thirty days
after receipt of the decision or ruling challenged.7 It is true that as a rule the
Taxes are the lifeblood of the government and so should be collected warrant of distraint and levy is "proof of the finality of the assessment" 8
without unnecessary hindrance On the other hand, such collection should and renders hopeless a request for reconsideration," 9 being "tantamount
be made in accordance with law as any arbitrariness will negate the very to an outright denial thereof and makes the said request deemed rejected."
reason for government itself. It is therefore necessary to reconcile the 10 But there is a special circumstance in the case at bar that prevents
apparently conflicting interests of the authorities and the taxpayers so that application of this accepted doctrine.
the real purpose of taxation, which is the promotion of the common good,
may be achieved. The proven fact is that four days after the private respondent received the
petitioner's notice of assessment, it filed its letter of protest. This was
The main issue in this case is whether or not the Collector of Internal apparently not taken into account before the warrant of distraint and levy
Revenue correctly disallowed the P75,000.00 deduction claimed by private was issued; indeed, such protest could not be located in the office of the
respondent Algue as legitimate business expenses in its income tax returns. petitioner. It was only after Atty. Guevara gave the BIR a copy of the protest
The corollary issue is whether or not the appeal of the private respondent that it was, if at all, considered by the tax authorities. During the intervening
from the decision of the Collector of Internal Revenue was made on time period, the warrant was premature and could therefore not be served.
and in accordance with law.
As the Court of Tax Appeals correctly noted," 11 the protest filed by private
We deal first with the procedural question. respondent was not pro forma and was based on strong legal
considerations. It thus had the effect of suspending on January 18, 1965,
The record shows that on January 14, 1965, the private respondent, a when it was filed, the reglementary period which started on the date the
domestic corporation engaged in engineering, construction and other allied assessment was received, viz., January 14, 1965. The period started running
activities, received a letter from the petitioner assessing it in the total again only on April 7, 1965, when the private respondent was definitely
amount of P83,183.85 as delinquency income taxes for the years 1958 and informed of the implied rejection of the said protest and the warrant was
1959.1 On January 18, 1965, Algue flied a letter of protest or request for finally served on it. Hence, when the appeal was filed on April 23, 1965, only
reconsideration, which letter was stamp received on the same day in the 20 days of the reglementary period had been consumed.
office of the petitioner. 2 On March 12, 1965, a warrant of distraint and levy
was presented to the private respondent, through its counsel, Atty. Alberto Now for the substantive question.
Guevara, Jr., who refused to receive it on the ground of the pending protest.
3 A search of the protest in the dockets of the case proved fruitless. Atty. The petitioner contends that the claimed deduction of P75,000.00 was
Guevara produced his file copy and gave a photostat to BIR agent Ramon properly disallowed because it was not an ordinary reasonable or necessary
Reyes, who deferred service of the warrant. 4 On April 7, 1965, Atty. business expense. The Court of Tax Appeals had seen it differently. Agreeing
Guevara was finally informed that the BIR was not taking any action on the with Algue, it held that the said amount had been legitimately paid by the

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CONSTI II |ATTY. PASCUAL | TAXATION | TAN
private respondent for actual services rendered. The payment was in the should be remembered that this was a family corporation where strict
form of promotional fees. These were collected by the Payees for their work business procedures were not applied and immediate issuance of receipts
in the creation of the Vegetable Oil Investment Corporation of the was not required. Even so, at the end of the year, when the books were to
Philippines and its subsequent purchase of the properties of the Philippine be closed, each payee made an accounting of all of the fees received by him
Sugar Estate Development Company. or her, to make up the total of P75,000.00. 20 Admittedly, everything
seemed to be informal. This arrangement was understandable, however, in
Parenthetically, it may be observed that the petitioner had Originally view of the close relationship among the persons in the family corporation.
claimed these promotional fees to be personal holding company income 12
but later conformed to the decision of the respondent court rejecting this We agree with the respondent court that the amount of the promotional
assertion.13 In fact, as the said court found, the amount was earned through fees was not excessive. The total commission paid by the Philippine Sugar
the joint efforts of the persons among whom it was distributed It has been Estate Development Co. to the private respondent was P125,000.00. 21
established that the Philippine Sugar Estate Development Company had After deducting the said fees, Algue still had a balance of P50,000.00 as clear
earlier appointed Algue as its agent, authorizing it to sell its land, factories profit from the transaction. The amount of P75,000.00 was 60% of the total
and oil manufacturing process. Pursuant to such authority, Alberto Guevara, commission. This was a reasonable proportion, considering that it was the
Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, payees who did practically everything, from the formation of the Vegetable
worked for the formation of the Vegetable Oil Investment Corporation, Oil Investment Corporation to the actual purchase by it of the Sugar Estate
inducing other persons to invest in it.14 Ultimately, after its incorporation properties. This finding of the respondent court is in accord with the
largely through the promotion of the said persons, this new corporation following provision of the Tax Code:
purchased the PSEDC properties.15 For this sale, Algue received as agent a
commission of P126,000.00, and it was from this commission that the SEC. 30. Deductions from gross income.--In computing net income there
P75,000.00 promotional fees were paid to the aforenamed individuals.16 shall be allowed as deductions —

There is no dispute that the payees duly reported their respective shares of (a) Expenses:
the fees in their income tax returns and paid the corresponding taxes
thereon.17 The Court of Tax Appeals also found, after examining the (1) In general.--All the ordinary and necessary expenses paid or
evidence, that no distribution of dividends was involved.18 incurred during the taxable year in carrying on any trade or business,
including a reasonable allowance for salaries or other compensation for
The petitioner claims that these payments are fictitious because most of the personal services actually rendered; ... 22
payees are members of the same family in control of Algue. It is argued that
no indication was made as to how such payments were made, whether by and Revenue Regulations No. 2, Section 70 (1), reading as follows:
check or in cash, and there is not enough substantiation of such payments.
In short, the petitioner suggests a tax dodge, an attempt to evade a SEC. 70. Compensation for personal services.--Among the ordinary and
legitimate assessment by involving an imaginary deduction. necessary expenses paid or incurred in carrying on any trade or business
may be included a reasonable allowance for salaries or other compensation
We find that these suspicions were adequately met by the private for personal services actually rendered. The test of deductibility in the case
respondent when its President, Alberto Guevara, and the accountant, Cecilia of compensation payments is whether they are reasonable and are, in fact,
V. de Jesus, testified that the payments were not made in one lump sum but payments purely for service. This test and deductibility in the case of
periodically and in different amounts as each payee's need arose. 19 It compensation payments is whether they are reasonable and are, in fact,

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CONSTI II |ATTY. PASCUAL | TAXATION | TAN
payments purely for service. This test and its practical application may be But even as we concede the inevitability and indispensability of taxation, it
further stated and illustrated as follows: is a requirement in all democratic regimes that it be exercised reasonably
and in accordance with the prescribed procedure. If it is not, then the
Any amount paid in the form of compensation, but not in fact as the taxpayer has a right to complain and the courts will then come to his succor.
purchase price of services, is not deductible. (a) An ostensible salary paid by For all the awesome power of the tax collector, he may still be stopped in
a corporation may be a distribution of a dividend on stock. This is likely to his tracks if the taxpayer can demonstrate, as it has here, that the law has
occur in the case of a corporation having few stockholders, Practically all of not been observed.
whom draw salaries. If in such a case the salaries are in excess of those
ordinarily paid for similar services, and the excessive payment correspond We hold that the appeal of the private respondent from the decision of the
or bear a close relationship to the stockholdings of the officers of petitioner was filed on time with the respondent court in accordance with
employees, it would seem likely that the salaries are not paid wholly for Rep. Act No. 1125. And we also find that the claimed deduction by the
services rendered, but the excessive payments are a distribution of earnings private respondent was permitted under the Internal Revenue Code and
upon the stock. . . . (Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.) should therefore not have been disallowed by the petitioner.

It is worth noting at this point that most of the payees were not in the ACCORDINGLY, the appealed decision of the Court of Tax Appeals is
regular employ of Algue nor were they its controlling stockholders. 23 AFFIRMED in toto, without costs.

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

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

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CONSTI II |ATTY. PASCUAL | TAXATION | TAN
[G. R. No. 131512. January 20, 2000] issuance of a permanent writ of injunction against LTO, prohibiting and
enjoining LTO, as well as its employees and other persons acting in its behalf,
LAND TRANSPORTATION OFFICE [LTO], represented by Assistant Secretary from (a) registering tricycles and (b) issuing licenses to drivers of tricycles.
Manuel F. Bruan, LTO Regional Office, Region X represented by its Regional The Court of Appeals, on appeal to it, sustained the trial court. Maniks
Director, Timoteo A. Garcia; and LTO Butuan represented by Rosita G.
Sadiaga, its Registrar, petitioners, vs. CITY OF BUTUAN, represented in this The adverse rulings of both the court a quo and the appellate court
case by Democrito D. Plaza II, City Mayor, respondents. prompted the LTO to file the instant petition for review on certiorari to annul
and set aside the decision,[4] dated 17 November 1997, of the Court of
DECISION Appeals affirming the permanent injunctive writ order of the Regional Trial
Court (Branch 2) of Butuan City.
VITUG, J.:
Respondent City of Butuan asserts that one of the salient provisions
The 1987 Constitution enunciates the policy that the territorial and political introduced by the Local Government Code is in the area of local taxation
subdivisions shall enjoy local autonomy.[1] In obedience to that, mandate which allows LGUs to collect registration fees or charges along with, in its
of the fundamental law, Republic Act ("R.A.") No.7160, otherwise known as view, the corresponding issuance of all kinds of licenses or permits for the
the Local Government Code,[2] expresses that the territorial and political driving of tricycles.
subdivisions of the State shall enjoy genuine and meaningful local autonomy
in order to enable them to attain their fullest development as self-reliant The 1987 Constitution provides:
communities and make them more effective partners in the attainment of
national goals, and that it is a basic aim of the State to provide for a more "Each local government unit shall have the power to create its own sources
responsive and accountable local government structure instituted through of revenues and to levy taxes, fees, and charges subject to such guidelines
a system of decentralization whereby local government units shall be given and limitations as the Congress may provide, consistent with the basic policy
more powers, authority, responsibilities and resources. of local autonomy. Such taxes, fees, and charges shall accrue exclusively to
the local governments."[5]
While the Constitution seeks to strengthen local units and ensure their
viability, clearly, however, it has never been the intention of that organic law Section 129 and Section 133 of the Local Government Code read:
to create an imperium in imperio and install an intra sovereign political
subdivision independent of a single sovereign state. "SEC. 129. Power to Create Sources of Revenue. - Each local government unit
shall exercise its power to create its own sources of revenue and to levy
The Court is asked in this instance to resolve the issue of whether under the taxes, fees, and charges subject to the provisions herein, consistent with the
present set up the power of the Land Registration Office ("LTO") to register, basic policy of local autonomy. Such taxes, fees, and charges shall accrue
tricycles in particular, as well as to issue licenses for the driving thereof, has exclusively to the local government units."
likewise devolved to local government units.
"SEC. 133. Common Limitations on the Taxing Powers of Local Government
The Regional Trial Court (Branch 2) of Butuan City held:[3] that the authority Units. - Unless otherwise provided herein, the exercise of the taxing powers
to register tricycles, the grant of the corresponding franchise, the issuance of provinces, cities, municipalities, and barangays shall not extend to the
of tricycle drivers' license, and the collection of fees therefor had all been levy of the following:
vested in the Local Government Units ("LGUs"). Accordingly, it decreed the

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CONSTI II |ATTY. PASCUAL | TAXATION | TAN
"xxx.......xxx.......xxx. prohibiting and enjoining them, their employees, officers, attorney's or
other persons acting in their behalf from forcing or compelling Tricycles to
"(I) Taxes, fees or charges for the registration of motor vehicles and for the be registered with, and drivers to secure their licenses from respondent LTO
issuance of all kinds of licenses or permits for the driving thereof, except or secure franchise from LTFRB and from collecting fees thereon. It should
tricycles." be understood that the registration, franchise of tricycles and driver's
license/permit granted or issued by the City of Butuan are valid only within
Relying on the foregoing provisions of the law, the Sangguniang the territorial limits of Butuan City.
Panglungsod ("SP") of Butuan, on 16 August 1992, passed SP Ordinance
No.916-92 entitled "An Ordinance Regulating the Operation of Tricycles-for- "No pronouncement as to costs."[6]
Hire, providing mechanism for the issuance of Franchise, Registration and
Permit, and Imposing Penalties for Violations thereof and for other Petitioners timely moved for a reconsideration of the above resolution but
Purposes." The ordinance provided for, among other things, the payment of it was to no avail. Petitioners then appealed to the Court of Appeals. In its
franchise fees for the grant of the franchise of tricycles-for-hire, fees for the now assailed decision, the appellate court, on 17 November 1997, sustained
registration of the vehicle, and fees for the issuance of a permit for the the trial court. It ruled:
driving thereof. Manikan
"WHEREFORE, the petition is hereby DISMISSED and the questioned
Petitioner LTO explains that one of the functions of the national government permanent injunctive writ issued by the court a quo dated March 20, 1995
that, indeed, has been transferred to local government units is the AFFIRMED."[7]
franchising authority over tricycles-for-hire of the Land Transportation
Franchising and Regulatory Board ("LTFRB") but not, it asseverates, the Coming up to this Court, petitioners raise this sole assignment of error, to
authority of LTO to register all motor vehicles and to issue to qualified wit: Oldmis o
persons of licenses to drive such vehicles.
"The Court of Appeals [has] erred in sustaining the validity of the writ of
In order to settle the variant positions of the parties, the City of Butuan, injunction issued by the trial court which enjoined LTO from (1) registering
represented by its City Mayor Democrito D. Plaza, filed on 28 June 1994 with tricycles-for-hire and (2) issuing licenses for the driving thereof since the
the trial court a petition for "prohibition, mandamus, injunction with a Local Government Code devolved only the franchising authority of the
prayer for preliminary restraining order ex-parte" seeking the declaration of LTFRB. Functions of the LTO were not devolved to the LGU's."[8]
the validity of SP Ordinance No.962-93 and the prohibition of the
registration of tricycles-for-hire and the issuance of licenses for the driving The petition is impressed with merit.
thereof by the LTO.
The Department of Transportation and Communications[9] ("DOTC"),
LTO opposed the prayer in the petition. through the LTO and the LTFRB, has since been tasked with implementing
laws pertaining to land transportation. The LTO is a line agency under the
On 20 March 1995, the trial court rendered a resolution; the dispositive DOTC whose powers and functions, pursuant to Article III, Section 4 (d)
portion read: (1),[10] of R.A. No.4136, otherwise known as Land Transportation and
Traffic Code, as amended, deal primarily with the registration of all motor
"In view of the foregoing, let a permanent injunctive writ be issued against vehicles and the licensing of drivers thereof. The LTFRB, upon the other
the respondent Land Transportation Office and the other respondents, hand, is the governing body tasked by E.O. No. 202, dated 19 June 1987, to

5
CONSTI II |ATTY. PASCUAL | TAXATION | TAN
regulate the operation of public utility or "for hire" vehicles and to grant highways involving tricycles. It has been the perception that local
franchises or certificates of public convenience ("CPC").[11] Finely put, governments are in good position to achieve the end desired by the law-
registration and licensing functions are vested in the LTO while franchising making body because of their proximity to the situation that can enable
and regulatory responsibilities had been vested in the LTFRB. them to address that serious concern better than the national government.

Under the Local Government Code, certain functions of the DOTC were It may not be amiss to state, nevertheless, that under Article 458 (a)[3-VI] of
transferred to the LGUs, thusly: the Local Government Code, the power of LGUs to regulate the operation of
tricycles and to grant franchises for the operation thereof is still subject to
"SEC. 458. Powers, Duties, Functions and Compensation. - Ncm the guidelines prescribed by the DOTC. In compliance therewith, the
Department of Transportation and Communications ("DOTC") issued
"xxx.......xxx.......xxx "Guidelines to Implement the Devolution of LTFRBs Franchising Authority
over Tricycles-For-Hire to Local Government units pursuant to the Local
"(3) Subject to the provisions of Book II of this Code, enact ordinances Government Code." Pertinent provisions of the guidelines state:
granting franchises and authorizing the issuance of permits or licenses, upon
such conditions and for such purposes intended to promote the general "In lieu of the Land Transportation Franchising and Regulatory Board (LTFRB)
welfare of the inhabitants of the city and pursuant to this legislative in the DOTC, the Sangguniang Bayan/Sangguniang Panglungsod (SB/SP) shall
authority shall: perform the following:

"xxx.......xxx.......xxx. "(a) Issue, amend, revise, renew, suspend, or cancel MTOP and prescribe the
appropriate terms and conditions therefor; Ncmmis
"(VI) Subject to the guidelines prescribed by the Department of
Transportation and Communications, regulate the operation of tricycles and "xxx.......xxx.......xxx.
grant franchises for the operation thereof within the territorial jurisdiction
of the city." (Emphasis supplied) "Operating Conditions:

LGUs indubitably now have the power to regulate the operation of tricycles- "1. For safety reasons, no tricycles should operate on national highways
for-hire and to grant franchises for the operation thereof. "To regulate" utilized by 4 wheel vehicles greater than 4 tons and where normal speed
means to fix, establish, or control; to adjust by rule, method, or established exceed 40 KPH. However, the SB/SP may provide exceptions if there is no
mode; to direct by rule or restriction; or to subject to governing principles alternative routs.
or laws.[12] A franchise is defined to be a special privilege to do certain
things conferred by government on an individual or corporation, and which "2. Zones must be within the boundaries of the municipality/city. However,
does not belong to citizens generally of common right.[13] On the other existing zones within more than one municipality/city shall be maintained,
hand, "to register" means to record formally and exactly, to enroll, or to provided that operators serving said zone shall secure MTOP's from each of
enter precisely in a list or the like,[14] and a "driver's license" is the the municipalities/cities having jurisdiction over the areas covered by the
certificate or license issued by the government which authorizes a person to zone.
operate a motor vehicle.[15] The devolution of the functions of the DOTC,
performed by the LTFRB, to the LGUs, as so aptly observed by the Solicitor
General, is aimed at curbing the alarming increase of accidents in national

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CONSTI II |ATTY. PASCUAL | TAXATION | TAN
"3. A common color for tricycles-for-hire operating in the same zone may be
imposed. Each unit shall be assigned and bear an identification number, The Commissioner of Land Transportation and his deputies are empowered
aside from its LTO license plate number. at anytime to examine and inspect such motor vehicles to determine
whether said vehicles are registered, or are unsightly, unsafe, improperly
"4. An operator wishing to stop service completely, or to suspend service for marked or equipped, or otherwise unfit to be operated on because of
more than one month, should report in writing such termination or possible excessive damage to highways, bridges and other
suspension to the SB/SP which originally granted the MTOP prior thereto. infrastructures.[17] The LTO is additionally charged with being the central
Transfer to another zone may be permitted upon application. repository and custodian of all records of all motor vehicles.[18]

"5. The MTOP shall be valid for three (3) years, renewable for the same The Court shares the apprehension of the Solicitor General if the above
period. Transfer to another zone, change of ownership of unit or transfer of functions were to likewise devolve to local government units; he states:
MTOP shall be construed as an amendment to an MTOP and shall require
appropriate approval of the SB/SP. "If the tricycle registration function of respondent LTO is decentralized, the
incidence of theft of tricycles will most certainly go up, and stolen tricycles
"6. Operators shall employ only drivers duly licensed by LTO for tricycles-for- registered in one local government could be registered in another with ease.
hire. The determination of ownership thereof will also become very difficult.

"7. No tricycle-for-hire shall be allowed to carry more passengers and/or "Fake driver's licenses will likewise proliferate. This likely scenario unfolds
goods than it is designed for. where a tricycle driver, not qualified by petitioner LTO's testing, could secure
a license from one municipality, and when the same is confiscated, could
"8. A tricycle-for-hire shall be allowed to operate like a taxi service, i.e., just go another municipality to secure another license.
service is rendered upon demand and without a fixed route within a
zone."[16] "Devolution will entail the hiring of additional personnel charged with
inspecting tricycles for road worthiness, testing drivers, and documentation.
Such as can be gleaned from the explicit language of the statute, as well as Revenues raised from tricycle registration may not be enough to meet
the corresponding guidelines issued by DOTC, the newly delegated powers salaries of additional personnel and incidental costs for tools and
pertain to the franchising and regulatory powers theretofore exercised by equipment."[19]
the LTFRB and not to the functions of the LTO relative to the registration of
motor vehicles and issuance of licenses for the driving thereof. Clearly The reliance made by respondents on the broad taxing power of local
unaffected by the Local Government Code are the powers of LTO under R.A. government units, specifically under Section 133 of the Local Government
No.4136 requiring the registration of all kinds of motor vehicles "used or Code, is tangential. Police power and taxation, along with eminent domain,
operated on or upon any public highway" in the country. Thus - are inherent powers of sovereignty which the State might share with local
government units by delegation given under a constitutional or a statutory
"SEC. 5. All motor vehicles and other vehicles must be registered. - (a) No fiat. All these inherent powers are for a public purpose and legislative in
motor vehicle shall be used or operated on or upon any public highway of nature but the similarities just about end there. The basic aim of police
the Philippines unless the same is properly registered for the current year in power is public good and welfare. Taxation, in its case, focuses on the power
accordance with the provisions of this Act (Article 1, Chapter II, R.A. No. of government to raise revenue in order to support its existence and carry
4136). Scnc m out its legitimate objectives. Although correlative to each other in many

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CONSTI II |ATTY. PASCUAL | TAXATION | TAN
respects, the grant of one does not necessarily carry with it the grant of the highways invite collisions with faster and bigger vehicles and impede the
other. The two powers are, by tradition and jurisprudence, separate and flow of traffic."[22]
distinct powers, varying in their respective concepts, character, scopes and
limitations. To construe the tax provisions of Section 133(1) indistinctively The need for ensuring public safety and convenience to commuters and
would result in the repeal to that extent of LTO's regulatory power which pedestrians alike is paramount. It might be well, indeed, for public officials
evidently has not been intended. If it were otherwise, the law could have concerned to pay heed to a number of provisions in our laws that can
just said so in Section 447 and 458 of Book III of the Local Government Code warrant in appropriate cases an incurrence of criminal and civil liabilities.
in the same manner that the specific devolution of LTFRB's power on Thus -
franchising of tricycles has been provided. Repeal by implication is not
favored.[20] The power over tricycles granted under Section 458(a)(3)(VI) of The Revised Penal Code -
the Local Government Code to LGUs is the power to regulate their operation
and to grant franchises for the operation thereof. The exclusionary clause "Art. 208. Prosecution of offenses; negligence and tolerance. - The penalty
contained in the tax provisions of Section 133(1) of the Local Government of prision correccional in its minimum period and suspension shall be
Code must not be held to have had the effect of withdrawing the express imposed upon any public officer, or officer of the law, who, in dereliction of
power of LTO to cause the registration of all motor vehicles and the issuance the duties of his office, shall maliciously refrain from instituting prosecution
of licenses for the driving thereof. These functions of the LTO are essentially for the punishment of violators of the law, or shall tolerate the commission
regulatory in nature, exercised pursuant to the police power of the State, of offenses." Sdaad
whose basic objectives are to achieve road safety by insuring the road
worthiness of these motor vehicles and the competence of drivers The Civil Code -
prescribed by R. A. 4136. Not insignificant is the rule that a statute must not
be construed in isolation but must be taken in harmony with the extant body "Art. 27. Any person suffering material or moral loss because a public
of laws.[21] Sdaa miso servant or employee refuses or neglects, without just cause, to perform his
official duty may file an action for damages and other relief against the
The Court cannot end this decision without expressing its own serious latter, without prejudice to any disciplinary administrative action that may
concern over the seeming laxity in the grant of franchises for the operation be taken."
of tricycles-for-hire and in allowing the indiscriminate use by such vehicles
on public highways and principal thoroughfares. Senator Aquilino C. "Art. 34. When a member of a city or municipal police force refuses or fails
Pimentel, Jr., the principal author, and sponsor of the bill that eventually has to render aid or protection to any person in case of danger to life or
become to be known as the Local Government Code, has aptly remarked: property, such peace officer shall be primarily liable for damages, and the
city or municipality shall be subsidiarily responsible therefor. The civil action
"Tricycles are a popular means of transportation, specially in the herein recognized shall be independent of any criminal, proceedings, and a
countryside. They are, unfortunately, being allowed to drive along highways preponderance of evidence shall suffice to support such action."
and principal thoroughfares where they pose hazards to their passengers
arising from potential collisions with buses, cars and jeepneys. "Art. 2189. Provinces, cities and municipalities shall be liable for damages
for the death of, or injuries suffered by, any person by reason of the
"The operation of tricycles within a municipality may be regulated by the defective condition of roads, streets, bridges, public buildings, and other
Sangguniang Bayan. In this connection, the Sangguniang concerned would public works under their control or supervision."
do well to consider prohibiting the operation of tricycles along or across

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CONSTI II |ATTY. PASCUAL | TAXATION | TAN
The Local Government Code - G.R. No. 159796 July 17, 2007

"Sec. 24. Liability for Damages. - Local government units and their officials ROMEO P. GEROCHI, KATULONG NG BAYAN (KB) and ENVIRONMENTALIST
are not exempt from liability for death or injury to persons or damage to CONSUMERS NETWORK, INC. (ECN), Petitioners,
property." vs.
DEPARTMENT OF ENERGY (DOE), ENERGY REGULATORY COMMISSION
WHEREFORE, the assailed decision which enjoins the Land Transportation (ERC), NATIONAL POWER CORPORATION (NPC), POWER SECTOR ASSETS
Office from requiring the due registration of tricycles and a license for the AND LIABILITIES MANAGEMENT GROUP (PSALM Corp.), STRATEGIC POWER
driving thereof is REVERSED and SET ASIDE. UTILITIES GROUP (SPUG), and PANAY ELECTRIC COMPANY INC. (PECO),
Respondents.
No pronouncements on costs.
DECISION
Let copies of this decision be likewise furnished the Department of Interior
and Local Governments, the Department of Public Works and Highways and NACHURA, J.:
the Department of Transportation and Communication.
Petitioners Romeo P. Gerochi, Katulong Ng Bayan (KB), and Environmentalist
SO ORDERED. Consumers Network, Inc. (ECN) (petitioners), come before this Court in this
original action praying that Section 34 of Republic Act (RA) 9136, otherwise
known as the "Electric Power Industry Reform Act of 2001" (EPIRA),
imposing the Universal Charge,1 and Rule 18 of the Rules and Regulations
(IRR)2 which seeks to implement the said imposition, be declared
unconstitutional. Petitioners also pray that the Universal Charge imposed
upon the consumers be refunded and that a preliminary injunction and/or
temporary restraining order (TRO) be issued directing the respondents to
refrain from implementing, charging, and collecting the said charge.3 The
assailed provision of law reads:

SECTION 34. Universal Charge. — Within one (1) year from the effectivity of
this Act, a universal charge to be determined, fixed and approved by the
ERC, shall be imposed on all electricity end-users for the following purposes:

(a) Payment for the stranded debts4 in excess of the amount assumed by
the National Government and stranded contract costs of NPC5 and as well
as qualified stranded contract costs of distribution utilities resulting from
the restructuring of the industry;

(b) Missionary electrification;6

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CONSTI II |ATTY. PASCUAL | TAXATION | TAN
(c) The equalization of the taxes and royalties applied to indigenous or of ₱119,488,847.59, be approved for withdrawal from the Special Trust
renewable sources of energy vis-à-vis imported energy fuels; Fund (STF) managed by respondent Power Sector Assets and

(d) An environmental charge equivalent to one-fourth of one centavo per Liabilities Management Group (PSALM)10 for the rehabilitation and
kilowatt-hour (₱0.0025/kWh), which shall accrue to an environmental fund management of watershed areas.11
to be used solely for watershed rehabilitation and management. Said fund
shall be managed by NPC under existing arrangements; and On December 20, 2002, the ERC issued an Order12 in ERC Case No. 2002-
165 provisionally approving the computed amount of ₱0.0168/kWh as the
(e) A charge to account for all forms of cross-subsidies for a period not share of the NPC-SPUG from the Universal Charge for Missionary
exceeding three (3) years. Electrification and authorizing the National Transmission Corporation
(TRANSCO) and Distribution Utilities to collect the same from its end-users
The universal charge shall be a non-bypassable charge which shall be passed on a monthly basis.
on and collected from all end-users on a monthly basis by the distribution
utilities. Collections by the distribution utilities and the TRANSCO in any On June 26, 2003, the ERC rendered its Decision13 (for ERC Case No. 2002-
given month shall be remitted to the PSALM Corp. on or before the fifteenth 165) modifying its Order of December 20, 2002, thus:
(15th) of the succeeding month, net of any amount due to the distribution
utility. Any end-user or self-generating entity not connected to a distribution WHEREFORE, the foregoing premises considered, the provisional authority
utility shall remit its corresponding universal charge directly to the granted to petitioner National Power Corporation-Strategic Power Utilities
TRANSCO. The PSALM Corp., as administrator of the fund, shall create a Group (NPC-SPUG) in the Order dated December 20, 2002 is hereby
Special Trust Fund which shall be disbursed only for the purposes specified modified to the effect that an additional amount of ₱0.0205 per kilowatt-
herein in an open and transparent manner. All amount collected for the hour should be added to the ₱0.0168 per kilowatt-hour provisionally
universal charge shall be distributed to the respective beneficiaries within a authorized by the Commission in the said Order. Accordingly, a total amount
reasonable period to be provided by the ERC. of ₱0.0373 per kilowatt-hour is hereby APPROVED for withdrawal from the
Special Trust Fund managed by PSALM as its share from the Universal
The Facts Charge for Missionary Electrification (UC-ME) effective on the following
billing cycles:
Congress enacted the EPIRA on June 8, 2001; on June 26, 2001, it took
effect.7 (a) June 26-July 25, 2003 for National Transmission Corporation (TRANSCO);
and
On April 5, 2002, respondent National Power Corporation-Strategic Power
Utilities Group8 (NPC-SPUG) filed with respondent Energy Regulatory (b) July 2003 for Distribution Utilities (Dus).
Commission (ERC) a petition for the availment from the Universal Charge of
its share for Missionary Electrification, docketed as ERC Case No. 2002-165.9 Relative thereto, TRANSCO and Dus are directed to collect the UC-ME in the
amount of ₱0.0373 per kilowatt-hour and remit the same to PSALM on or
On May 7, 2002, NPC filed another petition with ERC, docketed as ERC Case before the 15th day of the succeeding month.
No. 2002-194, praying that the proposed share from the Universal Charge
for the Environmental charge of ₱0.0025 per kilowatt-hour (/kWh), or a total In the meantime, NPC-SPUG is directed to submit, not later than April 30,
2004, a detailed report to include Audited Financial Statements and physical

10
CONSTI II |ATTY. PASCUAL | TAXATION | TAN
status (percentage of completion) of the projects using the prescribed
format.1avvphi1 On the basis of the said ERC decisions, respondent Panay Electric Company,
Inc. (PECO) charged petitioner Romeo P. Gerochi and all other end-users
Let copies of this Order be furnished petitioner NPC-SPUG and all with the Universal Charge as reflected in their respective electric bills
distribution utilities (Dus). starting from the month of July 2003.17

SO ORDERED. Hence, this original action.

On August 13, 2003, NPC-SPUG filed a Motion for Reconsideration asking Petitioners submit that the assailed provision of law and its IRR which sought
the ERC, among others,14 to set aside the above-mentioned Decision, which to implement the same are unconstitutional on the following grounds:
the ERC granted in its Order dated October 7, 2003, disposing:
1) The universal charge provided for under Sec. 34 of the EPIRA and sought
WHEREFORE, the foregoing premises considered, the "Motion for to be implemented under Sec. 2, Rule 18 of the IRR of the said law is a tax
Reconsideration" filed by petitioner National Power Corporation-Small which is to be collected from all electric end-users and self-generating
Power Utilities Group (NPC-SPUG) is hereby GRANTED. Accordingly, the entities. The power to tax is strictly a legislative function and as such, the
Decision dated June 26, 2003 is hereby modified accordingly. delegation of said power to any executive or administrative agency like the
ERC is unconstitutional, giving the same unlimited authority. The assailed
Relative thereto, NPC-SPUG is directed to submit a quarterly report on the provision clearly provides that the Universal Charge is to be determined,
following: fixed and approved by the ERC, hence leaving to the latter complete
discretionary legislative authority.
1. Projects for CY 2002 undertaken;
2) The ERC is also empowered to approve and determine where the funds
2. Location collected should be used.

3. Actual amount utilized to complete the project; 3) The imposition of the Universal Charge on all end-users is oppressive and
confiscatory and amounts to taxation without representation as the
4. Period of completion; consumers were not given a chance to be heard and represented.18

5. Start of Operation; and Petitioners contend that the Universal Charge has the characteristics of a tax
and is collected to fund the operations of the NPC. They argue that the
6. Explanation of the reallocation of UC-ME funds, if any. cases19 invoked by the respondents clearly show the regulatory purpose of
the charges imposed therein, which is not so in the case at bench. In said
SO ORDERED.15 cases, the respective funds20 were created in order to balance and stabilize
the prices of oil and sugar, and to act as buffer to counteract the changes
Meanwhile, on April 2, 2003, ERC decided ERC Case No. 2002-194, and adjustments in prices, peso devaluation, and other variables which
authorizing the NPC to draw up to ₱70,000,000.00 from PSALM for its 2003 cannot be adequately and timely monitored by the legislature. Thus, there
Watershed Rehabilitation Budget subject to the availability of funds for the was a need to delegate powers to administrative bodies.21 Petitioners posit
Environmental Fund component of the Universal Charge.16 that the Universal Charge is imposed not for a similar purpose.

11
CONSTI II |ATTY. PASCUAL | TAXATION | TAN
On the other hand, respondent PSALM through the Office of the The ultimate issues in the case at bar are:
Government Corporate Counsel (OGCC) contends that unlike a tax which is
imposed to provide income for public purposes, such as support of the 1) Whether or not, the Universal Charge imposed under Sec. 34 of the EPIRA
government, administration of the law, or payment of public expenses, the is a tax; and
assailed Universal Charge is levied for a specific regulatory purpose, which
is to ensure the viability of the country's electric power industry. Thus, it is 2) Whether or not there is undue delegation of legislative power to tax on
exacted by the State in the exercise of its inherent police power. On this the part of the ERC.26
premise, PSALM submits that there is no undue delegation of legislative
power to the ERC since the latter merely exercises a limited authority or Before we discuss the issues, the Court shall first deal with an obvious
discretion as to the execution and implementation of the provisions of the procedural lapse.
EPIRA.22
Petitioners filed before us an original action particularly denominated as a
Respondents Department of Energy (DOE), ERC, and NPC, through the Office Complaint assailing the constitutionality of Sec. 34 of the EPIRA imposing the
of the Solicitor General (OSG), share the same view that the Universal Universal Charge and Rule 18 of the EPIRA's IRR. No doubt, petitioners have
Charge is not a tax because it is levied for a specific regulatory purpose, locus standi. They impugn the constitutionality of Sec. 34 of the EPIRA
which is to ensure the viability of the country's electric power industry, and because they sustained a direct injury as a result of the imposition of the
is, therefore, an exaction in the exercise of the State's police power. Universal Charge as reflected in their electric bills.
Respondents further contend that said Universal Charge does not possess
the essential characteristics of a tax, that its imposition would redound to However, petitioners violated the doctrine of hierarchy of courts when they
the benefit of the electric power industry and not to the public, and that its filed this "Complaint" directly with us. Furthermore, the Complaint is bereft
rate is uniformly levied on electricity end-users, unlike a tax which is of any allegation of grave abuse of discretion on the part of the ERC or any
imposed based on the individual taxpayer's ability to pay. Moreover, of the public respondents, in order for the Court to consider it as a petition
respondents deny that there is undue delegation of legislative power to the for certiorari or prohibition.
ERC since the EPIRA sets forth sufficient determinable standards which
would guide the ERC in the exercise of the powers granted to it. Lastly, Article VIII, Section 5(1) and (2) of the 1987 Constitution27 categorically
respondents argue that the imposition of the Universal Charge is not provides that:
oppressive and confiscatory since it is an exercise of the police power of the
State and it complies with the requirements of due process.23 SECTION 5. The Supreme Court shall have the following powers:

On its part, respondent PECO argues that it is duty-bound to collect and 1. Exercise original jurisdiction over cases affecting ambassadors, other
remit the amount pertaining to the Missionary Electrification and public ministers and consuls, and over petitions for certiorari, prohibition,
Environmental Fund components of the Universal Charge, pursuant to Sec. mandamus, quo warranto, and habeas corpus.
34 of the EPIRA and the Decisions in ERC Case Nos. 2002-194 and 2002-165.
Otherwise, PECO could be held liable under Sec. 4624 of the EPIRA, which 2. Review, revise, reverse, modify, or affirm on appeal or certiorari, as the
imposes fines and penalties for any violation of its provisions or its IRR.25 law or the rules of court may provide, final judgments and orders of lower
courts in:
The Issues

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CONSTI II |ATTY. PASCUAL | TAXATION | TAN
(a) All cases in which the constitutionality or validity of any treaty, On the other hand, police power is the power of the state to promote public
international or executive agreement, law, presidential decree, welfare by restraining and regulating the use of liberty and property.33 It is
proclamation, order, instruction, ordinance, or regulation is in question. the most pervasive, the least limitable, and the most demanding of the three
fundamental powers of the State. The justification is found in the Latin
But this Court's jurisdiction to issue writs of certiorari, prohibition, maxims salus populi est suprema lex (the welfare of the people is the
mandamus, quo warranto, and habeas corpus, while concurrent with that supreme law) and sic utere tuo ut alienum non laedas (so use your property
of the regional trial courts and the Court of Appeals, does not give litigants as not to injure the property of others). As an inherent attribute of
unrestrained freedom of choice of forum from which to seek such relief.28 sovereignty which virtually extends to all public needs, police power grants
It has long been established that this Court will not entertain direct resort to a wide panoply of instruments through which the State, as parens patriae,
it unless the redress desired cannot be obtained in the appropriate courts, gives effect to a host of its regulatory powers.34 We have held that the
or where exceptional and compelling circumstances justify availment of a power to "regulate" means the power to protect, foster, promote, preserve,
remedy within and call for the exercise of our primary jurisdiction.29 This and control, with due regard for the interests, first and foremost, of the
circumstance alone warrants the outright dismissal of the present action. public, then of the utility and of its patrons.35

This procedural infirmity notwithstanding, we opt to resolve the The conservative and pivotal distinction between these two powers rests in
constitutional issue raised herein. We are aware that if the constitutionality the purpose for which the charge is made. If generation of revenue is the
of Sec. 34 of the EPIRA is not resolved now, the issue will certainly resurface primary purpose and regulation is merely incidental, the imposition is a tax;
in the near future, resulting in a repeat of this litigation, and probably but if regulation is the primary purpose, the fact that revenue is incidentally
involving the same parties. In the public interest and to avoid unnecessary raised does not make the imposition a tax.36
delay, this Court renders its ruling now.
In exacting the assailed Universal Charge through Sec. 34 of the EPIRA, the
The instant complaint is bereft of merit. State's police power, particularly its regulatory dimension, is invoked. Such
can be deduced from Sec. 34 which enumerates the purposes for which the
The First Issue Universal Charge is imposed37 and which can be amply discerned as
regulatory in character. The EPIRA resonates such regulatory purposes, thus:
To resolve the first issue, it is necessary to distinguish the State’s power of
taxation from the police power. SECTION 2. Declaration of Policy. — It is hereby declared the policy of the
State:
The power to tax is an incident of sovereignty and is unlimited in its range,
acknowledging in its very nature no limits, so that security against its abuse (a) To ensure and accelerate the total electrification of the country;
is to be found only in the responsibility of the legislature which imposes the
tax on the constituency that is to pay it.30 It is based on the principle that (b) To ensure the quality, reliability, security and affordability of the supply
taxes are the lifeblood of the government, and their prompt and certain of electric power;
availability is an imperious need.31 Thus, the theory behind the exercise of
the power to tax emanates from necessity; without taxes, government (c) To ensure transparent and reasonable prices of electricity in a regime of
cannot fulfill its mandate of promoting the general welfare and well-being free and fair competition and full public accountability to achieve greater
of the people.32 operational and economic efficiency and enhance the competitiveness of
Philippine products in the global market;

13
CONSTI II |ATTY. PASCUAL | TAXATION | TAN
 aforementioned cases. With the Universal Charge, a Special Trust Fund (STF)
(d) To enhance the inflow of private capital and broaden the ownership base is also created under the administration of PSALM.42 The STF has some
of the power generation, transmission and distribution sectors; notable characteristics similar to the OPSF and the SSF, viz.:

(e) To ensure fair and non-discriminatory treatment of public and private 1) In the implementation of stranded cost recovery, the ERC shall conduct a
sector entities in the process of restructuring the electric power industry; review to determine whether there is under-recovery or over recovery and
adjust (true-up) the level of the stranded cost recovery charge. In case of an
(f) To protect the public interest as it is affected by the rates and services of over-recovery, the ERC shall ensure that any excess amount shall be
electric utilities and other providers of electric power; remitted to the STF. A separate account shall be created for these amounts
which shall be held in trust for any future claims of distribution utilities for
(g) To assure socially and environmentally compatible energy sources and stranded cost recovery. At the end of the stranded cost recovery period, any
infrastructure; remaining amount in this account shall be used to reduce the electricity
rates to the end-users.43
(h) To promote the utilization of indigenous and new and renewable energy
resources in power generation in order to reduce dependence on imported 2) With respect to the assailed Universal Charge, if the total amount
energy; collected for the same is greater than the actual availments against it, the
PSALM shall retain the balance within the STF to pay for periods where a
(i) To provide for an orderly and transparent privatization of the assets and shortfall occurs.44
liabilities of the National Power Corporation (NPC);
3) Upon expiration of the term of PSALM, the administration of the STF shall
(j) To establish a strong and purely independent regulatory body and system be transferred to the DOF or any of the DOF attached agencies as designated
to ensure consumer protection and enhance the competitive operation of by the DOF Secretary.45
the electricity market; and
The OSG is in point when it asseverates:
(k) To encourage the efficient use of energy and other modalities of demand
side management. Evidently, the establishment and maintenance of the Special Trust Fund,
under the last paragraph of Section 34, R.A. No. 9136, is well within the
From the aforementioned purposes, it can be gleaned that the assailed pervasive and non-waivable power and responsibility of the government to
Universal Charge is not a tax, but an exaction in the exercise of the State's secure the physical and economic survival and well-being of the community,
police power. Public welfare is surely promoted. that comprehensive sovereign authority we designate as the police power
of the State.46
Moreover, it is a well-established doctrine that the taxing power may be
used as an implement of police power.38 In Valmonte v. Energy Regulatory This feature of the Universal Charge further boosts the position that the
Board, et al.39 and in Gaston v. Republic Planters Bank,40 this Court held same is an exaction imposed primarily in pursuit of the State's police
that the Oil Price Stabilization Fund (OPSF) and the Sugar Stabilization Fund objectives. The STF reasonably serves and assures the attainment and
(SSF) were exactions made in the exercise of the police power. The doctrine perpetuity of the purposes for which the Universal Charge is imposed, i.e.,
was reiterated in Osmeña v. Orbos41 with respect to the OPSF. Thus, we to ensure the viability of the country's electric power industry.
disagree with petitioners that the instant case is different from the

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CONSTI II |ATTY. PASCUAL | TAXATION | TAN
The Second Issue Although Sec. 34 of the EPIRA merely provides that "within one (1) year from
the effectivity thereof, a Universal Charge to be determined, fixed and
The principle of separation of powers ordains that each of the three approved by the ERC, shall be imposed on all electricity end-users," and
branches of government has exclusive cognizance of and is supreme in therefore, does not state the specific amount to be paid as Universal Charge,
matters falling within its own constitutionally allocated sphere. A logical the amount nevertheless is made certain by the legislative parameters
corollary to the doctrine of separation of powers is the principle of non- provided in the law itself. For one, Sec. 43(b)(ii) of the EPIRA provides:
delegation of powers, as expressed in the Latin maxim potestas delegata
non delegari potest (what has been delegated cannot be delegated). This is SECTION 43. Functions of the ERC. — The ERC shall promote competition,
based on the ethical principle that such delegated power constitutes not encourage market development, ensure customer choice and penalize
only a right but a duty to be performed by the delegate through the abuse of market power in the restructured electricity industry. In
instrumentality of his own judgment and not through the intervening mind appropriate cases, the ERC is authorized to issue cease and desist order after
of another. 47 due notice and hearing. Towards this end, it shall be responsible for the
following key functions in the restructured industry:
In the face of the increasing complexity of modern life, delegation of
legislative power to various specialized administrative agencies is allowed as xxxx
an exception to this principle.48 Given the volume and variety of
interactions in today's society, it is doubtful if the legislature can promulgate (b) Within six (6) months from the effectivity of this Act, promulgate and
laws that will deal adequately with and respond promptly to the minutiae of enforce, in accordance with law, a National Grid Code and a Distribution
everyday life. Hence, the need to delegate to administrative bodies - the Code which shall include, but not limited to the following:
principal agencies tasked to execute laws in their specialized fields - the
authority to promulgate rules and regulations to implement a given statute xxxx
and effectuate its policies. All that is required for the valid exercise of this
power of subordinate legislation is that the regulation be germane to the (ii) Financial capability standards for the generating companies, the
objects and purposes of the law and that the regulation be not in TRANSCO, distribution utilities and suppliers: Provided, That in the
contradiction to, but in conformity with, the standards prescribed by the formulation of the financial capability standards, the nature and function of
law. These requirements are denominated as the completeness test and the the entity shall be considered: Provided, further, That such standards are set
sufficient standard test. to ensure that the electric power industry participants meet the minimum
financial standards to protect the public interest. Determine, fix, and
Under the first test, the law must be complete in all its terms and conditions approve, after due notice and public hearings the universal charge, to be
when it leaves the legislature such that when it reaches the delegate, the imposed on all electricity end-users pursuant to Section 34 hereof;
only thing he will have to do is to enforce it. The second test mandates
adequate guidelines or limitations in the law to determine the boundaries Moreover, contrary to the petitioners’ contention, the ERC does not enjoy a
of the delegate's authority and prevent the delegation from running riot.49 wide latitude of discretion in the determination of the Universal Charge. Sec.
51(d) and (e) of the EPIRA50 clearly provides:
The Court finds that the EPIRA, read and appreciated in its entirety, in
relation to Sec. 34 thereof, is complete in all its essential terms and SECTION 51. Powers. — The PSALM Corp. shall, in the performance of its
conditions, and that it contains sufficient standards. functions and for the attainment of its objective, have the following powers:

15
CONSTI II |ATTY. PASCUAL | TAXATION | TAN
xxxx the legislators decided to broaden the jurisdiction of the ERC, they did not
intend to abolish or reduce the powers already conferred upon ERC's
(d) To calculate the amount of the stranded debts and stranded contract predecessors. To sustain the view that the ERC possesses only the powers
costs of NPC which shall form the basis for ERC in the determination of the and functions listed under Section 43 of the EPIRA is to frustrate the
universal charge; objectives of the law.

(e) To liquidate the NPC stranded contract costs, utilizing the proceeds from In his Concurring and Dissenting Opinion62 in the same case, then Associate
sales and other property contributed to it, including the proceeds from the Justice, now Chief Justice, Reynato S. Puno described the immensity of
universal charge. police power in relation to the delegation of powers to the ERC and its
regulatory functions over electric power as a vital public utility, to wit:
Thus, the law is complete and passes the first test for valid delegation of
legislative power. Over the years, however, the range of police power was no longer limited to
the preservation of public health, safety and morals, which used to be the
As to the second test, this Court had, in the past, accepted as sufficient primary social interests in earlier times. Police power now requires the State
standards the following: "interest of law and order;"51 "adequate and to "assume an affirmative duty to eliminate the excesses and injustices that
efficient instruction;"52 "public interest;"53 "justice and equity;"54 "public are the concomitants of an unrestrained industrial economy." Police power
convenience and welfare;"55 "simplicity, economy and efficiency;"56 is now exerted "to further the public welfare — a concept as vast as the good
"standardization and regulation of medical education;"57 and "fair and of society itself." Hence, "police power is but another name for the
equitable employment practices."58 Provisions of the EPIRA such as, among governmental authority to further the welfare of society that is the basic
others, "to ensure the total electrification of the country and the quality, end of all government." When police power is delegated to administrative
reliability, security and affordability of the supply of electric power"59 and bodies with regulatory functions, its exercise should be given a wide
"watershed rehabilitation and management"60 meet the requirements for latitude. Police power takes on an even broader dimension in developing
valid delegation, as they provide the limitations on the ERC’s power to countries such as ours, where the State must take a more active role in
formulate the IRR. These are sufficient standards. balancing the many conflicting interests in society. The Questioned Order
was issued by the ERC, acting as an agent of the State in the exercise of
It may be noted that this is not the first time that the ERC's conferred powers police power. We should have exceptionally good grounds to curtail its
were challenged. In Freedom from Debt Coalition v. Energy Regulatory exercise. This approach is more compelling in the field of rate-regulation of
Commission,61 the Court had occasion to say: electric power rates. Electric power generation and distribution is a
traditional instrument of economic growth that affects not only a few but
In determining the extent of powers possessed by the ERC, the provisions of the entire nation. It is an important factor in encouraging investment and
the EPIRA must not be read in separate parts. Rather, the law must be read promoting business. The engines of progress may come to a screeching halt
in its entirety, because a statute is passed as a whole, and is animated by if the delivery of electric power is impaired. Billions of pesos would be lost
one general purpose and intent. Its meaning cannot to be extracted from as a result of power outages or unreliable electric power services. The State
any single part thereof but from a general consideration of the statute as a thru the ERC should be able to exercise its police power with great flexibility,
whole. Considering the intent of Congress in enacting the EPIRA and reading when the need arises.
the statute in its entirety, it is plain to see that the law has expanded the
jurisdiction of the regulatory body, the ERC in this case, to enable the latter This was reiterated in National Association of Electricity Consumers for
to implement the reforms sought to be accomplished by the EPIRA. When Reforms v. Energy Regulatory Commission63 where the Court held that the

16
CONSTI II |ATTY. PASCUAL | TAXATION | TAN
ERC, as regulator, should have sufficient power to respond in real time to ordains the division of the industry into four (4) distinct sectors, namely:
changes wrought by multifarious factors affecting public utilities. generation, transmission, distribution and supply.

From the foregoing disquisitions, we therefore hold that there is no undue Corollarily, the NPC generating plants have to privatized and its transmission
delegation of legislative power to the ERC. business spun off and privatized thereafter.67

Petitioners failed to pursue in their Memorandum the contention in the Finally, every law has in its favor the presumption of constitutionality, and
Complaint that the imposition of the Universal Charge on all end-users is to justify its nullification, there must be a clear and unequivocal breach of
oppressive and confiscatory, and amounts to taxation without the Constitution and not one that is doubtful, speculative, or
representation. Hence, such contention is deemed waived or abandoned argumentative.68 Indubitably, petitioners failed to overcome this
per Resolution64 of August 3, 2004.65 Moreover, the determination of presumption in favor of the EPIRA. We find no clear violation of the
whether or not a tax is excessive, oppressive or confiscatory is an issue which Constitution which would warrant a pronouncement that Sec. 34 of the
essentially involves questions of fact, and thus, this Court is precluded from EPIRA and Rule 18 of its IRR are unconstitutional and void.
reviewing the same.66
WHEREFORE, the instant case is hereby DISMISSED for lack of merit.
As a penultimate statement, it may be well to recall what this Court said of
EPIRA: SO ORDERED.

One of the landmark pieces of legislation enacted by Congress in recent

years is the EPIRA. It established a new policy, legal structure and regulatory
framework for the electric power industry. The new thrust is to tap private
capital for the expansion and improvement of the industry as the large
government debt and the highly capital-intensive character of the industry
itself have long been acknowledged as the critical constraints to the
program. To attract private investment, largely foreign, the jaded structure
of the industry had to be addressed. While the generation and transmission
sectors were centralized and monopolistic, the distribution side was
fragmented with over 130 utilities, mostly small and uneconomic. The
pervasive flaws have caused a low utilization of existing generation capacity;
extremely high and uncompetitive power rates; poor quality of service to
consumers; dismal to forgettable performance of the government power
sector; high system losses; and an inability to develop a clear strategy for
overcoming these shortcomings.

Thus, the EPIRA provides a framework for the restructuring of the industry,
including the privatization of the assets of the National Power Corporation
(NPC), the transition to a competitive structure, and the delineation of the
roles of various government agencies and the private entities. The law

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CONSTI II |ATTY. PASCUAL | TAXATION | TAN
G.R. No. L-10470 June 26, 1958
ART. 2. — The City Treasurer shall, for issuance of license permit required in
SERAFIN SALDAÑA, plaintiff-appellant, article one hereof, collect a fee as follows:
vs.
CITY OF ILOILO, defendant-appellee. Large cattle, whether alive or slaughtered, P10 per head.
Pigs, goats, and sheep, whether alive or slaughtered, P5 each.
Serafin B. Saldaña for appellant. Chicken and other domestic fowls, whether alive or dressed — P0.50 each.
City Fiscal Filemon R. Consolacion for appellee. Eggs, P2.00 per hundred or P0.02 each.
Fish, whether fresh, dried or salted, P0.20 per kilo.
MONTEMAYOR, J.: Bagoon (guinamos) P0.10 per kilo.
Crabs, prawn or the like, P0.20 per kilo.
Serafin Saldaña is appealing the decision of the Court of First Instance of Milkfish (semilla), P2 per pot.
Iloilo in Civil Case No. 2236, dismissing his complaint against the City of Iloilo, Banana, P2, per hundred bunches or P0.02 per bunch.
for the refund of taxes paid by him under protest, and upholding the legality Other fruits not mentioned herein — P0.02 per kilo.
of Ordinance No. 28, Series of 1946, as amended by Ordinance No. 30, same
series of the defendant City. Art. 3. — It shall be unlawful for any carrier whether land, water, or air, to
load any of the articles mentioned herein which is not provided with the
On May 25, 1946, the defendant City of Iloilo promulgated Ordinance No. corresponding permit as required by this ordinance.
28, series of 1946, which for purposes of reference we reproduce below:
Art. 4. — Violation of this ordinance shall be punished with a fine of not less
ORDINANCE No. 28 than One Hundred (P100) Pesos, or more than Two Hundred (P200) Pesos,
imprisonment of not less than ten (10) days but not exceeding six (6) months
AN ORDINANCE REGULATING THE EXIT OF FOOD SUPPLY AND LABOR and to suffer subsidiary imprisonment in case of insolvency to pay the fine.
ANIMALS AND IMPOSING PERMIT FEE THEREFOR. ...

Be it ordained by the Municipal Board of the City of Iloilo, that: Ordinance No. 30, passed on June 4, 1946, amended Ordinance No. 28 by
reducing the fees for each chicken from P.50 to P.20, eggs from P2 to P1 per
ARTICLE 1. — For the purpose of regulating during this state of emergency, hundred, and for fish from P.20 to P.10 per kilo, bananas from P2 to P1 per
the exit of food supply and labor animals in order to avert shortage of the hundred bunches etc. Under said ordinances, Saldaña had been paying,
same in the City of Iloilo, it is strictly prohibited to send outside of the City though under protest, so-called fees on fish bought in the City of Iloilo and
of Iloilo, without first obtaining the necessary license permit from the sent by him to Manila by plane, during the period from September 16, 1946
Mayor, the following: to December 6, 1946, totalling P1,359.80.

Large cattle, pigs, goats, sheep or the like; On September 17, 1951, plaintiff commenced the present proceedings by
Domestic fowls, eggs; complaint for the reimbursement to him of the said amount with interest,
Fish, whether fresh, salted or dried; on the ground that the ordinances in question were illegal, null and void,
Milkfish (semilla), bagoon (guinamos, crabs, prawn or the like); having been enacted beyond the powers of the Municipal Board of the City.
Fruits, such as bananas, melon, papayas or the like. In its answer, the defendant contended that the imposition and collection

18
CONSTI II |ATTY. PASCUAL | TAXATION | TAN
of the municipal licenses were within the power and duties of the Municipal government for the use of the nation or state; burdens or charges imposed
Board in the exercise of its police power. The parties submitted an agreed by the legislative power upon persons or property to raise money for public
statement of facts to the effect that during the period above-mentioned, purposes" (61 C. J., 65); y Derechos o Fees, son por otra parte, "a reward or
Saldaña had sent fish out of Iloilo City to Manila, for the sending of which, compensation allowed by law to an officer for specific services performed
the City collected P1,359.80 under the two ordinances in question, and that by him in the discharge of his official duties; a sum certain given for a
the payment of said amount was made under protest. On the basis of the particular service; the sum prescribed by law as for services rendered by
agreed statement of facts, the lower court rendered the decision now public officers" (25 C. J., 1009). (Manila Electric Co. vs. Auditor General, et
appealed to us, holding that Ordinance No. 28 as amended was valid; that al., 73 Phil. 128, 133).
the purpose of the said ordinances was to regulate the exit of food supply
and labor animals from the city of Iloilo and their sale beyond city limits, and . . . . So-called license taxes are of two kinds. The one is a tax for the purpose
falls squarely within the provisions of paragraph (aa), Section 21 of the of revenue. The other, which is, strictly speaking, not a tax at all but merely
Charter of the City, namely, Commonwealth Act No. 158; that the ordinance an exercise of the police power, is a fee imposed for the purpose of
does not restrict trade but only regulates the business of purchase of regulation. . . . But a charge of a fixed sum which bears no relation to the
foodstuffs for the purpose of taking them outside, with the purpose of cost of inspection and which is payable into the general revenue of the state
averting the scarcity of foodstuffs; that the imposition and collection of the is a tax rather than an exercise of the police power. (Cooley, Taxation, 4th
license fees provided in the said ordinance was included within the police ed., Vol. I, pp. 97-98).
power and that said fees were reasonable amounts, necessary to cover the
expenses in the issuance of the licenses and the cost of the necessary Judging from the amount of the fees fixed in the ordinances in question, we
inspection or police surveillance. do not hesitate to find and to hold that the so-called fees were in reality
taxes for city revenue. For instance, the P10.00 fee for every head of large
One question involved in the appeal is whether the licensed fees imposed cattle, whether alive or slaughtered, and the P5.00 fee for every pig, goat,
and collected were in reality taxes. The following authorities are or sheep, whether alive or slaughtered, cannot possibly be considered as
illuminating: mere expense incurred for, or the cost of the inspection of each animal and
the issuance of the corresponding permit. If a pig, goat, or sheep costs, say,
. . . . The differences between the license and the property tax are well P15 or even P20, then the P5.00 fee would constitute quite a considerable
established. The license represents the permission conceded to do an act, is slice or portion of said cost; and if the animals and articles listed in the
not supposed to be imposed for revenue, and is in the main for police ordinances were sent out from the City of Iloilo in large quantities and
purposes. A property tax, on the other hand, is a tax in the ordinary sense, numbers, there would be no doubt that the fees collected would amount to
assessed according to the value of property. (City of Manila vs. Tanquintic, a sizable sum and augment greatly the revenues of the municipal
58 Phil. 297, 300). corporation, way in excess of the cost of inspections and the issuance of the
permits.
. . . . Estos dos terminos "derechos" e "impuesto" no entranan el mismo
concepto, porque Impuestos o Taxes son, segun todas las autoridades Another important question is that Article 1 of the ordinance also strictly
conocidas, "an enforced contribution of money or other property assessed prohibits the sending out of the City of Iloilo, of the animals and articles
in accordance with some reasonable rule of apportionment by authority of enumerated therein, like large cattle, pigs, fowl, fish, eggs, fruits, etc.,
a sovereign state, on persons or property within its jurisdiction, for the without first obtaining the necessary license permit from the mayor; and
purpose of defraying the public expenses" (26 R. C. L. par. 2, page 13); or "a Article 3 declares it unlawful for any carrier whether land water or air, to
rate or sum of money assessed on the person or property of a citizen by load any of said animals or articles without the corresponding permit. The

19
CONSTI II |ATTY. PASCUAL | TAXATION | TAN
ordinance fails to provide for any regulations or conditions under which the municipal revenue obtainable by taxation shall be derived from such sources
permit can be granted or denied. In other words, the mayor has absolute only as are expressly authorized by law; and it further provides, and this is
power to refuse to issue any permit, practically making him absolute dictator very important, that:
over the subject matter. With merely telling the applicant and prospective
licensee that said animals and articles are needed in the City of Iloilo, the It shall not be in the power of the municipal council to impose a tax in any
mayor could refuse to grant the permit. To realize the danger of the grant form whatever upon goods and merchandise into the municipality, or out of
of said absolute power is not difficult. the same, and any attempt to impose an import or export tax upon such
goods in the guise of an unreasonable charge for wharfage, use of bridges
As to the reasonableness of the prohibition of selling and taking out of the or otherwise, shall be void. (Emphasis supplied).
City of Iloilo of any of the animals and articles enumerated in the ordinance,
appellant asks us to consider or take judicial notice of the fact that those This last provision is reproduced in Section 2629, of the same Revised
animals and articles are not all produced in the City of Iloilo, but come from Administrative Code, entitled "General Rules for Municipal Taxation and
other towns of the province, even from other provinces adjacent, and are Licenses."
taken to the City of Iloilo only for the purpose of transportation to other
places, like Manila. In other words, they are not brought into the City of Iloilo In conclusion, we find that the ordinance in question as amended, is ultra
for the consumption of the residents thereof, but for export to other places. vires, enacted beyond the general powers of a municipal corporation and
But once inside the city limits, under the ordinance, the mayor takes not authorized by the defendant-appellee's charter, and consequently null
absolute control and has jurisdiction to allow or disallow their being taken and void; that the prohibition against taking animals and articles out of the
out of the city, and in case he issues the permit for their being taken away, City of Iloilo without permit of the mayor is in restraint of trade and a
taxes are imposed thereon under the guise of license fees. curtailment of the rights of the owners of the said animals and articles to
freely sell and of prospective purchasers to buy and dispose of them without
As correctly argued by the appellant, nowhere in the charter of the the city limits in the ordinary course of commerce and trade; that the fees
defendant City is it authors to regulate and collect fees or taxes for, the imposed in the said ordinances are in fact taxes not only unauthorized by
taking out of the city, of animals and articles listed in the ordinance. On the the law or the charter of defendant City, but also in contravention of the
other hand, a municipal corporation like the defendant City has no inherent provisions of Sections 2287 and 2629 of the Revised Administrative Code,
power of taxation. To enact a valid ordinance, the City must find in its charter which prohibit municipal corporations from imposing any tax in any form
the power to do so, for said power cannot be assumed. upon goods and merchandise carried into or out of the town or City.

A municipal corporation, unlike a sovereign state, is clothed with no In view of the foregoing, the appealed decision is hereby reversed and the
inherent power of taxation. Its charter must plainly show an intent to confer City of Iloilo is hereby ordered to reimburse plaintiff the amount of
that power or the corporation cannot assume it. And the power when P1,359.80, with legal interest and costs.
granted is to be construed strictissimi juris. Any doubt or ambiguity arising
out of the term used must be resolved against the corporation. (Santos
Lumber Co. vs. City of Cebu, et al., 102 Phil., 870; See also Arong vs. Raffiñan,
98 Phil., 422).

Aside from this lack of inherent power of taxation by a municipal

corporation, Section 2287 of the Revised Administrative Code provides that

20
CONSTI II |ATTY. PASCUAL | TAXATION | TAN
ANGELES UNIVERSITY FOUNDATION,Petitioner, P126,839.20. An Order of Payment was also issued by the City Planning and
- versus – Development Office, Zoning Administration Unit requiring petitioner to pay
the sum of P238,741.64 as Locational Clearance Fee.[5]
CITY OF ANGELES, JULIET G.QUINSAAT, in her capacity as
In separate letters dated November 15, 2005 addressed to respondents City
G.R. No. 189999 Treasurer Juliet G. Quinsaat and Acting City Building Official Donato N.
Dizon, petitioner claimed that it is exempt from the payment of the building
Treasurer of Angeles City and ENGR. DONATO N. DIZON, in his capacity as permit and locational clearance fees, citing legal opinions rendered by the
Acting Angeles City Building Official,Respondents. Department of Justice (DOJ). Petitioner also reminded the respondents that
June 27, 2012 they have previously issued building permits acknowledging such exemption
from payment of building permit fees on the construction of petitioners 4-
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x storey AUF Information Technology Center building and the AUF
Professional Schools building on July 27, 2000 and March 15, 2004,
DECISION respectively.[6]

VILLARAMA, JR., J.: Respondent City Treasurer referred the matter to the Bureau of Local
Government Finance (BLGF) of the Department of Finance, which in turn
Before us is a petition for review on certiorari under Rule 45 of the 1997 endorsed the query to the DOJ. Then Justice Secretary Raul M. Gonzalez, in
Rules of Civil Procedure, as amended, which seeks to reverse and set aside his letter-reply dated December 6, 2005, cited previous issuances of his
the Decision[1] dated July 28, 2009 and Resolution[2] dated October 12, office (Opinion No. 157, s. 1981 and Opinion No. 147, s. 1982) declaring
2009 of the Court of Appeals (CA) in CA-G.R. CV No. 90591. The CA reversed petitioner to be exempt from the payment of building permit fees. Under
the Decision[3] dated September 21, 2007 of the Regional Trial Court of the 1st Indorsement dated January 6, 2006, BLGF reiterated the aforesaid
Angeles City, Branch 57 in Civil Case No. 12995 declaring petitioner exempt opinion of the DOJ stating further that xxx the Department of Finance, thru
from the payment of building permit and other fees and ordering this Bureau, has no authority to review the resolution or the decision of the
respondents to refund the same with interest at the legal rate. DOJ.[7]

The factual antecedents: Petitioner wrote the respondents reiterating its request to reverse the
disputed assessments and invoking the DOJ legal opinions which have been
Petitioner Angeles University Foundation (AUF) is an educational institution affirmed by Secretary Gonzalez. Despite petitioners plea, however,
established on May 25, 1962 and was converted into a non-stock, non-profit respondents refused to issue the building permits for the construction of the
education foundation under the provisions of Republic Act (R.A.) No. AUF Medical Center in the main campus and renovation of a school building
6055[4] on December 4, 1975. located at Marisol Village. Petitioner then appealed the matter to City Mayor
Carmelo F. Lazatin but no written response was received by petitioner.[8]
Sometime in August 2005, petitioner filed with the Office of the City Building
Official an application for a building permit for the construction of an 11- Consequently, petitioner paid under protest[9] the following:
storey building of the Angeles University Foundation Medical Center in its
main campus located at MacArthur Highway, Angeles City, Pampanga. Said Medical Center (new construction)
office issued a Building Permit Fee Assessment in the amount of

21
CONSTI II |ATTY. PASCUAL | TAXATION | TAN
 In its Answer,[13] respondents asserted that the claim of petitioner cannot
be granted because its structures are not among those mentioned in Sec.
209 of the National Building Code as exempted from the building permit fee.
Respondents argued that R.A. No. 6055 should be considered repealed on
the basis of Sec. 2104 of the National Building Code. Since the disputed
Building Permit and Electrical Fee P 217,475.20 assessments are regulatory in nature, they are not taxes from which
Locational Clearance Fee 283,741.64 petitioner is exempt. As to the real property taxes imposed on petitioners
Fire Code Fee 144,690.00 property located in Marisol Village, respondents pointed out that said
Total - P 645,906.84 premises will be used as a school dormitory which cannot be considered as
a use exclusively for educational activities.
School Building (renovation)
Petitioner countered that the subject building permit are being collected on
Building Permit and Electrical Fee P 37,857.20 the basis of Art. 244 of the Implementing Rules and Regulations of the Local
Locational Clearance Fee 6,000.57 Government Code, which impositions are really taxes considering that they
Fire Code Fee 5,967.74 are provided under the chapter on Local Government Taxation in reference
Total - P 49,825.51 to the revenue raising power of local government units (LGUs). Moreover,
petitioner contended that, as held in Philippine Airlines, Inc. v. Edu,[14] fees
Petitioner likewise paid the following sums as required by the City Assessors may be regarded as taxes depending on the purpose of its exaction. In any
Office: case, petitioner pointed out that the Local Government Code of 1991
provides in Sec. 193 that non-stock and non-profit educational institutions
Real Property Tax Basic Fee P 86,531.10 like petitioner retained the tax exemptions or incentives which have been
SEF 43,274.54 granted to them. Under Sec. 8 of R.A. No. 6055 and applicable jurisprudence
Locational Clearance Fee 1,125.00 and DOJ rulings, petitioner is clearly exempt from the payment of building
Total P130,930.64 permit fees.[15]

[GRAND TOTAL - P 826,662.99] On September 21, 2007, the trial court rendered judgment in favor of the
petitioner and against the respondents. The dispositive portion of the trial
By reason of the above payments, petitioner was issued the corresponding courts decision[16] reads:
Building Permit, Wiring Permit, Electrical Permit and Sanitary Building
Permit. On June 9, 2006, petitioner formally requested the respondents to WHEREFORE, premises considered, judgment is rendered as follows:
refund the fees it paid under protest. Under letters dated June 15, 2006 and
August 7, 2006, respondent City Treasurer denied the claim for refund.[11] a. Plaintiff is exempt from the payment of building permit and other fees
Ordering the Defendants to refund the total amount of Eight Hundred
On August 31, 2006, petitioner filed a Complaint[12] before the trial court Twenty Six Thousand Six Hundred Sixty Two Pesos and 99/100 Centavos
seeking the refund of P826,662.99 plus interest at the rate of 12% per (P826,662.99) plus legal interest thereon at the rate of twelve percent (12%)
annum, and also praying for the award of attorneys fees in the amount of per annum commencing on the date of extra-judicial demand or June 14,
P300,000.00 and litigation expenses. 2006, until the aforesaid amount is fully paid.

22
CONSTI II |ATTY. PASCUAL | TAXATION | TAN
 PROCEEDINGS NECESSITATING THE HONORABLE COURTS EXERCISE OF ITS
b. Finding the Defendants liable for attorneys fees in the amount of Seventy POWER OF SUPERVISION CONSIDERING THAT:
Thousand Pesos (Php70,000.00), plus litigation expenses.
I. IN REVERSING THE TRIAL COURTS DECISION DATED 21 SEPTEMBER 2007,
c. Ordering the Defendants to pay the costs of the suit. THE COURT OF APPEALS EFFECTIVELY WITHDREW THE PRIVILEGE OF
EXEMPTION GRANTED TO NON-STOCK, NON-PROFIT EDUCATIONAL
SO ORDERED.[17] FOUNDATIONS BY VIRTUE OF RA 6055 WHICH WITHDRAWAL IS BEYOND
THE AUTHORITY OF THE COURT OF APPEALS TO DO.
Respondents appealed to the CA which reversed the trial court, holding that
while petitioner is a tax-free entity, it is not exempt from the payment of A. INDEED, RA 6055 REMAINS VALID AND IS IN FULL FORCE AND EFFECT.
regulatory fees. The CA noted that under R.A. No. 6055, petitioner was HENCE, THE COURT OF APPEALS ERRED WHEN IT RULED IN THE
granted exemption only from income tax derived from its educational QUESTIONED DECISION THAT NON-STOCK, NON-PROFIT EDUCATIONAL
activities and real property used exclusively for educational purposes. FOUNDATIONS ARE NOT EXEMPT.
Regardless of the repealing clause in the National Building Code, the CA held
that petitioner is still not exempt because a building permit cannot be B. THE COURT OF APPEALS APPLICATION OF THE PRINCIPLE OF EJUSDEM
considered as the other charges mentioned in Sec. 8 of R.A. No. 6055 which GENERIS IN RULING IN THE QUESTIONED DECISION THAT THE TERM OTHER
refers to impositions in the nature of tax, import duties, assessments and CHARGES IMPOSED BY THE GOVERNMENT UNDER SECTION 8 OF RA 6055
other collections for revenue purposes, following the ejusdem generisrule. DOES NOT INCLUDE BUILDING PERMIT AND OTHER RELATED FEES AND/OR
The CA further stated that petitioner has not shown that the fees collected CHARGES IS BASED ON ITS ERRONEOUS AND UNWARRANTED ASSUMPTION
were excessive and more than the cost of surveillance, inspection and THAT THE TAXES, IMPORT DUTIES AND ASSESSMENTS AS PART OF THE
regulation. And while petitioner may be exempt from the payment of real PRIVILEGE OF EXEMPTION GRANTED TO NON-STOCK, NON-PROFIT
property tax, petitioner in this case merely alleged that the subject property EDUCATIONAL FOUNDATIONS ARE LIMITED TO COLLECTIONS FOR REVENUE
is to be used actually, directly and exclusively for educational purposes, PURPOSES.
declaring merely that such premises is intended to house the sports and
other facilities of the university but by reason of the occupancy of informal C. EVEN ASSUMING THAT THE BUILDING PERMIT AND OTHER RELATED FEES
settlers on the area, it cannot yet utilize the same for its intended use. Thus, AND/OR CHARGES ARE NOT INCLUDED IN THE TERM OTHER CHARGES
the CA concluded that petitioner is not entitled to the refund of building IMPOSED BY THE GOVERNMENT UNDER SECTION 8 OF RA 6055, ITS
permit and related fees, as well as real property tax it paid under protest. IMPOSITION IS GENERALLY A TAX MEASURE AND THEREFORE, STILL
COVERED UNDER THE PRIVILEGE OF EXEMPTION.
Petitioner filed a motion for reconsideration which was denied by the CA.
II. THE COURT OF APPEALS DENIAL OF PETITIONER AUFS EXEMPTION FROM
Hence, this petition raising the following grounds: REAL PROPERTY TAXES CONTAINED IN ITS QUESTIONED DECISION AND
QUESTIONED RESOLUTION IS CONTRARY TO APPLICABLE LAW AND
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR AND DECIDED A JURISPRUDENCE.[18]
QUESTION OF SUBSTANCE IN A WAY NOT IN ACCORDANCE WITH LAW AND
THE APPLICABLE DECISIONS OF THE HONORABLE COURT AND HAS Petitioner stresses that the tax exemption granted to educational stock
DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL corporations which have converted into non-profit foundations was
broadened to include any other charges imposed by the Government as one

23
CONSTI II |ATTY. PASCUAL | TAXATION | TAN
of the incentives for such conversion. These incentives necessarily included against persons or property. Respondents point out that a building permit is
exemption from payment of building permit and related fees as otherwise classified under the term fee. A fee is generally imposed to cover the cost of
there would have been no incentives for educational foundations if the regulation as activity or privilege and is essentially derived from the exercise
privilege were only limited to exemption from taxation, which is already of police power; on the other hand, impositions for services rendered by the
provided under the Constitution. local government units or for conveniences furnished, are referred to as
service charges.
Petitioner further contends that this Court has consistently held in several
cases that the primary purpose of the exaction determines its nature. Thus, Respondents also disagreed with petitioners contention that the fees
a charge of a fixed sum which bears no relation to the cost of inspection and imposed and collected are exorbitant and exceeded the probable expenses
which is payable into the general revenue of the state is a tax rather than an of regulation. These fees are based on computations and assessments made
exercise of the police power. The standard set by law in the determination by the responsible officials of the City Engineers Office in accordance with
of the amount that may be imposed as license fees is such that is the Schedule of Fees and criteria provided in the National Building Code. The
commensurate with the cost of regulation, inspection and licensing. But in bases of assessment cited by petitioner (e.g. salary of employees, expenses
this case, the amount representing the building permit and related fees of transportation and preparation and reproduction of documents) refer to
and/or charges is such an exorbitant amount as to warrant a valid charges and fees on business and occupation under Sec. 147 of the Local
imposition; such amount exceeds the probable cost of regulation. Even with Government Code, which do not apply to building permit fees. The
the alleged criteria submitted by the respondents (e.g., character of parameters set by the National Building Code can be considered as
occupancy or use of building/structure, cost of construction, floor area and complying with the reasonable cost of regulation in the assessment and
height), and the construction by petitioner of an 11-storey building, the collection of building permit fees. Respondents likewise contend that the
costs of inspection will not amount to P645,906.84, presumably for the presumption of regularity in the performance of official duty applies in this
salary of inspectors or employees, the expenses of transportation for case. Petitioner should have presented evidence to prove its allegations that
inspection and the preparation and reproduction of documents. Petitioner the amounts collected are exorbitant or unreasonable.
thus concludes that the disputed fees are substantially and mainly for
purposes of revenue rather than regulation, so that even these fees cannot For resolution are the following issues: (1) whether petitioner is exempt
be deemed charges mentioned in Sec. 8 of R.A. No. 6055, they should from the payment of building permit and related fees imposed under the
properly be treated as tax from which petitioner is exempt. National Building Code; and (2) whether the parcel of land owned by
petitioner which has been assessed for real property tax is likewise exempt.
In their Comment, respondents maintain that petitioner is not exempt from
the payment of building permit and related fees since the only exemptions R.A. No. 6055 granted tax exemptions to educational institutions like
provided in the National Building Code are public buildings and traditional petitioner which converted to non-stock, non-profit educational
indigenous family dwellings. Inclusio unius est exclusio alterius. Because the foundations. Section 8 of said law provides:
law did not include petitioners buildings from those structures exempt from
the payment of building permit fee, it is therefore subject to the regulatory SECTION 8. The Foundation shall be exempt from the payment of all taxes,
fees imposed under the National Building Code. import duties, assessments, and other charges imposed by the Government
onall income derived from or property, real or personal, used exclusively for
Respondents assert that the CA correctly distinguished a building permit fee the educational activities of the Foundation.(Emphasis supplied.)
from those other charges mentioned in Sec. 8 of R.A. No. 6055. As stated by
petitioner itself, charges refer to pecuniary liability, as rents, and fees

24
CONSTI II |ATTY. PASCUAL | TAXATION | TAN
On February 19, 1977, Presidential Decree (P.D.) No. 1096 was issued government regulation. While it may be argued that the fees relate to
adopting the National Building Code of the Philippines. The said Code particular properties, i.e., buildings and structures, they are actually
requires every person, firm or corporation, including any agency or imposed on certain activities the owner may conduct either to build such
instrumentality of the government to obtain a building permit for any structures or to repair, alter, renovate or demolish the same. This is evident
construction, alteration or repair of any building or structure.[19]Building from the following provisions of the National Building Code:
permit refers to a document issued by the Building Official x x x to an
owner/applicant to proceed with the construction, installation, addition, Section 102. Declaration of Policy
alteration, renovation, conversion, repair, moving, demolition or other work
activity of a specific project/building/structure or portions thereof after the It is hereby declared to be the policy of the State to safeguard life, health,
accompanying principal plans, specifications and other pertinent documents property, and public welfare, consistent with theprinciples of sound
with the duly notarized application are found satisfactory and substantially environmental management and control; and tothis end, make it the
conforming with the National Building Code of the Philippines x x x and its purpose of this Code to provide for allbuildings and structures, a framework
Implementing Rules and Regulations (IRR).[20] Building permit fees refers to of minimum standards and requirements to regulate and control their
the basic permit fee and other charges imposed under the National Building location, site, design quality of materials, construction, use, occupancy, and
Code. maintenance.

Exempted from the payment of building permit fees are: (1) public buildings Section 103. Scope and Application
and (2) traditional indigenous family dwellings.[21] Not being expressly
included in the enumeration of structures to which the building permit fees (a) The provisions of this Code shall apply to the design,location, sitting,
do not apply, petitioners claim for exemption rests solely on its construction, alteration, repair,conversion, use, occupancy, maintenance,
interpretation of the term other charges imposed by the National moving, demolitionof, and addition to public and private buildings
Government in the tax exemption clause of R.A. No. 6055. andstructures, except traditional indigenous family dwellingsas defined
herein.
A charge is broadly defined as the price of, or rate for, something, while the
word fee pertains to a charge fixed by law for services of public officers or xxxx
for use of a privilege under control of government.[22] As used in the Local
Government Code of 1991 (R.A. No. 7160), charges refers to pecuniary Section 301. Building Permits
liability, as rents or fees against persons or property, while fee means a
charge fixed by law or ordinance for the regulation or inspection of a No person, firm or corporation, including any agency orinstrumentality of
business or activity.[23] the government shall erect, construct, alter, repair, move, convert or
demolish any building or structure or causethe same to be done without first
That charges in its ordinary meaning appears to be a general term which obtaining a building permittherefor from the Building Official assigned in the
could cover a specific fee does not support petitioners position that building place where thesubject building is located or the building work is to be done.
permit fees are among those other charges from which it was expressly (Italics supplied.)
exempted. Note that the other charges mentioned in Sec. 8 of R.A. No. 6055
is qualified by the words imposed by the Government on all x x x property That a building permit fee is a regulatory imposition is highlighted by the fact
used exclusively for the educational activities of the foundation. Building that in processing an application for a building permit, the Building Official
permit fees are not impositions on property but on the activity subject of shall see to it that the applicant satisfies and conforms with approved

25
CONSTI II |ATTY. PASCUAL | TAXATION | TAN
standard requirements on zoning and land use, lines and grades, structural has petitioner adduced evidence to show that the rates of building permit
design, sanitary and sewerage, environmental health, electrical and fees imposed and collected by the respondents were unreasonable or in
mechanical safety as well as with other rules and regulations implementing excess of the cost of regulation and inspection.
the National Building Code.[24] Thus, ancillary permits such as electrical
permit, sanitary permit and zoning clearance must also be secured and the In Chevron Philippines, Inc. v. Bases Conversion Development Authority,[29]
corresponding fees paid before a building permit may be issued. And as can this Court explained:
be gleaned from the implementing rules and regulations of the National
Building Code, clearances from various government authorities exercising In distinguishing tax and regulation as a form of police power, the
and enforcing regulatory functions affecting buildings/structures, like local determining factor is the purpose of the implemented measure. If the
government units, may be further required before a building permit may be purpose is primarily to raise revenue, then it will be deemed a tax even
issued.[25] though the measure results in some form of regulation. On the other hand,
if the purpose is primarily to regulate, then it is deemed a regulation and an
Since building permit fees are not charges on property, they are not exercise of the police power of the state, even though incidentally, revenue
impositions from which petitioner is exempt. is generated. Thus, in Gerochi v. Department of Energy, the Court stated:

As to petitioners argument that the building permit fees collected by The conservative and pivotal distinction between these two (2) powers rests
respondents are in reality taxes because the primary purpose is to raise in the purpose for which the charge is made. If generation of revenue is the
revenues for the local government unit, the same does not hold water. primary purpose and regulation is merely incidental, the imposition is a tax;
but if regulation is the primary purpose, the fact that revenue is incidentally
A charge of a fixed sum which bears no relation at all to the cost of inspection raised does not make the imposition a tax.[30] (Emphasis supplied.)
and regulation may be held to be a tax rather than an exercise of the police
power.[26] In this case, the Secretary of Public Works and Highways who is Concededly, in the case of building permit fees imposed by the National
mandated to prescribe and fix the amount of fees and other charges that Government under the National Building Code, revenue is incidentally
the Building Official shall collect in connection with the performance of generated for the benefit of local government units. Thus:
regulatory functions,[27] has promulgated and issued the Implementing
Rules and Regulations[28] which provide for the bases of assessment of such Section 208. Fees
fees, as follows:
Every Building Official shall keep a permanent record and accurate account
1. Character of occupancy or use of building of all fees and other charges fixed and authorized by the Secretary to be
collected and received under this Code.
2. Cost of construction 10,000/sq.m (A,B,C,D,E,G,H,I), 8,000 (F), 6,000 (J)
Subject to existing budgetary, accounting and auditing rules and regulations,
3. Floor area the Building Official is hereby authorized to retain not more than twenty
percent of his collection for the operating expenses of his office.
4. Height
The remaining eighty percent shall be deposited with the provincial, city or
Petitioner failed to demonstrate that the above bases of assessment were municipal treasurer and shall accrue to the General Fund of the province,
arbitrarily determined or unrelated to the activity being regulated. Neither city or municipality concerned.

26
CONSTI II |ATTY. PASCUAL | TAXATION | TAN
Petitioners reliance on Sec. 193 of the Local Government Code of 1991 is xxxx
likewise misplaced. Said provision states:
(b) Charitable institutions, churches, parsonages or convents appurtenant
SECTION 193. Withdrawal of Tax Exemption Privileges. -- Unless otherwise thereto, mosques, non-profit or religious cemeteries and all lands, buildings,
provided in this Code, tax exemptions or incentives granted to, or presently and improvements actually, directly, and exclusively used for religious,
enjoyed by all persons, whether natural or juridical, including government- charitable or educational purposes;
owned or controlled corporations, except local water districts, cooperatives
duly registered under R.A. No. 6938, non-stock and non-profit hospitals and x x x x (Emphasis supplied.)
educational institutions, are hereby withdrawn upon the effectivity of this
Code. (Emphasis supplied.) In Lung Center of the Philippines v. Quezon City,[31] this Court held that only
portions of the hospital actually, directly and exclusively used for charitable
Considering that exemption from payment of regulatory fees was not purposes are exempt from real property taxes, while those portions leased
among those incentives granted to petitioner under R.A. No. 6055, there is to private entities and individuals are not exempt from such taxes. We
no such incentive that is retained under the Local Government Code of 1991. explained the condition for the tax exemption privilege of charitable and
Consequently, no reversible error was committed by the CA in ruling that educational institutions, as follows:
petitioner is liable to pay the subject building permit and related fees.
Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to
Now, on petitioners claim that it is exempted from the payment of real be entitled to the exemption, the petitioner is burdened to prove, by clear
property tax assessed against its real property presently occupied by and unequivocal proof, that (a) it is a charitable institution; and (b) its real
informal settlers. properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable
purposes. Exclusive is defined as possessed and enjoyed to the exclusion of
Section 28(3), Article VI of the 1987 Constitution provides: others; debarred from participation or enjoyment; and exclusively is
defined, in a manner to exclude; as enjoying a privilege exclusively. If real
xxxx property is used for one or more commercial purposes, it is not exclusively
used for the exempted purposes but is subject to taxation. The words
(3) Charitable institutions, churches and parsonages or convents dominant use or principal use cannot be substituted for the words used
appurtenant thereto, mosques, non-profit cemeteries, and all lands, exclusively without doing violence to the Constitutions and the law. Solely is
buildings, and improvements, actually, directly and exclusively used for synonymous with exclusively.
religious, charitable or educational purposes shall be exempt from taxation.
What is meant by actual, direct and exclusive use of the property for
x x x x (Emphasis supplied.) charitable purposes is the direct and immediate and actual application of
the property itself to the purposes for which the charitable institution is
Section 234(b) of the Local Government Code of 1991 implements the organized. It is not the use of the income from the real property that is
foregoing constitutional provision by declaring that -- determinative of whether the property is used for tax-exempt purposes.[32]
(Emphasis and underscoring supplied.)
SECTION 234. Exemptions from Real Property Tax. The following are
exempted from payment of the real property tax:

27
CONSTI II |ATTY. PASCUAL | TAXATION | TAN
Petitioner failed to discharge its burden to prove that its real property is G.R. No. 167330 September 18, 2009
actually, directly and exclusively used for educational purposes. While there
is no allegation or proof that petitioner leases the land to its present PHILIPPINE HEALTH CARE PROVIDERS, INC., Petitioner,
occupants, still there is no compliance with the constitutional and statutory vs.
requirement that said real property is actually, directly and exclusively used COMMISSIONER OF INTERNAL REVENUE, Respondent.
for educational purposes. The respondents correctly assessed the land for
real property taxes for the taxable period during which the land is not being RESOLUTION
devoted solely to petitioners educational activities. Accordingly, the CA did
not err in ruling that petitioner is likewise not entitled to a refund of the real CORONA, J.:
property tax it paid under protest.
ARTICLE II
WHEREFORE, the petition is DENIED. The Decision dated July 28, 2009 and Declaration of Principles and State Policies
Resolution dated October 12, 2009 of the Court of Appeals in CA-G.R. CV No.
90591 are AFFIRMED. Section 15. The State shall protect and promote the right to health of the
people and instill health consciousness among them.
No pronouncement as to costs.
ARTICLE XIII
SO ORDERED. Social Justice and Human Rights

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 needs of the underprivileged
sick, elderly, disabled, women, and children. The State shall endeavor to
provide free medical care to paupers.1

For resolution are a motion for reconsideration and supplemental motion

for reconsideration dated July 10, 2008 and July 14, 2008, respectively, filed
by petitioner Philippine Health Care Providers, Inc.2

We recall the facts of this case, as follows:

Petitioner is a domestic corporation whose primary purpose is "[t]o

establish, maintain, conduct and operate a prepaid group practice health
care delivery system or a health maintenance organization to take care of
the sick and disabled persons enrolled in the health care plan and to provide
for the administrative, legal, and financial responsibilities of the
organization." Individuals enrolled in its health care programs pay an annual

28
CONSTI II |ATTY. PASCUAL | TAXATION | TAN
membership fee and are entitled to various preventive, diagnostic and
curative medical services provided by its duly licensed physicians, specialists SO ORDERED.
and other professional technical staff participating in the group practice
health delivery system at a hospital or clinic owned, operated or accredited Respondent appealed the CTA decision to the [Court of Appeals (CA)] insofar
by it. as it cancelled the DST assessment. He claimed that petitioner’s health care
agreement was a contract of insurance subject to DST under Section 185 of
xxx xxx xxx the 1997 Tax Code.

On January 27, 2000, respondent Commissioner of Internal Revenue [CIR] On August 16, 2004, the CA rendered its decision. It held that petitioner’s
sent petitioner a formal demand letter and the corresponding assessment health care agreement was in the nature of a non-life insurance contract
notices demanding the payment of deficiency taxes, including surcharges subject to DST.
and interest, for the taxable years 1996 and 1997 in the total amount of
₱224,702,641.18. xxxx WHEREFORE, the petition for review is GRANTED. The Decision of the Court
of Tax Appeals, insofar as it cancelled and set aside the 1996 and 1997
The deficiency [documentary stamp tax (DST)] assessment was imposed on deficiency documentary stamp tax assessment and ordered petitioner to
petitioner’s health care agreement with the members of its health care desist from collecting the same is REVERSED and SET ASIDE.
program pursuant to Section 185 of the 1997 Tax Code xxxx
Respondent is ordered to pay the amounts of ₱55,746,352.19 and
xxx xxx xxx ₱68,450,258.73 as deficiency Documentary Stamp Tax for 1996 and 1997,
respectively, plus 25% surcharge for late payment and 20% interest per
Petitioner protested the assessment in a letter dated February 23, 2000. As annum from January 27, 2000, pursuant to Sections 248 and 249 of the Tax
respondent did not act on the protest, petitioner filed a petition for review Code, until the same shall have been fully paid.
in the Court of Tax Appeals (CTA) seeking the cancellation of the deficiency
VAT and DST assessments. SO ORDERED.

On April 5, 2002, the CTA rendered a decision, the dispositive portion of Petitioner moved for reconsideration but the CA denied it. Hence, petitioner
which read: filed this case.

WHEREFORE, in view of the foregoing, the instant Petition for Review is xxx xxx xxx
PARTIALLY GRANTED. Petitioner is hereby ORDERED to PAY the deficiency
VAT amounting to ₱22,054,831.75 inclusive of 25% surcharge plus 20% In a decision dated June 12, 2008, the Court denied the petition and affirmed
interest from January 20, 1997 until fully paid for the 1996 VAT deficiency the CA’s decision. We held that petitioner’s health care agreement during
and ₱31,094,163.87 inclusive of 25% surcharge plus 20% interest from the pertinent period was in the nature of non-life insurance which is a
January 20, 1998 until fully paid for the 1997 VAT deficiency. Accordingly, contract of indemnity, citing Blue Cross Healthcare, Inc. v. Olivares3 and
VAT Ruling No. [231]-88 is declared void and without force and effect. The Philamcare Health Systems, Inc. v. CA.4 We also ruled that petitioner’s
1996 and 1997 deficiency DST assessment against petitioner is hereby contention that it is a health maintenance organization (HMO) and not an
CANCELLED AND SET ASIDE. Respondent is ORDERED to DESIST from insurance company is irrelevant because contracts between companies like
collecting the said DST deficiency tax. petitioner and the beneficiaries under their plans are treated as insurance

29
CONSTI II |ATTY. PASCUAL | TAXATION | TAN
contracts. Moreover, DST is not a tax on the business transacted but an Oral arguments were held in Baguio City on April 22, 2009. The parties
excise on the privilege, opportunity or facility offered at exchanges for the submitted their memoranda on June 8, 2009.
transaction of the business.
In its motion for reconsideration, petitioner reveals for the first time that it
Unable to accept our verdict, petitioner filed the present motion for availed of a tax amnesty under RA 94807 (also known as the "Tax Amnesty
reconsideration and supplemental motion for reconsideration, asserting the Act of 2007") by fully paying the amount of ₱5,127,149.08 representing 5%
following arguments: of its net worth as of the year ending December 31, 2005.8

(a) The DST under Section 185 of the National Internal Revenue of 1997 is We find merit in petitioner’s motion for reconsideration.
imposed only on a company engaged in the business of fidelity bonds and
other insurance policies. Petitioner, as an HMO, is a service provider, not an Petitioner was formally registered and incorporated with the Securities and
insurance company. Exchange Commission on June 30, 1987.9 It is engaged in the dispensation
of the following medical services to individuals who enter into health care
(b) The Court, in dismissing the appeal in CIR v. Philippine National Bank, agreements with it:
affirmed in effect the CA’s disposition that health care services are not in the
nature of an insurance business. Preventive medical services such as periodic monitoring of health problems,
family planning counseling, consultation and advices on diet, exercise and
(c) Section 185 should be strictly construed. other healthy habits, and immunization;

(d) Legislative intent to exclude health care agreements from items subject Diagnostic medical services such as routine physical examinations, x-rays,
to DST is clear, especially in the light of the amendments made in the DST urinalysis, fecalysis, complete blood count, and the like and
law in 2002.
Curative medical services which pertain to the performing of other remedial
(e) Assuming arguendo that petitioner’s agreements are contracts of and therapeutic processes in the event of an injury or sickness on the part
indemnity, they are not those contemplated under Section 185. of the enrolled member.10

(f) Assuming arguendo that petitioner’s agreements are akin to health Individuals enrolled in its health care program pay an annual membership
insurance, health insurance is not covered by Section 185. fee. Membership is on a year-to-year basis. The medical services are
dispensed to enrolled members in a hospital or clinic owned, operated or
(g) The agreements do not fall under the phrase "other branch of insurance" accredited by petitioner, through physicians, medical and dental
mentioned in Section 185. practitioners under contract with it. It negotiates with such health care
practitioners regarding payment schemes, financing and other procedures
(h) The June 12, 2008 decision should only apply prospectively. for the delivery of health services. Except in cases of emergency, the
professional services are to be provided only by petitioner's physicians, i.e.
(i) Petitioner availed of the tax amnesty benefits under RA5 9480 for the those directly employed by it11 or whose services are contracted by it.12
taxable year 2005 and all prior years. Therefore, the questioned Petitioner also provides hospital services such as room and board
assessments on the DST are now rendered moot and academic.6 accommodation, laboratory services, operating rooms, x-ray facilities and
general nursing care.13 If and when a member avails of the benefits under

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CONSTI II |ATTY. PASCUAL | TAXATION | TAN
the agreement, petitioner pays the participating physicians and other health the performance of the duties of any office or position, for the doing or not
care providers for the services rendered, at pre-agreed rates.14 doing of anything therein specified, and on all obligations guaranteeing the
validity or legality of any bond or other obligations issued by any province,
To avail of petitioner’s health care programs, the individual members are city, municipality, or other public body or organization, and on all obligations
required to sign and execute a standard health care agreement embodying guaranteeing the title to any real estate, or guaranteeing any mercantile
the terms and conditions for the provision of the health care services. The credits, which may be made or renewed by any such person, company or
same agreement contains the various health care services that can be corporation, there shall be collected a documentary stamp tax of fifty
engaged by the enrolled member, i.e., preventive, diagnostic and curative centavos (₱0.50) on each four pesos (₱4.00), or fractional part thereof, of
medical services. Except for the curative aspect of the medical service the premium charged. (Emphasis supplied)
offered, the enrolled member may actually make use of the health care
services being offered by petitioner at any time. It is a cardinal rule in statutory construction that no word, clause, sentence,
provision or part of a statute shall be considered surplusage or superfluous,
Health Maintenance Organizations Are Not Engaged In The Insurance meaningless, void and insignificant. To this end, a construction which
Business renders every word operative is preferred over that which makes some
words idle and nugatory.17 This principle is expressed in the maxim Ut magis
We said in our June 12, 2008 decision that it is irrelevant that petitioner is valeat quam pereat, that is, we choose the interpretation which gives effect
an HMO and not an insurer because its agreements are treated as insurance to the whole of the statute – its every word.18
contracts and the DST is not a tax on the business but an excise on the
privilege, opportunity or facility used in the transaction of the business.15 From the language of Section 185, it is evident that two requisites must
concur before the DST can apply, namely: (1) the document must be a policy
Petitioner, however, submits that it is of critical importance to characterize of insurance or an obligation in the nature of indemnity and (2) the maker
the business it is engaged in, that is, to determine whether it is an HMO or should be transacting the business of accident, fidelity, employer’s liability,
an insurance company, as this distinction is indispensable in turn to the issue plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other
of whether or not it is liable for DST on its health care agreements.16 branch of insurance (except life, marine, inland, and fire insurance).

A second hard look at the relevant law and jurisprudence convinces the Petitioner is admittedly an HMO. Under RA 7875 (or "The National Health
Court that the arguments of petitioner are meritorious. Insurance Act of 1995"), an HMO is "an entity that provides, offers or
arranges for coverage of designated health services needed by plan
Section 185 of the National Internal Revenue Code of 1997 (NIRC of 1997) members for a fixed prepaid premium."19 The payments do not vary with
provides: the extent, frequency or type of services provided.

Section 185. Stamp tax on fidelity bonds and other insurance policies. – On The question is: was petitioner, as an HMO, engaged in the business of
all policies of insurance or bonds or obligations of the nature of indemnity insurance during the pertinent taxable years? We rule that it was not.
for loss, damage, or liability made or renewed by any person, association or
company or corporation transacting the business of accident, fidelity, Section 2 (2) of PD20 1460 (otherwise known as the Insurance Code)
employer’s liability, plate, glass, steam boiler, burglar, elevator, automatic enumerates what constitutes "doing an insurance business" or "transacting
sprinkler, or other branch of insurance (except life, marine, inland, and fire an insurance business:"
insurance), and all bonds, undertakings, or recognizances, conditioned for

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CONSTI II |ATTY. PASCUAL | TAXATION | TAN
a) making or proposing to make, as insurer, any insurance contract; activities since it was created primarily for the distribution of health care
services rather than the assumption of insurance risk.
b) making or proposing to make, as surety, any contract of suretyship as a
vocation and not as merely incidental to any other legitimate business or xxx Although Group Health’s activities may be considered in one aspect as
activity of the surety; creating security against loss from illness or accident more truly they
constitute the quantity purchase of well-rounded, continuous medical
c) doing any kind of business, including a reinsurance business, specifically service by its members. xxx The functions of such an organization are not
recognized as constituting the doing of an insurance business within the identical with those of insurance or indemnity companies. The latter are
meaning of this Code; concerned primarily, if not exclusively, with risk and the consequences of its
descent, not with service, or its extension in kind, quantity or distribution;
d) doing or proposing to do any business in substance equivalent to any of with the unusual occurrence, not the daily routine of living. Hazard is
the foregoing in a manner designed to evade the provisions of this Code. predominant. On the other hand, the cooperative is concerned principally
with getting service rendered to its members and doing so at lower prices
In the application of the provisions of this Code, the fact that no profit is made possible by quantity purchasing and economies in operation. Its
derived from the making of insurance contracts, agreements or transactions primary purpose is to reduce the cost rather than the risk of medical care;
or that no separate or direct consideration is received therefore, shall not to broaden the service to the individual in kind and quantity; to enlarge the
be deemed conclusive to show that the making thereof does not constitute number receiving it; to regularize it as an everyday incident of living, like
the doing or transacting of an insurance business. purchasing food and clothing or oil and gas, rather than merely protecting
against the financial loss caused by extraordinary and unusual occurrences,
Various courts in the United States, whose jurisprudence has a persuasive such as death, disaster at sea, fire and tornado. It is, in this instance, to take
effect on our decisions,21 have determined that HMOs are not in the care of colds, ordinary aches and pains, minor ills and all the temporary
insurance business. One test that they have applied is whether the bodily discomforts as well as the more serious and unusual illness. To
assumption of risk and indemnification of loss (which are elements of an summarize, the distinctive features of the cooperative are the rendering of
insurance business) are the principal object and purpose of the organization service, its extension, the bringing of physician and patient together, the
or whether they are merely incidental to its business. If these are the preventive features, the regularization of service as well as payment, the
principal objectives, the business is that of insurance. But if they are merely substantial reduction in cost by quantity purchasing in short, getting the
incidental and service is the principal purpose, then the business is not medical job done and paid for; not, except incidentally to these features, the
insurance. indemnification for cost after the services is rendered. Except the last, these
are not distinctive or generally characteristic of the insurance arrangement.
Applying the "principal object and purpose test,"22 there is significant There is, therefore, a substantial difference between contracting in this way
American case law supporting the argument that a corporation (such as an for the rendering of service, even on the contingency that it be needed, and
HMO, whether or not organized for profit), whose main object is to provide contracting merely to stand its cost when or after it is rendered.
the members of a group with health services, is not engaged in the insurance
business. That an incidental element of risk distribution or assumption may be present
should not outweigh all other factors. If attention is focused only on that
The rule was enunciated in Jordan v. Group Health Association23 wherein feature, the line between insurance or indemnity and other types of legal
the Court of Appeals of the District of Columbia Circuit held that Group arrangement and economic function becomes faint, if not extinct. This is
Health Association should not be considered as engaged in insurance especially true when the contract is for the sale of goods or services on

32
CONSTI II |ATTY. PASCUAL | TAXATION | TAN
contingency. But obviously it was not the purpose of the insurance statutes an insured for medical expenses up to, but not beyond, the schedule of rates
to regulate all arrangements for assumption or distribution of risk. That view contained in the policy.
would cause them to engulf practically all contracts, particularly conditional
sales and contingent service agreements. The fallacy is in looking only at the xxx xxx xxx
risk element, to the exclusion of all others present or their subordination to
it. The question turns, not on whether risk is involved or assumed, but on The primary purpose of a medical service corporation, however, is an
whether that or something else to which it is related in the particular plan is undertaking to provide physicians who will render services to subscribers on
its principal object purpose.24 (Emphasis supplied) a prepaid basis. Hence, if there are no physicians participating in the medical
service corporation’s plan, not only will the subscribers be deprived of the
In California Physicians’ Service v. Garrison,25 the California court felt that, protection which they might reasonably have expected would be provided,
after scrutinizing the plan of operation as a whole of the corporation, it was but the corporation will, in effect, be doing business solely as a health and
service rather than indemnity which stood as its principal purpose. accident indemnity insurer without having qualified as such and rendering
itself subject to the more stringent financial requirements of the General
There is another and more compelling reason for holding that the service is Insurance Laws….
not engaged in the insurance business. Absence or presence of assumption
of risk or peril is not the sole test to be applied in determining its status. The A participating provider of health care services is one who agrees in writing
question, more broadly, is whether, looking at the plan of operation as a to render health care services to or for persons covered by a contract issued
whole, ‘service’ rather than ‘indemnity’ is its principal object and purpose. by health service corporation in return for which the health service
Certainly the objects and purposes of the corporation organized and corporation agrees to make payment directly to the participating
maintained by the California physicians have a wide scope in the field of provider.28 (Emphasis supplied)
social service. Probably there is no more impelling need than that of
adequate medical care on a voluntary, low-cost basis for persons of small Consequently, the mere presence of risk would be insufficient to override
income. The medical profession unitedly is endeavoring to meet that need. the primary purpose of the business to provide medical services as needed,
Unquestionably this is ‘service’ of a high order and not ‘indemnity.’26 with payment made directly to the provider of these services.29 In short,
(Emphasis supplied) even if petitioner assumes the risk of paying the cost of these services even
if significantly more than what the member has prepaid, it nevertheless
American courts have pointed out that the main difference between an cannot be considered as being engaged in the insurance business.
HMO and an insurance company is that HMOs undertake to provide or
arrange for the provision of medical services through participating By the same token, any indemnification resulting from the payment for
physicians while insurance companies simply undertake to indemnify the services rendered in case of emergency by non-participating health
insured for medical expenses incurred up to a pre-agreed limit. Somerset providers would still be incidental to petitioner’s purpose of providing and
Orthopedic Associates, P.A. v. Horizon Blue Cross and Blue Shield of New arranging for health care services and does not transform it into an insurer.
Jersey27 is clear on this point: To fulfill its obligations to its members under the agreements, petitioner is
required to set up a system and the facilities for the delivery of such medical
The basic distinction between medical service corporations and ordinary services. This indubitably shows that indemnification is not its sole object.
health and accident insurers is that the former undertake to provide prepaid
medical services through participating physicians, thus relieving subscribers In fact, a substantial portion of petitioner’s services covers preventive and
of any further financial burden, while the latter only undertake to indemnify diagnostic medical services intended to keep members from developing

33
CONSTI II |ATTY. PASCUAL | TAXATION | TAN
medical conditions or diseases.30 As an HMO, it is its obligation to maintain
the good health of its members. Accordingly, its health care programs are The rationale for this rule relates not only to the emergence of the
designed to prevent or to minimize the possibility of any assumption of risk multifarious needs of a modern or modernizing society and the
on its part. Thus, its undertaking under its agreements is not to indemnify establishment of diverse administrative agencies for addressing and
its members against any loss or damage arising from a medical condition satisfying those needs; it also relates to the accumulation of experience and
but, on the contrary, to provide the health and medical services needed to growth of specialized capabilities by the administrative agency charged with
prevent such loss or damage.31 implementing a particular statute. In Asturias Sugar Central, Inc. vs.
Commissioner of Customs,35 the Court stressed that executive officials are
Overall, petitioner appears to provide insurance-type benefits to its presumed to have familiarized themselves with all the considerations
members (with respect to its curative medical services), but these are pertinent to the meaning and purpose of the law, and to have formed an
incidental to the principal activity of providing them medical care. The independent, conscientious and competent expert opinion thereon. The
"insurance-like" aspect of petitioner’s business is miniscule compared to its courts give much weight to the government agency officials charged with
noninsurance activities. Therefore, since it substantially provides health care the implementation of the law, their competence, expertness, experience
services rather than insurance services, it cannot be considered as being in and informed judgment, and the fact that they frequently are the drafters
the insurance business. of the law they interpret.36

It is important to emphasize that, in adopting the "principal purpose test" A Health Care Agreement Is Not An Insurance Contract Contemplated Under
used in the above-quoted U.S. cases, we are not saying that petitioner’s Section 185 Of The NIRC of 1997
operations are identical in every respect to those of the HMOs or health
providers which were parties to those cases. What we are stating is that, for Section 185 states that DST is imposed on "all policies of insurance… or
the purpose of determining what "doing an insurance business" means, we obligations of the nature of indemnity for loss, damage, or liability…." In our
have to scrutinize the operations of the business as a whole and not its mere decision dated June 12, 2008, we ruled that petitioner’s health care
components. This is of course only prudent and appropriate, taking into agreements are contracts of indemnity and are therefore insurance
account the burdensome and strict laws, rules and regulations applicable to contracts:
insurers and other entities engaged in the insurance business. Moreover, we
are also not unmindful that there are other American authorities who have It is … incorrect to say that the health care agreement is not based on loss
found particular HMOs to be actually engaged in insurance activities.32 or damage because, under the said agreement, petitioner assumes the
liability and indemnifies its member for hospital, medical and related
Lastly, it is significant that petitioner, as an HMO, is not part of the insurance expenses (such as professional fees of physicians). The term "loss or
industry. This is evident from the fact that it is not supervised by the damage" is broad enough to cover the monetary expense or liability a
Insurance Commission but by the Department of Health.33 In fact, in a letter member will incur in case of illness or injury.
dated September 3, 2000, the Insurance Commissioner confirmed that
petitioner is not engaged in the insurance business. This determination of Under the health care agreement, the rendition of hospital, medical and
the commissioner must be accorded great weight. It is well-settled that the professional services to the member in case of sickness, injury or emergency
interpretation of an administrative agency which is tasked to implement a or his availment of so-called "out-patient services" (including physical
statute is accorded great respect and ordinarily controls the interpretation examination, x-ray and laboratory tests, medical consultations, vaccine
of laws by the courts. The reason behind this rule was explained in Nestle administration and family planning counseling) is the contingent event
Philippines, Inc. v. Court of Appeals:34 which gives rise to liability on the part of the member. In case of exposure

34
CONSTI II |ATTY. PASCUAL | TAXATION | TAN
of the member to liability, he would be entitled to indemnification by agreement. Such contracts, as contracts of adhesion, are liberally
petitioner. interpreted in favor of the member and strictly against the HMO. For this
reason, we reconsider our ruling that Blue Cross and Philamcare are
Furthermore, the fact that petitioner must relieve its member from liability applicable here.
by paying for expenses arising from the stipulated contingencies belies its
claim that its services are prepaid. The expenses to be incurred by each Section 2 (1) of the Insurance Code defines a contract of insurance as an
member cannot be predicted beforehand, if they can be predicted at all. agreement whereby one undertakes for a consideration to indemnify
Petitioner assumes the risk of paying for the costs of the services even if they another against loss, damage or liability arising from an unknown or
are significantly and substantially more than what the member has contingent event. An insurance contract exists where the following
"prepaid." Petitioner does not bear the costs alone but distributes or elements concur:
spreads them out among a large group of persons bearing a similar risk, that
is, among all the other members of the health care program. This is 1. The insured has an insurable interest;
insurance.37
2. The insured is subject to a risk of loss by the happening of the designed
We reconsider. We shall quote once again the pertinent portion of Section peril;
185:
3. The insurer assumes the risk;
Section 185. Stamp tax on fidelity bonds and other insurance policies. – On
all policies of insurance or bonds or obligations of the nature of indemnity 4. Such assumption of risk is part of a general scheme to distribute actual
for loss, damage, or liability made or renewed by any person, association or losses among a large group of persons bearing a similar risk and
company or corporation transacting the business of accident, fidelity,
employer’s liability, plate, glass, steam boiler, burglar, elevator, automatic 5. In consideration of the insurer’s promise, the insured pays a premium.41
sprinkler, or other branch of insurance (except life, marine, inland, and fire
insurance), xxxx (Emphasis supplied) Do the agreements between petitioner and its members possess all these
elements? They do not.
In construing this provision, we should be guided by the principle that tax
statutes are strictly construed against the taxing authority.38 This is because First. In our jurisdiction, a commentator of our insurance laws has pointed
taxation is a destructive power which interferes with the personal and out that, even if a contract contains all the elements of an insurance
property rights of the people and takes from them a portion of their contract, if its primary purpose is the rendering of service, it is not a contract
property for the support of the government.39 Hence, tax laws may not be of insurance:
extended by implication beyond the clear import of their language, nor their
operation enlarged so as to embrace matters not specifically provided.40 It does not necessarily follow however, that a contract containing all the four
elements mentioned above would be an insurance contract. The primary
We are aware that, in Blue Cross and Philamcare, the Court pronounced that purpose of the parties in making the contract may negate the existence of
a health care agreement is in the nature of non-life insurance, which is an insurance contract. For example, a law firm which enters into contracts
primarily a contract of indemnity. However, those cases did not involve the with clients whereby in consideration of periodical payments, it promises to
interpretation of a tax provision. Instead, they dealt with the liability of a represent such clients in all suits for or against them, is not engaged in the
health service provider to a member under the terms of their health care insurance business. Its contracts are simply for the purpose of rendering

35
CONSTI II |ATTY. PASCUAL | TAXATION | TAN
personal services. On the other hand, a contract by which a corporation, in this is only a very minor part of the list of services available. The assumption
consideration of a stipulated amount, agrees at its own expense to defend of the expense by petitioner is not confined to the happening of a
a physician against all suits for damages for malpractice is one of insurance, contingency but includes incidents even in the absence of illness or injury.
and the corporation will be deemed as engaged in the business of insurance.
Unlike the lawyer’s retainer contract, the essential purpose of such a In Michigan Podiatric Medical Association v. National Foot Care Program,
contract is not to render personal services, but to indemnify against loss and Inc.,43 although the health care contracts called for the defendant to
damage resulting from the defense of actions for malpractice.42 (Emphasis partially reimburse a subscriber for treatment received from a non-
supplied) designated doctor, this did not make defendant an insurer. Citing Jordan,
the Court determined that "the primary activity of the defendant (was) the
Second. Not all the necessary elements of a contract of insurance are provision of podiatric services to subscribers in consideration of prepayment
present in petitioner’s agreements. To begin with, there is no loss, damage for such services."44 Since indemnity of the insured was not the focal point
or liability on the part of the member that should be indemnified by of the agreement but the extension of medical services to the member at an
petitioner as an HMO. Under the agreement, the member pays petitioner a affordable cost, it did not partake of the nature of a contract of insurance.
predetermined consideration in exchange for the hospital, medical and
professional services rendered by the petitioner’s physician or affiliated Fifth. Although risk is a primary element of an insurance contract, it is not
physician to him. In case of availment by a member of the benefits under necessarily true that risk alone is sufficient to establish it. Almost anyone
the agreement, petitioner does not reimburse or indemnify the member as who undertakes a contractual obligation always bears a certain degree of
the latter does not pay any third party. Instead, it is the petitioner who pays financial risk. Consequently, there is a need to distinguish prepaid service
the participating physicians and other health care providers for the services contracts (like those of petitioner) from the usual insurance contracts.
rendered at pre-agreed rates. The member does not make any such
payment. Indeed, petitioner, as an HMO, undertakes a business risk when it offers to
provide health services: the risk that it might fail to earn a reasonable return
In other words, there is nothing in petitioner's agreements that gives rise to on its investment. But it is not the risk of the type peculiar only to insurance
a monetary liability on the part of the member to any third party-provider companies. Insurance risk, also known as actuarial risk, is the risk that the
of medical services which might in turn necessitate indemnification from cost of insurance claims might be higher than the premiums paid. The
petitioner. The terms "indemnify" or "indemnity" presuppose that a liability amount of premium is calculated on the basis of assumptions made relative
or claim has already been incurred. There is no indemnity precisely because to the insured.45
the member merely avails of medical services to be paid or already paid in
advance at a pre-agreed price under the agreements. However, assuming that petitioner’s commitment to provide medical
services to its members can be construed as an acceptance of the risk that
Third. According to the agreement, a member can take advantage of the it will shell out more than the prepaid fees, it still will not qualify as an
bulk of the benefits anytime, e.g. laboratory services, x-ray, routine annual insurance contract because petitioner’s objective is to provide medical
physical examination and consultations, vaccine administration as well as services at reduced cost, not to distribute risk like an insurer.
family planning counseling, even in the absence of any peril, loss or damage
on his or her part. In sum, an examination of petitioner’s agreements with its members leads
us to conclude that it is not an insurance contract within the context of our
Fourth. In case of emergency, petitioner is obliged to reimburse the member Insurance Code.
who receives care from a non-participating physician or hospital. However,

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CONSTI II |ATTY. PASCUAL | TAXATION | TAN
There Was No Legislative Intent To Impose DST On Health Care Agreements detailed and exclusive enumeration of items subject to DST was thus
Of HMOs retained.

Furthermore, militating in convincing fashion against the imposition of DST On December 31, 1916, Section 30 (l), Article III of Act No. 2339 was again
on petitioner’s health care agreements under Section 185 of the NIRC of reproduced as Section 1604 (l), Article IV of Act No. 2657 (Administrative
1997 is the provision’s legislative history. The text of Section 185 came into Code). Upon its amendment on March 10, 1917, the pertinent DST provision
U.S. law as early as 1904 when HMOs and health care agreements were not became Section 1449 (l) of Act No. 2711, otherwise known as the
even in existence in this jurisdiction. It was imposed under Section 116, Administrative Code of 1917.
Article XI of Act No. 1189 (otherwise known as the "Internal Revenue Law of
1904")46 enacted on July 2, 1904 and became effective on August 1, 1904. Section 1449 (1) eventually became Sec. 222 of Commonwealth Act No. 466
Except for the rate of tax, Section 185 of the NIRC of 1997 is a verbatim (the NIRC of 1939), which codified all the internal revenue laws of the
reproduction of the pertinent portion of Section 116, to wit: Philippines. In an amendment introduced by RA 40 on October 1, 1946, the
DST rate was increased but the provision remained substantially the same.
ARTICLE XI
Stamp Taxes on Specified Objects Thereafter, on June 3, 1977, the same provision with the same DST rate was
reproduced in PD 1158 (NIRC of 1977) as Section 234. Under PDs 1457 and
Section 116. There shall be levied, collected, and paid for and in respect to 1959, enacted on June 11, 1978 and October 10, 1984 respectively, the DST
the several bonds, debentures, or certificates of stock and indebtedness, rate was again increased.1avvphi1
and other documents, instruments, matters, and things mentioned and
described in this section, or for or in respect to the vellum, parchment, or Effective January 1, 1986, pursuant to Section 45 of PD 1994, Section 234 of
paper upon which such instrument, matters, or things or any of them shall the NIRC of 1977 was renumbered as Section 198. And under Section 23 of
be written or printed by any person or persons who shall make, sign, or issue EO47 273 dated July 25, 1987, it was again renumbered and became Section
the same, on and after January first, nineteen hundred and five, the several 185.
taxes following:
On December 23, 1993, under RA 7660, Section 185 was amended but,
xxx xxx xxx again, only with respect to the rate of tax.

Third xxx (c) on all policies of insurance or bond or obligation of the nature Notwithstanding the comprehensive amendment of the NIRC of 1977 by RA
of indemnity for loss, damage, or liability made or renewed by any person, 8424 (or the NIRC of 1997), the subject legal provision was retained as the
association, company, or corporation transacting the business of accident, present Section 185. In 2004, amendments to the DST provisions were
fidelity, employer’s liability, plate glass, steam boiler, burglar, elevator, introduced by RA 924348 but Section 185 was untouched.
automatic sprinkle, or other branch of insurance (except life, marine, inland,
and fire insurance) xxxx (Emphasis supplied) On the other hand, the concept of an HMO was introduced in the Philippines
with the formation of Bancom Health Care Corporation in 1974. The same
On February 27, 1914, Act No. 2339 (the Internal Revenue Law of 1914) was pioneer HMO was later reorganized and renamed Integrated Health Care
enacted revising and consolidating the laws relating to internal revenue. The Services, Inc. (or Intercare). However, there are those who claim that Health
aforecited pertinent portion of Section 116, Article XI of Act No. 1189 was Maintenance, Inc. is the HMO industry pioneer, having set foot in the
completely reproduced as Section 30 (l), Article III of Act No. 2339. The very Philippines as early as 1965 and having been formally incorporated in 1991.

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CONSTI II |ATTY. PASCUAL | TAXATION | TAN
Afterwards, HMOs proliferated quickly and currently, there are 36 organized for a lawful economic activity, has a right to maintain a legitimate
registered HMOs with a total enrollment of more than 2 million.49 business.56 As aptly held in Roxas, et al. v. CTA, et al.:57

We can clearly see from these two histories (of the DST on the one hand and The power of taxation is sometimes called also the power to destroy.
HMOs on the other) that when the law imposing the DST was first passed, Therefore it should be exercised with caution to minimize injury to the
HMOs were yet unknown in the Philippines. However, when the various proprietary rights of a taxpayer. It must be exercised fairly, equally and
amendments to the DST law were enacted, they were already in existence uniformly, lest the tax collector kill the "hen that lays the golden egg."58
in the Philippines and the term had in fact already been defined by RA 7875.
If it had been the intent of the legislature to impose DST on health care Legitimate enterprises enjoy the constitutional protection not to be taxed
agreements, it could have done so in clear and categorical terms. It had out of existence. Incurring losses because of a tax imposition may be an
many opportunities to do so. But it did not. The fact that the NIRC contained acceptable consequence but killing the business of an entity is another
no specific provision on the DST liability of health care agreements of HMOs matter and should not be allowed. It is counter-productive and ultimately
at a time they were already known as such, belies any legislative intent to subversive of the nation’s thrust towards a better economy which will
impose it on them. As a matter of fact, petitioner was assessed its DST ultimately benefit the majority of our people.59
liability only on January 27, 2000, after more than a decade in the business
as an HMO.50 Petitioner’s Tax Liability Was Extinguished Under The Provisions Of RA 9840

Considering that Section 185 did not change since 1904 (except for the rate Petitioner asserts that, regardless of the arguments, the DST assessment for
of tax), it would be safe to say that health care agreements were never, at taxable years 1996 and 1997 became moot and academic60 when it availed
any time, recognized as insurance contracts or deemed engaged in the of the tax amnesty under RA 9480 on December 10, 2007. It paid
business of insurance within the context of the provision. ₱5,127,149.08 representing 5% of its net worth as of the year ended
December 31, 2005 and complied with all requirements of the tax amnesty.
The Power To Tax Is Not The Power To Destroy Under Section 6(a) of RA 9480, it is entitled to immunity from payment of
taxes as well as additions thereto, and the appurtenant civil, criminal or
As a general rule, the power to tax is an incident of sovereignty and is administrative penalties under the 1997 NIRC, as amended, arising from the
unlimited in its range, acknowledging in its very nature no limits, so that failure to pay any and all internal revenue taxes for taxable year 2005 and
security against its abuse is to be found only in the responsibility of the prior years.61
legislature which imposes the tax on the constituency who is to pay it.51 So
potent indeed is the power that it was once opined that "the power to tax Far from disagreeing with petitioner, respondent manifested in its
involves the power to destroy."52 memorandum:

Petitioner claims that the assessed DST to date which amounts to ₱376 Section 6 of [RA 9840] provides that availment of tax amnesty entitles a
million53 is way beyond its net worth of ₱259 million.54 Respondent never taxpayer to immunity from payment of the tax involved, including the civil,
disputed these assertions. Given the realities on the ground, imposing the criminal, or administrative penalties provided under the 1997 [NIRC], for tax
DST on petitioner would be highly oppressive. It is not the purpose of the liabilities arising in 2005 and the preceding years.
government to throttle private business. On the contrary, the government
ought to encourage private enterprise.55 Petitioner, just like any concern In view of petitioner’s availment of the benefits of [RA 9840], and without
conceding the merits of this case as discussed above, respondent concedes

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CONSTI II |ATTY. PASCUAL | TAXATION | TAN
that such tax amnesty extinguishes the tax liabilities of petitioner. This the minute resolution is not binding precedent. Thus, in CIR v. Baier-
admission, however, is not meant to preclude a revocation of the amnesty Nickel,70 the Court noted that a previous case, CIR v. Baier-Nickel71
granted in case it is found to have been granted under circumstances involving the same parties and the same issues, was previously disposed of
amounting to tax fraud under Section 10 of said amnesty law.62 (Emphasis by the Court thru a minute resolution dated February 17, 2003 sustaining
supplied) the ruling of the CA. Nonetheless, the Court ruled that the previous case
"ha(d) no bearing" on the latter case because the two cases involved
Furthermore, we held in a recent case that DST is one of the taxes covered different subject matters as they were concerned with the taxable income
by the tax amnesty program under RA 9480.63 There is no other conclusion of different taxable years.72
to draw than that petitioner’s liability for DST for the taxable years 1996 and
1997 was totally extinguished by its availment of the tax amnesty under RA Besides, there are substantial, not simply formal, distinctions between a
9480. minute resolution and a decision. The constitutional requirement under the
first paragraph of Section 14, Article VIII of the Constitution that the facts
Is The Court Bound By A Minute Resolution In Another Case? and the law on which the judgment is based must be expressed clearly and
distinctly applies only to decisions, not to minute resolutions. A minute
Petitioner raises another interesting issue in its motion for reconsideration: resolution is signed only by the clerk of court by authority of the justices,
whether this Court is bound by the ruling of the CA64 in CIR v. Philippine unlike a decision. It does not require the certification of the Chief Justice.
National Bank65 that a health care agreement of Philamcare Health Systems Moreover, unlike decisions, minute resolutions are not published in the
is not an insurance contract for purposes of the DST. Philippine Reports. Finally, the proviso of Section 4(3) of Article VIII speaks
of a decision.73 Indeed, as a rule, this Court lays down doctrines or principles
In support of its argument, petitioner cites the August 29, 2001 minute of law which constitute binding precedent in a decision duly signed by the
resolution of this Court dismissing the appeal in Philippine National Bank members of the Court and certified by the Chief Justice.
(G.R. No. 148680).66 Petitioner argues that the dismissal of G.R. No. 148680
by minute resolution was a judgment on the merits; hence, the Court should Accordingly, since petitioner was not a party in G.R. No. 148680 and since
apply the CA ruling there that a health care agreement is not an insurance petitioner’s liability for DST on its health care agreement was not the subject
contract. matter of G.R. No. 148680, petitioner cannot successfully invoke the minute
resolution in that case (which is not even binding precedent) in its favor.
It is true that, although contained in a minute resolution, our dismissal of Nonetheless, in view of the reasons already discussed, this does not detract
the petition was a disposition of the merits of the case. When we dismissed in any way from the fact that petitioner’s health care agreements are not
the petition, we effectively affirmed the CA ruling being questioned. As a subject to DST.
result, our ruling in that case has already become final.67 When a minute
resolution denies or dismisses a petition for failure to comply with formal A Final Note
and substantive requirements, the challenged decision, together with its
findings of fact and legal conclusions, are deemed sustained.68 But what is Taking into account that health care agreements are clearly not within the
its effect on other cases? ambit of Section 185 of the NIRC and there was never any legislative intent
to impose the same on HMOs like petitioner, the same should not be
With respect to the same subject matter and the same issues concerning the arbitrarily and unjustly included in its coverage.
same parties, it constitutes res judicata.69 However, if other parties or
another subject matter (even with the same parties and issues) is involved,

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CONSTI II |ATTY. PASCUAL | TAXATION | TAN
It is a matter of common knowledge that there is a great social need for G.R. No. 203754 June 16, 2015
adequate medical services at a cost which the average wage earner can
afford. HMOs arrange, organize and manage health care treatment in the FILM DEVELOPMENT COUNCIL OF THE PHILIPPINES, Petitioner,
furtherance of the goal of providing a more efficient and inexpensive health vs.
care system made possible by quantity purchasing of services and COLON HERITAGE REALTY CORPORATION, operator of Oriente Group
economies of scale. They offer advantages over the pay-for-service system Theaters, represented by ISIDORO A. CANIZARES, Respondent.
(wherein individuals are charged a fee each time they receive medical
services), including the ability to control costs. They protect their members x-----------------------x
from exposure to the high cost of hospitalization and other medical
expenses brought about by a fluctuating economy. Accordingly, they play an FILM DEVELOPMENT COUNCIL OF THE PHILIPPINES, Petitioner,
important role in society as partners of the State in achieving its vs.
constitutional mandate of providing its citizens with affordable health CITY OF CEBU and SM PRIME HOLDINGS, INC., Respondents.
services.
DECISION
The rate of DST under Section 185 is equivalent to 12.5% of the premium
charged.74 Its imposition will elevate the cost of health care services. This VELASCO, JR., J.:
will in turn necessitate an increase in the membership fees, resulting in
either placing health services beyond the reach of the ordinary wage earner The Constitution is the basic law to which all laws must conform; no act shall
or driving the industry to the ground. At the end of the day, neither side be valid if it conflicts with the Constitution. In the discharge of their defined
wins, considering the indispensability of the services offered by HMOs. functions, the three departments of government have no choice but to yield
obedience to the commands of the Constitution. Whatever limits it imposes
WHEREFORE, the motion for reconsideration is GRANTED. The August 16, must be observed.1
2004 decision of the Court of Appeals in CA-G.R. SP No. 70479 is REVERSED
and SET ASIDE. The 1996 and 1997 deficiency DST assessment against The Case
petitioner is hereby CANCELLED and SET ASIDE. Respondent is ordered to
desist from collecting the said tax. Once again, We are called upon to resolve a clash between the Inherent
taxing power of the legislature and the constitutionally-delegated power to
No costs. tax of local governments in these consolidated Petitions for Review on
Certiorari under Rule 45 of the Rules of Court seeking the reversal of the
SO ORDERED. Decision dated September 25, 2012 of the Regional Trial Court (RTC), Branch
5 in Cebu City, in Civil Case No. CEB-35601, entitled Colon Heritage Realty
Corp., represented by Isidoro Canizares v. Film Development Council of the'
Philippines, and Decision dated October 24, 2012 of the RTC, Branch 14 in
Cebu City, in Civil Case No. CEB-35529, entitled City of Cebu v. Film
Development Council of the Philippines, collectively declaring Sections 13
and 14 of Republic Act No. (RA) 9167 invalid and unconstitutional.

The Facts

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CONSTI II |ATTY. PASCUAL | TAXATION | TAN
 a. Amusement tax reward. - A grade "A" or "B" film shall entitle its producer
The facts are simple and undisputed. to an incentive equivalent to the amusement tax imposed and collected on
the graded films by cities and municipalities in Metro Manila and other
Sometime in 1993, respondent City of Cebu, in its exercise of its power to highly urbanized and independent component cities in the Philippines
impose amusement taxes under Section 140 of the Local Government Code2 pursuant to Sections 140 to 151 of Republic Act No. 7160 at the following
(LGC) anchored on the constitutional policy on local autonomy,3 passed City rates:
Ordinance No. LXIX otherwise known as the "Revised Omnibus Tax
Ordinance of the City of Cebu (tax ordinance)." Central to the case at bar are 1. For grade "A" films - 100% of the amusement tax collected on such film;
Sections 42 and 43, Chapter XI thereof which require proprietors, lessees or and
operators of theatres, cinemas, concert halls, circuses, boxing stadia, and
other places of amusement, to pay an amusement tax equivalent to thirty 2. For grade "B" films - 65% of the amusement tax collected on such films.
percent (30%) of the gross receipts of admission fees to the Office of the City The remaining thirty-five (35%) shall accrue to the funds of the Council.
Treasurer of Cebu City. Said provisions read:
Section 14. Amusement Tax Deduction and Remittance. - All revenue from
CHAPTER XI - Amusement Tax the amusement tax on the graded film which may otherwise accrue to the
cities and municipalities in Metropolitan Manila and highly urbanized and
Section 42. Rate of Tax. - There shall be paid to the Office of the City independent component cities in the Philippines pursuant to Section 140 of
Treasurer by the proprietors, lessees, or operators of theaters, cinemas, Republic Act. No. 7160 during the period the graded film is exhibited, shall
concert halls, circuses, boxing stadia and other places of amusement, an be deducted and withheld by the proprietors, operators or lessees of
amusement tax at the rate of thirty percent (30%) of the gross receipts from theaters or cinemas and remitted within thirty (30) days from the
admission fees.4 termination of the exhibition to the Council which shall reward the
corresponding amusement tax to the producers of the graded film within
Section 43. Manner of Payment. - In the case of theaters or cinemas, the tax fifteen (15) days from receipt thereof.
shall first be deducted and withheld by their proprietors, lessees, or
operators and paid to the city treasurer before the gross receipts are divided Proprietors, operators and lessees of theaters or cinemas who fail to remit
between said proprietor, lessees, operators, and the distributors of the the amusement tax proceeds within the prescribed period shall be liable to
cinematographic films. a surcharge equivalent to five percent (5%) of the amount due for each
month of delinquency which shall be paid to the Council. (emphasis added)
Almost a decade later, or on June 7, 2002, Congress passed RA 9167,5
creating the Film Development Council qf the Philippines (FDCP) and According to petitioner, from the time RA 9167 took effect up to the present,
abolishing the Film Development Foundation of the Philippines, Inc. and the all the cities and municipalities in Metro Manila, as well as urbanized and
Film Rating Board. Secs. 13 and 14 of RA 9167 provided for the tax treatment independent component cities, with the sole exception of Cebu City, have
of certain graded films as follows: complied with the mandate of said law.

Section 13. Privileges of Graded Films. - Films which have obtained an "A" or Accordingly, petitioner, through the Office of the Solicitor General, sent on
"B" grading from the Council pursuant to Sections 11 and 12 of this Act shall January 2009 demand letters for unpaid amusement tax reward (with 5%
be entitled to the following privileges: surcharge for each month of delinquency) due to the producers of the Grade

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CONSTI II |ATTY. PASCUAL | TAXATION | TAN
"A" or "B" films to the following cinema proprietors and operators in Cebu Meanwhile, on March 25, 2009, petitioner received a letter from Regal
City: Entertainment, Inc., inquiring on the status of its receivables for tax rebates
in Cebu cinemas for all their A and B rate films along with those which it co-
Amusement produced with GMA films. This was followed by a letter from
Tax Reward Number
Cinema (with 5% of CEB
Period Covered Star Cinema ABS-CBN Film Productions, Inc., requesting the immediate
Proprietor/Operator surcharge for Graded remittance of its amusement tax rewards for its graded films for the years
each moth of Films 2004-2008.
delinquency)
Because of the persistent refusal of the proprietors and cinema operators to
SM Prime Holdings 76,836,807.08 89 Sept. 11, 2003 -
remit the said amounts as FDCP demanded, on one hand, and Cebu City's
Inc. Nov. 4, 2008
assertion of a claim on the amounts in question, the city finally filed on May
Ayala Center 43,435,718.23 70 May 14, 2003 - 18, 2009 before the RTC, Branch 14 a petition for declaratory relief with
Cinemas Nov. 4, 2008 application for a writ of preliminary injunction, docketed as Civil Case No.
CEB-35529 (City of Cebu v. FDCP). In said petition, Cebu City sought the
Colon Heritage 8,071,267.00 50 Aug. 11, 2004- declaration of Secs. 13 and 14 of RA 9167 as invalid and unconstitutional.
Realty Nov. 4, 2008
Corp. Similarly, Colon Heritage filed before the RTC, Branch 5 Civil Case No. CEB-
Eden Theater 428,938.25 4 May 5, 2005 - 35601 (Colon Heritage v. FDCP), seeking to declare Sec. 14 of RA 9167 as
Sept. 2, 2008 unconstitutional.

Cinema Theater 3,100,354.80 22 Feb. 18, 2004- On May 25, 2010, the RTC, Branch 14 issued a temporary restraining order
Oct. 7, 2008 (TRO) restraining and enjoining FDCP, et al. from, inter alia:

Visaya Cineplex 17,582,521.89 86 June 25, 2005 - (a) Collecting amusement tax incentive award in the City of Cebu and from
Corp. Oct. 21, 2008 imposing surcharges thereon;
Ultra Vistarama 68,821.60 2 July 2 - 22, 2008
Cinema (b) Demanding from the owners, proprietors, and lessees of theaters and
cinemas located and operated within Cebu City, payment of said
Cebu Central 9,853,559.69 48 Jan. 1, 2004 - amusement tax incentive award which should have been deducted,
Realty Corp. Oct. 21, 2008 withheld, and remitted to FDCP, etc. by the owners, etc., or being operated
within Cebu City and imposing surcharges on the unpaid amount; and
In said letters, the proprietors and cinema operators, including private
respondent Colon Heritage Realty Corp. (Colon Heritage), operator of the (c) Filing any suit due to or arising from the failure of the owners, etc., of
Oriente theater, were given ten (10) days from receipt thereof to pay the theaters or cinemas within Cebu City, to deduct, withhold, and remit the
aforestated amounts to FDCP. The demand, however, fell on deaf ears. incentive to FDCP.

42
CONSTI II |ATTY. PASCUAL | TAXATION | TAN
Meanwhile, on August 13, 2010, SM Prime Holdings, Inc. moved for leave to SO ORDERED.
file and admit attached comment-in-intervention and was later granted.6
According to the court, what RA 9167 seeks to accomplish is the segregation
Rulings of the Trial Courts of the amusement taxes raised and collected by Cebu City and its
subsequent transfer to FDCP. The court concluded that this arrangement
In City of Cebu v. FDCP, the RTC, Branch 14 issued the challenged Decision7 cannot be classified as a tax exemption but is a confiscatory measure where
declaring Secs. 13 and 14 of RA 9167 unconstitutional, disposing as follows: the national government extracts money from the local government's
coffers and transfers it to FDCP, a private agency, which in turn, will award
WHEREFORE, in view of all the disquisitions, judgment is rendered in favor the money to private persons, the film producers, for having produced
of petitioner City of Cebu against respondent Film Development Council of graded films.
the Philippines, as follows:
The court further held that Secs. 13 and 14 of RA 9167 are contrary to the
1. Declaring Sections 13 and 14 of the (sic) Republic Act No. 9167 otherwise basic policy in local autonomy that all taxes, fees, and charges imposed by
known as an Act Creating the Film Development Council of the Philippines, the LGUs shall accrue exclusively to them, as articulated in A1iicle X,. Sec. 5
Defining its Powers and Functions, Appropriating Funds Therefor and for of the 1987 Constitution. This edict, according to the court, is a limitation
other purposes, as violative of Section 5 Article X of the 1997 (sic) Philippine upon the rule-making power of Congress when it provides guidelines and
Constitution; Consequently limitations on the local government unit's (LGU's) power of taxation.
Therefore, when Congress passed this "limitation," if went beyond its
2. Declaring that defendant Film Development Council of the Philippines legislative authority, rendering the questioned provisions unconstitutional.
(FDCP) cannot collect under Sections 13 and 14 of R.A. 9167 as of the finality
of the decision in G.R. Nos. 203754 and 204418; By the same token, in Colon Heritage v. FDCP, the RTC, Branch 5, in its
Decision of September 25, 2012, also ruled against the constitutionality of
3. Declaring that Intervenor SM Cinema Corporation has the obligation to said Secs. 13 and 14 of RA 9167 for the following reasons: (a) while Congress,
remit the amusement taxes, withheld on graded cinema films to respondent through the enactment of RA 9167, may have amended Secs. 140(a)8 and
FDCP under Sections 13 and 14 of R.A. 9167 for taxes due prior to the finality 1519 of the LGC, in the exercise of its plenary power to amend laws, such
of the decision in G.R. Nos. 203754 and 204418; power must be exercised within constitutional parameters; (b) the assailed
provision violates the constitutional directive that taxes should accrue
4. Declaring that after the finality of the decision in G.R. Nos. 203 754 and exclusively to the LGU concerned; (c) the Constitution, through its Art. X,
204418, all amusement taxes withheld and those which may be collected by Sec. 5,10 directly conferred LGUs with authority to levy taxes-the power is
Intervenor SM on graded films shown in SM Cinemas in Cebu City shall be no longer delegated by the legislature; (d) In CIR v. SM Prime Holdings,11
remitted to petitioner Cebu City pursuant to City Ordinance LXIX, Chapter the Court ruled that amusement tax on cinema/theater operators or
XI, Section 42. proprietors remain with the LGU, amusement tax, being, by nature, a local
tax. The fallo of the questioned judgment reads:
As to the sum of PhP 76,836,807.08 remitted by the Intervenor SM to
petitioner City of Cebu, said amount shall be remitted by the City of Cebu to WHEREFORE, in view of all the foregoing, Judgment is hereby rendered in
petitioner FDCP within thirty (30) days from finality of this decision in G.R. favor of petitioner, as follows:
Nos. 203754 and 204418 without interests and surcharges.
(1) Declaring Republic Act No. 9167 as invalid and unconstitutional;

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CONSTI II |ATTY. PASCUAL | TAXATION | TAN
(2) The obligation to remit amusement taxes for the graded films to As regards Sec. 1416 of RA 9167, FDCP is of the position that Sec. 5, Article
respondent is ordered extinguished; X of the Constitution does not change the doctrine that municipal
corporations only possess delegated, not inherent, powers of taxation and
(3) Directing respondent to refund all the amounts paid by petitioner, by that the power to tax is still primarily vested in the Congress. Thus, wielding
way of amusement tax, plus the legal rate of interest thereof, until the whole its power to impose limitations on this delegated power, Congress further
amount is paid in full. restricted the LGU's power to impose amusement taxes via Secs. 13 and 14
of RA 9167-an express and real intention of Congress to further contain the
Notify parties and counsels of this order. LGU's delegated taxing power. It, therefore, cannot be construed as an
undue limitation since it is well within the power of Congress to make such
SO ORDERED. restriction. Furthermore, the LGC is a mere statute which Congress can
amend, which it in fact did when it enacted RA 916417 and, later, the
The Issue questioned law, RA 9167.18

Undeterred by two defeats, petitioner has come directly to this Court, This, according to FDCP, evinces the overriding intent of Congress to remove
presenting the singular issue: whether or not the RTC (Branches 5 and 14) from the LGU' s delegated taxing power all revenues from amusement taxes
gravely erred in declaring Secs. 13 and 14 of RA 9167 invalid for being on grade "A" or "B" films which would otherwise accrue to the cities and
unconstitutional. municipalities in Metropolitan Manila and highly urbanized and
independent component cities in the Philippines pursuant to Secs. 140 and
Anent Sec. 13,12 FDCP concedes that the amusement taxes assessed in RA 151 of the LGC.
9167 are to be given to the producers of graded films who are private
persons. Nevertheless, according to FDCP, this particular tax arrangement is In fine, it is petitioner's posture that the inclusion in RA 9167 of the
not a violation of the rule on the use of public funds for RA 9167 was enacted questioned provisions was a valid exercise of the legislature's power to
for a public purpose, that is, the promotion and support of the amend laws and an assertion of its constitutional authority to set limitations
"development and growth of the local film industry as a medium for the on the LGU' s authority to tax.
upliftment of aesthetic, cultural, and social values for the better
understanding and appreciation of the Filipino identity" as well as the The Court's Ruling
"encouragement of the production of quality films that will promote the
growth and development' of the local film industry."13 Moreover, FDCP We find no reason to disturb the assailed rulings.
suggests that "even if the resultant effect would be a certain loss of revenue,
[LGUs] do not feel deprived nor bitter for they realize that the benefits for Local fiscal autonomy and the constitutionally-delegated power to tax
the film industry, the fortification of our values system, and the cultural
boost for the nation as a whole, far outweigh the pecuniary cost they would The power of taxation, being an essential and inherent attribute of
shoulder by backing this law."14 Finally, in support of its stance, FDCP invites sovereignty, belongs, as a matter of right, to every independent
attention to the following words of former Associate Justice Isagani A. Cruz: government, and needs no express conferment by the people before it can
"[t]he mere fact that the tax will be directly enjoyed by a private individual be exercised. It is purely legislative and, thus, cannot be delegated to the
does not make it invalid so long as some link to the public welfare is executive and judicial branches of government without running afoul to the
established."15 theory of separation of powers. It, however, can be delegated to municipal

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corporations, consistent with the principle that legislative powers may be powers. Nevertheless, the fundamental law did not intend the delegation to
delegated to local governments in respect of matters of local concern.19 The be absolute and unconditional. The legislature must still see to it that (a) the
authority of provinces, cities, and municipalities to create their own sources taxpayer will not be over-burdened or saddled with multiple and
of revenue and to levy taxes, therefore, is not inherent and may be exercised unreasonable impositions; (b) each LGU will have its fair share of available
only to the extent that such power might be delegated to them either by the resources; ( c) the resources of the national government will not be unduly
basic law or by statute.20 Under the regime of the 1935 Constitution, there disturbed; and ( d) local taxation will be fair, uniform, and just.28
was no constitutional provision on the delegation of the power to tax to
municipal corporations. They only derived such under a limited statutory In conformity to the dictate of the fundamental law for the legislature to
authority, outside of which, it was deemed withheld.21 Local governments, "enact a local government code which shall provide for a more responsive
thus, had very restricted taxing powers which they derive from numerous and accountable local government structure instituted through a system of
tax laws. This highly-centralized government structure was later seen to decentralization,"29 consistent with the basic policy of local autonomy,
have arrested the growth and efficient operations of LG Us, paving the way Congress enacted the LGC, Book II of which governs local taxation and fiscal
for the adoption of a more decentralized system which granted LGUs local matters and sets forth the guidelines and limitations for the exercise of this
autonomy, both administrative and fiscal autonomy.22 power. In Pelizloy Realty Corporation v. The Province of Benguet,30 the
Court alluded to the fundamental principles governing the taxing powers of
Material to the case at bar is the concept and scope of local fiscal autonomy. LGUs as laid out in Section 130 of the LGC, to wit:
In Pimentel v. Aguirre,23 fiscal autonomy was defined as "the power [of
LGUs] to create their own sources of revenue in addition to their equitable 1. Taxation shall be uniform in each LGU.
share in the national taxes released by the national government, as well as
the power to allocate their resources in accordance with their own priorities. 2. Taxes, fees, charges and other impositions shall:
It extends to the preparation of their budgets, and local officials in tum have
to work within the constraints thereof." a. be equitable and based as far as practicable on the taxpayer's ability to
pay;
With the adoption of the 1973 Constitution,24 and later the 1987
Constitution, municipal corporations were granted fiscal autonomy via a b. be levied and collected only for public purposes;
general delegation of the power to tax.25 Section 5, Article XI of the 1973
Constitution gave LGUs the "power to create its own sources of revenue and c. not be unjust, excessive, oppressive, or confiscatory;
to levy taxes, subject to such limitations as may be provided by law.'' This
authority was further strengthened in the 1987 Constitution, through the d. not be contrary to law, public policy, national economic policy, or in the
inclusion in Section 5, Article X thereof of the condition that " [s]uch taxes, restraint of trade.
fees, and charges shall accrue exclusively to local governments."26
3. The collection of local taxes, fees, charges and other impositions shall in
Accordingly, under the present Constitution, where there is neither a grant no case be let to any private person.
nor a prohibition by statute, the tax power of municipal corporations must
be deemed to exist although Congress may provide statutory limitations and 4. The revenue collected pursuant to the provisions of the LGC shall inure
guidelines.27 The basic rationale for the current rule on local fiscal solely to the benefit of, and be subject to the disposition by, the LGU levying
autonomy is the strengthening of LGUs and the safeguarding of their the tax, fee, charge or other imposition unless otherwise specifically
viability and self-sufficiency through a direct grant of general and broad tax provided by the LGC.

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CONSTI II |ATTY. PASCUAL | TAXATION | TAN
 between said proprietor, lessees, operators, and the distributors of the
5. Each LGU shall, as far as practicable, evolve a progressive system of cinematographic films.
taxation.
Then, after almost a decade of cities reaping benefits from this imposition,
It is in the application of the adverted fourth rule, that is-all revenue Congress, through RA 9167, amending Section 140 of the LGC,34 among
collected pursuant to the provisions of the LGC shall inure solely to the others, transferred this income from the cities and municipalities in
benefit of, and be subject to the disposition by, the LGU levying the tax, fee, Metropolitan Manila and highly urbanized and independent component
charge or other imposition unless otherwise specifically provided by the cities, such as respondent City of Cebu, to petitioner FDCP, which proceeds
LGC-upon which the present controversy grew. will ultimately be rewarded to the producers of graded films. We reproduce
anew Secs. 13 and 14 of RA 9167, thus:
RA 9167 violates local fiscal autonomy
Section 13. Privileges of Graded Films. - Films which have obtained an "A" or
It is beyond cavil that the City of Cebu had the authority to issue its City "B" grading from the Council pursuant to Sections 11 and 12 of this Act shall
Ordinance No. LXIX and impose an amusement tax on cinemas pursuant to be entitled to the following privileges: a. Amusement tax reward. - A grade
Sec. 140 in relation to Sec. 151 of the LGC. Sec. 140 states, among other "A" or "B" film shall entitle its producer to an incentive equivalent to the
things, that a "province may levy an amusement tax to be collected from the amusement tax imposed and collected on the graded films by cities and
proprietors, lessees, or operators of theaters, cinemas, concert halls, municipalities in Metro Manila and other highly urbanized and independent
circuses, boxing stadia, and other places of amusement at a rate of not more component cities in the Philippines pursuant to Sections 140 to 151 of
than thirty percent (30%) of the gross receipts from admission fees." By Republic Act No. 7160 at the following rates:
operation of said Sec. 151,31 extending to them the authority of provinces
and municipalities to levy certain taxes, fees, and charges, cities, such as 1. For grade "A" films - 100% of the amusement tax collected on such film;
respondent city government, may therefore validly levy amusement taxes and
subject to the parameters set forth under the law. Based on this authority,
the City of Cebu passed, in 1993, its Revised Omnibus Tax Ordinance,32 2. For grade "B" films - 65% of the amusement tax collected on such films.
Chapter XI, Secs. 42 and 43 of which reads: The remaining thirty-five (35%) shall accrue to the funds of the Council.

CHAPTER XI - Amusement Tax Section 14. Amusement Tax Deduction and Remittance. -All revenue from
the amusement tax on the graded film which may otherwise accrue to the
Section 42. Rate of Tax. - There shall be paid to the Office of the City cities and municipalities in Metropolitan Manila and highly urbanized and
Treasurer by the proprietors, lessees, or operators of theaters, cinemas, independent component cities in the Philippines pursuant to Section 140 of
concert halls, circuses, boxing stadia and other places of amusement, an Republic Act. No. 7160 during the period the graded film is exhibited, shall
amusement tax at the rate of thirty percent (30%) of the gross receipts from be deducted and withheld by the proprietors, operators or lessees of
admission fees.33 theaters or cinemas and remitted within thirty (30) days from the
termination of the exhibition to the Council which shall reward the
Section 43. Manner of Payment. - In the case of theaters or cinemas, the tax corresponding amusement tax to the producers of the graded film within
shall first be deducted and withheld by their proprietors, lessees, or fifteen (15) days from receipt thereof.
operators and paid to the city treasurer before the gross receipts are divided

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Proprietors, operators and lessees of theaters or cinemas who fail to remit Section 14. Amusement Tax Deduction and Remittance. - All revenue from
the amusement tax proceeds within the prescribed period shall be liable to the amusement tax on the graded film which may otherwise accrue to the
a surcharge equivalent to five percent (5%) of the amount due for each cities and municipalities in Metropolitan Manila and highly urbanized and
month of delinquency which shall be paid to the Council. independent component cities in the Philippines pursuant to Section 140 of
Republic Act. No. 7160 during the period the graded film is exhibited, shall
Considering the amendment, the present rule is that ALL amusement taxes be deducted and withheld by the proprietors, operators or lessees of
levied by covered cities and municipalities shall be 2iven by proprietors, theaters or cinemas and remitted within thirty (30) days from the
operators or lessees of theatres and cinemas to FDCP, which shall then termination of the exhibition to the Council which shall reward the
reward said amount to the producers of graded films in this wise: corresponding amusement tax to the producers of the graded film within
fifteen (15) days from receipt thereof.
1. For grade "A" films, ALL amusement taxes collected by ALL covered LGUs
on said films shall be given to the producer thereof. The LGU, therefore, is A reading of the challenged provision reveals that the power to impose
entitled to NOTHING from its own imposition. amusement taxes was NOT removed from the covered LGUs, unlike what
Congress did for the taxes enumerated in Sec. 133, Article X of the LGC,35
2. For grade "B" films, SIXTY FIVE PERCENT (65%) of ALL amusement taxes which lays down the common limitations on the taxing powers of LGUs.
derived by ALL covered LGUs on said film shall be given to the producer Thus:
thereof. In this case, however, the LGU is still NOT entitled to any portion of
the imposition, in view of Sec. 16 of RA 9167 which provides that the Section 133. Common Limitations on the Taxing Powers of Local
remaining 35% may be expended for the Council's operational expenses. Government Units. -Unless otherwise provided herein, the exercise of the
Thus: Section 16. Funding. - The Executive Secretary shall immediately taxing powers of provinces, cities, municipalities, and barangays shall not
include in the Office of the President's program the implementation of this extend to the levy of the following:
Act, the funding of which shall be included in the annual General
Appropriations Act. (a) Income tax, except when levied on banks and other financial institutions;

To augment the operational expenses of the Council, the Council may: (b) Documentary stamp tax;

a. Utilize the remaining thirty-five (35%) percent of the amusement tax (c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis
collected during the period of grade "B" film is exhibited, as provided under causa, except as otherwise provided herein;
Sections 13 and 14 hereof x x x.
(d) Customs duties, registration fees of vessel and wharfage on wharves,
For petitioner, the amendment is a valid legislative manifestation of the tonnage dues, and all other kinds of customs fees, charges and dues except
intention to remove from the grasp of the taxing power of the covered LGUs wharfage on wharves constructed and maintained by the local government
all revenues from amusement taxes on grade "A" or "B" films which would unit concerned;
otherwise accrue to them. An evaluation of the provisions in question,
however, compels Us to disagree. (e) Taxes, fees, and charges and other impositions upon goods carried into
or out of, or passing through, the territorial jurisdictions of local government
RA 9167, Sec. 14 states: units in the guise of charges for wharfage, tolls for bridges or otherwise, or

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CONSTI II |ATTY. PASCUAL | TAXATION | TAN
other taxes, fees, or charges in any form whatsoever upon such goods or
merchandise; From the above, the difference between Sec. 133 and the questioned
amendment of Sec. 140 of the LGC by RA 9167 is readily revealed. In Sec. ·
(f) Taxes, fees or charges on agricultural and aquatic products when sold by 133, what Congress did was to prohibit the levy by LGUs of the enumerated
marginal farmers or fishermen; taxes. For RA 9167, however, the covered LGUs were deprived of the income
which they will otherwise be collecting should they impose amusement
(g) Taxes on business enterprises certified to by the Board of Investments as taxes, or, in petitioner's own words, "Section 14 of [RA 9167] can be viewed
pioneer or non-pioneer for a period of six (6) and four (4) years, respectively as an express and real intention on the part of Congress to remove from the
from the date of registration; LGU's delegated taxing power, all revenues from the amusement taxes on
graded films which would otherwise accrue to [them] pursuant to Section
(h) Excise taxes on articles enumerated under the national Internal Revenue 140 of the [LGC]."36
Code, as amended, and taxes, fees or charges on petroleum products;
In other words, per RA 9167, covered LGUs still have the power to levy
(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or amusement taxes, albeit at the end of the day, they will derive no revenue
similar transactions on goods or services except as otherwise provided therefrom. The same, however, cannot be said for FDCP and the producers
herein; of graded films since the amounts thus levied by the LGUs which should
rightfully accrue to them, they being the taxing authority-will be going to
(j) Taxes on the gross receipts of transportation contractors and persons their coffers. As a matter of fact, it is only through the exercise by the LGU
engaged in the transportation of passengers or freight by hire and common of said power that the funds to be used for the amusement tax reward can
carriers by air, land or water, except as provided in this Code; be raised. Without said imposition, the producers of graded films will receive
nothing from the owners, proprietors and lessees of cinemas operating
(k) Taxes on premiums paid by way or reinsurance or retrocession; within the territory of the covered LGU.

(l) Taxes, fees or charges for the registration of motor vehicles and for the Taking the resulting scheme into consideration, it is apparent that what
issuance of all kinds of licenses or permits for the driving thereof, except Congress did in this instance was not to exclude the authority to levy
tricycles; amusement taxes from the taxing power of the covered LGUs, but to
earmark, if not altogether confiscate, the income to be received by the LGU
(m) Taxes, fees, or other charges on Philippine products actually exported, from the taxpayers in favor of and for transmittal to FDCP, instead of the
except as otherwise provided herein; taxing authority. This, to Our mind, is in clear contravention of the
constitutional command that taxes levied by LGUs shall accrue exclusively
(n) Taxes, fees, or charges, on Countryside and Barangay Business to said LGU and is repugnant to the power of LGUs to apportion their
Enterprises and cooperatives duly registered under R.A. No. 6810 and resources in line with their priorities.
Republic Act Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938)
otherwise known as the "Cooperative Code of the Philippines" respectively; It is a basic precept that the inherent legislative powers of Congress, broad
and as they may be, are limited and confined within the four walls of the
Constitution.37 Accordingly, whenever the legislature exercises its power to
(o) Taxes, fees or charges of any kind on the National Government, its enact, amend, and repeal laws, it should do so without going beyond the
agencies and instrumentalities, and local government units. (emphasis ours) parameters wrought by the organic law.

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 or entity from the burden of the imposition. Here, however, it cannot be
In the case at bar, through the application and enforcement of Sec. 14 of RA said that an exemption from amusement taxes was granted by Congress to
9167, the income from the amusement taxes levied by the covered LGUs did the producers of graded films. Take note that the burden of paying the
not and will under no circumstance accrue to them, not even partially, amusement tax in question is on the proprietors, lessors, and operators of
despite being the taxing authority therefor. Congress, therefore, clearly the theaters and cinemas that showed the graded films. Thus, per City
overstepped its plenary legislative power, the amendment being violative of Ordinance No. LXIX: CHAPTER XI - Amusement Tax
the fundamental law's guarantee on local autonomy, as echoed in Sec.
130(d) of the LGC, thus: Section 130. Fundamental Principles. - The following Section 42. Rate of Tax. - There shall be paid to the Office of the City
fundamental principles shall govern the exercise of the taxing and other Treasurer by the proprietors, lessees, or operators of theaters, cinemas,
revenue-raising powers of local government units: concert halls,, circuses, boxing stadia and other places of amusement, an
amusement tax at the rate of thirty percent (30%) of the gross receipts from
xxxx admission fees.

(d) The revenue collected pursuant to the provisions of this Code shall inure Section 43. Manner of Payment. - In the case of theaters or cinemas, the tax
solely to the benefit of, and be subject to the disposition by, the local shall first be deducted and withheld by their proprietors, lessees, or
government unit levying the tax, fee, charge or other imposition unless operators and paid to the city treasurer before the gross receipts are divided
otherwise specifically provided herein x x x. between said proprietor, lessees, operators, and the distributors of the
cinematographic films.
Moreover, in Pimentel,38 the Court elucidated that local fiscal autonomy
includes the power of LGUs to allocate their resources in accordance with Similarly, the LGC provides as follows:
their own priorities. By earmarking the income on amusement taxes
imposed by the LGUs in favor of FDCP and the producers of graded films, the Section 140. Amusement Tax. –
legislature appropriated and distributed the LGUs' funds-as though it were
legally within its control-under the guise of setting a limitation on the LGUs' (a) The province may levy an amusement tax to be collected from the
exercise of their delegated taxing power. This, undoubtedly, is a usurpation proprietors, lessees, or operators of theaters, cinemas, concert halls,
of the latter's exclusive prerogative to apportion their funds, an circuses, boxing stadia, and other places of amusement at a rate of not more
impermissible intrusion into the LGUs' constitutionally-protected domain than thirty percent (30%) of the gross receipts from admission fees.
which puts to naught the guarantee of fiscal autonomy to municipal
corporations enshrined in our basic law. (b) In the case of theaters or cinemas, the tax shall first be deducted and
withheld by their proprietors, lessees, or operators and paid to the
Grant of amusement tax reward incentive: not a tax exemption provincial treasurer before the gross receipts are divided between said
proprietors, lessees, or operators and the distributors of the
It was argued that subject Sec. 13 is a grant by Congress of an exemption cinematographic films.
from amusement taxes in favor of producers of graded films. Without
question, this Court has previously upheld the power of Congress to grant Simply put, both the burden and incidence of the amusement tax are borne
exemptions over the power of LGUs to impose taxes.39 This amusement tax by the proprietors, lessors, and operators, not by the producers of the
reward, however, is not, as the lower court posited, a tax exemption. graded films. The transfer of the amount to the film producers is actually a
Exempting a person or entity from tax is to relieve or to excuse that person monetary reward given to them for having produced a graded film, the

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funding for which was taken by the national government from the coffers of
the covered LGUs. Without a doubt, this is not an exemption from payment it is also true that the constitutionality of the entire law was not put m
of tax. question in any of the said cases.

Declaration by the RTC, Branch 5 of the Moreover, a perusal of RA 9167 easily reveals that even with the removal of
entire RA 9167 as unconstitutional Secs. 13 and 14 of the law, the remaining provisions can survive as they
mandate other matters like a cinema evaluation system, an incentive and
Noticeably, the RTC, Branch 5, in its September 25, 2012 Decision in Colon reward system, and local and international film festivals and activities that
Heritage v. FDCP, ruled against the constitutionality of the entire law, not "will promote the growth and development of the local film industry and
just the assailed Sec. 14. The fallo of the judgment reads: promote its participation in both domestic and foreign markets," and to
"enhance the skills and expertise of Filipino talents."41
WHEREFORE, in view of all the foregoing, Judgment is hereby rendered in
favor of petitioner, as follows: Where a part of a statute is void as repugnant to the Constitution, while
another part is valid, the valid portion, if separable from the invalid, may
(1) Declaring Republic Act No. 9167 as invalid and unconstitutional; stand-and be enforced. The exception to this is when the parts of a statute
are so mutually dependent and connected, as conditions, considerations,
(2) The obligation to remit amusement taxes for the graded films to inducements, or compensations for each other, as to warrant a belief that
respondent is ordered extinguished; the legislature intended them as a whole, in which case, the nullity of one
part will vitiate the rest.42
(3) Directing respondent to refund all the amounts paid by petitioner, by
way of amusement tax, plus the legal rate of interest thereof, until the whole Here, the constitutionality of the rest of the provisions of RA 9167 was never
amount is paid in full. put in question. Too, nowhere in the assailed judgment of the RTC was it
explicated why the entire law was being declared as unconstitutional.
In this regard, it is well to emphasize that if it appears that the rest of the
law is free from the taint of unconstitutionality, then it should remain in It is a basic tenet that courts cannot go beyond the issues in a case,43 which
force and effect if said law contains a separability clause. A separability the RTC, Branch 5 did when it declared RA 9167 unconstitutional. This being
clause is a legislative expression of intent that the nullity of one provision the case, and in view of the elementary rule that every statute is presumed
shall not invalidate the other provisions of the act. Such a clause is not, valid,44 the declaration by the R TC, Branch 5 of the entirety of RA 9167 as
however, controlling and the courts, in spite of it, may invalidate the whole unconstitutional, is improper.
statute where what is left, after the void part, is not complete and
workable.40 Amounts paid by Colon Heritage
need not be returned
In this case, not only does RA 9167 have a separability clause, contained in
Section 23 thereof which reads: Having ruled that the questioned provisions are unconstitutional, the RTC,
Branch 5, in Colon Heritage v. FDCP, ordered the return of all amounts paid
Section 23. Separability Clause. -If, for any reason, any provision of this Act, by respondent Colon Heritage to FDCP by way of amusement tax. Thus:
or any part thereof, is declared invalid or unconstitutional, all other sections
or provisions not affected thereby shall remain in force and effect.

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WHEREFORE, in view of all the foregoing, Judgment is hereby rendered in The "operative fact" doctrine is embodied in De Agbayani v. Court of
favor of petitioner, as follows: Appeals, wherein it is stated that a legislative or executive act, prior to its
being declared as unconstitutional by the courts, is valid and must be
(1) Declaring Republic Act No. 9167 as invalid and unconstitutional; complied with, thus:

(2) The obligation to remit amusement taxes for the graded films to xxx xxx xxx
respondent is ordered extinguished;
This doctrine was reiterated in the more recent case of City of Makati v. Civil
(3) Directing respondent to refund all the amounts paid by petitioner, by Service Commission, wherein we ruled that:
way of amusement tax, plus the legal rate of interest thereof, until the whole
amount is paid in full. Moreover, we certainly cannot nullify the City Government's order of
suspension, as we have no reason to do so, much less retroactively apply
As regards the refund, the Court cannot subscribe to this position. such nullification to deprive private respondent of a compelling and valid
reason for not filing the leave application. For as we have held, a void act
It is a well-settled rule that an unconstitutional act is not a law; it . confers though in law a mere scrap of paper nonetheless confers legitimacy upon
no rights; it imposes no duties; it affords no protection; it creates no office; past acts or omissions done in reliance thereof. Consequently, the existence
it is inoperative as if it has not been passed at all. Applying this principle, the of a statute or executive order prior to its being adjudged void is an
logical conclusion would be to order the return of all the amounts remitted operative fact to which legal consequences are attached. It would indeed be
to FDCP and given to the producers of graded films, by all of the covered ghastly unfair to prevent private respondent from relying upon the order of
cities, which actually amounts to hundreds of millions, if not billions. In fact, suspension in lieu of a formal leave application.
just for Cebu City, the aggregate deficiency claimed by FDCP is ONE
HUNDRED FIFTY NINE MILLION THREE HUNDRED SEVENTY SEVEN The applicability of the operative fact doctrine to executive acts was further
THOUSAND NINE HUNDRED EIGHTY-EIGHT PESOS AND FIFTY FOUR explicated by this Court in Rieta v. People, thus:
CENTAVOS (₱159,377,988.54). Again, this amount represents the unpaid
amounts to FDCP by eight cinema operators or proprietors in only one Petitioner contends that his arrest by virtue of Arrest . Search and Seizure
covered city. Order (ASSO) No. 4754 was invalid, as the law upon which it was predicated-
General Order No. 60, issued by then President Ferdinand E. Marcos - was
An exception to the above rule, however, is the doctrine of operative fact, subsequently declared by the Court, in Tanada v. Tuvera, 33 to have no force
which applies as a matter of equity and fair play. This doctrine nullifies the and effect. Thus, he asserts, any evidence obtained pursuant thereto is
effects of an unconstitutional law or an executive act by recognizing that the inadmissible in evidence.
existence of a statute prior to a determination of unconstitutionality is an
operative fact and may have consequences that cannot always be ignored. We do not agree. In Tanada, the Court addressed the possible effects of its
It applies when a declaration of unconstitutionality will impose an undue declaration of the invalidity of various presidential issuances.1a\^/phi1
burden on those who have relied on the invalid law.45 Discussing therein how such a declaration might affect acts done on a
presumption of their validity, the Court said:
In Hacienda Luisita v. PARC, the Court elucidated the meaning and scope of
the operative fact doctrine, viz:

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CONSTI II |ATTY. PASCUAL | TAXATION | TAN
" ... In similar situations in the past this Court had taken the pragmatic and - is an operative fact that can no longer be disturbed or simply ignored.
realistic course set forth in Chicot County Drainage District vs. Baxter Bank (citations omitted; emphasis in the original.)
to wit:
Bearing in mind that PARC Resolution No. 89-12-2-an executive act-was
'The courts below have proceeded on the theory that the Act of Congress, declared invalid in the instant case, the operative fact doctrine is clearly
having been found to be unconstitutional, was not a law; that it was applicable.46
inoperative, conferring no rights and imposing no duties, and hence
affording no basis for the challenged decree. . . . It is quite clear, however, Here, to order FDCP and the producers of graded films which may have
that such broad statements as to the effect of a determination of already received the amusement tax incentive reward pursuant to the
unconstitutionality must be taken with qualifications. The actual existence questioned provisions of RA 9167, to return the amounts received to the
of a statute, prior to [the determination of its invalidity], is an operative fact respective taxing authorities would certainly impose a heavy, and possibly
and may have consequences which cannot justly be ignored. The past crippling, financial burden upon them who merely, and presumably in good
cannot always be erased by a new judicial declaration. The effect of the faith, complied with the legislative fiat subject of this case. For these
subsequent ruling as to invalidity may have to be considered in various reasons, We are of the considered view that the application of the doctrine
aspects – with respect to particular conduct, private and official. Questions of operative facts in the case at bar is proper so as not to penalize FDCP for
of rights claimed to have become vested, of status, of prior determinations having complied with the legislative command in RA 9167, and the
deemed to have finality and acted upon accordingly, of public policy in the producers of graded films who have already received their tax cut prior to
light of the nature both of the statute and of its previous application, this Decision for having produced top-quality films.
demand examination. These questions are among the most difficult of those
which have engaged the attention of courts, state and federal, and it is With respect to the amounts retained by the cinema proprietors due to
manifest from numerous decisions that an all-inclusive statement of a petitioner FDCP, said proprietors are required under the law to remit the
principle of absolute retroactive invalidity cannot be justified.' same to petitioner. Obeisance to the rule of law must always be protected
and preserved at all times and the unjustified refusal of said proprietors
xxx xxx xxx cannot be tolerated. The operative fact doctrine equally applies to the non-
remittance by said proprietors since the law produced legal effects prior to
"Similarly, the implementation/ enforcement of presidential decrees prior the declaration of the nullity of Secs. 13 and 14 in these instant petitions. It
to their publication in the Official Gazette is 'an operative fact which may can be surmised, however, that the proprietors were at a loss whether or
have consequences which cannot be justly ignored. The past cannot always not to remit said amounts to FDCP considering the position of the City of
be erased by a new judicial declaration ... that an all-inclusive statement of Cebu for them to remit the amusement taxes directly to the local
a principle of absolute retroactive invalidity cannot be justified." government. For this reason, the proprietors shall not be liable for
surcharges.
The Chicot doctrine cited in Tanada advocates that, prior to the nullification
of a statute, there is an imperative necessity of taking into account its actual In view of the declaration of nullity of unconstitutionality of Secs. 13 and 14
existence as an operative fact negating the acceptance of "a principle of of RA 9167, all amusement taxes remitted to petitioner FDCP prior to the
absolute retroactive invalidity." Whatever was done while the legislative or date of the finality of this decision shall remain legal and valid under the
the executive act was in operation should be duly recognized and presumed operative fact doctrine. Amusement taxes due to petitioner but unremitted
to be valid in all respects. The ASSO that was issued in 1979 under General up to the finality of this decision shall be remitted to petitioner within thirty
Order No. 60 - long before our Deeision n Taiiada and the arrest of petitioner

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(30) days from date of finality. Thereafter, amusement taxes previously 2. Civil Case No. CEB-35529 entitled City of Cebu v. Film Development
covered by RA 9167 shall be remitted to the local governments. Council of the Philippines:

WHEREFORE, premises considered, the consolidated petitions are hereby WHEREFORE, in view of all the disquisitions, judgment is rendered in favor
PARTIALLY GRANTED. The questioned Decision of the RTC, Branch 5 of Cebu of the City of Cebu against the Film development Council of the Philippines,
City in Civil Case No. CEB-35601 dated September 25, 2012 and that of the as follows:
R TC, Branch 14, Cebu City in Civil Case No. CEB-35529 dated October 24,
2012, collectively declaring Sections 13 and 14 of Republic Act No. 9167 1. Declaring Sections 13 and 14 of Republic Act No. 9167 otherwise known
invalid and unconstitutional, are hereby AFFIRMED with MODIFICATION. as an Act Creating the Film Development Council of the Philippines, Defining
its Powers and Functions, Appropriating Funds therefor and for other
As modified, the decisions of the lower courts shall read: purposes, void and unconstitutional;

1. Civil Case No. CEB-35601 entitled Colon Heritage Realty Corp. v. Film 2. Declaring that the Film Development Council of the Philippines cannot
Development Council of the Philippines: collect under Sections 13 and 14 of R.A. 9167 as of the finality of this
Decision;
WHEREFORE, in view of all the foregoing, Judgment is hereby rendered in
favor of Colon Heritage Realty Corp. and against the Film Development 3. Declaring that Intervenor SM Cinema Corporation has the obligation to
council of the Philippines, as follows: 1. Declaring Sections 13 and 14 of remit the amusement taxes, withheld on graded cinema films to respondent
Republic Act No. 9167 otherwise known as an Act Creating the Film FDCP under Sections 13 and 14 of R.A. 9167 for taxes due prior to the finality
Development Council of the Philippines, Defining its Powers and Functions, of this Decision, without surcharges;
Appropriating Funds therefor arid for other purposes, as invalid and
unconstitutional; 4. Declaring that after the finality of this Decision, all amusement taxes
withheld and those which may be collected by Intervenor SM on graded
2. Declaring that the Film Development Council of the Philippines cannot films shown in SM Cinemas in Cebu City shall be remitted to petitioner Cebu
collect under Sections 13 and 14 of R.A. 9167 as of the finality of the decision City pursuant to City Ordinance LXIX, Chapter XI, Section 42.
in G.R. Nos. 203754 and 204418;
As to the sum of PhP 76,836,807.08 remitted by the Intervenor SM to
3. Declaring that Colon Heritage Realty Corp. has the obligation to remit the petitioner City of Cebu, said amount shall be remitted by the City of Cebu to
amusement taxes withheld on graded cinema films to FDCP under Sections petitioner FDCP within thirty (30) days from finality of this decision in G.R.
13 and 14 of R.A. 9167 for taxes due prior to the finality of this Decision, Nos. 203754 and 204418 without interests and surcharges. Since Sections
without surcharges; 13 and 14 of Republic Act No. 9167 were declared void and unconstitutional,
all remittances of amusement taxes pursuant to said Sections 13 and 14 of
4. Declaring that upon the finality of this decision, all amusement taxes said law prior to the date of finality of this Decision shall remain valid and
withheld and those which may be collected by Colon Heritage Realty Corp. legal. Cinema proprietors who failed to remit said amusement taxes to
on graded films shown in its cinemas in Cebu City shall be remitted to Cebu petitioner FDCP prior to the date of finality of this Decision are obliged to
City pursuant to City Ordinance LXIX, Chapter XI, Section 42. remit the same, without surcharges, to petitioner FDCP under the doctrine
of operative fact. SO ORDERED.

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G.R. No. L-23645 October 29, 1968 The pertinent portions of Adm. Order 3 read as follows:

BENJAMIN P. GOMEZ, petitioner-appellee, Such semi-postal stamps could not be made available during the period from
vs. August 19 to September 30, 1957, for lack of time. However, two
ENRICO PALOMAR, in his capacity as Postmaster General, HON. BRIGIDO R. denominations of such stamps, one at "5 + 5" centavos and another at "10
VALENCIA, in his capacity as Secretary of Public Works and Communications, + 5" centavos, will soon be released for use by the public on their mails to
and DOMINGO GOPEZ, in his capacity as Acting Postmaster of San Fernando, be posted during the same period starting with the year 1958.
Pampanga, respondent-appellants.
xxx xxx xxx
Lorenzo P. Navarro and Narvaro Belar S. Navarro for petitioner-appellee.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General During the period from August 19 to September 30 each year starting in
Frine C. Zaballero and Solicitor Dominador L. Quiroz for respondents- 1958, no mail matter of whatever class, and whether domestic or foreign,
appellants. posted at any Philippine Post Office and addressed for delivery in this
country or abroad, shall be accepted for mailing unless it bears at least one
CASTRO, J.: such semi-postal stamp showing the additional value of five centavos
intended for the Philippine Tuberculosis Society.
This appeal puts in issue the constitutionality of Republic Act 1635,1 as
amended by Republic Act 2631,2 which provides as follows: In the case of second-class mails and mails prepaid by means of mail permits
or impressions of postage meters, each piece of such mail shall bear at least
To help raise funds for the Philippine Tuberculosis Society, the Director of one such semi-postal stamp if posted during the period above stated
Posts shall order for the period from August nineteen to September thirty starting with the year 1958, in addition to being charged the usual postage
every year the printing and issue of semi-postal stamps of different prescribed by existing regulations. In the case of business reply envelopes
denominations with face value showing the regular postage charge plus the and cards mailed during said period, such stamp should be collected from
additional amount of five centavos for the said purpose, and during the said the addressees at the time of delivery. Mails entitled to franking privilege
period, no mail matter shall be accepted in the mails unless it bears such like those from the office of the President, members of Congress, and other
semi-postal stamps: Provided, That no such additional charge of five offices to which such privilege has been granted, shall each also bear one
centavos shall be imposed on newspapers. The additional proceeds realized such semi-postal stamp if posted during the said period.
from the sale of the semi-postal stamps shall constitute a special fund and
be deposited with the National Treasury to be expended by the Philippine Mails posted during the said period starting in 1958, which are found in
Tuberculosis Society in carrying out its noble work to prevent and eradicate street or post-office mail boxes without the required semi-postal stamp,
tuberculosis. shall be returned to the sender, if known, with a notation calling for the
affixing of such stamp. If the sender is unknown, the mail matter shall be
The respondent Postmaster General, in implementation of the law, treated as nonmailable and forwarded to the Dead Letter Office for proper
thereafter issued four (4) administrative orders numbered 3 (June 20, 1958), disposition.
7 (August 9, 1958), 9 (August 28, 1958), and 10 (July 15, 1960). All these
administrative orders were issued with the approval of the respondent Adm. Order 7, amending the fifth paragraph of Adm. Order 3, reads as
Secretary of Public Works and Communications. follows:

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In the case of the following categories of mail matter and mails entitled to 5. Mails entitled to franking privilege. — Government agencies,
franking privilege which are not exempted from the payment of the five officials, and other persons entitled to the franking privilege under existing
centavos intended for the Philippine Tuberculosis Society, such extra charge laws may pay in cash such extra charge intended for said society, instead of
may be collected in cash, for which official receipt (General Form No. 13, A) affixing the semi-postal stamps to their mails, provided that such mails are
shall be issued, instead of affixing the semi-postal stamp in the manner presented at the post-office window, where the five-centavo extra charge
hereinafter indicated: for said society shall be collected on each piece of such mail matter. In such
case, an official receipt shall be issued for the total sum thus collected, in
1. Second-class mail. — Aside from the postage at the second-class the manner stated in subparagraph 1.
rate, the extra charge of five centavos for the Philippine Tuberculosis Society
shall be collected on each separately-addressed piece of second-class mail Mail under permits, metered mails and franked mails not presented at the
matter, and the total sum thus collected shall be entered in the same official post-office window shall be affixed with the necessary semi-postal stamps.
receipt to be issued for the postage at the second-class rate. In making such If found in mail boxes without such stamps, they shall be treated in the same
entry, the total number of pieces of second-class mail posted shall be stated, way as herein provided for other mails.
thus: "Total charge for TB Fund on 100 pieces . .. P5.00." The extra charge
shall be entered separate from the postage in both of the official receipt and Adm. Order 9, amending Adm. Order 3, as amended, exempts "Government
the Record of Collections. and its Agencies and Instrumentalities Performing Governmental
Functions." Adm. Order 10, amending Adm. Order 3, as amended, exempts
2. First-class and third-class mail permits. — Mails to be posted "copies of periodical publications received for mailing under any class of mail
without postage affixed under permits issued by this Bureau shall each be matter, including newspapers and magazines admitted as second-class
charged the usual postage, in addition to the five-centavo extra charge mail."
intended for said society. The total extra charge thus received shall be
entered in the same official receipt to be issued for the postage collected, The FACTS. On September l5, 1963 the petitioner Benjamin P. Gomez mailed
as in subparagraph 1. a letter at the post office in San Fernando, Pampanga. Because this letter,
addressed to a certain Agustin Aquino of 1014 Dagohoy Street, Singalong,
3. Metered mail. — For each piece of mail matter impressed by Manila did not bear the special anti-TB stamp required by the statute, it was
postage meter under metered mail permit issued by this Bureau, the extra returned to the petitioner.
charge of five centavos for said society shall be collected in cash and an
official receipt issued for the total sum thus received, in the manner In view of this development, the petitioner brough suit for declaratory relief
indicated in subparagraph 1. in the Court of First Instance of Pampanga, to test the constitutionality of
the statute, as well as the implementing administrative orders issued,
4. Business reply cards and envelopes. — Upon delivery of business contending that it violates the equal protection clause of the Constitution as
reply cards and envelopes to holders of business reply permits, the five- well as the rule of uniformity and equality of taxation. The lower court
centavo charge intended for said society shall be collected in cash on each declared the statute and the orders unconstitutional; hence this appeal by
reply card or envelope delivered, in addition to the required postage which the respondent postal authorities.
may also be paid in cash. An official receipt shall be issued for the total
postage and total extra charge received, in the manner shown in For the reasons set out in this opinion, the judgment appealed from must be
subparagraph 1. reversed.

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I.
Nevertheless, we are of the view that the petitioner's choice of remedy is
Before reaching the merits, we deem it necessary to dispose of the correct because this suit was filed not only with respect to the letter which
respondents' contention that declaratory relief is unavailing because this he mailed on September 15, 1963, but also with regard to any other mail
suit was filed after the petitioner had committed a breach of the statute. that he might send in the future. Thus, in his complaint, the petitioner
While conceding that the mailing by the petitioner of a letter without the prayed that due course be given to "other mails without the semi-postal
additional anti-TB stamp was a violation of Republic Act 1635, as amended, stamps which he may deliver for mailing ... if any, during the period covered
the trial court nevertheless refused to dismiss the action on the ground that by Republic Act 1635, as amended, as well as other mails hereafter to be
under section 6 of Rule 64 of the Rules of Court, "If before the final sent by or to other mailers which bear the required postage, without
termination of the case a breach or violation of ... a statute ... should take collection of additional charge of five centavos prescribed by the same
place, the action may thereupon be converted into an ordinary action." Republic Act." As one whose mail was returned, the petitioner is certainly
interested in a ruling on the validity of the statute requiring the use of
The prime specification of an action for declaratory relief is that it must be additional stamps.
brought "before breach or violation" of the statute has been committed.
Rule 64, section 1 so provides. Section 6 of the same rule, which allows the II.
court to treat an action for declaratory relief as an ordinary action, applies
only if the breach or violation occurs after the filing of the action but before We now consider the constitutional objections raised against the statute
the termination thereof.3 and the implementing orders.

Hence, if, as the trial court itself admitted, there had been a breach of the 1. It is said that the statute is violative of the equal protection clause
statute before the firing of this action, then indeed the remedy of of the Constitution. More specifically the claim is made that it constitutes
declaratory relief cannot be availed of, much less can the suit be converted mail users into a class for the purpose of the tax while leaving untaxed the
into an ordinary action. rest of the population and that even among postal patrons the statute
discriminatorily grants exemption to newspapers while Administrative
Nor is there merit in the petitioner's argument that the mailing of the letter Order 9 of the respondent Postmaster General grants a similar exemption
in question did not constitute a breach of the statute because the statute to offices performing governmental functions. .
appears to be addressed only to postal authorities. The statute, it is true, in
terms provides that "no mail matter shall be accepted in the mails unless it The five centavo charge levied by Republic Act 1635, as amended, is in the
bears such semi-postal stamps." It does not follow, however, that only nature of an excise tax, laid upon the exercise of a privilege, namely, the
postal authorities can be guilty of violating it by accepting mails without the privilege of using the mails. As such the objections levelled against it must
payment of the anti-TB stamp. It is obvious that they can be guilty of be viewed in the light of applicable principles of taxation.
violating the statute only if there are people who use the mails without
paying for the additional anti-TB stamp. Just as in bribery the mere offer To begin with, it is settled that the legislature has the inherent power to
constitutes a breach of the law, so in the matter of the anti-TB stamp the select the subjects of taxation and to grant exemptions.4 This power has
mere attempt to use the mails without the stamp constitutes a violation of aptly been described as "of wide range and flexibility."5 Indeed, it is said
the statute. It is not required that the mail be accepted by postal authorities. that in the field of taxation, more than in other areas, the legislature
That requirement is relevant only for the purpose of fixing the liability of possesses the greatest freedom in classification.6 The reason for this is that
postal officials. traditionally, classification has been a device for fitting tax programs to local

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needs and usages in order to achieve an equitable distribution of the tax centavos does not justify the great expense and inconvenience of collecting
burden.7 through the regular means of collection. On the other hand, by placing the
duty of collection on postal authorities the tax was made almost self-
That legislative classifications must be reasonable is of course undenied. But enforcing, with as little cost and as little inconvenience as possible.
what the petitioner asserts is that statutory classification of mail users must
bear some reasonable relationship to the end sought to be attained, and And then of course it is not accurate to say that the statute constituted mail
that absent such relationship the selection of mail users is constitutionally users into a class. Mail users were already a class by themselves even before
impermissible. This is altogether a different proposition. As explained in the enactment of the statue and all that the legislature did was merely to
Commonwealth v. Life Assurance Co.:8 select their class. Legislation is essentially empiric and Republic Act 1635, as
amended, no more than reflects a distinction that exists in fact. As Mr.
While the principle that there must be a reasonable relationship between Justice Frankfurter said, "to recognize differences that exist in fact is living
classification made by the legislation and its purpose is undoubtedly true in law; to disregard [them] and concentrate on some abstract identities is
some contexts, it has no application to a measure whose sole purpose is to lifeless logic."10
raise revenue ... So long as the classification imposed is based upon some
standard capable of reasonable comprehension, be that standard based Granted the power to select the subject of taxation, the State's power to
upon ability to produce revenue or some other legitimate distinction, equal grant exemption must likewise be conceded as a necessary corollary. Tax
protection of the law has been afforded. See Allied Stores of Ohio, Inc. v. exemptions are too common in the law; they have never been thought of as
Bowers, supra, 358 U.S. at 527, 79 S. Ct. at 441; Brown Forman Co. v. raising issues under the equal protection clause.
Commonwealth of Kentucky, 2d U.S. 56, 573, 80 S. Ct. 578, 580 (1910).
It is thus erroneous for the trial court to hold that because certain mail users
We are not wont to invalidate legislation on equal protection grounds are exempted from the levy the law and administrative officials have
except by the clearest demonstration that it sanctions invidious sanctioned an invidious discrimination offensive to the Constitution. The
discrimination, which is all that the Constitution forbids. The remedy for application of the lower courts theory would require all mail users to be
unwise legislation must be sought in the legislature. Now, the classification taxed, a conclusion that is hardly tenable in the light of differences in status
of mail users is not without any reason. It is based on ability to pay, let alone of mail users. The Constitution does not require this kind of equality.
the enjoyment of a privilege, and on administrative convinience. In the
allocation of the tax burden, Congress must have concluded that the As the United States Supreme Court has said, the legislature may withhold
contribution to the anti-TB fund can be assured by those whose who can the burden of the tax in order to foster what it conceives to be a beneficent
afford the use of the mails. enterprise.11 This is the case of newspapers which, under the amendment
introduced by Republic Act 2631, are exempt from the payment of the
The classification is likewise based on considerations of administrative additional stamp.
convenience. For it is now a settled principle of law that "consideration of
practical administrative convenience and cost in the administration of tax As for the Government and its instrumentalities, their exemption rests on
laws afford adequate ground for imposing a tax on a well recognized and the State's sovereign immunity from taxation. The State cannot be taxed
defined class."9 In the case of the anti-TB stamps, undoubtedly, the single without its consent and such consent, being in derogation of its sovereignty,
most important and influential consideration that led the legislature to is to be strictly construed.12 Administrative Order 9 of the respondent
select mail users as subjects of the tax is the relative ease and convenienceof Postmaster General, which lists the various offices and instrumentalities of
collecting the tax through the post offices. The small amount of five

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CONSTI II |ATTY. PASCUAL | TAXATION | TAN
the Government exempt from the payment of the anti-TB stamp, is but a One of the stocks was worth $30.75 a share of the face value of $100, the
restatement of this well-known principle of constitutional law. other $172. The inequality of the tax, so far as actual values are concerned,
is manifest. But, here again equality in this sense has to yield to practical
The trial court likewise held the law invalid on the ground that it singles out considerations and usage. There must be a fixed and indisputable mode of
tuberculosis to the exclusion of other diseases which, it is said, are equally a ascertaining a stamp tax. In another sense, moreover, there is equality.
menace to public health. But it is never a requirement of equal protection When the taxes on two sales are equal, the same number of shares is sold
that all evils of the same genus be eradicated or none at all.13 As this Court in each case; that is to say, the same privilege is used to the same extent.
has had occasion to say, "if the law presumably hits the evil where it is most Valuation is not the only thing to be considered. As was pointed out by the
felt, it is not to be overthrown because there are other instances to which it court of appeals, the familiar stamp tax of 2 cents on checks, irrespective of
might have been applied."14 income or earning capacity, and many others, illustrate the necessity and
practice of sometimes substituting count for weight ...17
2. The petitioner further argues that the tax in question is invalid, first,
because it is not levied for a public purpose as no special benefits accrue to According to the trial court, the money raised from the sales of the anti-TB
mail users as taxpayers, and second, because it violates the rule of stamps is spent for the benefit of the Philippine Tuberculosis Society, a
uniformity in taxation. private organization, without appropriation by law. But as the Solicitor
General points out, the Society is not really the beneficiary but only the
The eradication of a dreaded disease is a public purpose, but if by public agency through which the State acts in carrying out what is essentially a
purpose the petitioner means benefit to a taxpayer as a return for what he public function. The money is treated as a special fund and as such need not
pays, then it is sufficient answer to say that the only benefit to which the be appropriated by law.18
taxpayer is constitutionally entitled is that derived from his enjoyment of
the privileges of living in an organized society, established and safeguarded 3. Finally, the claim is made that the statute is so broadly drawn that
by the devotion of taxes to public purposes. Any other view would preclude to execute it the respondents had to issue administrative orders far beyond
the levying of taxes except as they are used to compensate for the burden their powers. Indeed, this is one of the grounds on which the lower court
on those who pay them and would involve the abandonment of the most invalidated Republic Act 1631, as amended, namely, that it constitutes an
fundamental principle of government — that it exists primarily to provide undue delegation of legislative power.
for the common good.15
Administrative Order 3, as amended by Administrative Orders 7 and 10,
Nor is the rule of uniformity and equality of taxation infringed by the provides that for certain classes of mail matters (such as mail permits,
imposition of a flat rate rather than a graduated tax. A tax need not be metered mails, business reply cards, etc.), the five-centavo charge may be
measured by the weight of the mail or the extent of the service rendered. paid in cash instead of the purchase of the anti-TB stamp. It further states
We have said that considerations of administrative convenience and cost that mails deposited during the period August 19 to September 30 of each
afford an adequate ground for classification. The same considerations may year in mail boxes without the stamp should be returned to the sender, if
induce the legislature to impose a flat tax which in effect is a charge for the known, otherwise they should be treated as nonmailable.
transaction, operating equally on all persons within the class regardless of
the amount involved.16 As Mr. Justice Holmes said in sustaining the validity It is true that the law does not expressly authorize the collection of five
of a stamp act which imposed a flat rate of two cents on every $100 face centavos except through the sale of anti-TB stamps, but such authority may
value of stock transferred: be implied in so far as it may be necessary to prevent a failure of the
undertaking. The authority given to the Postmaster General to raise funds

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through the mails must be liberally construed, consistent with the principle G.R. No. L-10405 December 29, 1960
that where the end is required the appropriate means are given.19
WENCESLAO PASCUAL, in his official capacity as Provincial Governor of Rizal,
The anti-TB stamp is a distinctive stamp which shows on its face not only the petitioner-appellant,
amount of the additional charge but also that of the regular postage. In the vs.
case of business reply cards, for instance, it is obvious that to require mailers THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET AL.,
to affix the anti-TB stamp on their cards would be to make them pay much respondents-appellees.
more because the cards likewise bear the amount of the regular postage.
Asst. Fiscal Noli M. Cortes and Jose P. Santos for appellant.
It is likewise true that the statute does not provide for the disposition of Office of the Asst. Solicitor General Jose G. Bautista and Solicitor A. A. Torres
mails which do not bear the anti-TB stamp, but a declaration therein that for appellee.
"no mail matter shall be accepted in the mails unless it bears such semi-
postal stamp" is a declaration that such mail matter is nonmailable within
the meaning of section 1952 of the Administrative Code. Administrative CONCEPCION, J.:
Order 7 of the Postmaster General is but a restatement of the law for the
guidance of postal officials and employees. As for Administrative Order 9, Appeal, by petitioner Wenceslao Pascual, from a decision of the Court of
we have already said that in listing the offices and entities of the First Instance of Rizal, dismissing the above entitled case and dissolving the
Government exempt from the payment of the stamp, the respondent writ of preliminary injunction therein issued, without costs.
Postmaster General merely observed an established principle, namely, that
the Government is exempt from taxation. On August 31, 1954, petitioner Wenceslao Pascual, as Provincial Governor
of Rizal, instituted this action for declaratory relief, with injunction, upon the
ACCORDINGLY, the judgment a quo is reversed, and the complaint is ground that Republic Act No. 920, entitled "An Act Appropriating Funds for
dismissed, without pronouncement as to costs. Public Works", approved on June 20, 1953, contained, in section 1-C (a)
thereof, an item (43[h]) of P85,000.00 "for the construction, reconstruction,
repair, extension and improvement" of Pasig feeder road terminals (Gen.
Roxas — Gen. Araneta — Gen. Lucban — Gen. Capinpin — Gen. Segundo —
Gen. Delgado — Gen. Malvar — Gen. Lim)"; that, at the time of the passage
and approval of said Act, the aforementioned feeder roads were "nothing
but projected and planned subdivision roads, not yet constructed, . . . within
the Antonio Subdivision . . . situated at . . . Pasig, Rizal" (according to the
tracings attached to the petition as Annexes A and B, near Shaw Boulevard,
not far away from the intersection between the latter and Highway 54),
which projected feeder roads "do not connect any government property or
any important premises to the main highway"; that the aforementioned
Antonio Subdivision (as well as the lands on which said feeder roads were to
be construed) were private properties of respondent Jose C. Zulueta, who,
at the time of the passage and approval of said Act, was a member of the
Senate of the Philippines; that on May, 1953, respondent Zulueta, addressed

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a letter to the Municipal Council of Pasig, Rizal, offering to donate said with, follow and implement the aforementioned illegal provision of law, "to
projected feeder roads to the municipality of Pasig, Rizal; that, on June 13, the irreparable damage, detriment and prejudice not only to the petitioner
1953, the offer was accepted by the council, subject to the condition "that but to the Filipino nation."
the donor would submit a plan of the said roads and agree to change the
names of two of them"; that no deed of donation in favor of the municipality Petitioner prayed, therefore, that the contested item of Republic Act No.
of Pasig was, however, executed; that on July 10, 1953, respondent Zulueta 920 be declared null and void; that the alleged deed of donation of the
wrote another letter to said council, calling attention to the approval of feeder roads in question be "declared unconstitutional and, therefor,
Republic Act. No. 920, and the sum of P85,000.00 appropriated therein for illegal"; that a writ of injunction be issued enjoining the Secretary of Public
the construction of the projected feeder roads in question; that the Works and Communications, the Director of the Bureau of Public Works and
municipal council of Pasig endorsed said letter of respondent Zulueta to the Highways and Jose C. Zulueta from ordering or allowing the continuance of
District Engineer of Rizal, who, up to the present "has not made any the above-mentioned feeder roads project, and from making and securing
endorsement thereon" that inasmuch as the projected feeder roads in any new and further releases on the aforementioned item of Republic Act
question were private property at the time of the passage and approval of No. 920, and the disbursing officers of the Department of Public Works and
Republic Act No. 920, the appropriation of P85,000.00 therein made, for the Highways from making any further payments out of said funds provided for
construction, reconstruction, repair, extension and improvement of said in Republic Act No. 920; and that pending final hearing on the merits, a writ
projected feeder roads, was illegal and, therefore, void ab initio"; that said of preliminary injunction be issued enjoining the aforementioned parties
appropriation of P85,000.00 was made by Congress because its members respondent from making and securing any new and further releases on the
were made to believe that the projected feeder roads in question were aforesaid item of Republic Act No. 920 and from making any further
"public roads and not private streets of a private subdivision"'; that, "in payments out of said illegally appropriated funds.
order to give a semblance of legality, when there is absolutely none, to the
aforementioned appropriation", respondents Zulueta executed on Respondents moved to dismiss the petition upon the ground that petitioner
December 12, 1953, while he was a member of the Senate of the Philippines, had "no legal capacity to sue", and that the petition did "not state a cause
an alleged deed of donation — copy of which is annexed to the petition — of action". In support to this motion, respondent Zulueta alleged that the
of the four (4) parcels of land constituting said projected feeder roads, in Provincial Fiscal of Rizal, not its provincial governor, should represent the
favor of the Government of the Republic of the Philippines; that said alleged Province of Rizal, pursuant to section 1683 of the Revised Administrative
deed of donation was, on the same date, accepted by the then Executive Code; that said respondent is " not aware of any law which makes illegal the
Secretary; that being subject to an onerous condition, said donation partook appropriation of public funds for the improvements of . . . private property";
of the nature of a contract; that, such, said donation violated the provision and that, the constitutional provision invoked by petitioner is inapplicable
of our fundamental law prohibiting members of Congress from being to the donation in question, the same being a pure act of liberality, not a
directly or indirectly financially interested in any contract with the contract. The other respondents, in turn, maintained that petitioner could
Government, and, hence, is unconstitutional, as well as null and void ab not assail the appropriation in question because "there is no actual bona
initio, for the construction of the projected feeder roads in question with fide case . . . in which the validity of Republic Act No. 920 is necessarily
public funds would greatly enhance or increase the value of the involved" and petitioner "has not shown that he has a personal and
aforementioned subdivision of respondent Zulueta, "aside from relieving substantial interest" in said Act "and that its enforcement has caused or will
him from the burden of constructing his subdivision streets or roads at his cause him a direct injury."
own expense"; that the construction of said projected feeder roads was then
being undertaken by the Bureau of Public Highways; and that, unless Acting upon said motions to dismiss, the lower court rendered the
restrained by the court, the respondents would continue to execute, comply aforementioned decision, dated October 29, 1953, holding that, since public

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interest is involved in this case, the Provincial Governor of Rizal and the further alleges that the construction of said roads, to be undertaken with
provincial fiscal thereof who represents him therein, "have the requisite the aforementioned appropriation of P85,000.00, would have the effect of
personalities" to question the constitutionality of the disputed item of relieving respondent Zulueta of the burden of constructing his subdivision
Republic Act No. 920; that "the legislature is without power appropriate streets or roads at his own expenses, 1and would "greatly enhance or
public revenues for anything but a public purpose", that the instructions and increase the value of the subdivision" of said respondent. The lower court
improvement of the feeder roads in question, if such roads where private held that under these circumstances, the appropriation in question was
property, would not be a public purpose; that, being subject to the following "clearly for a private, not a public purpose."
condition:
Respondents do not deny the accuracy of this conclusion, which is self-
The within donation is hereby made upon the condition that the evident. 2However, respondent Zulueta contended, in his motion to dismiss
Government of the Republic of the Philippines will use the parcels of land that:
hereby donated for street purposes only and for no other purposes
whatsoever; it being expressly understood that should the Government of A law passed by Congress and approved by the President can never be illegal
the Republic of the Philippines violate the condition hereby imposed upon because Congress is the source of all laws . . . Aside from the fact that
it, the title to the land hereby donated shall, upon such violation, ipso facto movant is not aware of any law which makes illegal the appropriation of
revert to the DONOR, JOSE C. ZULUETA. (Emphasis supplied.) public funds for the improvement of what we, in the meantime, may assume
as private property . . . (Record on Appeal, p. 33.)
which is onerous, the donation in question is a contract; that said donation
or contract is "absolutely forbidden by the Constitution" and consequently The first proposition must be rejected most emphatically, it being
"illegal", for Article 1409 of the Civil Code of the Philippines, declares in inconsistent with the nature of the Government established under the
existence and void from the very beginning contracts "whose cause, Constitution of the Republic of the Philippines and the system of checks and
objector purpose is contrary to law, morals . . . or public policy"; that the balances underlying our political structure. Moreover, it is refuted by the
legality of said donation may not be contested, however, by petitioner decisions of this Court invalidating legislative enactments deemed violative
herein, because his "interest are not directly affected" thereby; and that, of the Constitution or organic laws. 3
accordingly, the appropriation in question "should be upheld" and the case
dismissed. As regards the legal feasibility of appropriating public funds for a public
purpose, the principle according to Ruling Case Law, is this:
At the outset, it should be noted that we are concerned with a decision
granting the aforementioned motions to dismiss, which as much, are It is a general rule that the legislature is without power to appropriate public
deemed to have admitted hypothetically the allegations of fact made in the revenue for anything but a public purpose. . . . It is the essential character of
petition of appellant herein. According to said petition, respondent Zulueta the direct object of the expenditure which must determine its validity as
is the owner of several parcels of residential land situated in Pasig, Rizal, and justifying a tax, and not the magnitude of the interest to be affected nor the
known as the Antonio Subdivision, certain portions of which had been degree to which the general advantage of the community, and thus the
reserved for the projected feeder roads aforementioned, which, admittedly, public welfare, may be ultimately benefited by their promotion. Incidental
were private property of said respondent when Republic Act No. 920, to the public or to the state, which results from the promotion of private
appropriating P85,000.00 for the "construction, reconstruction, repair, interest and the prosperity of private enterprises or business, does not
extension and improvement" of said roads, was passed by Congress, as well justify their aid by the use public money. (25 R.L.C. pp. 398-400; Emphasis
as when it was approved by the President on June 20, 1953. The petition supplied.)

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 premises, namely: (1) that, if valid, said donation cured the constitutional
The rule is set forth in Corpus Juris Secundum in the following language: infirmity of the aforementioned appropriation; (2) that the latter may not
be annulled without a previous declaration of unconstitutionality of the said
In accordance with the rule that the taxing power must be exercised for donation; and (3) that the rule set forth in Article 1421 of the Civil Code is
public purposes only, discussed supra sec. 14, money raised by taxation can absolute, and admits of no exception. We do not agree with these premises.
be expended only for public purposes and not for the advantage of private
individuals. (85 C.J.S. pp. 645-646; emphasis supplied.) The validity of a statute depends upon the powers of Congress at the time
of its passage or approval, not upon events occurring, or acts performed,
Explaining the reason underlying said rule, Corpus Juris Secundum states: subsequently thereto, unless the latter consists of an amendment of the
organic law, removing, with retrospective operation, the constitutional
Generally, under the express or implied provisions of the constitution, public limitation infringed by said statute. Referring to the P85,000.00
funds may be used only for public purpose. The right of the legislature to appropriation for the projected feeder roads in question, the legality thereof
appropriate funds is correlative with its right to tax, and, under depended upon whether said roads were public or private property when
constitutional provisions against taxation except for public purposes and the bill, which, latter on, became Republic Act 920, was passed by Congress,
prohibiting the collection of a tax for one purpose and the devotion thereof or, when said bill was approved by the President and the disbursement of
to another purpose, no appropriation of state funds can be made for other said sum became effective, or on June 20, 1953 (see section 13 of said Act).
than for a public purpose. Inasmuch as the land on which the projected feeder roads were to be
constructed belonged then to respondent Zulueta, the result is that said
xxx xxx xxx appropriation sought a private purpose, and hence, was null and void. 4 The
donation to the Government, over five (5) months after the approval and
The test of the constitutionality of a statute requiring the use of public funds effectivity of said Act, made, according to the petition, for the purpose of
is whether the statute is designed to promote the public interest, as giving a "semblance of legality", or legalizing, the appropriation in question,
opposed to the furtherance of the advantage of individuals, although each did not cure its aforementioned basic defect. Consequently, a judicial
advantage to individuals might incidentally serve the public. (81 C.J.S. pp. nullification of said donation need not precede the declaration of
1147; emphasis supplied.) unconstitutionality of said appropriation.

Needless to say, this Court is fully in accord with the foregoing views which, Again, Article 1421 of our Civil Code, like many other statutory enactments,
apart from being patently sound, are a necessary corollary to our democratic is subject to exceptions. For instance, the creditors of a party to an illegal
system of government, which, as such, exists primarily for the promotion of contract may, under the conditions set forth in Article 1177 of said Code,
the general welfare. Besides, reflecting as they do, the established exercise the rights and actions of the latter, except only those which are
jurisprudence in the United States, after whose constitutional system ours inherent in his person, including therefore, his right to the annulment of said
has been patterned, said views and jurisprudence are, likewise, part and contract, even though such creditors are not affected by the same, except
parcel of our own constitutional law.lawphil.net indirectly, in the manner indicated in said legal provision.

This notwithstanding, the lower court felt constrained to uphold the Again, it is well-stated that the validity of a statute may be contested only
appropriation in question, upon the ground that petitioner may not contest by one who will sustain a direct injury in consequence of its enforcement.
the legality of the donation above referred to because the same does not Yet, there are many decisions nullifying, at the instance of taxpayers, laws
affect him directly. This conclusion is, presumably, based upon the following providing for the disbursement of public funds, 5upon the theory that "the

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expenditure of public funds by an officer of the State for the purpose of Federal Government. It is closer, from a domestic viewpoint, to that existing
administering an unconstitutional act constitutes a misapplication of such between the people and taxpayers of each state and the government
funds," which may be enjoined at the request of a taxpayer. 6Although there thereof, except that the authority of the Republic of the Philippines over the
are some decisions to the contrary, 7the prevailing view in the United States people of the Philippines is more fully direct than that of the states of the
is stated in the American Jurisprudence as follows: Union, insofar as the simple and unitary type of our national government is
not subject to limitations analogous to those imposed by the Federal
In the determination of the degree of interest essential to give the requisite Constitution upon the states of the Union, and those imposed upon the
standing to attack the constitutionality of a statute, the general rule is that Federal Government in the interest of the Union. For this reason, the rule
not only persons individually affected, but also taxpayers, have sufficient recognizing the right of taxpayers to assail the constitutionality of a
interest in preventing the illegal expenditure of moneys raised by taxation legislation appropriating local or state public funds — which has been
and may therefore question the constitutionality of statutes requiring upheld by the Federal Supreme Court (Crampton vs. Zabriskie, 101 U.S. 601)
expenditure of public moneys. (11 Am. Jur. 761; emphasis supplied.) — has greater application in the Philippines than that adopted with respect
to acts of Congress of the United States appropriating federal funds.
However, this view was not favored by the Supreme Court of the U.S. in
Frothingham vs. Mellon (262 U.S. 447), insofar as federal laws are Indeed, in the Province of Tayabas vs. Perez (56 Phil., 257), involving the
concerned, upon the ground that the relationship of a taxpayer of the U.S. expropriation of a land by the Province of Tayabas, two (2) taxpayers thereof
to its Federal Government is different from that of a taxpayer of a municipal were allowed to intervene for the purpose of contesting the price being paid
corporation to its government. Indeed, under the composite system of to the owner thereof, as unduly exorbitant. It is true that in Custodio vs.
government existing in the U.S., the states of the Union are integral part of President of the Senate (42 Off. Gaz., 1243), a taxpayer and employee of the
the Federation from an international viewpoint, but, each state enjoys Government was not permitted to question the constitutionality of an
internally a substantial measure of sovereignty, subject to the limitations appropriation for backpay of members of Congress. However, in Rodriguez
imposed by the Federal Constitution. In fact, the same was made by vs. Treasurer of the Philippines and Barredo vs. Commission on Elections (84
representatives of each state of the Union, not of the people of the U.S., Phil., 368; 45 Off. Gaz., 4411), we entertained the action of taxpayers
except insofar as the former represented the people of the respective impugning the validity of certain appropriations of public funds, and
States, and the people of each State has, independently of that of the others, invalidated the same. Moreover, the reason that impelled this Court to take
ratified said Constitution. In other words, the Federal Constitution and the such position in said two (2) cases — the importance of the issues therein
Federal statutes have become binding upon the people of the U.S. in raised — is present in the case at bar. Again, like the petitioners in the
consequence of an act of, and, in this sense, through the respective states Rodriguez and Barredo cases, petitioner herein is not merely a taxpayer. The
of the Union of which they are citizens. The peculiar nature of the relation Province of Rizal, which he represents officially as its Provincial Governor, is
between said people and the Federal Government of the U.S. is reflected in our most populated political subdivision, 8and, the taxpayers therein bear a
the election of its President, who is chosen directly, not by the people of the substantial portion of the burden of taxation, in the Philippines.
U.S., but by electors chosen by each State, in such manner as the legislature
thereof may direct (Article II, section 2, of the Federal Hence, it is our considered opinion that the circumstances surrounding this
Constitution).lawphi1.net case sufficiently justify petitioners action in contesting the appropriation
and donation in question; that this action should not have been dismissed
The relation between the people of the Philippines and its taxpayers, on the by the lower court; and that the writ of preliminary injunction should have
other hand, and the Republic of the Philippines, on the other, is not identical been maintained.
to that obtaining between the people and taxpayers of the U.S. and its

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Wherefore, the decision appealed from is hereby reversed, and the records G.R. No. 180651 July 30, 2014
are remanded to the lower court for further proceedings not inconsistent
with this decision, with the costs of this instance against respondent Jose C. NURSERY CARE CORPORATION; SHOEMART, INC.; STAR APPLIANCE CENTER,
Zulueta. It is so ordered. INC.; H&B, INC.; SUPPLIES STATION, INC.; and HARDWARE WORKSHOP, INC.,
Petitioners,
Paras, C.J., Bengzon, Padilla, B vs.
ANTHONY ACEVEDO, in his capacity as THE TREASURER OF MANILA; and THE
CITY OF MANILA, Respondents.

DECISION

BERSAMIN, J.:

The issue here concerns double taxation. There is double taxation when the
same taxpayer is taxed twice when he should be taxed only once for the
same purpose by the same taxing authority within the same jurisdiction
during the same taxing period, and the taxes are of the same kind or
character. Double taxation is obnoxious.

The Case

Under review are the resolution promulgated in CA-G.R. SP No. 72191 on

June 18, 2007,1 whereby the Court of Appeals (CA) denied petitioners'
appeal for lack of jurisdiction; and the resolution promulgated on November
14, 2007,2 whereby the CA denied their motion for reconsideration for its
lack of merit.

Antecedents

The City of Manila assessed and collected taxes from the individual
petitioners pursuant to Section 15 (Tax on Wholesalers, Distributors, or
Dealers) and Section 17 (Tax on Retailers) of the Revenue Code of Manila.3
At the same time, the City of Manila imposed additional taxes upon the
petitioners pursuant to Section 21 ofthe Revenue Code of Manila,4 as
amended, as a condition for the renewal of their respective business licenses
for the year 1999. Section 21 of the Revenue Code of Manila stated:

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Section 21. Tax on Business Subject to the Excise, Value-Added or
Percentage Taxes under the NIRC - On any of the following businesses and On April 29, 1999, the petitioners filed their respective petitions for
articles of commerce subject to the excise, value-added or percentage taxes certiorariin the Regional Trial Court (RTC) in Manila. The petitions, docketed
under the National Internal Revenue Code, hereinafter referred to as NIRC, as Civil Cases Nos. 99-93668 to 99-93673,11 were initially raffled to different
as amended, a tax of FIFTY PERCENT (50%) OF ONE PERCENT (1%) per annum branches, but were soon consolidated in Branch 34.12 After the presiding
on the gross sales or receipts of the preceding calendar year is hereby judge of Branch 34 voluntarily inhibited himself, the consolidated cases
imposed: were transferred to Branch 23,13 but were again re-raffled to Branch 19
upon the designation of Branch 23 as a special drugs court.14
A) On person who sells goods and services in the course of trade or
businesses; x x x PROVIDED, that all registered businesses in the City of The parties agreed on and jointly submitted the following issues for the
Manila already paying the aforementioned tax shall be exempted from consideration and resolution of the RTC, namely:
payment thereof.
(a) Whether or not the collection of taxes under Section 21 of Ordinance No.
To comply with the City of Manila’s assessmentof taxes under Section 21, 7794, as amended, constitutes double taxation.
supra, the petitioners paid under protest the following amounts
corresponding to the first quarter of 1999,5 to wit: (b) Whether or not the failure of the petitioners to avail of the statutorily
provided remedy for their tax protest on the ground of unconstitutionality,
(a) Nursery Care Corporation ₱595,190.25 illegality and oppressiveness under Section 187 of the Local Government
Code renders the present action dismissible for non-exhaustion of
(b) Shoemart Incorporated ₱3,283,520.14 administrative remedy.15

(c) Star Appliance Center ₱236,084.03 Decision of the RTC

(d) H & B, Inc. ₱1,271,118.74 On April 26, 2002, the RTC rendered its decision, holding thusly:

(e) Supplies Station, Inc. ₱239,501.25 The Court perceives of no instance of the constitutionally proscribed double
taxation, in the strict, narrow or obnoxious sense, imposed upon the
(f) Hardware Work Shop, Inc. ₱609,953.24 petitioners under Section 15 and 17, on the one hand, and under Section 21,
on the other, of the questioned Ordinance. The tax imposed under Section
By letter dated March 1, 1999, the petitioners formally requested the Office 15 and 17, as against that imposed under Section 21, are levied against
of the City Treasurer for the tax credit or refund of the local business taxes different tax objects or subject matter. The tax under Section 15 is imposed
paid under protest.6 However, then City Treasurer Anthony Acevedo upon wholesalers, distributors or dealers, while that under Section 17 is
(Acevedo) denied the request through his letter of March 10, 1999.7 imposedupon retailers. In short, taxes imposed under Section 15 and 17 is a
tax on the business of wholesalers, distributors, dealers and retailers. On the
On April 8, 1999, the petitioners, through their representative, Cecilia R. other hand, the tax imposed upon herein petitioners under Section 21 is not
Patricio, sought the reconsideration of the denial of their request.8 Still, the a tax against the business of the petitioners (as wholesalers, distributors,
City Treasurer did not reconsider.9 In the meanwhile, Liberty Toledo dealers or retailers)but is rather a tax against consumers or end-users of the
succeeded Acevedo as the City Treasurer of Manila.10

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articles sold by petitioners. This is plain from a reading of the modifying
paragraph of Section 21 which says: The petitioners appealed to the CA.17

"The tax shall be payable by the person paying for the services rendered and Ruling of the CA
shall be paid to the person rendering the services who is required to collect
and pay the tax within twenty (20) days after the end of each quarter." On June 18, 2007, the CA deniedthe petitioners’ appeal, ruling as follows:
(Underscoring supplied)
The six (6) cases were consolidated on a common question of fact and law,
In effect, the petitioners only act as the collection or withholding agent of that is, whether the act ofthe City Treasurer of Manila of assessing and
the City while the ones actually paying the tax are the consumers or end- collecting business taxes under Section 21of Ordinance 7807, on top of
users of the articles being sold by petitioners. The taxes imposed under Sec. other business taxes alsoassessed and collected under the previous sections
21 represent additional amounts added by the business establishment to of the same ordinance is a violation of the provisions of Section 143 of the
the basic prices of its goods and services which are paid by the end-users to Local Government Code.
the businesses. It is actually not taxes on the business of petitioners but on
the consumers. Hence, there is no double taxation in the narrow, strict or Clearly, the disposition of the present appeal in these consolidated cases
obnoxious sense,involved in the imposition of taxes by the City of Manila does not necessitate the calibration of the whole evidence as there is no
under Sections 15, 17 and 21 of the questioned Ordinance. This in effect question or doubt as to the truth or the falsehood of the facts obtaining
resolves infavor of the constitutionality of the assailed sections of Ordinance herein, as both parties agree thereon. The present case involves a question
No. 7807 of the City of Manila. of law that would not lend itself to an examination or evaluation by this
Court of the probative value of the evidence presented.
Petitioners, likewise, pray the Court to direct respondents to cease and
desist from implementing Section 21 of the questioned Ordinance. That the Thus the Court is constrained todismiss the instant petition for lack of
Court cannot do, without doing away with the mandatory provisions of jurisdiction under Section 2,Rule 50 of the 1997 Rules on Civil Procedure
Section 187 of the Local Government Code which distinctly commands that which states:
an appeal questioning the constitutionality or legality of a tax ordinance
shall not have the effectof suspending the effectivity of the ordinance and "Sec. 2. Dismissal of improper appeal to the Court of Appeals. – An appeal
the accrual and payment of the tax, fee or charge levied therein. This is so under Rule 41 taken from the Regional Trial Court to the Court of Appeals
because an ordinance carries with it the presumption of validity. raising only questions of law shall be dismissed, issues purely of law not
being reviewable by said court. similarly, an appeal by notice of appeal
xxx instead of by petition for review from the appellate judgment of a Regional
Trial Court shall be dismissed.
With the foregoing findings, petitioners’ prayer for the refund of the
amounts paid by them under protest must, likewise, fail. An appeal erroneously taken tothe Court of Appeals shall not be transferred
to the appropriate court but shall be dismissed outright.
Wherefore, the petitions are dismissed. Without pronouncement as to
costs. WHEREFORE, the foregoing considered, the appeal is DISMISSED.

SO ORDERED.16 SO ORDERED.18

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 The appeal is meritorious.
The petitioners moved for reconsideration, but the CA denied their motion
through the resolution promulgated on November 14, 2007.19 1.

Issues The CA did not err in dismissing the appeal;

but the rules should be liberally applied
The petitioners now appeal, raising the following grounds, to wit: for the sake of justice and equity

A. The Rules of Courtprovides three modes of appeal from the decisions and
final orders of the RTC, namely: (1) ordinary appeal or appeal by writ of error
THE COURT OF APPEALS, IN DISMISSING THE APPEAL OF THE PETITIONERS under Rule 41, where the decisionsand final orders were rendered in civil or
AND DENYING THEIR MOTION FOR RECONSIDERATION, ERRED INRULING criminal actions by the RTC in the exercise of original jurisdiction; (2) petition
THAT THE ISSUE INVOLVED IS A PURELY LEGAL QUESTION. for review under Rule 42, where the decisions and final orders were
rendered by the RTC in the exerciseof appellate jurisdiction; and (3) petition
B. for review on certiorarito the Supreme Court under Rule 45.21 The first
mode of appeal is taken to the CA on questions of fact, or mixed questions
THE COURT OF APPEALS ERRED IN NOT REVERSING THE DECISION OF of fact and law. The second mode of appeal is brought to the CA on
BRANCH 19 OF THE REGIONAL TRIAL COURT OF MANILA DATED 26 APRIL questions of fact, of law, or mixed questions of fact and law.22 The third
2002 DENYING PETITIONERS’ PRAYER FOR REFUND OF THE AMOUNTS PAID mode of appeal is elevated to the Supreme Court only on questions of
BY THEM UNDER PROTEST AND DISMISSING THE PETITION FOR CERTIORARI law.23
FILED BY THE PETITIONERS.
The distinction between a question oflaw and a question of fact is well
C. established. On the one hand, a question of law ariseswhen there is doubt
as to what the law is on a certain state of facts; on the other, there is a
THE COURT OF APPEALS ERRED IN NOT RULING THAT THE ACT OF THE CITY question of fact when the doubt arises asto the truth or falsity of the alleged
TREASURER OF MANILA IN IMPOSING, ASSESSING AND COLLECTING THE facts.24 According to Leoncio v. De Vera:25
ADDITIONAL BUSINESS TAX UNDER SECTION 21 OFORDINANCE NO. 7794,
AS AMENDED BY ORDINANCE NO. 7807, ALSO KNOWN AS THE REVENUE x x x For a question to beone of law, the same must not involve an
CODE OF THE CITY OFMANILA, IS CONSTITUTIVE OF DOUBLE TAXATION AND examination of the probative value ofthe evidence presented by the litigants
VIOLATIVE OF THE LOCAL GOVERNMENT CODE OF 1991.20 or any of them. The resolution of the issue must restsolely on what the law
provides on the given set of circumstances. Once it is clear that the issue
The main issues for resolution are, therefore, (1) whether or not the CA invites a review of the evidence presented, the question posed is one of fact.
properly denied due course to the appeal for raising pure questions of law; Thus, the test of whether a question isone of law or offact is not the
and (2) whether or not the petitioners were entitled to the tax credit or tax appellation given to such question by the party raising the same; rather, it is
refund for the taxes paid under Section 21, supra. whether the appellate court can determine the issue raised without
reviewing or evaluating the evidence, in which case, it is a question oflaw;
Ruling otherwise it is a question of fact.26

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The nature of the issues to be raised on appeal can be gleaned from the than suppress, substantial justice. A deviation from their rigid enforcement
appellant’s notice of appeal filed in the trial court, and from the appellant’s may thus be allowed, as petitioners should be given the fullest opportunity
brief submitted to the appellate court.27 In this case, the petitioners filed a to establish the merits of their case, rather than lose their property on mere
notice of appeal in which they contended that the April 26, 2002 decision technicalities. We held in Ong Lim Sing, Jr. v. FEB Leasing and Finance
and the order of July 17, 2002 issued by the RTC denying their consolidated Corporation that:
motion for reconsideration were contrary to the facts and law obtaining in
the consolidated cases.28 In their consolidated memorandum filed in the Courts have the prerogative to relax procedural rules of even the most
CA, they essentially assailed the RTC’s ruling that the taxes imposed on and mandatory character, mindful of the duty to reconcile both the need to
collected from the petitioners under Section 21 of the Revenue Code of speedily put an end to litigation and the parties' right to due process.In
Manila constituted double taxation in the strict, narrow or obnoxious sense. numerous cases, this Court has allowed liberal construction of the rules
Considered together, therefore, the notice of appeal and consolidated when to do so would serve the demands of substantial justice and equity.
memorandum evidently did notraise issues that required the reevaluation
of evidence or the relevance of surrounding circumstances. The petitioners point out that although Section 21 of the Revenue Code of
Manila was not itself unconstitutional or invalid, its enforcement against the
The CA rightly concluded that the petitioners thereby raised only a question petitioners constituted double taxation because the local business taxes
of law. The dismissal of their appeal was proper, strictly speaking, because under Section 15 and Section 17 of the Revenue Code of Manila were
Section 2, Rule 50 of the Rules of Court provides that an appeal from the RTC already being paid by them.31 They contend that the proviso in Section 21
to the CA raising only questions of law shall be dismissed; exempted all registered businesses in the City of Manila from paying the tax
imposed under Section 21;32 and that the exemption was more in accord
and that an appeal erroneously taken to the CA shall be outrightly with Section 143 of the Local Government Code,33 the law that vested in
dismissed.29 the municipal and city governments the power to impose business taxes.

2. The respondents counter, however, that double taxation did not occur from
the imposition and collection of the tax pursuant to Section 21 of the
Collection of taxes pursuant to Section 21 of the Revenue Code of Manila;34 that the taxes imposed pursuant to Section 21
Revenue Code of Manila constituted double taxation were in the concept of indirect taxes upon the consumers of the goods and
services sold by a business establishment;35 and that the petitioners did not
The foregoing notwithstanding, the Court, given the circumstances exhaust their administrative remedies by first appealing to the Secretary of
obtaining herein and in light of jurisprudence promulgated subsequent to Justice to challenge the constitutionalityor legality of the tax ordinance.36
the filing of the petition, deems it fitting and proper to adopt a liberal
approach in order to render a justand speedy disposition of the substantive In resolving the issue of double taxation involving Section 21 of the Revenue
issue at hand. Hence, we resolve, bearing inmind the following Code of Manila, the Court is mindful of the ruling in City of Manila v. Coca-
pronouncement in Go v. Chaves:30 Cola Bottlers Philippines, Inc.,37 which has been reiterated in Swedish
Match Philippines, Inc. v. The Treasurer of the City of Manila.38 In the latter,
Our rules of procedure are designed to facilitate the orderly disposition of the Court has held:
cases and permit the prompt disposition of unmeritorious cases which clog
the court dockets and do little more than waste the courts’ time. These
technical and procedural rules, however, are intended to ensure, rather

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CONSTI II |ATTY. PASCUAL | TAXATION | TAN
x x x [T]he issue of double taxation is not novel, as it has already been settled imposed only on businesses that are subject to excise tax, VAT, or
by this Court in The City of Manila v. Coca-Cola Bottlers Philippines, Inc.,in percentagetax under the NIRC, and that are "not otherwise specified in
this wise: preceding paragraphs." In the same way, businesses such as respondent’s,
already subject to a local business tax under Section 14 of Tax Ordinance No.
Petitioners obstinately ignore the exempting proviso in Section 21 of Tax 7794 [which is based on Section 143(a) of the LGC], can no longer be made
Ordinance No. 7794, to their own detriment.1âwphi1 Said exempting liable for local business tax under Section 21 of the same Tax Ordinance
proviso was precisely included in said section so as to avoid double taxation. [which is based on Section 143(h) of the LGC].

Double taxation means taxingthe same property twice when it should be Based on the foregoing reasons, petitioner should not have been subjected
taxed only once; that is, "taxing the same person twice by the same to taxes under Section 21 of the ManilaRevenue Code for the fourth quarter
jurisdictionfor the same thing." It is obnoxious when the taxpayer is taxed of 2001, considering thatit had already been paying local business tax under
twice, when it should be but once. Otherwise described as "direct duplicate Section 14 of the same ordinance.
taxation," the two taxes must be imposed on the same subject matter, for
the same purpose, by the same taxing authority, within the same xxxx
jurisdiction, during the same taxing period; and the taxes must be of the
same kind or character. Accordingly, respondent’s assessment under both Sections 14 and 21 had
no basis. Petitioner is indeed liable to pay business taxes to the City of
Using the aforementioned test, the Court finds that there is indeed double Manila; nevertheless, considering that the former has already paid these
taxation if respondent is subjected to the taxes under both Sections 14 and taxes under Section 14 of the Manila Revenue Code, it is exempt from the
21 of Tax Ordinance No. 7794, since these are being imposed: (1) on the same payments under Section 21 of the same code. Hence, payments made
same subject matter – the privilege of doing business in the City of Manila; under Section 21 must be refunded in favor of petitioner.
(2) for the same purpose – to make persons conducting business within the
City of Manila contribute tocity revenues; (3) by the same taxing authority – It is undisputed thatpetitioner paid business taxes based on Sections 14 and
petitioner Cityof Manila; (4) within the same taxing jurisdiction – within the 21 for the fourth quarter of 2001 in the total amount of ₱470,932.21.
territorial jurisdiction of the City of Manila; (5) for the same taxing periods – Therefore, it is entitled to a refund of ₱164,552.04 corresponding to the
per calendar year; and (6) of the same kind or character – a local business payment under Section 21 of the Manila Revenue Code.
tax imposed on gross sales or receipts of the business.
On the basis of the rulings in Coca-Cola Bottlers Philippines, Inc. and Swedish
The distinction petitioners attempt to make between the taxes under Match Philippines, Inc., the Court now holds that all the elements of double
Sections 14 and 21 of Tax Ordinance No. 7794 is specious. The Court revisits taxation concurred upon the Cityof Manila’s assessment on and collection
Section 143 of the LGC, the very source of the power of municipalities and from the petitioners of taxes for the first quarter of 1999 pursuant to Section
cities to impose a local business tax, and to which any local business tax 21 of the Revenue Code of Manila.
imposed by petitioner City of Manila must conform. It is apparent from a
perusal thereof that when a municipality or city has already imposed a Firstly, because Section 21 of the Revenue Code of Manila imposed the tax
business tax on manufacturers, etc.of liquors, distilled spirits, wines, and any on a person who sold goods and services in the course of trade or business
other article of commerce, pursuant to Section 143(a) of the LGC, said based on a certain percentage ofhis gross sales or receipts in the preceding
municipality or city may no longer subject the same manufacturers, etc.to a calendar year, while Section 15 and Section 17 likewise imposed the tax on
business tax under Section 143(h) of the same Code. Section 143(h) may be a person who sold goods and services in the course of trade or business but

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CONSTI II |ATTY. PASCUAL | TAXATION | TAN
only identified such person with particularity, namely, the wholesaler, THE CITY OF MANILA, LIBERTY M. TOLEDO, in her capacity as THE
distributor or dealer (Section 15), and the retailer (Section 17), all the taxes TREASURER OF MANILA and JOSEPH SANTIAGO, in his capacity as the CHIEF
– being imposed on the privilege of doing business in the City of Manila in OF THE LICENSE DIVISION OF CITY OF MANILA,Petitioners,
order to make the taxpayers contributeto the city’s revenues – were
imposed on the same subject matter and for the same purpose. - versus -

Secondly, the taxes were imposed by the same taxing authority (the City of COCA-COLA BOTTLERS PHILIPPINES, INC., Respondent.
Manila) and within the same jurisdiction in the same taxing period (i.e., per
calendar year). G.R. No. 181845 August 4, 2009

Thirdly, the taxes were all in the nature of local business taxes. x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

We note that although Coca-Cola Bottlers Philippines, Inc. and Swedish DECISION
Match Philippines, Inc. involved Section 21 vis-à-vis Section 14 (Tax on
Manufacturers, Assemblers and Other Processors)39 of the Revenue Code CHICO-NAZARIO, J.:
of Manila, the legal principlesenunciated therein should similarly apply
because Section 15 (Tax on Wholesalers, Distributors, or Dealers)and This case is a Petition for Review on Certiorari under Rule 45 of the Revised
Section 17 (Tax on Retailers) of the Revenue Code of Manila imposed the Rules of Civil Procedure seeking to review and reverse the Decision[1] dated
same nature of tax as that imposed under Section 14, i.e., local business tax, 18 January 2008 and Resolution[2] dated 18 February 2008 of the Court of
albeit on a different subject matter or group of taxpayers. Tax Appeals en banc (CTA en banc) in C.T.A. EB No. 307. In its assailed
Decision, the CTA en banc dismissed the Petition for Review of herein
In fine, the imposition of the tax under Section 21 of the Revenue Code of petitioners City of Manila, Liberty M. Toledo (Toledo), and Joseph Santiago
Manila constituted double taxation, and the taxes collected pursuant (Santiago); and affirmed the Resolutions dated 24 May 2007,[3] 8 June
thereto must be refunded. 2007,[4] and 26 July 2007,[5] of the CTA First Division in C.T.A. AC No. 31,
which, in turn, dismissed the Petition for Review of petitioners in said case
WHEREFORE, the Court GRANTS the petition for review on certiorari; for being filed out of time. In its questioned Resolution, the CTA en banc
REVERSES and SETS ASIDE the resolutions promulgated on June 18, 2007 and denied the Motion for Reconsideration of petitioners.
November 14, 2007 in CA-G.R. SP No. 72191; and DIRECTS the City of Manila
to refund the payments made by the petitioners of the taxes assessed and
collected for the first quarter of 1999 pursuant to Section 21 of the Revenue
Code of Manila. Petitioner City of Manila is a public corporation empowered to collect and
assess business taxes, revenue fees, and permit fees, through its officers,
No pronouncement on costs of suit. petitioners Toledo and Santiago, in their capacities as City Treasurer and
Chief of the Licensing Division, respectively. On the other hand, respondent
SO ORDERED. Coca-Cola Bottlers Philippines, Inc. is a corporation engaged in the business
of manufacturing and selling beverages, and which maintains a sales office
in the City of Manila.

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 Section 21. Tax on Businesses Subject to the Excise, Value-Added or
Percentage Taxes under the NIRC. On any of the following businesses and
The case stemmed from the following facts: articles of commerce subject to excise, value-added or percentage taxes
under the National Internal Revenue Code hereinafter referred to as NIRC,
as amended, a tax of FIFTY PERCENT (50%) of ONE PERCENT (1%) per annum
on the gross sales or receipts of the preceding calendar year is hereby
Prior to 25 February 2000, respondent had been paying the City of Manila imposed:
local business tax only under Section 14 of Tax Ordinance No. 7794,[6] being
expressly exempted from the business tax under Section 21 of the same tax
ordinance. Pertinent provisions of Tax Ordinance No. 7794 provide:
(A) On persons who sell goods and services in the course of trade or
business; and those who import goods whether for business or otherwise;
as provided for in Sections 100 to 103 of the NIRC as administered and
Section 14. Tax on Manufacturers, Assemblers and Other Processors. There determined by the Bureau of Internal Revenue pursuant to the pertinent
is hereby imposed a graduated tax on manufacturers, assemblers, provisions of the said Code.
repackers, processors, brewers, distillers, rectifiers, and compounders of
liquors, distilled spirits, and wines or manufacturers of any article of
commerce of whatever kind or nature, in accordance with any of the
following schedule: xxxx

xxxx (D) Excisable goods subject to VAT

(1) Distilled spirits

over P6,500,000.00 up to (2) Wines

P25,000,000.00 - - - - - - - - - - - - - - - - - - - -- P36,000.00 plus 50% of 1%

xxxx
in excess of P6,500,000.00

(8) Coal and coke

xxxx
(9) Fermented liquor, brewers wholesale price, excluding the ad valorem tax

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CONSTI II |ATTY. PASCUAL | TAXATION | TAN
xxxx amended by the aforementioned tax ordinances, for deficiency local
business taxes, penalties, and interest, in the total amount of
P18,583,932.04, for the third and fourth quarters of the year 2000.
Respondent filed a protest with petitioner Toledo on the ground that the
PROVIDED, that all registered businesses in the City of Manila that are said assessment amounted to double taxation, as respondent was taxed
already paying the aforementioned tax shall be exempted from payment twice, i.e., under Sections 14 and 21 of Tax Ordinance No. 7794, as amended
thereof. by Tax Ordinances No. 7988 and No. 8011. Petitioner Toledo did not respond
to the protest of respondent.

Consequently, respondent filed with the Regional Trial Court (RTC) of

Petitioner City of Manila subsequently approved on 25 February 2000, Tax Manila, Branch 47, an action for the cancellation of the assessment against
Ordinance No. 7988,[7] amending certain sections of Tax Ordinance No. respondent for business taxes, which was docketed as Civil Case No. 03-
7794, particularly: (1) Section 14, by increasing the tax rates applicable to 107088.
certain establishments operating within the territorial jurisdiction of the City
of Manila; and (2) Section 21, by deleting the proviso found therein, which
stated that all registered businesses in the City of Manila that are already
paying the aforementioned tax shall be exempted from payment thereof. On 14 July 2006, the RTC rendered a Decision[9] dismissing Civil Case No. 03-
Petitioner City of Manila approved only after a year, on 22 February 2001, 107088. The RTC ruled that the business taxes imposed upon the
another tax ordinance, Tax Ordinance No. 8011, amending Tax Ordinance respondent under Sections 14 and 21 of Tax Ordinance No. 7988, as
No. 7988. amended, were not of the same kind or character; therefore, there was no
double taxation. The RTC, though, in an Order[10] dated 16 November 2006,
granted the Motion for Reconsideration of respondent, decreed the
cancellation and withdrawal of the assessment against the latter, and barred
Tax Ordinances No. 7988 and No. 8011 were later declared by the Court null petitioners from further imposing/assessing local business taxes against
and void in Coca-Cola Bottlers Philippines, Inc. v. City of Manila[8] (Coca- respondent under Section 21 of Tax Ordinance No. 7794, as amended by Tax
Cola case) for the following reasons: (1) Tax Ordinance No. 7988 was Ordinance No. 7988 and Tax Ordinance No. 8011. The 16 November 2006
enacted in contravention of the provisions of the Local Government Code Decision of the RTC was in conformity with the ruling of this Court in the
(LGC) of 1991 and its implementing rules and regulations; and (2) Tax Coca-Cola case, in which Tax Ordinance No. 7988 and Tax Ordinance No.
Ordinance No. 8011 could not cure the defects of Tax Ordinance No. 7988, 8011 were declared null and void. The Motion for Reconsideration of
which did not legally exist. petitioners was denied by the RTC in an Order[11] dated 4 April 2007.
Petitioners received a copy of the 4 April 2007 Order of the RTC, denying
their Motion for Reconsideration of the 16 November 2006 Order of the
same court, on 20 April 2007.
However, before the Court could declare Tax Ordinance No. 7988 and Tax
Ordinance No. 8011 null and void, petitioner City of Manila assessed
respondent on the basis of Section 21 of Tax Ordinance No. 7794, as

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CONSTI II |ATTY. PASCUAL | TAXATION | TAN
On 4 May 2007, petitioners filed with the CTA a Motion for Extension of Time
to File Petition for Review, praying for a 15-day extension or until 20 May The CTA en banc rendered its Decision on 18 January 2008, dismissing the
2007 within which to file their Petition. The Motion for Extension of Petition for Review of petitioners and affirming the Resolutions dated 24
petitioners was docketed as C.T.A. AC No. 31, raffled to the CTA First May 2007, 8 June 2007, and 26 July 2007 of the CTA First Division. The CTA
Division. en banc similarly denied the Motion for Reconsideration of petitioners in a
Resolution dated 18 February 2008.
Again, on 18 May 2007, petitioners filed, through registered mail, a Second
Motion for Extension of Time to File a Petition for Review, praying for Hence, the present Petition, where petitioners raise the following issues:
another 10-day extension, or until 30 May 2007, within which to file their
Petition.

I. WHETHER OR NOT PETITIONERS SUBSTANTIALLY

On 24 May 2007, however, the CTA First Division already issued a Resolution COMPLIED WITH THE REGLEMENTARY PERIOD TO TIMELY APPEAL THE CASE
dismissing C.T.A. AC No. 31 for failure of petitioners to timely file their FOR REVIEW BEFORE THE [CTA DIVISION].
Petition for Review on 20 May 2007.

Unaware of the 24 May 2007 Resolution of the CTA First Division, petitioners II. WHETHER OR NOT THE RULING OF THIS COURT IN
filed their Petition for Review therewith on 30 May 2007 via registered mail. THE EARLIER [COCA-COLA CASE] IS DOCTRINAL AND CONTROLLING IN THE
On 8 June 2007, the CTA First Division issued another Resolution, reiterating INSTANT CASE.
the dismissal of the Petition for Review of petitioners.

Petitioners moved for the reconsideration of the foregoing Resolutions III. WHETHER OR NOT PETITIONER CITY OF MANILA CAN
dated 24 May 2007 and 8 June 2007, but their motion was denied by the STILL ASSESS TAXES UNDER [SECTIONS] 14 AND 21 OF [TAX ORDINANCE NO.
CTA First Division in a Resolution dated 26 July 2007. The CTA First Division 7794, AS AMENDED].
reasoned that the Petition for Review of petitioners was not only filed out
of time -- it also failed to comply with the provisions of Section 4, Rule 5; and
Sections 2 and 3, Rule 6, of the Revised Rules of the CTA.
IV. WHETHER OR NOT THE ENFORCEMENT OF [SECTION]
21 OF THE [TAX ORDINANCE NO. 7794, AS AMENDED] CONSTITUTES
DOUBLE TAXATION.
Petitioners thereafter filed a Petition for Review before the CTA en banc,
docketed as C.T.A. EB No. 307, arguing that the CTA First Division erred in Petitioners assert that Section 1, Rule 7[12] of the Revised Rules of the CTA
dismissing their Petition for Review in C.T.A. AC No. 31 for being filed out of refers to certain provisions of the Rules of Court, such as Rule 42 of the
time, without considering the merits of their Petition. latter, and makes them applicable to the tax court. Petitioners then cannot
be faulted in relying on the provisions of Section 1, Rule 42[13] of the Rules
of Court as regards the period for filing a Petition for Review with the CTA in

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CONSTI II |ATTY. PASCUAL | TAXATION | TAN
division. Section 1, Rule 42 of the Rules of Court provides for a 15-day period, Petitioners further insist that notwithstanding the declaration of nullity of
reckoned from receipt of the adverse decision of the trial court, within which Tax Ordinance No. 7988 and Tax Ordinance No. 8011, Tax Ordinance No.
to file a Petition for Review with the Court of Appeals. The same rule allows 7794 remains a valid piece of local legislation. The nullity of Tax Ordinance
an additional 15-day period within which to file such a Petition; and, only for No. 7988 and Tax Ordinance No. 8011 does not effectively bar petitioners
the most compelling reasons, another extension period not to exceed 15 from imposing local business taxes upon respondent under Sections 14 and
days. Petitioners received on 20 April 2007 a copy of the 4 April 2007 Order 21 of Tax Ordinance No. 7794, as they were read prior to their being
of the RTC, denying their Motion for Reconsideration of the 16 November amended by the foregoing null and void tax ordinances.
2006 Order of the same court. On 4 May 2007, believing that they only had
15 days to file a Petition for Review with the CTA in division, petitioners
moved for a 15-day extension, or until 20 May 2007, within which to file said
Petition. Prior to the lapse of their first extension period, or on 18 May 2007, Petitioners finally maintain that imposing upon respondent local business
petitioners again moved for a 10-day extension, or until 30 May 2007, within taxes under both Sections 14 and 21 of Tax Ordinance No. 7794 does not
which to file their Petition for Review. Thus, when petitioners filed their constitute direct double taxation. Section 143 of the LGC gives municipal, as
Petition for Review with the CTA First Division on 30 May 2007, the same well as city governments, the power to impose business taxes, to wit:
was filed well within the reglementary period for doing so.

SECTION 143. Tax on Business. The municipality may impose taxes on the
Petitioners argue in the alternative that even assuming that Section 3(a), following businesses:
Rule 8[14] of the Revised Rules of the CTA governs the period for filing a
Petition for Review with the CTA in division, still, their Petition for Review
was filed within the reglementary period. Petitioners call attention to the
fact that prior to the lapse of the 30-day period for filing a Petition for (a) On manufacturers, assemblers, repackers, processors, brewers, distillers,
Review under Section 3(a), Rule 8 of the Revised Rules of the CTA, they had rectifiers, and compounders of liquors, distilled spirits, and wines or
already moved for a 10-day extension, or until 30 May 2007, within which manufacturers of any article of commerce of whatever kind or nature, in
to file their Petition. Petitioners claim that there was sufficient justification accordance with the following schedule:
in equity for the grant of the 10-day extension they requested, as the
primordial consideration should be the substantive, and not the procedural, xxxx
aspect of the case. Moreover, Section 3(a), Rule 8 of the Revised Rules of
the CTA, is silent as to whether the 30-day period for filing a Petition for (b) On wholesalers, distributors, or dealers in any article of commerce of
Review with the CTA in division may be extended or not. whatever kind or nature in accordance with the following schedule:

xxxx

Petitioners also contend that the Coca-Cola case is not determinative of the (c) On exporters, and on manufacturers, millers, producers, wholesalers,
issues in the present case because the issue of nullity of Tax Ordinance No. distributors, dealers or retailers of essential commodities enumerated
7988 and Tax Ordinance No. 8011 is not the lis mota herein. The Coca-Cola hereunder at a rate not exceeding one-half (1/2) of the rates prescribed
case is not doctrinal and cannot be considered as the law of the case. under subsections (a), (b) and (d) of this Section:

74
CONSTI II |ATTY. PASCUAL | TAXATION | TAN
Provided, however, That barangays shall have the exclusive power to levy and those importing goods for business or otherwise, who, pursuant to
taxes, as provided under Section 152 hereof, on gross sales or receipts of Section 143(h) of the LGC, are subject to excise tax, value-added tax (VAT),
the preceding calendar year of Fifty thousand pesos (P50,000.00) or less, in or percentage tax under the National Internal Revenue Code (NIRC). Thus,
the case of cities, and Thirty thousand pesos (P30,000) or less, in the case of there can be no double taxation when respondent is being taxed under both
municipalities. Sections 14 and 21 of Tax Ordinance No. 7794, for under the first, it is being
taxed as a manufacturer; while under the second, it is being taxed as a
person selling goods in the course of trade or business subject to excise,
VAT, or percentage tax.
(e) On contractors and other independent contractors, in accordance with
the following schedule:

xxxx The Court first addresses the issue raised by petitioners concerning the
period within which to file with the CTA a Petition for Review from an
(f) On banks and other financial institutions, at a rate not exceeding fifty adverse decision or ruling of the RTC.
percent (50%) of one percent (1%) on the gross receipts of the preceding
calendar year derived from interest, commissions and discounts from
lending activities, income from financial leasing, dividends, rentals on
property and profit from exchange or sale of property, insurance premium. The period to appeal the decision or ruling of the RTC to the CTA via a
Petition for Review is specifically governed by Section 11 of Republic Act No.
9282,[15] and Section 3(a), Rule 8 of the Revised Rules of the CTA.

(g) On peddlers engaged in the sale of any merchandise or article of

commerce, at a rate not exceeding Fifty pesos (P50.00) per peddler annually.
Section 11 of Republic Act No. 9282 provides:

(h) On any business, not otherwise specified in the preceding paragraphs,

which the sanggunian concerned may deem proper to tax: Provided, That SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. Any party
on any business subject to the excise, value-added or percentage tax under adversely affected by a decision, ruling or inaction of the Commissioner of
the National Internal Revenue Code, as amended, the rate of tax shall not Internal Revenue, the Commissioner of Customs, the Secretary of Finance,
exceed two percent (2%) of gross sales or receipts of the preceding calendar the Secretary of Trade and Industry or the Secretary of Agriculture or the
year. Central Board of Assessment Appeals or the Regional Trial Courts may file
an Appeal with the CTA within thirty (30) days after the receipt of such
Section 14 of Tax Ordinance No. 7794 imposes local business tax on decision or ruling or after the expiration of the period fixed by law for action
manufacturers, etc. of liquors, distilled spirits, wines, and any other article as referred to in Section 7(a)(2) herein.
of commerce, pursuant to Section 143(a) of the LGC. On the other hand, the
local business tax under Section 21 of Tax Ordinance No. 7794 is imposed Appeal shall be made by filing a petition for review under a procedure
upon persons selling goods and services in the course of trade or business, analogous to that provided for under Rule 42 of the 1997 Rules of Civil

75
CONSTI II |ATTY. PASCUAL | TAXATION | TAN
Procedure with the CTA within thirty (30) days from the receipt of the 3(a), Rule 8 of the Revised Rules of the CTA, may be extended for a period
decision or ruling or in the case of inaction as herein provided, from the of 15 days. No further extension shall be allowed thereafter, except only for
expiration of the period fixed by law to act thereon. x x x. (Emphasis the most compelling reasons, in which case the extended period shall not
supplied.) exceed 15 days.

Section 3(a), Rule 8 of the Revised Rules of the CTA states:

Even the CTA en banc, in its Decision dated 18 January 2008, recognizes that
SEC 3. Who may appeal; period to file petition. (a) A party adversely affected the 30-day period within which to file the Petition for Review with the CTA
by a decision, ruling or the inaction of the Commissioner of Internal Revenue may, indeed, be extended, thus:
on disputed assessments or claims for refund of internal revenue taxes, or
by a decision or ruling of the Commissioner of Customs, the Secretary of
Finance, the Secretary of Trade and Industry, the Secretary of Agriculture, Being suppletory to R.A. 9282, the 1997 Rules of Civil Procedure allow an
or a Regional Trial Court in the exercise of its original jurisdiction may appeal additional period of fifteen (15) days for the movant to file a Petition for
to the Court by petition for review filed within thirty days after receipt of a Review, upon Motion, and payment of the full amount of the docket fees. A
copy of such decision or ruling, or expiration of the period fixed by law for further extension of fifteen (15) days may be granted on compelling reasons
the Commissioner of Internal Revenue to act on the disputed assessments. in accordance with the provision of Section 1, Rule 42 of the 1997 Rules of
x x x. (Emphasis supplied.) Civil Procedure x x x.[17]

It is crystal clear from the afore-quoted provisions that to appeal an adverse In this case, the CTA First Division did indeed err in finding that petitioners
decision or ruling of the RTC to the CTA, the taxpayer must file a Petition for failed to file their Petition for Review in C.T.A. AC No. 31 within the
Review with the CTA within 30 days from receipt of said adverse decision or reglementary period.
ruling of the RTC.

It is also true that the same provisions are silent as to whether such 30-day
period can be extended or not. However, Section 11 of Republic Act No. From 20 April 2007, the date petitioners received a copy of the 4 April 2007
9282 does state that the Petition for Review shall be filed with the CTA Order of the RTC, denying their Motion for Reconsideration of the 16
following the procedure analogous to Rule 42 of the Revised Rules of Civil November 2006 Order, petitioners had 30 days, or until 20 May 2007, within
Procedure. Section 1, Rule 42[16] of the Revised Rules of Civil Procedure which to file their Petition for Review with the CTA. Hence, the Motion for
provides that the Petition for Review of an adverse judgment or final order Extension filed by petitioners on 4 May 2007 grounded on their belief that
of the RTC must be filed with the Court of Appeals within: (1) the original 15- the reglementary period for filing their Petition for Review with the CTA was
day period from receipt of the judgment or final order to be appealed; (2) to expire on 5 May 2007, thus, compelling them to seek an extension of 15
an extended period of 15 days from the lapse of the original period; and (3) days, or until 20 May 2007, to file said Petition was unnecessary and
only for the most compelling reasons, another extended period not to superfluous. Even without said Motion for Extension, petitioners could file
exceed 15 days from the lapse of the first extended period. their Petition for Review until 20 May 2007, as it was still within the 30-day
reglementary period provided for under Section 11 of Republic Act No.
Following by analogy Section 1, Rule 42 of the Revised Rules of Civil 9282; and implemented by Section 3(a), Rule 8 of the Revised Rules of the
Procedure, the 30-day original period for filing a Petition for Review with the CTA.
CTA under Section 11 of Republic Act No. 9282, as implemented by Section

76
CONSTI II |ATTY. PASCUAL | TAXATION | TAN
 shopping as provided in Section 3, Rule 46 of the Rules of Court. A clearly
legible duplicate original or certified true copy of the decision appealed from
The Motion for Extension filed by the petitioners on 18 May 2007, prior to shall be attached to the petition. (Emphasis supplied.)
the lapse of the 30-day reglementary period on 20 May 2007, in which they
prayed for another extended period of 10 days, or until 30 May 2007, to file The aforesaid provisions should be read in conjunction with Section 1, Rule
their Petition for Review was, in reality, only the first Motion for Extension 7 of the Revised Rules of the CTA, which provides:
of petitioners. The CTA First Division should have granted the same, as it was
sanctioned by the rules of procedure. In fact, petitioners were only praying
for a 10-day extension, five days less than the 15-day extended period SECTION 1. Applicability of the Rules of Court on procedure in the Court of
allowed by the rules. Thus, when petitioners filed via registered mail their Appeals, exception. The procedure in the Court en banc or in Divisions in
Petition for Review in C.T.A. AC No. 31 on 30 May 2007, they were able to original or in appealed cases shall be the same as those in petitions for
comply with the reglementary period for filing such a petition. review and appeals before the Court of Appeals pursuant to the applicable
provisions of Rules 42, 43, 44, and 46 of the Rules of Court, except as
otherwise provided for in these Rules. (Emphasis supplied.)

Nevertheless, there were other reasons for which the CTA First Division As found by the CTA First Division and affirmed by the CTA en banc, the
dismissed the Petition for Review of petitioners in C.T.A. AC No. 31; i.e., Petition for Review filed by petitioners via registered mail on 30 May 2007
petitioners failed to conform to Section 4 of Rule 5, and Section 2 of Rule 6 consisted only of one copy and all the attachments thereto, including the
of the Revised Rules of the CTA. The Court sustains the CTA First Division in Decision dated 14 July 2006; and that the assailed Orders dated 16
this regard. November 2006 and 4 April 2007 of the RTC in Civil Case No. 03-107088 were
mere machine copies. Evidently, petitioners did not comply at all with the
requirements set forth under Section 4, Rule 5; or with Section 2, Rule 6 of
Section 4, Rule 5 of the Revised Rules of the CTA requires that: the Revised Rules of the CTA. Although the Revised Rules of the CTA do not
provide for the consequence of such non-compliance, Section 3, Rule 42 of
SEC. 4. Number of copies. The parties shall file eleven signed copies of every the Rules of Court may be applied suppletorily, as allowed by Section 1, Rule
paper for cases before the Court en banc and six signed copies for cases 7 of the Revised Rules of the CTA. Section 3, Rule 42 of the Rules of Court
before a Division of the Court in addition to the signed original copy, except reads:
as otherwise directed by the Court. Papers to be filed in more than one case
shall include one additional copy for each additional case. (Emphasis
supplied.) SEC. 3. Effect of failure to comply with requirements. The failure of the
petitioner to comply with any of the foregoing requirements regarding the
Section 2, Rule 6 of the Revised Rules of the CTA further necessitates that: payment of the docket and other lawful fees, the deposit for costs, proof of
service of the petition, and the contents of and the documents which should
SEC. 2. Petition for review; contents. The petition for review shall contain accompany the petition shall be sufficient ground for the dismissal thereof.
allegations showing the jurisdiction of the Court, a concise statement of the (Emphasis supplied.)
complete facts and a summary statement of the issues involved in the case,
as well as the reasons relied upon for the review of the challenged decision.
The petition shall be verified and must contain a certification against forum

77
CONSTI II |ATTY. PASCUAL | TAXATION | TAN
True, petitioners subsequently submitted certified copies of the Decision By virtue of the Coca-Cola case, Tax Ordinance No. 7988 and Tax Ordinance
dated 14 July 2006 and assailed Orders dated 16 November 2006 and 4 April No. 8011 are null and void and without any legal effect. Therefore,
2007 of the RTC in Civil Case No. 03-107088, but a closer examination of the respondent cannot be taxed and assessed under the amendatory laws--Tax
stamp on said documents reveals that they were prepared and certified only Ordinance No. 7988 and Tax Ordinance No. 8011.
on 14 August 2007, about two months and a half after the filing of the
Petition for Review by petitioners.

Petitioners insist that even with the declaration of nullity of Tax Ordinance
No. 7988 and Tax Ordinance No. 8011, respondent could still be made liable
Petitioners never offered an explanation for their non-compliance with for local business taxes under both Sections 14 and 21 of Tax Ordinance No.
Section 4 of Rule 5, and Section 2 of Rule 6 of the Revised Rules of the CTA. 7944 as they were originally read, without the amendment by the null and
Hence, although the Court had, in previous instances, relaxed the void tax ordinances.
application of rules of procedure, it cannot do so in this case for lack of any
justification.

Emphasis must be given to the fact that prior to the passage of Tax
Ordinance No. 7988 and Tax Ordinance No. 8011 by petitioner City of
Even assuming arguendo that the Petition for Review of petitioners in C.T.A. Manila, petitioners subjected and assessed respondent only for the local
AC No. 31 should have been given due course by the CTA First Division, it is business tax under Section 14 of Tax Ordinance No. 7794, but never under
still dismissible for lack of merit. Section 21 of the same. This was due to the clear and unambiguous proviso
in Section 21 of Tax Ordinance No. 7794, which stated that all registered
business in the City of Manila that are already paying the aforementioned
tax shall be exempted from payment thereof. The aforementioned tax
Contrary to the assertions of petitioners, the Coca-Cola case is indeed referred to in said proviso refers to local business tax. Stated differently,
applicable to the instant case. The pivotal issue raised therein was whether Section 21 of Tax Ordinance No. 7794 exempts from the payment of the local
Tax Ordinance No. 7988 and Tax Ordinance No. 8011 were null and void, business tax imposed by said section, businesses that are already paying
which this Court resolved in the affirmative. Tax Ordinance No. 7988 was such tax under other sections of the same tax ordinance. The said proviso,
declared by the Secretary of the Department of Justice (DOJ) as null and void however, was deleted from Section 21 of Tax Ordinance No. 7794 by Tax
and without legal effect due to the failure of herein petitioner City of Manila Ordinances No. 7988 and No. 8011. Following this deletion, petitioners
to satisfy the requirement under the law that said ordinance be published began assessing respondent for the local business tax under Section 21 of
for three consecutive days. Petitioner City of Manila never appealed said Tax Ordinance No. 7794, as amended.
declaration of the DOJ Secretary; thus, it attained finality after the lapse of
the period for appeal of the same. The passage of Tax Ordinance No. 8011,
amending Tax Ordinance No. 7988, did not cure the defects of the latter,
which, in any way, did not legally exist. The Court easily infers from the foregoing circumstances that petitioners
themselves believed that prior to Tax Ordinance No. 7988 and Tax

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CONSTI II |ATTY. PASCUAL | TAXATION | TAN
Ordinance No. 8011, respondent was exempt from the local business tax of Manila contribute to city revenues; (3) by the same taxing authority
under Section 21 of Tax Ordinance No. 7794. Hence, petitioners had to wait petitioner City of Manila; (4) within the same taxing jurisdiction within the
for the deletion of the exempting proviso in Section 21 of Tax Ordinance No. territorial jurisdiction of the City of Manila; (5) for the same taxing periods
7794 by Tax Ordinance No. 7988 and Tax Ordinance No. 8011 before they per calendar year; and (6) of the same kind or character a local business tax
assessed respondent for the local business tax under said section. Yet, with imposed on gross sales or receipts of the business.
the pronouncement by this Court in the Coca-Cola case that Tax Ordinance
No. 7988 and Tax Ordinance No. 8011 were null and void and without legal
effect, then Section 21 of Tax Ordinance No. 7794, as it has been previously
worded, with its exempting proviso, is back in effect. Accordingly, The distinction petitioners attempt to make between the taxes under
respondent should not have been subjected to the local business tax under Sections 14 and 21 of Tax Ordinance No. 7794 is specious. The Court revisits
Section 21 of Tax Ordinance No. 7794 for the third and fourth quarters of Section 143 of the LGC, the very source of the power of municipalities and
2000, given its exemption therefrom since it was already paying the local cities to impose a local business tax, and to which any local business tax
business tax under Section 14 of the same ordinance. imposed by petitioner City of Manila must conform. It is apparent from a
perusal thereof that when a municipality or city has already imposed a
business tax on manufacturers, etc. of liquors, distilled spirits, wines, and
any other article of commerce, pursuant to Section 143(a) of the LGC, said
Petitioners obstinately ignore the exempting proviso in Section 21 of Tax municipality or city may no longer subject the same manufacturers, etc. to
Ordinance No. 7794, to their own detriment. Said exempting proviso was a business tax under Section 143(h) of the same Code. Section 143(h) may
precisely included in said section so as to avoid double taxation. be imposed only on businesses that are subject to excise tax, VAT, or
percentage tax under the NIRC, and that are not otherwise specified in
preceding paragraphs. In the same way, businesses such as respondents,
already subject to a local business tax under Section 14 of Tax Ordinance No.
Double taxation means taxing the same property twice when it should be 7794 [which is based on Section 143(a) of the LGC], can no longer be made
taxed only once; that is, taxing the same person twice by the same liable for local business tax under Section 21 of the same Tax Ordinance
jurisdiction for the same thing. It is obnoxious when the taxpayer is taxed [which is based on Section 143(h) of the LGC].
twice, when it should be but once. Otherwise described as direct duplicate
taxation, the two taxes must be imposed on the same subject matter, for
the same purpose, by the same taxing authority, within the same WHEREFORE, premises considered, the instant Petition for Review on
jurisdiction, during the same taxing period; and the taxes must be of the Certiorari is hereby DENIED. No costs.
same kind or character.[18]

SO ORDERED.
Using the aforementioned test, the Court finds that there is indeed double
taxation if respondent is subjected to the taxes under both Sections 14 and
21 of Tax Ordinance No. 7794, since these are being imposed: (1) on the
same subject matter the privilege of doing business in the City of Manila; (2)
for the same purpose to make persons conducting business within the City

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[G.R. No. 158540. August 3, 2005] industries and producers from increased imports which inflict or could inflict
serious injury on them.[4]
SOUTHERN CROSS CEMENT CORPORATION, petitioner, vs. CEMENT
MANUFACTURERS ASSOCIATION OF THE PHILIPPINES, THE SECRETARY OF A brief summary as to how the present petition came to be filed by Southern
THE DEPARTMENT OF TRADE AND INDUSTRY, THE SECRETARY OF THE Cross. Philcemcor, an association of at least eighteen (18) domestic cement
DEPARTMENT OF FINANCE and THE COMMISSIONER OF THE BUREAU OF manufacturers filed with the DTI a petition seeking the imposition of
CUSTOMS, respondents. safeguard measures on gray Portland cement,[5] in accordance with the
SMA. After the DTI issued a provisional safeguard measure,[6] the
RESOLUTION application was referred to the Tariff Commission for a formal investigation
pursuant to Section 9 of the SMA and its Implementing Rules and
TINGA, J.: Regulations, in order to determine whether or not to impose a definitive
safeguard measure on imports of gray Portland cement. The Tariff
Cement is hardly an exciting subject for litigation. Still, the parties in this case Commission held public hearings and conducted its own investigation, then
have done their best to put up a spirited advocacy of their respective on 13 March 2002, issued its Formal Investigation Report (Report). The
positions, throwing in everything including the proverbial kitchen sink. At Report determined as follows:
present, the burden of passion, if not proof, has shifted to public
respondents Department of Trade and Industry (DTI) and private The elements of serious injury and imminent threat of serious injury not
respondent Philippine Cement Manufacturers Corporation (Philcemcor),[1] having been established, it is hereby recommended that no definitive
who now seek reconsideration of our Decision dated 8 July 2004 (Decision), general safeguard measure be imposed on the importation of gray Portland
which granted the petition of petitioner Southern Cross Cement Corporation cement.[7]
(Southern Cross).
The DTI sought the opinion of the Secretary of Justice whether it could still
This case, of course, is ultimately not just about cement. For respondents, it impose a definitive safeguard measure notwithstanding the negative finding
is about love of country and the future of the domestic industry in the face of the Tariff Commission. After the Secretary of Justice opined that the DTI
of foreign competition. For this Court, it is about elementary statutory could not do so under the SMA,[8] the DTI Secretary then promulgated a
construction, constitutional limitations on the executive power to impose Decision[9] wherein he expressed the DTIs disagreement with the
tariffs and similar measures, and obedience to the law. Just as much was conclusions of the Tariff Commission, but at the same time, ultimately
asserted in the Decision, and the same holds true with this present denying Philcemcors application for safeguard measures on the ground that
Resolution. the he was bound to do so in light of the Tariff Commissions negative
findings.[10]
An extensive narration of facts can be found in the Decision.[2] As can well
be recalled, the case centers on the interpretation of provisions of Republic Philcemcor challenged this Decision of the DTI Secretary by filing with the
Act No. 8800, the Safeguard Measures Act (SMA), which was one of the laws Court of Appeals a Petition for Certiorari, Prohibition and Mandamus[11]
enacted by Congress soon after the Philippines ratified the General seeking to set aside the DTI Decision, as well as the Tariff Commissions
Agreement on Tariff and Trade (GATT) and the World Trade Organization Report. It prayed that the Court of Appeals direct the DTI Secretary to
(WTO) Agreement.[3] The SMA provides the structure and mechanics for the disregard the Report and to render judgment independently of the Report.
imposition of emergency measures, including tariffs, to protect domestic Philcemcor argued that the DTI Secretary, vested as he is under the law with
the power of review, is not bound to adopt the recommendations of the

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Tariff Commission; and, that the Report is void, as it is predicated on a Philcemcor filed an opposition, claiming, among others, that it is not this
flawed framework, inconsistent inferences and erroneous Court but the CTA that has jurisdiction over the application under the law.
methodology.[12]
On 1 August 2003, Southern Cross filed with the CTA a Petition for Review,
The Court of Appeals Twelfth Division, in a Decision[13] penned by Court of assailing the DTI Secretarys 25 June 2003 Decision which imposed the
Appeals Associate Justice Elvi John Asuncion,[14] partially granted definite safeguard measure. Yet Southern Cross did not promptly inform this
Philcemcors petition. The appellate court ruled that it had jurisdiction over Court about this filing. The first time the Court would learn about this
the petition for certiorari since it alleged grave abuse of discretion. While it Petition with the CTA was when Southern Cross mentioned such fact in a
refused to annul the findings of the Tariff Commission,[15] it also held that pleading dated 11 August 2003 and filed the next day with this Court.[20]
the DTI Secretary was not bound by the factual findings of the Tariff
Commission since such findings are merely recommendatory and they fall Philcemcor argued before this Court that Southern Cross had deliberately
within the ambit of the Secretarys discretionary review. It determined that and willfully resorted to forum-shopping; that the CTA, being a special court
the legislative intent is to grant the DTI Secretary the power to make a final of limited jurisdiction, could only review the ruling of the DTI Secretary when
decision on the Tariff Commissions recommendation.[16] a safeguard measure is imposed; and that the factual findings of the Tariff
Commission are not binding on the DTI Secretary.[21]
On 23 June 2003, Southern Cross filed the present petition, arguing that the
Court of Appeals has no jurisdiction over Philcemcors petition, as the proper After giving due course to Southern Crosss Petition, the Court called the case
remedy is a petition for review with the CTA conformably with the SMA, and; for oral argument on 18 February 2004.[22] At the oral argument, attended
that the factual findings of the Tariff Commission on the existence or non- by the counsel for Philcemcor and Southern Cross and the Office of the
existence of conditions warranting the imposition of general safeguard Solicitor General, the Court simplified the issues in this wise: (i) whether the
measures are binding upon the DTI Secretary. Decision of the DTI Secretary is appealable to the CTA or the Court of
Appeals; (ii) assuming that the Court of Appeals has jurisdiction, whether its
Despite the fact that the Court of Appeals Decision had not yet become final, Decision is in accordance with law; and, whether a Temporary Restraining
its binding force was cited by the DTI Secretary when he issued a new Order is warranted.[23]
Decision on 25 June 2003, wherein he ruled that that in light of the appellate
courts Decision, there was no longer any legal impediment to his deciding After the parties had filed their respective memoranda, the Courts Second
Philcemcors application for definitive safeguard measures.[17] He made a Division, to which the case had been assigned, promulgated its Decision
determination that, contrary to the findings of the Tariff Commission, the granting Southern Crosss Petition.[24]The Decision was unanimous, without
local cement industry had suffered serious injury as a result of the import any separate or concurring opinion.
surges.[18] Accordingly, he imposed a definitive safeguard measure on the
importation of gray Portland cement, in the form of a definitive safeguard The Court ruled that the Court of Appeals had no jurisdiction over
duty in the amount of P20.60/40 kg. bag for three years on imported gray Philcemcors Petition, the proper remedy under Section 29 of the SMA being
Portland Cement.[19] a petition for review with the CTA; and that the Court of Appeals erred in
ruling that the DTI Secretary was not bound by the negative determination
On 7 July 2003, Southern Cross filed with the Court a Very Urgent Application of the Tariff Commission and could therefore impose the general safeguard
for a Temporary Restraining Order and/or A Writ of Preliminary Injunction measures, since Section 5 of the SMA precisely required that the Tariff
(TRO Application), seeking to enjoin the DTI Secretary from enforcing his Commission make a positive final determination before the DTI Secretary
Decision of 25 June 2003 in view of the pending petition before this Court. could impose these measures. Anent the argument that Southern Cross had

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committed forum-shopping, the Court concluded that there was no evident The Court has likewise been notified that subsequent to the rendition of the
malicious intent to subvert procedural rules so as to match the standard Courts Decision, Philcemcor filed a Petition for Extension of the Safeguard
under Section 5, Rule 7 of the Rules of Court of willful and deliberate forum Measure with the DTI, which has been referred to the Tariff
shopping. Accordingly, the Decision of the Court of Appeals dated 5 June Commission.[29] In an Urgent Motion dated 21 December 2004, Southern
2003 was declared null and void. Cross prayed that Philcemcor, the DTI, the Bureau of Customs, and the Tariff
Commission be directed to cease and desist from taking any and all actions
The Court likewise found it necessary to nullify the Decision of the DTI pursuant to or under the null and void CA Decision and DTI Decision,
Secretary dated 25 June 2003, rendered after the filing of this present including proceedings to extend the safeguard measure.[30] In a
Petition. This Decision by the DTI Secretary had cited the obligatory force of Manifestation and Motion dated 23 June 2004, the Tariff Commission
the null and void Court of Appeals Decision, notwithstanding the fact that informed the Court that since no prohibitory injunction or order of such
the decision of the appellate court was not yet final and executory. nature had been issued by any court against the Tariff Commission, the
Considering that the decision of the Court of Appeals was a nullity to begin Commission proceeded to complete its investigation on the petition for
with, the inescapable conclusion was that the new decision of the DTI extension, pursuant to Section 9 of the SMA, but opted to defer transmittal
Secretary, prescinding as it did from the imprimatur of the decision of the of its report to the DTI Secretary pending guidance from this Court on the
Court of Appeals, was a nullity as well. propriety of such a step considering this pending Motion for
Reconsideration. In a Resolution dated 5 July 2005, the Court directed the
After the Decision was reported in the media, there was a flurry of parties to maintain the status quo effective of even date, and until further
newspaper articles citing alleged negative reactions to the ruling by the orders from this Court. The denial of the pending motions for
counsel for Philcemcor, the DTI Secretary, and others.[25] Both respondents reconsideration will obviously render the pending petition for extension
promptly filed their respective motions for reconsideration. academic.

On 21 September 2004, the Court En Banc resolved, upon motion of I. Jurisdiction of the Court of Tax Appeals
respondents, to accept the petition and resolve the Motions for
Reconsideration.[26] The case was then reheard[27] on oral argument on 1 Under Section 29 of the SMA
March 2005. During the hearing, the Court elicited from the parties their
arguments on the two central issues as discussed in the assailed Decision, The first core issue resolved in the assailed Decision was whether the Court
pertaining to the jurisdictional aspect and to the substantive aspect of of Appeals had jurisdiction over the special civil action for certiorari filed by
whether the DTI Secretary may impose a general safeguard measure despite Philcemcor assailing the 5 April 2002 Decision of the DTI Secretary. The
a negative determination by the Tariff Commission. The Court chose not to general jurisdiction of the Court of Appeals over special civil actions for
hear argumentation on the peripheral issue of forum-shopping,[28] certiorari is beyond doubt. The Constitution itself assures that judicial
although this question shall be tackled herein shortly. Another point of review avails to determine whether or not there has been a grave abuse of
concern emerged during oral arguments on the exercise of quasi-judicial discretion amounting to lack or excess of jurisdiction on the part of any
powers by the Tariff Commission, and the parties were required by the Court branch or instrumentality of the Government. At the same time, the special
to discuss in their respective memoranda whether the Tariff Commission civil action of certiorari is available only when there is no plain, speedy and
could validly exercise quasi-judicial powers in the exercise of its mandate adequate remedy in the ordinary course of law.[31] Philcemcors recourse of
under the SMA. special civil action before the Court of Appeals to challenge the Decision of
the DTI Secretary not to impose the general safeguard measures is not based
on the SMA, but on the general rule on certiorari. Thus, the Court proceeded

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to inquire whether indeed there was no other plain, speedy and adequate Since the Decision dated 5 April 2002 resolved against imposing a safeguard
remedy in the ordinary course of law that would warrant the allowance of measure, Philcemcor claims that the proper remedial recourse is a petition
Philcemcors special civil action. for certiorari with the Court of Appeals.

The answer hinged on the proper interpretation of Section 29 of the SMA, Interestingly, Republic Act No. 9282, promulgated on 30 March 2004,
which reads: expressly vests unto the CTA jurisdiction over [d]ecisions of the Secretary of
Trade and Industry, in case of nonagricultural product, commodity or article
Section 29. Judicial Review. Any interested party who is adversely affected . . . involving . . . safeguard measures under Republic Act No. 8800, where
by the ruling of the Secretary in connection with the imposition of a either party may appeal the decision to impose or not to impose said
safeguard measure may file with the CTA, a petition for review of such ruling duties.[34] It is clear that any future attempts to advance the literalist
within thirty (30) days from receipt thereof. Provided, however, that the position of the respondents would consequently fail. However, since
filing of such petition for review shall not in any way stop, suspend or Republic Act No. 9282 has no retroactive effect, this Court had to decide
otherwise toll the imposition or collection of the appropriate tariff duties or whether Section 29 vests jurisdiction on the CTA over rulings of the DTI
the adoption of other appropriate safeguard measures, as the case may be. Secretary not to impose a safeguard measure. And the Court, in its assailed
Decision, ruled that the CTA is endowed with such jurisdiction.
The petition for review shall comply with the same requirements and shall
follow the same rules of procedure and shall be subject to the same Both respondents reiterate their fundamentalist reading that Section 29
disposition as in appeals in connection with adverse rulings on tax matters authorizes the petition for review before the CTA only when the DTI
to the Court of Appeals.[32] (Emphasis supplied) Secretary decides to impose a safeguard measure, but not when he decides
not to. In doing so, they fail to address what the Court earlier pointed out
The matter is crucial for if the CTA properly had jurisdiction over the petition would be the absurd consequences if their interpretation is followed to its
challenging the DTI Secretarys ruling not to impose a safeguard measure, logical end. But in affirming, as the Court now does, its previous holding that
then the special civil action of certiorari resorted to instead by Philcemcor the CTA has jurisdiction over petitions for review questioning the non-
would not avail, owing to the existence of a plain, speedy and adequate imposition of safeguard measures by the DTI Secretary, the Court relies on
remedy in the ordinary course of law.[33] The Court of Appeals, in asserting the plain reading that Section 29 explicitly vests jurisdiction over such
that it had jurisdiction, merely cited the general rule on certiorari jurisdiction petitions on the CTA.
without bothering to refer to, or possibly even study, the import of Section
29. In contrast, this Court duly considered the meaning and ramifications of Under Section 29, there are three requisites to enable the CTA to acquire
Section 29, concluding that it provided for a plain, speedy and adequate jurisdiction over the petition for review contemplated therein: (i) there must
remedy that Philcemcor could have resorted to instead of filing the special be a ruling by the DTI Secretary; (ii) the petition must be filed by an
civil action before the Court of Appeals. interested party adversely affected by the ruling; and (iii) such ruling must
be in connection with the imposition of a safeguard measure. Obviously,
Philcemcor still holds on to its hypothesis that the petition for review there are differences between a ruling for the imposition of a safeguard
allowed under Section 29 lies only if the DTI Secretarys ruling imposes a measure, and one issued in connection with the imposition of a safeguard
safeguard measure. If, on the other hand, the DTI Secretarys ruling is not to measure. The first adverts to a singular type of ruling, namely one that
impose a safeguard measure, judicial review under Section 29 could not be imposes a safeguard measure. The second does not contemplate only one
resorted to since the provision refers to rulings in connection with the kind of ruling, but a myriad of rulings issued in connection with the
imposition of the safeguard measure, as opposed to the non-imposition. imposition of a safeguard measure.

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 respondents demonstrate a countervailing holding in Philippine
Respondents argue that the Court has given an expansive interpretation to jurisprudence.
Section 29, contrary to the established rule requiring strict construction
against the existence of jurisdiction in specialized courts.[35] But it is the Yet we should consider the claim that an expansive interpretation was
express provision of Section 29, and not this Court, that mandates CTA favored in Shaw because the law in question was an employees benefit law
jurisdiction to be broad enough to encompass more than just a ruling that had to be given an interpretation favorable to its intended
imposing the safeguard measure. beneficiaries.[39] In the next breath, Philcemcor notes that the U.S.
Supreme Court itself was alarmed by the expansive interpretation in Shaw
The key phrase remains in connection with. It has connotations that are and thus in Blue Cross, the Shaw ruling was reversed and a more restrictive
obvious even to the layman. A ruling issued in connection with the interpretation was applied based on congressional intent.[40]
imposition of a safeguard measure would be one that bears some relation
to the imposition of a safeguard measure. Obviously, a ruling imposing a Respondents would like to make it appear that the Court acted rashly in
safeguard measure is covered by the phrase in connection with, but such applying a discarded precedent in Shaw, a non-binding foreign precedent
ruling is by no means exclusive. Rulings which modify, suspend or terminate nonetheless. But the Court did make the following observation in its
a safeguard measure are necessarily in connection with the imposition of a Decision pertaining to Blue Cross:
safeguard measure. So does a ruling allowing for a provisional safeguard
measure. So too, a ruling by the DTI Secretary refusing to refer the Now, let us determine the maximum scope and reach of the phrase in
application for a safeguard measure to the Tariff Commission. It is clear that connection with as used in Section 29 of the SMA. A literalist reading or
there is an entire subset of rulings that the DTI Secretary may issue in linguistic survey may not satisfy. Even the U.S. Supreme Court in New York
connection with the imposition of a safeguard measure, including those that State Blue Cross Plans v. Travelers Ins.[41] conceded that the phrases relate
are provisional, interlocutory, or dispositive in character.[36] By the same to or in connection with may be extended to the farthest stretch of
token, a ruling not to impose a safeguard measure is also issued in indeterminacy for, universally, relations or connections are infinite and stop
connection with the imposition of a safeguard measure. nowhere.[42] Thus, in the case the U.S. High Court, examining the same
phrase of the same provision of law involved in Shaw, resorted to looking at
In arriving at the proper interpretation of in connection with, the Court the statute and its objectives as the alternative to an uncritical literalism. A
referred to the U.S. Supreme Court cases of Shaw v. Delta Air Lines, Inc.[37] similar inquiry into the other provisions of the SMA is in order to determine
and New York State Blue Cross Plans v. Travelers Ins.[38] Both cases the scope of review accorded therein to the CTA.[43]
considered the interpretation of the phrase relates to as used in a federal
statute, the Employee Retirement Security Act of 1974. Respondents In the next four paragraphs of the Decision, encompassing four pages, the
criticize the citations on the premise that the cases are not binding in our Court proceeded to inquire into the SMA and its objectives as a means to
jurisdiction and do not involve safeguard measures. The criticisms are off- determine the scope of rulings to be deemed as in connection with the
tangent considering that our ruling did not call for the application of the imposition of a safeguard measure. Certainly, this Court did not resort to the
Employee Retirement Security Act of 1974 in the Philippine milieu. The broadest interpretation possible of the phrase in connection with, but
American cases are not relied upon as precedents, but as guides of instead sought to bring it into the context of the scope and objectives of the
interpretation. Certainly, if there are applicable local precedents pertaining SMA. The ultimate conclusion of the Court was that the phrase includes all
to the interpretation of the phrase in connection with, then these certainly rulings of the DTI Secretary which arise from the time an application or motu
would have some binding force. But none avail, and neither do the proprio initiation for the imposition of a safeguard measure is taken.[44]
This conclusion was derived from the observation that the imposition of a

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general safeguard measure is a process, initiated motu proprio or through
application, which undergoes several stages upon which the DTI Secretary is Strictly speaking, the review by the Secretary of Finance of the decision of
obliged or may be called upon to issue a ruling. the Commissioner of Customs is not judicial review, since the Secretary of
Finance holds an executive and not a judicial office. The contrast is apparent
It should be emphasized again that by utilizing the phrase in connection with the situation in this case, wherein the interpretation favored by the
with, it is the SMA that expressly vests jurisdiction on the CTA over petitions respondents calls for the exercise of judicial review by two different courts
questioning the non-imposition by the DTI Secretary of safeguard measures. over essentially the same questionwhether the DTI Secretary should impose
The Court is simply asserting, as it should, the clear intent of the legislature general safeguard measures. Moreover, as petitioner points out, the
in enacting the SMA. Without in connection with or a synonymous phrase, executive department cannot appeal against itself. The Collector of
the Court would be compelled to favor the respondents position that only Customs, the Commissioner of Customs and the Secretary of Finance are all
rulings imposing safeguard measures may be elevated on appeal to the CTA. part of the executive branch. If the Collector of Customs rules against the
But considering that the statute does make use of the phrase, there is little government, the executive cannot very well bring suit in courts against itself.
sense in delving into alternate scenarios. On the other hand, if a private person is aggrieved by the decision of the
Collector of Customs, he can have proper recourse before the courts, which
Respondents fail to convincingly address the absurd consequences pointed now would be called upon to exercise judicial review over the action of the
out by the Decision had their proposed interpretation been adopted. executive branch.
Indeed, suffocated beneath the respondents legalistic tinsel is the elemental
questionwhat sense is there in vesting jurisdiction on the CTA over a decision More fundamentally, the situation involving split review of the decision of
to impose a safeguard measure, but not on one choosing not to impose. Of the Collector of Customs under the TCC is not apropos to the case at bar.
course, it is not for the Court to inquire into the wisdom of legislative acts, The TCC in that instance is quite explicit on the divergent reviewing body or
hence the rule that jurisdiction must be expressly vested and not presumed. official depending on which party prevailed at the Collector of Customs level.
Yet ultimately, respondents muddle the issue by making it appear that the On the other hand, there is no such explicit expression of bifurcated appeals
Decision has uniquely expanded the jurisdictional rules. For the in Section 29 of the SMA.
respondents, the proper statutory interpretation of the crucial phrase in
connection with is to pretend that the phrase did not exist at all in the Public respondents likewise cite Fabian v. Ombudsman[45] as another
statute. The Court, in taking the effort to examine the meaning and extent instance wherein the Court purportedly allowed split jurisdiction. It is
of the phrase, is merely giving breath to the legislative will. argued that the Court, in ruling that it was the Court of Appeals which
possessed appellate authority to review decisions of the Ombudsman in
The Court likewise stated that the respondents position calls for split administrative cases while the Court retaining appellate jurisdiction of
jurisdiction, which is judicially abhorred. In rebuttal, the public respondents decisions of the Ombudsman in non-administrative cases, effectively
cite Sections 2313 and 2402 of the Tariff and Customs Code (TCC), which sanctioned split jurisdiction between the Court and the Court of
allegedly provide for a splitting of jurisdiction of the CTA. According to public Appeals.[46]
respondents, under Section 2313 of the TCC, a decision of the Commissioner
of Customs affirming a decision of the Collector of Customs adverse to the Nonetheless, this argument is successfully undercut by Southern Cross,
government is elevated for review to the Secretary of Finance. However, which points out the essential differences in the power exercised by the
under Section 2402 of the TCC, a ruling of the Commissioner of the Bureau Ombudsman in administrative cases and non-administrative cases relating
of Customs against a taxpayer must be appealed to the Court of Tax Appeals, to criminal complaints. In the former, the Ombudsman may impose an
and not to the Secretary of Finance. administrative penalty, while in acting upon a criminal complaint what the

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Ombudsman undertakes is a preliminary investigation. Clearly, the capacity is a remedy narrow in its scope and inflexible in its character. It is not a
in which the Ombudsman takes on in deciding an administrative complaint general utility tool in the legal workshop.[48]
is wholly different from that in conducting a preliminary investigation. In
contrast, in ruling upon a safeguard measure, the DTI Secretary acts in one It is incorrect to say that the Decision bars any effective remedy should the
and the same role. The variance between an order granting or denying an Tariff Commission act or conclude erroneously in making its determination
application for a safeguard measure is polar though emanating from the whether the factual conditions exist which necessitate the imposition of the
same equator, and does not arise from the distinct character of the putative general safeguard measure. If the Tariff Commission makes a negative final
actions involved. determination, the DTI Secretary, bound as he is by this negative
determination, has to render a decision denying the application for
Philcemcor imputes intelligent design behind the alleged intent of Congress safeguard measures citing the Tariff Commissions findings as basis.
to limit CTA review only to impositions of the general safeguard measures. Necessarily then, such negative determination of the Tariff Commission
It claims that there is a necessary tax implication in case of an imposition of being an integral part of the DTI Secretarys ruling would be open for review
a tariff where the CTAs expertise is necessary, but there is no such tax before the CTA, which again is especially qualified by reason of its expertise
implication, hence no need for the assumption of jurisdiction by a to examine the findings of the Tariff Commission. Moreover, considering
specialized agency, when the ruling rejects the imposition of a safeguard that the Tariff Commission is an instrumentality of the government, its
measure. But of course, whether the ruling under review calls for the actions (as opposed to those undertaken by the DTI Secretary under the
imposition or non-imposition of the safeguard measure, the common SMA) are not beyond the pale of certiorari jurisdiction. Unfortunately for
question for resolution still is whether or not the tariff should be imposed Philcemcor, it hinged its cause on the claim that the DTI Secretarys actions
an issue definitely fraught with a tax dimension. The determination of the may be annulled on certiorari, notwithstanding the explicit grant of judicial
question will call upon the same kind of expertise that a specialized body as review over that cabinet members actions under the SMA to the CTA.
the CTA presumably possesses.
Finally on this point, Philcemcor argues that assuming this Courts
In response to the Courts observation that the setup proposed by interpretation of Section 29 is correct, such ruling should not be given
respondents was novel, unusual, cumbersome and unwise, public retroactive effect, otherwise, a gross violation of the right to due process
respondents invoke the maxim that courts should not be concerned with the would be had. This erroneously presumes that it was this Court, and not
wisdom and efficacy of legislation.[47] But this prescinds from the bogus Congress, which vested jurisdiction on the CTA over rulings of non-
claim that the CTA may not exercise judicial review over a decision not to imposition rendered by the DTI Secretary. We have repeatedly stressed that
impose a safeguard measure, a prohibition that finds no statutory support. Section 29 expressly confers CTA jurisdiction over rulings in connection with
It is likewise settled in statutory construction that an interpretation that the imposition of the safeguard measure, and the reassertion of this point
would cause inconvenience and absurdity is not favored. Respondents do in the Decision was a matter of emphasis, not of contrivance. The due
not address the particular illogic that the Court pointed out would ensue if process protection does not shield those who remain purposely blind to the
their position on judicial review were adopted. According to the express rules that ensure the sporting play of procedural law.
respondents, while a ruling by the DTI Secretary imposing a safeguard
measure may be elevated on review to the CTA and assailed on the ground Besides, respondents claim would also apply every time this Court is
of errors in fact and in law, a ruling denying the imposition of safeguard compelled to settle a novel question of law, or to reverse precedent. In such
measures may be assailed only on the ground that the DTI Secretary cases, there would always be litigants whose causes of action might be
committed grave abuse of discretion. As stressed in the Decision, [c]ertiorari vitiated by the application of newly formulated judicial doctrines. Adopting
their claim would unwisely force this Court to treat its dispositions in

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unprecedented, sometimes landmark decisions not as resolutions to the live duties or imposts within the framework of the national development
cases or controversies, but as legal doctrine applicable only to future program of the Government.[49]
litigations.
The Court acknowledges the basic postulates ingrained in the provision, and,
II. Positive Final Determination hence, governing in this case. They are:

By the Tariff Commission an (1) It is Congress which authorizes the President to impose tariff rates,
import and export quotas, tonnage and wharfage dues, and other duties or
Indispensable Requisite to the imposts. Thus, the authority cannot come from the Finance Department, the
National Economic Development Authority, or the World Trade
Imposition of General Safeguard Measures Organization, no matter how insistent or persistent these bodies may be.

The second core ruling in the Decision was that contrary to the holding of (2) The authorization granted to the President must be embodied in a law.
the Court of Appeals, the DTI Secretary was barred from imposing a general Hence, the justification cannot be supplied simply by inherent executive
safeguard measure absent a positive final determination rendered by the powers. It cannot arise from administrative or executive orders
Tariff Commission. The fundamental premise rooted in this ruling is based promulgated by the executive branch or from the wisdom or whim of the
on the acknowledgment that the required positive final determination of President.
the Tariff Commission exists as a properly enacted constitutional limitation
imposed on the delegation of the legislative power to impose tariffs and (3) The authorization to the President can be exercised only within the
imposts to the President under Section 28(2), Article VI of the Constitution. specified limits set in the law and is further subject to limitations and
restrictions which Congress may impose. Consequently, if Congress specifies
Congressional Limitations Pursuant that the tariff rates should not exceed a given amount, the President cannot
impose a tariff rate that exceeds such amount. If Congress stipulates that no
To Constitutional Authority on the duties may be imposed on the importation of corn, the President cannot
impose duties on corn, no matter how actively the local corn producers
Delegated Power to Impose lobby the President. Even the most picayune of limits or restrictions
imposed by Congress must be observed by the President.
Safeguard Measures
There is one fundamental principle that animates these constitutional
The safeguard measures imposable under the SMA generally involve duties postulates. These impositions under Section 28(2), Article VI fall within the
on imported products, tariff rate quotas, or quantitative restrictions on the realm of the power of taxation, a power which is within the sole province of
importation of a product into the country. Concerning as they do the foreign the legislature under the Constitution.
importation of products into the Philippines, these safeguard measures fall
within the ambit of Section 28(2), Article VI of the Constitution, which states: Without Section 28(2), Article VI, the executive branch has no authority to
impose tariffs and other similar tax levies involving the importation of
The Congress may, by law, authorize the President to fix within specified foreign goods. Assuming that Section 28(2) Article VI did not exist, the
limits, and subject to such limitations and restrictions as it may impose, tariff enactment of the SMA by Congress would be voided on the ground that it
rates, import and export quotas, tonnage and wharfage dues, and other would constitute an undue delegation of the legislative power to tax. The

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constitutional provision shields such delegation from constitutional right to impose such safeguard measures because taxation is inherently
infirmity, and should be recognized as an exceptional grant of legislative legislative, not executive.
power to the President, rather than the affirmation of an inherent executive
power. When Congress tasks the President or his/her alter egos to impose
safeguard measures under the delineated conditions, the President or the
This being the case, the qualifiers mandated by the Constitution on this alter egos may be properly deemed as agents of Congress to perform an act
presidential authority attain primordial consideration. First, there must be a that inherently belongs as a matter of right to the legislature. It is basic
law, such as the SMA. Second, there must be specified limits, a detail which agency law that the agent may not act beyond the specifically delegated
would be filled in by the law. And further, Congress is further empowered powers or disregard the restrictions imposed by the principal. In short,
to impose limitations and restrictions on this presidential authority. On this Congress may establish the procedural framework under which such
last power, the provision does not provide for specified conditions, such as safeguard measures may be imposed, and assign the various offices in the
that the limitations and restrictions must conform to prior statutes, government bureaucracy respective tasks pursuant to the imposition of
internationally accepted practices, accepted jurisprudence, or the such measures, the task assignment including the factual determination of
considered opinion of members of the executive branch. whether the necessary conditions exists to warrant such impositions. Under
the SMA, Congress assigned the DTI Secretary and the Tariff Commission
The Court recognizes that the authority delegated to the President under their respective functions[50] in the legislatures scheme of things.
Section 28(2), Article VI may be exercised, in accordance with legislative
sanction, by the alter egos of the President, such as department secretaries. There is only one viable ground for challenging the legality of the limitations
Indeed, for purposes of the Presidents exercise of power to impose tariffs and restrictions imposed by Congress under Section 28(2) Article VI, and that
under Article VI, Section 28(2), it is generally the Secretary of Finance who is such limitations and restrictions are themselves violative of the
acts as alter ego of the President. The SMA provides an exceptional instance Constitution. Thus, no matter how distasteful or noxious these limitations
wherein it is the DTI or Agriculture Secretary who is tasked by Congress, in and restrictions may seem, the Court has no choice but to uphold their
their capacities as alter egos of the President, to impose such measures. validity unless their constitutional infirmity can be demonstrated.
Certainly, the DTI Secretary has no inherent power, even as alter ego of the
President, to levy tariffs and imports. What are these limitations and restrictions that are material to the present
case? The entire SMA provides for a limited framework under which the
Concurrently, the tasking of the Tariff Commission under the SMA should be President, through the DTI and Agriculture Secretaries, may impose
likewise construed within the same context as part and parcel of the safeguard measures in the form of tariffs and similar imposts. The limitation
legislative delegation of its inherent power to impose tariffs and imposts to most relevant to this case is contained in Section 5 of the SMA, captioned
the executive branch, subject to limitations and restrictions. In that regard, Conditions for the Application of General Safeguard Measures, and stating:
both the Tariff Commission and the DTI Secretary may be regarded as agents
of Congress within their limited respective spheres, as ordained in the SMA, The Secretary shall apply a general safeguard measure upon a positive final
in the implementation of the said law which significantly draws its strength determination of the [Tariff] Commission that a product is being imported
from the plenary legislative power of taxation. Indeed, even the President into the country in increased quantities, whether absolute or relative to the
may be considered as an agent of Congress for the purpose of imposing domestic production, as to be a substantial cause of serious injury or threat
safeguard measures. It is Congress, not the President, which possesses thereof to the domestic industry; however, in the case of non-agricultural
inherent powers to impose tariffs and imposts. Without legislative products, the Secretary shall first establish that the application of such
authorization through statute, the President has no power, authority or safeguard measures will be in the public interest.[51]

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Positive Final Determination The first line of attack employed is on Section 5 itself, it allegedly not being
as clear as it sounds. It is advanced that Section 5 does not relate to the legal
By Tariff Commission Plainly ability of either the Tariff Commission or the DTI Secretary to bind or
foreclose review and reversal by one or the other. Such relationship should
Required by Section 5 of SMA instead be governed by domestic administrative law and remedial law.
Philcemcor thus would like to cast the proposition in this manner: Does it
There is no question that Section 5 of the SMA operates as a limitation run contrary to our legal order to assert, as the Court did in its Decision, that
validly imposed by Congress on the presidential[52] authority under the a body of relative junior competence as the Tariff Commission can bind an
SMA to impose tariffs and imposts. That the positive final determination administrative superior and cabinet officer, the DTI Secretary? It is easy to
operates as an indispensable requisite to the imposition of the safeguard see why Philcemcor would like to divorce this DTI Secretary-Tariff
measure, and that it is the Tariff Commission which makes such Commission interaction from the confines of the SMA. Shorn of context, the
determination, are legal propositions plainly expressed in Section 5 for the notion would seem radical and unjustifiable that the lowly Tariff
easy comprehension for everyone but respondents. Commission can bind the hands and feet of the DTI Secretary.

Philcemcor attributes this Courts conclusion on the indispensability of the It can be surmised at once that respondents preferred interpretation is
positive final determination to flawed syllogism in that we read the based not on the express language of the SMA, but from implications
proposition if A then B as if it stated if A, and only A, then B.[53] Translated derived in a roundabout manner. Certainly, no provision in the SMA
in practical terms, our conclusion, according to Philcemcor, would have only expressly authorizes the DTI Secretary to impose a general safeguard
been justified had Section 5 read shall apply a general safeguard measure measure despite the absence of a positive final recommendation of the
upon, and only upon, a positive final determination of the Tariff Tariff Commission. On the other hand, Section 5 expressly states that the
Commission. DTI Secretary shall apply a general safeguard measure upon a positive final
determination of the [Tariff] Commission. The causal connection in Section
Statutes are not designed for the easy comprehension of the five-year old 5 between the imposition by the DTI Secretary of the general safeguard
child. Certainly, general propositions laid down in statutes need not be measure and the positive final determination of the Tariff Commission is
expressly qualified by clauses denoting exclusivity in order that they gain patent, and even respondents do not dispute such connection.
efficacy. Indeed, applying this argument, the President would, under the
Constitution, be authorized to declare martial law despite the absence of As stated earlier, the Court in its Decision found Section 5 to be clear, plain
the invasion, rebellion or public safety requirement just because the first and free from ambiguity so as to render unnecessary resort to the
paragraph of Section 18, Article VII fails to state the magic word only.[54] congressional records to ascertain legislative intent. Yet respondents, on the
dubitable premise that Section 5 is not as express as it seems, again latch on
But let us for the nonce pursue Philcemcors logic further. It claims that since to the record of legislative deliberations in asserting that there was no
Section 5 does not allegedly limit the circumstances upon which the DTI legislative intent to bar the DTI Secretary from imposing the general
Secretary may impose general safeguard measures, it is a worthy pursuit to safeguard measure anyway despite the absence of a positive final
determine whether the entire context of the SMA, as discerned by all the determination by the Tariff Commission.
other familiar indicators of legislative intent supplied by norms of statutory
interpretation, would justify safeguard measures absent a positive final Let us take the bait for a moment, and examine respondents commonly
determination by the Tariff Commission. cited portion of the legislative record. One would presume, given the intense

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advocacy for the efficacy of these citations, that they contain a smoking gun
express declarations from the legislators that the DTI Secretary may impose At the same time, nothing in the SMA obliges the DTI Secretary to adopt the
a general safeguard measure even if the Tariff Commission refuses to render recommendations made by the Tariff Commission. In fact, the SMA requires
a positive final determination. Such smoking gun, if it exists, would that the DTI Secretary establish that the application of such safeguard
characterize our Decision as disingenuous for ignoring such contrary measures is in the public interest, notwithstanding the Tariff Commissions
expression of intent from the legislators who enacted the SMA. But as with recommendation on the appropriate safeguard measure upon its positive
many things, the anticipation is more dramatic than the truth. final determination. Thus, even if the Tariff Commission makes a positive
final determination, the DTI Secretary may opt not to impose a general
The excerpts cited by respondents are derived from the interpellation of the safeguard measure, or choose a different type of safeguard measure other
late Congressman Marcial Punzalan Jr., by then (and still is) Congressman than that recommended by the Tariff Commission.
Simeon Datumanong.[55] Nowhere in these records is the view expressed
that the DTI Secretary may impose the general safeguard measures if the Congressman Punzalan was cited as saying that the DTI Secretary makes the
Tariff Commission issues a negative final determination or otherwise is decision to impose or not to impose, which is correct since the DTI Secretary
unable to make a positive final determination. Instead, respondents hitch may choose not to impose a safeguard measure in spite of a positive final
on the observations of Congressman Punzalan Jr., that the results of the determination by the Tariff Commission. Congressman Punzalan also
[Tariff] Commissions findings . . . is subsequently submitted to [the DTI correctly stated that it is the DTI Secretary who makes the final decision on
Secretary] for the [DTI Secretary] to impose or not to impose; and that the the recommendation that is made [by the Tariff Commission], since the DTI
[DTI Secretary] here iswho would make the final decision on the Secretary may choose to impose a general safeguard measure different from
recommendation that is made by a more technical body [such as the Tariff that recommended by the Tariff Commission or not to impose a safeguard
Commission].[56] measure at all. Nowhere in these cited deliberations was Congressman
Punzalan, or any other member of Congress for that matter, quoted as
There is nothing in the remarks of Congressman Punzalan which contradict saying that the DTI Secretary may ignore a negative determination by the
our Decision. His observations fall in accord with the respective roles of the Tariff Commission as to the existence of the conditions warranting the
Tariff Commission and the DTI Secretary under the SMA. Under the SMA, it imposition of general safeguard measures, and thereafter proceed to
is the Tariff Commission that conducts an investigation as to whether the impose these measures nonetheless. It is too late in the day to ascertain
conditions exist to warrant the imposition of the safeguard measures. These from the late Congressman Punzalan himself whether he had made these
conditions are enumerated in Section 5, namely; that a product is being remarks in order to assure the other legislators that the DTI Secretary may
imported into the country in increased quantities, whether absolute or impose the general safeguard measures notwithstanding a negative
relative to the domestic production, as to be a substantial cause of serious determination by the Tariff Commission. But certainly, the language of
injury or threat thereof to the domestic industry. After the investigation of Section 5 is more resolutory to that question than the recorded remarks of
the Tariff Commission, it submits a report to the DTI Secretary which states, Congressman Punzalan.
among others, whether the above-stated conditions for the imposition of
the general safeguard measures exist. Upon a positive final determination Respondents employed considerable effort to becloud Section 5 with
that these conditions are present, the Tariff Commission then is mandated undeserved ambiguity in order that a proper resort to the legislative
to recommend what appropriate safeguard measures should be undertaken deliberations may be had. Yet assuming that Section 5 deserves to be
by the DTI Secretary. Section 13 of the SMA gives five (5) specific options on clarified through an inquiry into the legislative record, the excerpts cited by
the type of safeguard measures the Tariff Commission recommends to the the respondents are far more ambiguous than the language of the assailed
DTI Secretary. provision regarding the key question of whether the DTI Secretary may

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impose safeguard measures in the face of a negative determination by the determination. On the other hand, the penultimate paragraph of the same
Tariff Commission. Moreover, even Southern Cross counters with its own provision states that [i]n the event of a negative final determination, the DTI
excerpts of the legislative record in support of their own view.[57] Secretary is to immediately issue through the Secretary of Finance, a written
instruction to the Commissioner of Customs authorizing the return of the
It will not be difficult, especially as to heavily-debated legislation, for two cash bonds previously collected as a provisional safeguard measure. Since
sides with contrapuntal interpretations of a statute to highlight their the first paragraph of the same provision states that it is the Tariff
respective citations from the legislative debate in support of their particular Commission which makes the positive determination, it necessarily follows
views.[58] A futile exercise of second-guessing is happily avoided if the that it, and not the DTI Secretary, makes the negative final determination as
meaning of the statute is clear on its face. It is evident from the text of referred to in the penultimate paragraph of Section 13.[60]
Section 5 that there must be a positive final determination by the Tariff
Commission that a product is being imported into the country in increased The Separate Opinion considers as highly persuasive of former Tariff
quantities (whether absolute or relative to domestic production), as to be a Commission Chairman Abon, who stated that the Commissions findings are
substantial cause of serious injury or threat to the domestic industry. Any merely recommendatory.[61] Again, the considered opinion of Chairman
disputation to the contrary is, at best, the product of wishful thinking. Abon is of no operative effect if the statute plainly states otherwise, and
Section 5 bluntly does require a positive final determination by the Tariff
For the same reason that Section 5 is explicit as regards the essentiality of a Commission before the DTI Secretary may impose a general safeguard
positive final determination by the Tariff Commission, there is no need to measure.[62]Certainly, the Court cannot give controlling effect to the
refer to the Implementing Rules of the SMA to ascertain a contrary intent. If statements of any public officer in serious denial of his duties if the law
there is indeed a provision in the Implementing Rules that allows the DTI otherwise imposes the duty on the public office or officer.
Secretary to impose a general safeguard measure even without the positive
final determination by the Tariff Commission, said rule is void as it cannot Nonetheless, if we are to render persuasive effect on the considered opinion
supplant the express language of the legislature. Respondents essentially of the members of the Executive Branch, it bears noting that the Secretary
rehash their previous arguments on this point, and there is no reason to of the Department of Justice rendered an Opinion wherein he concluded
consider them anew. The Decision made it clear that nothing in Rule 13.2 of that the DTI Secretary could not impose a general safeguard measure if the
the Implementing Rules, even though captioned Final Determination by the Tariff Commission made a negative final determination.[63] Unlike
Secretary, authorizes the DTI Secretary to impose a general safeguard Chairman Abons impromptu remarks made during a hearing, the DOJ
measure in the absence of a positive final determination by the Tariff Opinion was rendered only after a thorough study of the question after
Commission.[59] Similarly, the Rules and Regulations to Govern the Conduct referral to it by the DTI. The DOJ Secretary is the alter ego of the President
of Investigation by the Tariff Commission Pursuant to Republic Act No. 8800 with a stated mandate as the head of the principal law agency of the
now cited by the respondent does not contain any provision that the DTI government.[64] As the DOJ Secretary has no denominated role in the SMA,
Secretary may impose the general safeguard measures in the absence of a he was able to render his Opinion from the vantage of judicious distance.
positive final determination by the Tariff Commission. Should not his Opinion, studied and direct to the point as it is, carry greater
weight than the spontaneous remarks of the Tariff Commissions Chairman
Section 13 of the SMA further bolsters the interpretation as argued by which do not even expressly disavow the binding power of the Commissions
Southern Cross and upheld by the Decision. The first paragraph thereof positive final determination?
states that [u]pon its positive determination, the [Tariff] Commission shall
recommend to the Secretary an appropriate definitive measure, clearly III. DTI Secretary has No Power of Review
referring to the Tariff Commission as the entity that makes the positive

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Over Final Determination of the Tariff Commission impose such measures. This is a constitutionally guaranteed limitation of the
highest order, considering that the presidential authority exercised under
We should reemphasize that it is only because of the SMA, a legislative the SMA is inherently legislative.
enactment, that the executive branch has the power to impose safeguard
measures. At the same time, by constitutional fiat, the exercise of such Nonetheless, the Separate Opinion brings to fore the issue of whether the
power is subjected to the limitations and restrictions similarly enforced by DTI Secretary, acting either as alter ego of the President or in his capacity as
the SMA. In examining the relationship of the DTI and the Tariff Commission head of an executive department, may review, modify or otherwise alter the
as established in the SMA, it is essential to acknowledge and consider these final determination of the Tariff Commission under the SMA. The succeeding
predicates. discussion shall focus on that question.

It is necessary to clarify the paradigm established by the SMA and affirmed Preliminarily, we should note that none of the parties question the
by the Constitution under which the Tariff Commission and the DTI operate, designation of the DTI or Agriculture secretaries under the SMA as the
especially in light of the suggestions that the Courts rulings on the functions imposing authorities of the safeguard measures, even though Section 28(2)
of quasi-judicial power find application in this case. Perhaps the reflexive Article VI states that it is the President to whom the power to impose tariffs
application of the quasi-judicial doctrine in this case, rooted as it is in and imposts may be delegated by Congress. The validity of such designation
jurisprudence, might allow for some convenience in ruling, yet doing so under the SMA should not be in doubt. We recognize that the authorization
ultimately betrays ignorance of the fundamental power of Congress to made by Congress in the SMA to the DTI and Agriculture Secretaries was
reorganize the administrative structure of governance in ways it sees fit. made in contemplation of their capacities as alter egos of the President.

The Separate Opinion operates from wholly different premises which are Indeed, in Marc Donnelly & Associates v. Agregado[66] the Court upheld the
incomplete. Its main stance, similar to that of respondents, is that the DTI validity of a Cabinet resolution fixing the schedule of royalty rates on metal
Secretary, acting as alter ego of the President, may modify and alter the exports and providing for their collection even though Congress, under
findings of the Tariff Commission, including the latters negative final Commonwealth Act No. 728, had specifically empowered the President and
determination by substituting it with his own negative final determination not any other official of the executive branch, to regulate and curtail the
to pave the way for his imposition of a safeguard measure.[65] Fatally, this export of metals. In so ruling, the Court held that the members of the
conclusion is arrived at without considering the fundamental constitutional Cabinet were acting as alter egos of the President.[67] In this case, Congress
precept under Section 28(2), Article VI, on the ability of Congress to impose itself authorized the DTI Secretary as alter ego of the President to impose
restrictions and limitations in its delegation to the President to impose tariffs the safeguard measures. If the Court was previously willing to uphold the
and imposts, as well as the express condition of Section 5 of the SMA alter egos tariff authority despite the absence of explicit legislative grant of
requiring a positive final determination of the Tariff Commission. such authority on the alter ego, all the more reason now when Congress
itself expressly authorized the alter ego to exercise these powers to impose
Absent Section 5 of the SMA, the President has no inherent, constitutional, safeguard measures.
or statutory power to impose a general safeguard measure. Tellingly, the
Separate Opinion does not directly confront the inevitable question as to Notwithstanding, Congress in enacting the SMA and prescribing the roles to
how the DTI Secretary may get away with imposing a general safeguard be played therein by the Tariff Commission and the DTI Secretary did not
measure absent a positive final determination from the Tariff Commission envision that the President, or his/her alter ego, could exercise supervisory
without violating Section 5 of the SMA, which along with Section 13 of the powers over the Tariff Commission. If truly Congress intended to allow the
same law, stands as the only direct legal authority for the DTI Secretary to traditional alter ego principle to come to fore in the peculiar setup

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established by the SMA, it would have assigned the role now played by the DTI Secretary to reverse the factual determination of the Tariff
DTI Secretary under the law instead to the NEDA. The Tariff Commission is Commission.[74]
an attached agency of the National Economic Development Authority,[68]
which in turn is the independent planning agency of the government.[69] In fact, the SMA indubitably establishes that the Tariff Commission is no
mere flunky of the DTI Secretary when it mandates that the positive final
The Tariff Commission does not fall under the administrative supervision of recommendation of the former be indispensable to the latters imposition of
the DTI.[70] On the other hand, the administrative relationship between the a general safeguard measure. What the law indicates instead is a
NEDA and the Tariff Commission is established not only by the relationship of interdependence between two bodies independent of each
Administrative Code, but similarly affirmed by the Tariff and Customs Code. other under the Administrative Code and the SMA alike. Indeed, even the
ability of the DTI Secretary to disregard the Tariff Commissions
Justice Florentino Feliciano, in his ponencia in Garcia v. Executive recommendations as to the particular safeguard measures to be imposed
Secretary[71], acknowledged the interplay between the NEDA and the Tariff evinces the independence from each other of these two bodies. This is
Commission under the Tariff and Customs Code when he cited the relevant properly so for two reasons the DTI and the Tariff Commission are
provisions of that law evidencing such setup. Indeed, under Section 104 of independent of each other under the Administrative Code; and impropriety
the Tariff and Customs Code, the rates of duty fixed therein are subject to is avoided in cases wherein the DTI itself is the one seeking the imposition
periodic investigation by the Tariff Commission and may be revised by the of the general safeguard measures, pursuant to Section 6 of the SMA.
President upon recommendation of the NEDA.[72] Moreover, under Section
401 of the same law, it is upon periodic investigations by the Tariff Thus, in ascertaining the appropriate legal milieu governing the relationship
Commission and recommendation of the NEDA that the President may between the DTI and the Tariff Commission, it is imperative to apply
cause a gradual reduction of protection levels granted under the law.[73] foremost, if not exclusively, the provisions of the SMA. The argument that
the usual rules on administrative control and supervision apply between the
At the same time, under the Tariff and Customs Code, no similar role or Tariff Commission and the DTI as regards safeguard measures is severely
influence is allocated to the DTI in the matter of imposing tariff duties. In undercut by the plain fact that there is no long-standing tradition of
fact, the long-standing tradition has been for the Tariff Commission and the administrative interplay between these two entities.
DTI to proceed independently in the exercise of their respective functions.
Only very recently have our statutes directed any significant interplay Within the administrative apparatus, the Tariff Commission appears to be a
between the Tariff Commission and the DTI, with the enactment in 1999 of lower rank relative to the DTI. But does this necessarily mean that the DTI
Republic Act No. 8751 on the imposition of countervailing duties and has the intrinsic right, absent statutory authority, to reverse the findings of
Republic Act No. 8752 on the imposition of anti-dumping duties, and of the Tariff Commission? To insist that it does, one would have to concede for
course the promulgation a year later of the SMA. In all these three laws, the instance that, applying the same doctrinal guide, the Secretary of the
Tariff Commission is tasked, upon referral of the matter by the DTI, to Department of Science and Technology (DOST) has the right to reverse the
determine whether the factual conditions exist to warrant the imposition by rulings of the Civil Aeronautics Board (CAB) or the issuances of the Philippine
the DTI of a countervailing duty, an anti-dumping duty, or a general Coconut Authority (PCA). As with the Tariff Commission-DTI, there is no
safeguard measure, respectively. In all three laws, the determination by the statutory authority granting the DOST Secretary the right to overrule the
Tariff Commission that these required factual conditions exist is necessary CAB or the PCA, such right presumably arising only from the position of
before the DTI Secretary may impose the corresponding duty or safeguard subordinacy of these bodies to the DOST. To insist on such a right would be
measure. And in all three laws, there is no express provision authorizing the to invite department secretaries to interfere in the exercise of functions by

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administrative agencies, even in areas wherein such secretaries are bereft President, or his/her alter ego could exercise supervisory powers over the
of specialized competencies. Tariff Commission. If truly Congress intended to allow the traditional alter
ego principle to come to fore in the peculiar setup established by the SMA,
The Separate Opinion notes that notwithstanding above, the Secretary of it would have assigned the role now played by the DTI Secretary under the
Department of Transportation and Communication may review the findings law instead to the NEDA, the body to which the Tariff Commission is
of the CAB, the Agriculture Secretary may review those of the PCA, and that attached under the Administrative Code.
the Secretary of the Department of Environment and Natural Resources may
pass upon decisions of the Mines and Geosciences Board.[75] These three The Court has no issue with upholding administrative control and
officers may be alter egos of the President, yet their authority to review is supervision exercised by the head of an executive department, but only over
limited to those agencies or bureaus which are, pursuant to statutes such as those subordinate offices that are attached to the department, or which are,
the Administrative Code of 1987, under the administrative control and under statute, relegated under its supervision and control. To declare that a
supervision of their respective departments. Thus, under the express department secretary, even if acting as alter ego of the President, may
provision of the Administrative Code expressly provides that the CAB is an exercise such control or supervision over all executive offices below cabinet
attached agency of the DOTC[76], and that the PCA is an attached agency of rank would lead to absurd results such as those adverted to above. As
the Department of Agriculture.[77] The same law establishes the Mines and applied to this case, there is no legal justification for the DTI Secretary to
Geo-Sciences Bureau as one of the Sectoral Staff Bureaus[78] that forms exercise control, supervision, review or amendatory powers over the Tariff
part of the organizational structure of the DENR.[79] Commission and its positive final determination. In passing, we note that
there is, admittedly, a feasible mode by which administrative review of the
As repeatedly stated, the Tariff Commission does not fall under the Tariff Commissions final determination could be had, but it is not the
administrative control of the DTI, but under the NEDA, pursuant to the procedure adopted by respondents and now suggested for affirmation. This
Administrative Code. The reliance made by the Separate Opinion to those mode shall be discussed in a forthcoming section.
three examples are thus misplaced.
The Separate Opinion asserts that the President, or his/her alter ego cannot
Nonetheless, the Separate Opinion asserts that the SMA created a be made a mere rubber stamp of the Tariff Commission since Section 17,
functional relationship between the Tariff Commission and the DTI Article VII of the Constitution denominates the Chief Executive exercises
Secretary, sufficient to allow the DTI Secretary to exercise alter ego powers control over all executive departments, bureaus and offices.[80] But let us
to reverse the determination of the Tariff Commission. Again, considering be clear that such executive control is not absolute. The definition of the
that the power to impose tariffs in the first place is not inherent in the structure of the executive branch of government, and the corresponding
President but arises only from congressional grant, we should affirm the degrees of administrative control and supervision, is not the exclusive
congressional prerogative to impose limitations and restrictions on such preserve of the executive. It may be effectively be limited by the
powers which do not normally belong to the executive in the first place. Constitution, by law, or by judicial decisions.
Nowhere in the SMA does it state that the DTI Secretary may impose general
safeguard measures without a positive final determination by the Tariff The Separate Opinion cites the respected constitutional law authority Fr.
Commission, or that the DTI Secretary may reverse or even review the Joaquin Bernas, in support of the proposition that such plenary power of
factual determination made by the Tariff Commission. executive control of the President cannot be restricted by a mere statute
passed by Congress. However, the cited passage from Fr. Bernas actually
Congress in enacting the SMA and prescribing the roles to be played therein states, Since the Constitution has given the President the power of control,
by the Tariff Commission and the DTI Secretary did not envision that the with all its awesome implications, it is the Constitution alone which can

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curtail such power.[81] Does the President have such tariff powers under components, hamstrung only by constitutional limitations. The DTI itself can
the Constitution in the first place which may be curtailed by the executive be abolished with ease by Congress through deleting Title X, Book IV of the
power of control? At the risk of redundancy, we quote Section 28(2), Article Administrative Code. The Tariff Commission can similarly be abolished
VI: The Congress may, by law, authorize the President to fix within specified through legislative enactment. [84]
limits, and subject to such limitations and restrictions as it may impose, tariff
rates, import and export quotas, tonnage and wharfage dues, and other At the same time, Congress can enact additional tasks or responsibilities on
duties or imposts within the framework of the national development either the Tariff Commission or the DTI Secretary, such as their respective
program of the Government. Clearly the power to impose tariffs belongs to roles on the imposition of general safeguard measures under the SMA. In
Congress and not to the President. doing so, the same Congress, which has the putative authority to abolish the
Tariff Commission or the DTI, is similarly empowered to alter or expand its
It is within reason to assume the framers of the Constitution deemed it too functions through modalities which do not align with established norms in
onerous to spell out all the possible limitations and restrictions on this the bureaucratic structure. The Court is bound to recognize the legislative
presidential authority to impose tariffs. Hence, the Constitution especially prerogative to prescribe such modalities, no matter how atypical they may
allowed Congress itself to prescribe such limitations and restrictions itself, a be, in affirmation of the legislative power to restructure the executive
prudent move considering that such authority inherently belongs to branch of government.
Congress and not the President. Since Congress has no power to amend the
Constitution, it should be taken to mean that such limitations and There are further limitations on the executive control adverted to by the
restrictions should be provided by mere statute. Then again, even the Separate Opinion. The President, in the exercise of executive control, cannot
presidential authority to impose tariffs arises only by mere statute. Indeed, order a subordinate to disobey a final decision of this Court or any courts. If
this presidential privilege is both contingent in nature and legislative in the subordinate chooses to disobey, invoking sole allegiance to the
origin. These characteristics, when weighed against the aspect of executive President, the judicial processes can be utilized to compel obeisance.
control and supervision, cannot militate against Congresss exercise of its Indeed, when public officers of the executive department take their oath of
inherent power to tax. office, they swear allegiance and obedience not to the President, but to the
Constitution and the laws of the land. The invocation of executive control
The bare fact is that the administrative superstructure, for all its must yield when under its subsumption includes an act that violates the law.
unwieldiness, is mere putty in the hands of Congress. The functions and
mandates of the particular executive departments and bureaus are not The Separate Opinion concedes that the exercise of executive control and
created by the President, but by the legislative branch through the supervision by the President is bound by the Constitution and law.[85] Still,
Administrative Code. [82] The President is the administrative head of the just three sentences after asserting that the exercise of executive control
executive department, as such obliged to see that every government office must be within the bounds of the Constitution and law, the Separate
is managed and maintained properly by the persons in charge of it in Opinion asserts, the control power of the Chief Executive emanates from the
accordance with pertinent laws and regulations, and empowered to Constitution; no act of Congress may validly curtail it.[86] Laws are acts of
promulgate rules and issuances that would ensure a more efficient Congress, hence valid confusion arises whether the Separate Opinion truly
management of the executive branch, for so long as such issuances are not believes the first proposition that executive control is bound by law. This is
contrary to law.[83] Yet the legislature has the concurrent power to a quagmire for the Separate Opinion to resolve for itself
reclassify or redefine the executive bureaucracy, including the relationship
between various administrative agencies, bureaus and departments, and The Separate Opinion unduly considers executive control as the ne plus ultra
ultimately, even the power to abolish executive departments and their constitutional standard which must govern in this case. But while the

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President may generally have the power to control, modify or set aside the entered into by the Department of Agrarian Reform in connection with the
actions of a subordinate, such powers may be constricted by the agrarian reform program. Philcemcor attempts to demonstrate that the DTI
Constitution, the legislature, and the judiciary. This is one of the essences of Secretary, as with the Land Bank of the Philippines, is required to exercise
the check-and-balance system in our tri-partite constitutional democracy. independent discretion and is not expected to just merely accede to DAR-
Not one head of a branch of government may operate as a Caesar within approved compensation packages. Yet again, such grant of independent
his/her particular fiefdom. discretion is expressly called for by statute, particularly Section 18 of Rep.
Act No. 6657 which specifically requires the joint concurrence of the
Assuming there is a conflict between the specific limitation in Section 28 (2), landowner and the DAR and the [Land Bank of the Philippines] on the
Article VI of the Constitution and the general executive power of control and amount of compensation. Such power of review by the Land Bank is a
supervision, the former prevails in the specific instance of safeguard consequence of clear statutory language, as is our holding in the Decision
measures such as tariffs and imposts, and would thus serve to qualify the that Section 5 explicitly requires a positive final determination by the Tariff
general grant to the President of the power to exercise control and Commission before a general safeguard measure may be imposed.
supervision over his/her subalterns. Moreover, such limitations under the SMA are coated by the constitutional
authority of Section 28(2), Article VI of the Constitution.
Thus, if the Congress enacted the law so that the DTI Secretary is bound by
the Tariff Commission in the sense the former cannot impose general Nonetheless, is this administrative setup, as envisioned by Congress and
safeguard measures absent a final positive determination from the latter the enshrined into the SMA, truly noxious to existing legal standards? The
Court is obliged to respect such legislative prerogative, no matter how such Decision acknowledged the internal logic of the statutory framework,
arrangement deviates from traditional norms as may have been enshrined considering that the DTI cannot exercise review powers over an agency such
in jurisprudence. The only ground under which such legislative as the Tariff Commission which is not within its administrative jurisdiction;
determination as expressed in statute may be successfully challenged is if that the mechanism employed establishes a measure of check and balance
such legislation contravenes the Constitution. No such argument is posed by involving two government offices with different specializations; and that
the respondents, who do not challenge the validity or constitutionality of safeguard measures are the exception rather than the rule, pursuant to our
the SMA. treaty obligations.[89]

Given these premises, it is utterly reckless to examine the interrelationship We see no reason to deviate from these observations, and indeed can add
between the Tariff Commission and the DTI Secretary beyond the context of similarly oriented comments. Corollary to the legislative power to decree
the SMA, applying instead traditional precepts on administrative control, policies through legislation is the ability of the legislature to provide for
review and supervision. For that reason, the Decision deemed inapplicable means in the statute itself to ensure that the said policy is strictly
respondents previous citations of Cario v. Commissioner on Human Rights implemented by the body or office tasked so tasked with the duty. As earlier
and Lamb v. Phipps, since the executive power adverted to in those cases stated, our treaty obligations dissuade the State for now from implementing
had not been limited by constitutional restrictions such as those imposed default protectionist trade measures such as tariffs, and allow the same only
under Section 28(2), Article VI.[87] under specified conditions.[90]The conditions enumerated under the GATT
Agreement on Safeguards for the application of safeguard measures by a
A similar observation can be made on the case of Sharp International member country are the same as the requisites laid down in Section 5 of the
Marketing v. Court of Appeals,[88] now cited by Philcemcor, wherein the SMA.[91] To insulate the factual determination from political pressure, and
Court asserted that the Land Bank of the Philippines was required to to assure that it be conducted by an entity especially qualified by reason of
exercise independent judgment and not merely rubber-stamp deeds of sale its general functions to undertake such investigation, Congress deemed it

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necessary to delegate to the Tariff Commission the function of ascertaining independent body of specialized competence, the Tariff Commission. This
whether or not the those factual conditions exist to warrant the atypical prescribed framework, constitutionally sanctioned, is intended to prevent
imposition of safeguard measures. After all, the Tariff Commission retains a the baseless, whimsical, or consideration-induced imposition of safeguard
degree of relative independence by virtue of its attachment to the National measures. It removes from the DTI Secretary jurisdiction over a matter
Economic Development Authority, an independent planning agency of the beyond his putative specialized aptitude, the compilation and analysis of
government,[92] and also owing to its vaunted expertise and specialization. picayune facts and determination of their limited causal relations, and
instead vests in the Secretary the broad choice on a matter within his
The matter of imposing a safeguard measure almost always involves not just unquestionable competence, the selection of what particular safeguard
one industry, but the national interest as it encompasses other industries as measure would assist the duly beleaguered local industry yet at the same
well. Yet in all candor, any decision to impose a safeguard measure is time conform to national trade policy. Indeed, the SMA recognizes, and
susceptible to all sorts of external pressures, especially if the domestic places primary importance on the DTI Secretarys mandate to formulate
industry concerned is well-organized. Unwarranted impositions of trade policy, in his capacity as the Presidents alter ego on trade, industry and
safeguard measures may similarly be detrimental to the national interest. investment-related matters.
Congress could not be blamed if it desired to insulate the investigatory
process by assigning it to a body with a putative degree of independence At the same time, the statutory limitations on this authorized power of the
and traditional expertise in ascertaining factual conditions. Affected DTI Secretary must prevail since the Constitution itself demands the
industries would have cause to lobby for or against the safeguard measures. enforceability of those limitations and restrictions as imposed by Congress.
The decision-maker is in the unenviable position of having to bend an ear to Policy wisdom will not save a law from infirmity if the statutory provisions
listen to all concerned voices, including those which may speak softly but violate the Constitution. But since the Constitution itself provides that the
carry a big stick. Had the law mandated that the decision be made on the President shall be constrained by the limits and restrictions imposed by
sole discretion of an executive officer, such as the DTI Secretary, it would be Congress and since these limits and restrictions are so clear and categorical,
markedly easier for safeguard measures to be imposed or withheld based then the Court has no choice but to uphold the reins.
solely on political considerations and not on the factual conditions that are
supposed to predicate the decision. Even assuming that this prescribed setup made little sense, or seemed
uncommonly silly,[93] the Court is bound by propriety not to dispute the
Reference of the binding positive final determination to the Tariff wisdom of the legislature as long as its acts do not violate the Constitution.
Commission is of course, not a fail-safe means to ensure a bias-free Since there is no convincing demonstration that the SMA contravenes the
determination. But at least the legislated involvement of the Commission in Constitution, the Court is wont to respect the administrative regimen
the process assures some measure of measure of check and balance propounded by the law, even if it allots the Tariff Commission a higher
involving two different governmental agencies with disparate degree of puissance than normally expected. It is for this reason that the
specializations. There is no legal or constitutional demand for such a setup, traditional conceptions of administrative review or quasi-judicial power
but its wisdom as policy should be acknowledged. As prescribed by cannot control in this case.
Congress, both the Tariff Commission and the DTI Secretary operate within
limited frameworks, under which nobody acquires an undue advantage over Indeed, to apply the latter concept would cause the Court to fall into a
the other. linguistic trap owing to the multi-faceted denotations the term quasi-judicial
has come to acquire.
We recognize that Congress deemed it necessary to insulate the process in
requiring that the factual determination to be made by an ostensibly

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Under the SMA, the Tariff Commission undertakes formal hearings,[94]
receives and evaluates testimony and evidence by interested parties,[95] Respondents Suggested Interpretation
and renders a decision is rendered on the basis of the evidence presented,
in the form of the final determination. The final determination requires a Of the SMA Transgresses Fair Play
conclusion whether the importation of the product under consideration is
causing serious injury or threat to a domestic industry producing like Respondents have belabored the argument that the Decisions
products or directly competitive products, while evaluating all relevant interpretation of the SMA, particularly of the role of the Tariff Commission
factors having a bearing on the situation of the domestic industry.[96] This vis--vis the DTI Secretary, is noxious to traditional notions of administrative
process aligns conformably with definition provided by Blacks Law control and supervision. But in doing so, they have failed to acknowledge
Dictionary of quasi-judicial as the action, discretion, etc., of public the congressional prerogative to redefine administrative relationships, a
administrative officers or bodies, who are required to investigate facts, or license which falls within the plenary province of Congress under our
ascertain the existence of facts, hold hearings, weigh evidence, and draw representative system of democracy. Moreover, respondents own
conclusions from them, as a basis for their official action, and to exercise suggested interpretation falls wayward of expectations of practical fair play.
discretion of a judicial nature.[97]
Adopting respondents suggestion that the DTI Secretary may disregard the
However, the Tariff Commission is not empowered to hear actual cases or factual findings of the Tariff Commission and investigatory process that
controversies lodged directly before it by private parties. It does not have preceded it, it would seem that the elaborate procedure undertaken by the
the power to issue writs of injunction or enforcement of its determination. Commission under the SMA, with all the attendant guarantees of due
These considerations militate against a finding of quasi-judicial powers process, is but an inutile spectacle. As Justice Garcia noted during the oral
attributable to the Tariff Commission, considering the pronouncement that arguments, why would the DTI Secretary bother with the Tariff Commission
quasi-judicial adjudication would mean a determination of rights privileges and instead conduct the investigation himself.[99]
and duties resulting in a decision or order which applies to a specific
situation.[98] Certainly, nothing in the SMA authorizes the DTI Secretary, after making the
preliminary determination, to personally oversee the investigation, hear out
Indeed, a declaration that the Tariff Commission possesses quasi-judicial the interested parties, or receive evidence.[100] In fact, the SMA does not
powers, even if ascertained for the limited purpose of exercising its even require the Tariff Commission, which is tasked with the custody of the
functions under the SMA, may have the unfortunate effect of expanding the submitted evidence,[101] to turn over to the DTI Secretary such evidence it
Commissions powers beyond that contemplated by law. After all, the Tariff had evaluated in order to make its factual determination.[102] Clearly, as
Commission is by convention, a fact-finding body, and its role under the Congress tasked it to be, it is the Tariff Commission and not the DTI Secretary
SMA, burdened as it is with factual determination, is but a mere continuance which acquires the necessary intimate acquaintance with the factual
of this tradition. However, Congress through the SMA offers a significant conditions and evidence necessary for the imposition of the general
deviation from this traditional role by tying the decision by the DTI Secretary safeguard measure. Why then favor an interpretation of the SMA that leaves
to impose a safeguard measure to the required positive factual the findings of the Tariff Commission bereft of operative effect and makes
determination by the Tariff Commission. Congress is not bound by past them subservient to the wishes of the DTI Secretary, a personage with lesser
traditions, or even by the jurisprudence of this Court, in enacting legislation working familiarity with the relevant factual milieu? In fact, the bare theory
it may deem as suited for the times. The sole benchmark for judicial of the respondents would effectively allow the DTI Secretary to adopt, under
substitution of congressional wisdom is constitutional transgression, a the subterfuge of his discretion, the factual determination of a private
standard which the respondents do not even attempt to match. investigative group hired by the industry concerned, and reject the

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investigative findings of the Tariff Commission as mandated by the SMA. It tasked with arriving at the final determination whether the conditions exist
would be highly irregular to substitute what the law clearly provides for a to warrant the general safeguard measures. This is the setup provided for
dubious setup of no statutory basis that would be readily susceptible to rank by the express provisions of the SMA, and the problem would arise only if
chicanery. we adopt the interpretation urged upon by respondents.

Moreover, the SMA guarantees the right of all concerned parties to be The Possibility for Administrative Review
heard, an elemental requirement of due process, by the Tariff Commission
in the context of its investigation. The DTI Secretary is not similarly Of the Tariff Commissions Determination
empowered or tasked to hear out the concerns of other interested parties,
and if he/she does so, it arises purely out of volition and not compulsion The Court has been emphatic that a positive final determination from the
under law. Tariff Commission is required in order that the DTI Secretary may impose a
general safeguard measure, and that the DTI Secretary has no power to
Indeed, in this case, it is essential that the position of other than that of the exercise control and supervision over the Tariff Commission and its final
local cement industry should be given due consideration, cement being an determination. These conclusions are the necessary consequences of the
indispensable need for the operation of other industries such as housing and applicable provisions of the Constitution, the SMA, and laws such as the
construction. While the general safeguard measures may operate to the Administrative Code. However, the law is silent though on whether this
better interests of the domestic cement industries, its deprivation of positive final determination may otherwise be subjected to administrative
cheaper cement imports may similarly work to the detriment of these other review.
domestic industries and correspondingly, the national interest. Notably, the
Tariff Commission in this case heard the views on the application of There is no evident legislative intent by the authors of the SMA to provide
representatives of other allied industries such as the housing, construction, for a procedure of administrative review. If ever there is a procedure for
and cement-bag industries, and other interested parties such as consumer administrative review over the final determination of the Tariff Commission,
groups and foreign governments.[103] It is only before the Tariff such procedure must be done in a manner that does not contravene or
Commission that their views had been heard, and this is because it is only disregard legislative prerogatives as expressed in the SMA or the
the Tariff Commission which is empowered to hear their positions. Since due Administrative Code, or fundamental constitutional limitations.
process requires a judicious consideration of all relevant factors, the Tariff
Commission, which is in a better position to hear these parties than the DTI In order that such procedure of administrative review would not contravene
Secretary, is similarly more capable to render a determination conformably the law and the constitutional scheme provided by Section 28(2), Article VI,
with the due process requirements than the DTI Secretary. it is essential to assert that the positive final determination by the Tariff
Commission is indispensable as a requisite for the imposition of a general
In a similar vein, Southern Cross aptly notes that in instances when it is the safeguard measure. The submissions of private respondents and the
DTI Secretary who initiates motu proprio the application for the safeguard Separate Opinion cannot be sustained insofar as they hold that the DTI
measure pursuant to Section 6 of the SMA, respondents suggested Secretary can peremptorily ignore or disregard the determinations made by
interpretation would result in the awkward situation wherein the DTI the Tariff Commission. However, if the mode of administrative review were
Secretary would rule upon his own application after it had been evaluated in such a manner that the administrative superior of the Tariff Commission
by the Tariff Commission. Pertinently cited is our ruling in Corona v. Court of were to modify or alter its determination, then such reversal may still be
Appeals[104] that no man can be at once a litigant and judge.[105] Certainly, valid within the confines of Section 5 of the SMA, for technically it is still the
this anomalous situation is avoided if it is the Tariff Commission which is

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Tariff Commissions determination, administratively revised as it may be, industries, which in turn may lead to some measure of economic damage.
that would serve as the basis for the DTI Secretarys action. Delay is certain, since judicial review authorized by law and not
administrative review would have the final say. The fact that the SMA did
However, and fatally for the present petitions, such administrative review not expressly prohibit administrative review of the final determination of
cannot be conducted by the DTI Secretary. Even if conceding that the Tariff the Tariff Commission does not negate the supreme advantages of
Commissions findings may be administratively reviewed, the DTI Secretary engendering exclusive judicial review over questions arising from the
has no authority to review or modify the same. We have been emphatic on imposition of a general safeguard measure.
the reasons such as that there is no traditional or statutory basis placing the
Commission under the control and supervision of the DTI; that to allow such In any event, even if we conceded the possibility of administrative review of
would contravene due process, especially if the DTI itself were to apply for the Tariff Commissions final determination by the NEDA, such would not
the safeguard measures motu proprio. To hold otherwise would destroy the deny merit to the present petition. It does not change the fact that the Court
administrative hierarchy, contravene constitutional due process, and of Appeals erred in ruling that the DTI Secretary was not bound by the
disregard the limitations or restrictions provided in the SMA. negative final determination of the Tariff Commission, or that the DTI
Secretary acted without jurisdiction when he imposed general safeguard
Instead, assuming administrative review were available, it is the NEDA that measures despite the absence of the statutory positive final determination
may conduct such review following the principles of administrative law, and of the Commission.
the NEDAs decision in turn is reviewable by the Office of the President. The
decision of the Office of the President then effectively substitutes as the IV. Courts Interpretation of SMA
determination of the Tariff Commission, which now forms the basis of the
DTI Secretarys decision, which now would be ripe for judicial review by the In Harmony with Other
CTA under Section 29 of the SMA. This is the only way that administrative
review of the Tariff Commissions determination may be sustained without Constitutional Provisions
violating the SMA and its constitutional restrictions and limitations, as well
as administrative law. In response to our citation of Section 28(2), Article VI, respondents elevate
two arguments grounded in constitutional law. One is based on another
In bare theory, the NEDA may review, alter or modify the Tariff Commissions constitutional provision, Section 12, Article XIII, which mandates that [t]he
final determination, the Commission being an attached agency of the NEDA. State shall promote the preferential use of Filipino labor, domestic materials
Admittedly, there is nothing in the SMA or any other statute that would and locally produced goods and adopt measures that help make them
prevent the NEDA to exercise such administrative review, and successively, competitive. By no means does this provision dictate that the Court favor
for the President to exercise in turn review over the NEDAs decision. the domestic industry in all competing claims that it may bring before this
Court. If it were so, judicial proceedings in this country would be rendered a
Nonetheless, in acknowledging this possibility, the Court, without mockery, resolved as they would be, on the basis of the personalities of the
denigrating the bare principle that administrative officers may exercise litigants and not their legal positions.
control and supervision over the acts of the bodies under its jurisdiction,
realizes that this comes at the expense of a speedy resolution to an Moreover, the duty imposed on by Section 12, Article XIII falls primarily with
application for a safeguard measure, an application dependent on Congress, which in that regard enacted the SMA, a law designed to protect
fluctuating factual conditions. The further delay would foster uncertainty domestic industries from the possible ill-effects of our accession to the
and insecurity within the industry concerned, as well as with all other allied global trade order. Inconveniently perhaps for respondents, the SMA also

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happens to provide for a procedure under which such protective measures especially punitive effects of taxation,[107] and the belief that taxes are the
may be enacted. The Court cannot just impose what it deems as the spirit of lifeblood of the state.[108] These considerations necessitated the evolution
the law without giving due regard to its letter. of taxation as a distinct legal concept from police power. Yet at the same
time, it has been recognized that taxation may be made the implement of
In like-minded manner, the Separate Opinion loosely states that the purpose the states police power.[109]
of the SMA is to protect or safeguard local industries from increased
importation of foreign products.[106] This inaccurately leaves the Even assuming that the SMA should be construed exclusively as a police
impression that the SMA ipso facto unravels a protective cloak that shelters power measure, the Court recognizes that police power is lodged primarily
all local industries and producers, no matter the conditions. Indeed, our in the national legislature, though it may also be exercised by the executive
country has knowingly chosen to accede to the world trade regime, as branch by virtue of a valid delegation of legislative power.[110] Considering
expressed in the GATT and WTO Agreements, despite the understanding these premises, it is clear that police power, however illimitable in theory, is
that local industries might suffer ill-effects, especially with the easier entry still exercised within the confines of implementing legislation. To declare
of competing foreign products. At the same time, these international otherwise is to sanction rule by whim instead of rule of law. The Congress,
agreements were designed to constrict protectionist trade policies by its in enacting the SMA, has delegated the power to impose general safeguard
member-countries. Hence, the median, as expressed by the SMA, does allow measures to the executive branch, but at the same time subjected such
for the application of protectionist measures such as tariffs, but only after imposition to limitations, such as the requirement of a positive final
an elaborate process of investigation that ensures factual basis and determination by the Tariff Commission under Section 5. For the executive
indispensable need for such measures. More accurately, the purpose of the branch to ignore these boundaries imposed by Congress is to set up an
SMA is to provide a process for the protection or safeguarding of domestic ignoble clash between the two co-equal branches of government.
industries that have duly established that there is substantial injury or threat Considering that the exercise of police power emanates from legislative
thereof directly caused by the increased imports. In short, domestic authority, there is little question that the prerogative of the legislative
industries are not entitled to safeguard measures as a matter of right or branch shall prevail in such a clash.
influence.
V. Assailed Decision Consistent
Respondents also make the astounding argument that the imposition of
general safeguard measures should not be seen as a taxation measure, but With Ruling in Taada v. Angara
instead as an exercise of police power. The vain hope of respondents in
divorcing the safeguard measures from the concept of taxation is to exclude Public respondents allege that the Decision is contrary to our holding in
from consideration Section 28(2), Article VI of the Constitution. Taada v. Angara,[111] since the Court noted therein that the GATT itself
provides built-in protection from unfair foreign competition and trade
This argument can be debunked at length, but it deserves little attention. practices, which according to the public respondents, was a reason why the
The motivation behind many taxation measures is the implementation of Honorable [Court] ruled the way it did. On the other hand, the Decision
police power goals. Progressive income taxes alleviate the margin between eliminates safeguard measures as a mode of defense.
rich and poor; the so-called sin taxes on alcohol and tobacco manufacturers
help dissuade the consumers from excessive intake of these potentially This is balderdash, as with any and all claims that the Decision allows foreign
harmful products. Taxation is distinguishable from police power as to the industries to ride roughshod over our domestic enterprises. The Decision
means employed to implement these public good goals. Those doctrines does not prohibit the imposition of general safeguard measures to protect
that are unique to taxation arose from peculiar considerations such as those domestic industries in need of protection. All it affirms is that the positive

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final determination of the Tariff Commission is first required before the antecedents. Yet it also appears that contrary to the undertaking signed by
general safeguard measures are imposed and implemented, a neutral the President of Southern Cross, Hironobu Ryu, to inform this Court of any
proposition that gives no regard to the nationalities of the parties involved. similar action or proceeding pending before any court, tribunal or agency
A positive determination by the Tariff Commission is hardly the elusive within five (5) days from knowledge thereof, Southern Cross informed this
Shangri-la of administrative law. If a particular industry finds it difficult to Court only on 12 August 2003 of the petition it had filed with the CTA eleven
obtain a positive final determination from the Tariff Commission, it may be days earlier. An appropriate sanction is warranted for such failure, but not
simply because the industry is still sufficiently competitive even in the face the dismissal of the petition.
of foreign competition. These safeguard measures are designed to ensure
salvation, not avarice. VII. Effects of Courts Resolution

Respondents well have the right to drape themselves in the colors of the Philcemcor argues that the granting of Southern Crosss Petition should not
flag. Yet these postures hardly advance legal claims, or nationalism for that necessarily lead to the voiding of the Decision of the DTI Secretary dated 5
matter. The fineries of the costume pageant are no better measure of August 2003 imposing the general safeguard measures. For Philcemcor, the
patriotism than simple obedience to the laws of the Fatherland. And even availability of appeal to the CTA as an available and adequate remedy would
assuming that respondents are motivated by genuine patriotic impulses, it have made the Court of Appeals Decision merely erroneous or irregular, but
must be remembered that under the setup provided by the SMA, it is the not void. Moreover, the said Decision merely required the DTI Secretary to
facts, and not impulse, that determine whether the protective safeguard render a decision, which could have very well been a decision not to impose
measures should be imposed. As once orated, facts are stubborn things; and a safeguard measure; thus, it could not be said that the annulled decision
whatever may be our wishes, our inclinations, or the dictates of our resulted from the judgment of the Court of Appeals.
passions, they cannot alter the state of facts and evidence.[112]
The Court of Appeals Decision was annulled precisely because the appellate
It is our goal as judges to enforce the law, and not what we might deem as court did not have the power to rule on the petition in the first place.
correct economic policy. Towards this end, we should not construe the SMA Jurisdiction is necessarily the power to decide a case, and a court which does
to unduly favor or disfavor domestic industries, simply because the law itself not have the power to adjudicate a case is one that is bereft of jurisdiction.
provides for a mechanism by virtue of which the claims of these industries We find no reason to disturb our earlier finding that the Court of Appeals
are thoroughly evaluated before they are favored or disfavored. What we Decision is null and void.
must do is to simply uphold what the law says. Section 5 says that the DTI
Secretary shall impose the general safeguard measures upon the positive At the same time, the Court in its Decision paid particular heed to the
final determination of the Tariff Commission. Nothing in the whereas peculiarities attaching to the 5 August 2003 Decision of the DTI Secretary. In
clauses or the invisible ink provisions of the SMA can magically delete the the DTI Secretarys Decision, he expressly stated that as a result of the Court
words positive final determination and Tariff Commission from Section 5. of Appeals Decision, there is no legal impediment for the Secretary to decide
on the application. Yet the truth remained that there was a legal
VI. On Forum-Shopping impediment, namely, that the decision of the appellate court was not yet
final and executory. Moreover, it was declared null and void, and since the
We remain convinced that there was no willful and deliberate forum- DTI Secretary expressly denominated the Court of Appeals Decision as his
shopping in this case by Southern Cross. The causes of action that animate basis for deciding to impose the safeguard measures, the latter decision
this present petition for review and the petition for review with the CTA are must be voided as well. Otherwise put, without the Court of Appeals
distinct from each other, even though they relate to similar factual

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Decision, the DTI Secretarys Decision of 5 August 2003 would not have been
rendered as well.

Accordingly, the Court reaffirms as a nullity the DTI Secretarys Decision

dated 5 August 2003. As a necessary consequence, no further action can be
taken on Philcemcors Petition for Extension of the Safeguard Measure.
Obviously, if the imposition of the general safeguard measure is void as we
declared it to be, any extension thereof should likewise be fruitless. The
proper remedy instead is to file a new application for the imposition of
safeguard measures, subject to the conditions prescribed by the SMA.
Should this step be eventually availed of, it is only hoped that the parties
involved would content themselves in observing the proper procedure,
instead of making a mockery of the rule of law.

WHEREFORE, respondents Motions for Reconsideration are DENIED WITH

FINALITY.

Respondent DTI Secretary is hereby ENJOINED from taking any further

action on the pending Petition for Extension of the Safeguard Measure.

Hironobu Ryu, President of petitioner Southern Cross Cement Corporation,

and Angara Abello Concepcion Regala & Cruz, counsel petitioner, are hereby
given FIVE (5) days from receipt of this Resolution to EXPLAIN why they
should not be meted disciplinary sanction for failing to timely inform the
Court of the filing of Southern Crosss Petition for Review with the Court of
Tax Appeals, as adverted to earlier in this Resolution.

SO ORDERED.

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