14) COMMISSIONER OF INTERNAL REVENUE

vs. x x x, if no tax has been

CENTRAL LUZON DRUG CORPORATION, paid to the government,
April 15, 2005 erroneously or illegally,
or if no amount is due
The Facts and collectible from the
taxpayer, tax refund or
The CA narrated the antecedent facts as follows: tax credit is unavailing.
Moreover, whether the
Respondent is a domestic corporation recovery of the tax is
primarily engaged in retailing of made by means of a
medicines and other pharmaceutical claim for refund or tax
products. In 1996, it operated six (6) credit, before recovery is
drugstores under the business name and allowed[,] it must be
style Mercury Drug. first established that
there was an actual
From January to December 1996, collection and receipt by
respondent granted twenty (20%) percent the government of the
sales discount to qualified senior citizens tax sought to be
on their purchases of medicines pursuant recovered. x x x.
to Republic Act No. [R.A.] 7432 and its xxxxxxxxx
Implementing Rules and Regulations.
For the said period, the amount allegedly Prescinding from the
representing the 20% sales discount above, it could logically
granted by respondent to qualified senior be deduced that tax
citizens totaled P904,769.00. credit is premised on the
existence of tax liability
On April 15, 1997, respondent filed its on the part of taxpayer.
Annual Income Tax Return for taxable In other words, if there is
year 1996 declaring therein that it no tax liability, tax
incurred net losses from its operations. credit is not available.

On January 16, 1998, respondent filed Respondent lodged a Motion for

with petitioner a claim for tax Reconsideration. The [CTA], in its
refund/credit in the amount assailed resolution,[6] granted
of P904,769.00 allegedly arising from respondents motion for reconsideration
the 20% sales discount granted by and ordered herein petitioner to issue a
respondent to qualified senior citizens in Tax Credit Certificate in favor of
compliance with [R.A.] 7432. Unable to respondent citing the decision of the then
obtain affirmative response from Special Fourth Division of [the CA] in
petitioner, respondent elevated its claim CA G.R. SP No. 60057 entitled Central
to the Court of Tax Appeals [(CTA or [Luzon] Drug Corporation vs.
Tax Court)] via a Petition for Review. Commissioner of Internal
Revenue promulgated on May 31, 2001,
On February 12, 2001, the Tax Court to wit:
rendered a Decision[5] dismissing
respondents Petition for lack of merit. In However, Sec. 229
said decision, the [CTA] justified its clearly does not apply in
ruling with the following ratiocination: the instant case because
the tax sought to be collected or erroneously
refunded or credited by paid taxes, x x x.[7]
petitioner was not
erroneously paid or Ruling of the Court of Appeals
illegally collected. We
take exception to the The CA affirmed in toto the Resolution of the Court of
CTAs sweeping but Tax Appeals (CTA) ordering petitioner to issue a tax
unfounded statement credit certificate in favor of respondent in the reduced
that both tax refund and amount of P903,038.39. It reasoned that Republic Act No.
tax credit are modes of (RA) 7432 required neither a tax liability nor a payment
recovering taxes which of taxes by private establishments prior to the availment
are either erroneously or of a tax credit. Moreover, such credit is not tantamount to
illegally paid to the an unintended benefit from the law, but rather a just
government. Tax compensation for the taking of private property for public
refunds or credits do not use.
exclusively pertain to Hence this Petition
illegally collected or The Issues
erroneously paid taxes
as they may be other Petitioner raises the following issues for our
circumstances where a consideration:
refund is warranted. The
tax refund provided Whether the Court of Appeals erred in
under Section 229 deals holding that respondent may claim the
exclusively with 20% sales discount as a tax credit instead
illegally collected or of as a deduction from gross income or
erroneously paid taxes gross sales.
but there are other
possible situations, such Whether the Court of Appeals erred in
as the refund of excess holding that respondent is entitled to a
estimated corporate refund.[9]
quarterly income tax
paid, or that of excess These two issues may be summed up in only one: whether
input tax paid by a VAT- respondent, despite incurring a net loss, may still claim
registered person, or that the 20 percent sales discount as a tax credit.
of excise tax paid on
goods locally produced The Courts Ruling
or manufactured but
actually exported. The The Petition is not meritorious.
standards and mechanics
for the grant of a refund Sole Issue:
or credit under these Claim of 20 Percent Sales Discount
situations are different as Tax Credit Despite Net Loss
from that under Sec.
229. Sec. 4[.a)] of R.A. Section 4a) of RA 7432[10] grants to senior citizens the
7432, is yet another privilege of obtaining a 20 percent discount on their
instance of a tax credit purchase of medicine from any private establishment in
and it does not in any the country.[11] The latter may then claim the cost of the
way refer to illegally discount as a tax credit.[12] But can such credit be claimed,
even though an establishment operates at a loss?

We answer in the affirmative.
Tax Liability Required
for Tax Credit
Since a tax credit is used to reduce directly the tax that is
due, there ought to be a tax liability before the tax
credit can be applied. Without that liability, any tax
credit application will be useless. There will be no reason
for deducting the latter when there is, to begin with, no
existing obligation to the government. However, as will
be presented shortly, the existence of a tax credit or
its grant by law is not the same as the availment or use of
such credit. While the grant is mandatory, the availment
or use is not.
If a net loss is reported by, and no other taxes are currently
due from, a business establishment, there will obviously
be no tax liability against which any tax creditcan be
applied.[24] For the establishment to choose the immediate
availment of a tax credit will be premature and
impracticable. Nevertheless, the irrefutable fact remains
that, under RA 7432, Congress has granted without
conditions a tax credit benefit to all covered
establishments.
Although this tax credit benefit is available, it need not be
used by losing ventures, since there is no tax liability that
calls for its application. Neither can it be reduced to nil by
the quick yet callow stroke of an administrative pen,
simply because no reduction of taxes can instantly be
effected. By its nature, the tax creditmay still be deducted
from a future, not a present, tax liability, without which it
does not have any use. In the meantime, it need not move.
But it breathes.
Prior Tax Payments Not
Required for Tax Credit
While a tax liability is essential to the availment or use of
any tax credit, prior tax payments are not. On the
contrary, for the existence or grant solely of such credit,
neither a tax liability nor a prior tax payment is needed.
The Tax Code is in fact replete with provisions granting
or allowing tax credits, even though no taxes have been
previously paid.
For example, in computing the estate tax due, Section
86(E) allows a tax credit -- subject to certain limitations -
- for estate taxes paid to a foreign country. Also found in
Section 101(C) is a similar provision for donors taxes --
again when paid to a foreign country -- in computing for
the donors tax due. The tax credits in both instances
allude to the prior payment of taxes, even if not made to
our government.
Under Section 110, a VAT (Value-Added Tax)-
registered person engaging in transactions -- whether or
not subject to the VAT -- is also allowed a tax credit that
includes a ratable portion of any input tax not directly
attributable to either activity. This input tax may either be
the VAT on the purchase or importation of goods or
services that is merely due from -- not necessarily paid by
-- such VAT-registered person in the course of trade or
business; or the transitional input tax determined in
accordance with Section 111(A). The latter type may in
fact be an amount equivalent to only eight percent of the
value of a VAT-registered persons beginning inventory of
goods, materials and supplies, when such amount -- as
computed -- is higher than the actual VAT paid on the said
items.[25]Clearly from this provision, the tax credit refers
to an input tax that is either due only or given a value by
mere comparison with the VAT actually paid -- then later
prorated. No tax is actually paid prior to the availment of
such credit.
In Section 111(B), a one and a half percent input tax
credit that is merely presumptive is allowed. For the
purchase of primary agricultural products used as inputs -
- either in the processing of sardines, mackerel and milk,
or in the manufacture of refined sugar and cooking oil --
and for the contract price of public work contracts entered
into with the government, again, no prior tax payments
are needed for the use of the tax credit.
More important, a VAT-registered person whose sales are
zero-rated or effectively zero-rated may, under Section
112(A), apply for the issuance of a tax creditcertificate for
the amount of creditable input taxes merely due -- again
not necessarily paid to -- the government and attributable
to such sales, to the extent that the input taxes have not
been applied against output taxes.[26] Where a taxpayer
is engaged in zero-rated or effectively zero-rated sales and
also in taxable or exempt sales, the amount of creditable
input taxes due that are not directly and entirely
attributable to any one of these transactions shall be
proportionately allocated on the basis of the volume of
sales. Indeed, in availing of such tax credit for VAT
purposes, this provision -- as well as the one earlier
mentioned -- shows that the prior payment of taxes is not
a requisite.
It may be argued that Section 28(B)(5)(b) of the Tax Code
is another illustration of a tax credit allowed, even though
no prior tax payments are not required. Specifically, in
this provision, the imposition of a final withholding tax
rate on cash and/or property dividends received by a
nonresident foreign corporation from a domestic
corporation is subjected to the condition that a foreign tax
credit will be given by the domiciliary country in an
amount equivalent to taxes that are merely deemed
paid.[27] Although true, this provision actually refers to
the tax credit as a condition only for the imposition of a
lower tax rate, not as a deductionfrom the corresponding
tax liability. Besides, it is not our government but the
domiciliary country that credits against the income tax
payable to the latter by the foreign corporation, the tax to
be foregone or spared.[28]
In contrast, Section 34(C)(3), in relation to Section
34(C)(7)(b), categorically allows as credits, against the
income tax imposable under Title II, the amount of
income taxes merely incurred -- not necessarily paid -- by
a domestic corporation during a taxable year in any
foreign country. Moreover, Section 34(C)(5) provides
that for such taxes incurred but not paid, a tax credit may
be allowed, subject to the condition precedent that the
taxpayer shall simply give a bond with sureties
satisfactory to and approved by petitioner, in such sum as
may be required; and further conditioned upon payment
by the taxpayer of any tax found due, upon petitioners
redetermination of it.
In addition to the above-cited provisions in the Tax Code,
there are also tax treaties and special laws that grant or
allow tax credits, even though no prior tax payments have
been made.
Under the treaties in which the tax credit method is used
as a relief to avoid double taxation, income that is taxed
in the state of source is also taxable in the state of
residence, but the tax paid in the former is merely allowed
as a credit against the tax levied in the
latter.[29] Apparently, payment is made to the state of
source, not the state of residence. No tax, therefore, has
been previously paid to the latter.
Under special laws that particularly affect businesses,
there can also be tax credit incentives. To illustrate, the
incentives provided for in Article 48 of Presidential
Decree No. (PD) 1789, as amended by Batas Pambansa
Blg. (BP) 391, include tax credits equivalent to either five
percent of the net value earned, or five or ten percent of
the net local content of exports.[30] In order to avail of such
credits under the said law and still achieve its objectives,
no prior tax payments are necessary.
From all the foregoing instances, it is evident that prior
tax payments are not indispensable to the availment of
a tax credit. Thus, the CA correctly held that the
availment under RA 7432 did not require prior tax
payments by private establishments
concerned.[31] However, we do not agree with its
finding[32] that the carry-over of tax credits under the said
special law to succeeding taxable periods, and even their
application against internal revenue taxes, did not
necessitate the existence of a tax liability.
The examples above show that a tax liability is certainly
important in the availment or use, not the existence or
grant, of a tax credit. Regarding this matter, a private
establishment reporting a net loss in its financial
statements is no different from another that presents a net
income. Both are entitled to the tax credit provided for
under RA 7432, since the law itself accords that
unconditional benefit. However, for the losing
establishment to immediately apply such credit, where no
tax is due, will be an improvident usance.
Sections 2.i and 4 of Revenue
Regulations No. 2-94 Erroneous
RA 7432 specifically allows private establishments to
claim as tax credit the amount of discounts they
grant.[33] In turn, the Implementing Rules and
Regulations, issued pursuant thereto, provide the
procedures for its availment.[34] To deny such credit,
despite the plain mandate of the law and the regulations
carrying out that mandate, is indefensible.
First, the definition given by petitioner is erroneous. It
refers to tax credit as the amount representing the 20
percent discount that shall be deducted by the said
establishments from their gross income for income tax
purposes and from their gross sales for value-added tax or
other percentage tax purposes.[35] In ordinary business
language, the tax credit represents the amount of such
discount. However, the manner by which the discount
shall be credited against taxes has not been clarified by
the revenue regulations.
By ordinary acceptation, a discount is an abatement or
reduction made from the gross amount or value of
anything.[36] To be more precise, it is in business parlance
a deduction or lowering of an amount of money;[37] or a
reduction from the full amount or value of something,
especially a price.[38] In business there are many kinds of
discount, the most common of which is that affecting
the income statement[39] or financial report upon which
the income tax is based.
Business Discounts
Deducted from Gross Sales
A cash discount, for example, is one granted by business
establishments to credit customers for their prompt
payment.[40] It is a reduction in price offered to the
purchaser if payment is made within a shorter period of
time than the maximum time specified.[41] Also referred
to as a sales discount on the part of the seller and
a purchase discount on the part of the buyer, it may be
expressed in such
terms as 5/10, n/30.[42]
A quantity discount, however, is a reduction in price
allowed for purchases made in large quantities, justified
by savings in packaging, shipping, and handling.[43] It is
also called a volume or bulk discount.[44]
A percentage reduction from the list price x x x allowed
by manufacturers to wholesalers and by wholesalers to
retailers[45] is known as a trade discount. No entry for it
need be made in the manual or computerized books of
accounts, since the purchase or sale is already valued at
the net price actually charged the buyer.[46] The purpose
for the discount is to encourage trading or increase sales,
and the prices at which the purchased goods may be resold
are also suggested.[47] Even a chain discount -- a series of
discounts from one list price -- is recorded at net.[48]
Finally, akin to a trade discount is a functional discount.
It is a suppliers price discount given to a purchaser based
on the [latters] role in the [formers] distribution
system.[49] This role usually involves warehousing or
advertising.
Based on this discussion, we find that the nature of a sales
discount is peculiar. Applying generally accepted
accounting principles (GAAP) in the country, this type of
discount is reflected in the income statement[50] as a line
item deducted -- along with returns, allowances, rebates
and other similar expenses -- from gross sales to arrive
at net sales.[51] This type of presentation is resorted to,
because the accounts receivable and sales figures that
arise from sales discounts, -- as well as from quantity,
volume or bulk discounts -- are recorded in the manual
and computerized books of accounts and reflected in the
financial statements at the gross amounts of the
invoices.[52] This manner of recording credit sales --
known as the gross method -- is most widely used,
because it is simple, more convenient to apply than the net
method, and produces no material errors over time.[53]
However, under the net method used in
recording trade, chain or functional discounts, only the
net amounts of the invoices -- after the discounts have
been deducted -- are recorded in the books of
accounts[54] and reflected in the financial statements. A
separate line item cannot be shown,[55] because the
transactions themselves involving both accounts
receivable and sales have already been entered into, net
of the said discounts.
The term sales discounts is not expressly defined in the
Tax Code, but one provision adverts to amounts whose
sum -- along with sales returns, allowances and cost of
goods sold[56] -- is deducted from gross sales to come up
with the gross income, profit or margin[57] derived from
business.[58] In another provision therein, sales
discounts that are granted and indicated in the invoices at
the time of sale -- and that do not depend upon the
happening of any future event -- may be excluded from
the gross sales within the same quarter they were
given.[59] While determinative only of the VAT, the latter
provision also appears as a suitable reference point for
income tax purposes already embraced in the former.
After all, these two provisions affirm that sales
discounts are amounts that are always deductible
from gross sales.
Reason for the Senior Citizen Discount:
The Law, Not Prompt Payment
A distinguishing feature of the implementing rules of RA
7432 is the private establishments outright deduction of
the discount from the invoice price of the medicine sold
to the senior citizen.[60] It is, therefore, expected that for
each retail sale made under this law, the discount period
lasts no more than a day, because such discount is given -
- and the net amount thereof collected -- immediately
upon perfection of the sale.[61] Although prompt payment
is made for an arms-length transaction by the senior
citizen, the real and compelling reason for the private
establishment giving the discount is that the law itself
makes it mandatory.
What RA 7432 grants the senior citizen is a mere discount
privilege, not a sales discount or any of the above
discounts in particular. Prompt payment is not the reason
for (although a necessary consequence of) such grant. To
be sure, the privilege enjoyed by the senior citizen must
be equivalent to the tax credit benefit enjoyed by the
private establishment granting the discount. Yet, under
the revenue regulations promulgated by our tax
authorities, this benefit has been erroneously likened and
confined to a sales discount.
To a senior citizen, the monetary effect of the privilege
may be the same as that resulting from a sales discount.
However, to a private establishment, the effect is different
from a simple reduction in price that results from such
discount. In other words, the tax credit benefit is not the
same as a sales discount. To repeat from our earlier
discourse, this benefit cannot and should not be treated as
a tax deduction.
To stress, the effect of a sales discount on the income
statement and income tax return of an establishment
covered by RA 7432 is different from that resulting from
theavailment or use of its tax credit benefit. While the
former is a deduction before, the latter is a
deduction after, the income tax is computed. As
mentioned earlier, a discount is not necessarily a sales
discount, and a tax credit for a simple discount privilege
should not be automatically treated like a sales
discount. Ubi lex non distinguit, nec nos distinguere
debemus. Where the law does not distinguish, we ought
not to distinguish.
Sections 2.i and 4 of Revenue Regulations No. (RR) 2-94
define tax credit as the 20 percent discount deductible
from gross income for income tax purposes, or
from gross sales for VAT or other percentage tax
purposes. In effect, the tax credit benefit under RA 7432
is related to a sales discount. This contrived definition is
improper, considering that the latter has to be deducted
from gross sales in order to compute the gross income in
the income statement and cannot be deducted again, even
for purposes of computing the income tax.
When the law says that the cost of the discount may be
claimed as a tax credit, it means that the amount -- when
claimed -- shall be treated as a reduction from any tax
liability, plain and simple. The option to avail of the tax
credit benefit depends upon the existence of a tax
liability, but to limit the benefit to a sales discount--
which is not even identical to the discount privilege that
is granted by law -- does not define it at all and serves no
useful purpose. The definition must, therefore, be stricken
down.
Laws Not Amended
by Regulations
Second, the law cannot be amended by a mere regulation.
In fact, a regulation that operates to create a rule out of
harmony with
the statute is a mere nullity;[62] it cannot prevail.
It is a cardinal rule that courts will and should respect the
contemporaneous construction placed upon a statute by
the executive officers whose duty it is to enforce it x x
x.[63] In the scheme of judicial tax administration, the need
for certainty and predictability in the implementation of
tax laws is crucial.[64] Our tax authorities fill in the details
that Congress may not have the opportunity or
competence to provide.[65] The regulations these
authorities issue are relied upon by taxpayers, who are
certain that these will be followed by the
courts.[66] Courts, however, will not uphold these
authorities interpretations when clearly absurd, erroneous
or improper.
In the present case, the tax authorities have given the
term tax credit in Sections 2.i and 4 of RR 2-94 a
meaning utterly in contrast to what RA 7432 provides.
Their interpretation has muddled up the intent of
Congress in granting a mere discount privilege, not
a sales discount. The administrative agency issuing these
regulations may not enlarge, alter or restrict the
provisions of the law it administers; it cannot engraft
additional requirements not contemplated by the
legislature.[67]
In case of conflict, the law must prevail.[68] A regulation
adopted pursuant to law is law.[69] Conversely, a
regulation or any portion thereof not adopted pursuant to
law is no law and has neither the force nor the effect of
law.[70]
Availment of Tax
Credit Voluntary
Third, the word may in the text of the statute[71] implies
that the
availability of the tax credit benefit is neither unrestricted
nor mandatory.[72] There is no absolute right conferred
upon respondent, or any similar taxpayer, to avail itself of
the tax credit remedy whenever it chooses; neither does it
impose a duty on the part of the government to sit back
and allow an important facet of tax collection to be at the
sole control and discretion of the taxpayer.[73] For the tax
authorities to compel respondent to deduct the 20 percent
discount from either its gross income or its gross
sales[74] is, therefore, not only to make an imposition
without basis in law, but also to blatantly contravene the
law itself.
What Section 4.a of RA 7432 means is that the tax
credit benefit is merely permissive, not imperative.
Respondent is given two options -- either to claim or not
to claim the cost of the discounts as a tax credit. In fact, it
may even ignore the credit and simply consider the
gesture as an act of beneficence, an expression of its social
conscience.
Granting that there is a tax liability and respondent claims
such cost as a tax credit, then the tax credit can easily be
applied. If there is none, the credit cannot be used and will
just have to be carried over and
[75]
revalidated accordingly. If, however, the business
continues to operate at a loss and no other taxes are due,
thus compelling it to close shop, the credit can never be
applied and will be lost altogether.
In other words, it is the existence or the lack of a tax
liability that determines whether the cost of the discounts
can be used as a tax credit. RA 7432 does not give
respondent the unfettered right to avail itself of the credit
whenever it pleases. Neither does it allow our tax
administrators to expand or contract the legislative
mandate. The plain meaning rule or verba legis in
statutory construction is thus applicable x x x. Where the
words of a statute are clear, plain and free from ambiguity,
it must be given its literal meaning and applied without
attempted interpretation.[76]
Tax Credit Benefit
Deemed Just Compensation
Fourth, Sections 2.i and 4 of RR 2-94 deny the exercise
by the State of its power of eminent domain. Be it stressed
that the privilege enjoyed by senior citizens does not
come directly from the State, but rather from the private
establishments concerned. Accordingly, the tax
credit benefit granted to these establishments can be
deemed as their just compensation for private property
taken by the State for public use.[77]
The concept of public use is no longer confined to the
traditional notion of use by the public, but held
synonymous with public interest, public benefit, public
welfare, and public convenience.[78] The discount
privilege to which our senior citizens are entitled is
actually a benefit enjoyed by the general public to which
these citizens belong. The discounts given would have
entered the coffers and formed part of the gross sales of
the private establishments concerned, were it not for RA
7432. The permanent reduction in their total revenues is a
forced subsidy corresponding to the taking of private
property for public use or benefit.
As a result of the 20 percent discount imposed by RA
7432, respondent becomes entitled to a just
compensation. This term refers not only to the issuance of
a tax credit certificate indicating the correct amount of the
discounts given, but also to the promptness in its release.
Equivalent to the payment of property taken by the State,
such issuance -- when not done within a reasonable
time from the grant of the discounts -- cannot be
considered as just compensation. In effect, respondent is
made to suffer the consequences of being immediately
deprived of its revenues while awaiting actual receipt,
through the certificate, of the equivalent amount it needs the x x x elderly.[88] Sections 2.i and 4 of RR 2-94,
to cope with the reduction in its revenues.[79] however, contradict these constitutional policies and
statutory objectives.
Besides, the taxation power can also be used as an
implement for the exercise of the power of eminent Furthermore, Congress has allowed all private
domain.[80] Tax measures are but enforced contributions establishments a simple tax credit, not a deduction. In
exacted on pain of penal sanctions[81] and clearly imposed fact, no cash outlay is required from the government for
for a public purpose.[82] In recent years, the power to tax the availment or use of such credit. The deliberations on
has indeed become a most effective tool to realize social February 5, 1992 of the Bicameral Conference Committee
justice, public welfare, and the equitable distribution of Meeting on Social Justice, which finalized RA 7432,
wealth.[83] disclose the true intent of our legislators to treat the sales
discounts as a tax credit, rather than as a deduction
While it is a declared commitment under Section 1 of RA from gross income. We quote from those deliberations as
7432, social justice cannot be invoked to trample on the follows:
rights of property owners who under our Constitution and
laws are also entitled to protection. The social justice "THE CHAIRMAN (Rep. Unico). By the
consecrated in our [C]onstitution [is] not intended to take way, before that
away rights from a person and give them to another who ano, about
is not entitled thereto.[84] For this reason, a just deductions from
compensation for income that is taken away from taxable income.
respondent becomes necessary. It is in the tax credit that I think we
our legislators find support to realize social justice, and incorporated
no administrative body can alter that fact. there a
provision na -
To put it differently, a private establishment that merely on the
breaks even[85] -- without the discounts yet -- will surely responsibility of
start to incur losses because of such discounts. The same the private
effect is expected if its mark-up is less than 20 percent, hospitals and
and if all its sales come from retail purchases by senior drugstores,
citizens. Aside from the observation we have already hindi ba?
raised earlier, it will also be grossly unfair to an
establishment if the discounts will be treated merely as SEN. ANGARA. Oo.
deductions from either its gross income or its gross sales.
Operating at a loss through no fault of its own, it will THE CHAIRMAN. (Rep. Unico), So, I
realize that the tax credit limitation under RR 2-94 is think we have to
inutile, if not improper. Worse, profit-generating put in also a
businesses will be put in a better position if they avail provision here
themselves of tax credits denied those that are losing, about the
because no taxes are due from the latter. deductions from
taxable income
Grant of Tax Credit of that private
Intended by the Legislature hospitals, di ba
ganon 'yan?
Fifth, RA 7432 itself seeks to adopt measures whereby
senior citizens are assisted by the community as a whole MS. ADVENTO. Kaya lang po sir, and
and to establish a program beneficial to them.[86]These mga discounts
objectives are consonant with the constitutional policy of po nila affecting
making health x x x services available to all the people at government and
affordable cost[87] and of giving priority for the needs of public
 institutions, so, perpetrations of
puwede na po (inaudible)
nating hindi income.
isama yung mga
less deductions SEN. ANGARA. I-tax credit na lang
ng taxable natin para
income. walang cash-out
ano?
THE CHAIRMAN. (Rep. Unico).
Puwede na. REP. AQUINO. Oo, tax credit. Tama,
Yung about the Okay. Hospitals
private ba o lahat ng
hospitals. Yung establishments
isiningit natin? na covered.

MS. ADVENTO. Singit na po ba yung THE CHAIRMAN. (Rep. Unico). Sa

15% on credit. kuwan lang yon,
(inaudible/did as private
not use the hospitals lang.
microphone).
REP. AQUINO. Ano ba yung
SEN. ANGARA. Hindi pa, hindi pa. establishments
na covered?
THE CHAIRMAN. (Rep. Unico) Ah, 'di
pa ba naisama SEN. ANGARA. Restaurant lodging
natin? houses,
recreation
SEN. ANGARA. Oo. You want to insert centers.
that?
REP. AQUINO. All establishments
THE CHAIRMAN (Rep. Unico). Yung covered siguro?
ang proposal ni
Senator SEN. ANGARA. From all
Shahani, e. establishments.
Alisin na natin
SEN. ANGARA. In the case of private 'Yung kuwan
hospitals they kung ganon.
got the grant of Can we go back
15% discount, to Section 4 ha?
provided that,
the private REP. AQUINO. Oho.
hospitals can
claim the SEN. ANGARA. Letter A. To capture
expense as a tax that thought,
credit. we'll say the
grant of 20%
REP. AQUINO. Yah could be allowed as discount from
deductions in all
the establishments
 et cetera, et the law of a particular case.[92] It is a canon of statutory
cetera, provided construction that a later statute, general in its terms and
that said not expressly repealing a prior special statute, will
establishments - ordinarily not affect the special provisions of such earlier
provided that statute.[93]
private
establishments RA 7432 is an earlier law not expressly repealed by, and
may claim the therefore remains an exception to, the Tax Code -- a later
cost as a tax law. When the former states that a tax creditmay be
credit. Ganon ba claimed, then the requirement of prior tax payments under
'yon? certain provisions of the latter, as discussed above, cannot
be made to apply. Neither can the instances of or
REP. AQUINO. Yah. references to a tax deduction under the Tax Code[94] be
made to restrict RA 7432. No provision of any revenue
SEN. ANGARA. Dahil kung regulation can supplant or modify the acts of Congress.
government,
they don't need WHEREFORE, the Petition is hereby DENIED. The
to claim it. assailed Decision and Resolution of the Court of
Appeals AFFIRMED. No pronouncement as to costs.
THE CHAIRMAN. (Rep. Unico). Tax SO ORDERED.
credit.

SEN. ANGARA. As a tax credit [rather]

than a kuwan - 16) CHRISTINE JOY CAPIN-
deduction, CADIZ, Petitioner, v. BRENT HOSPITAL AND
Okay. COLLEGES, INC., Respondent.

REP. AQUINO Okay. REYES, J.:

SEN. ANGARA. Sige Okay. Di subject
to style na lang
sa Letter A".[89]
Special Law
Over General Law
Sixth and last, RA 7432 is a special law that should
prevail over the Tax Code -- a general law. x x x [T]he
rule is that on a specific matter the special law shall
prevail over the general law, which shall
be resorted to only to supply deficiencies in the
former.[90] In addition, [w]here there are two statutes, the
earlier special and the later general -- the terms of the
general broad enough to include the matter provided for
in the special -- the fact that one is special and the other is
general creates a presumption that the special is to be
considered as remaining an exception to the
general,[91] one as a general law of the land, the other as
This is a petition for review on certiorari1 under Rule 45
of the Rules of Court assailing the Resolutions dated July
22, 20082 and February 24, 20093 of the Court of Appeals
(CA) in CA-G.R. SP No. 02373-MIN, which dismissed
the petition filed by petitioner Christine Joy Capin-Cadiz
(Cadiz) on the following grounds: (1) incomplete
statement of material dates; (2) failure to attach registry
receipts; and (3) failure to indicate the place of issue of
counsel's Professional Tax Receipt (PTR) and Integrated
Bar of the Philippines (IBP) official receipts.
Facts
Cadiz was the Human Resource Officer of respondent
Brent Hospital and Colleges, Inc. (Brent) at the time of
her indefinite suspension from employment in 2006. The
cause of suspension was Cadiz's Unprofessionalism and
Unethical Behavior Resulting to Unwed Pregnancy. It
appears that Cadiz became pregnant out of wedlock, and
Brent imposed the suspension until such time that she
marries her boyfriend in accordance with law.
Cadiz then filed with the Labor Arbiter (LA) a complaint
for Unfair Labor Practice, Constructive Dismissal, Non-
Payment of Wages and Damages with prayer for
Reinstatement.4
Ruling of the Labor Tribunals
In its Decision5 dated April 12, 2007, the LA found that
Cadiz's indefinite suspension amounted to a constructive
dismissal; nevertheless, the LA ruled that Cadiz was not
illegally dismissed as there was just cause for her
dismissal, that is, she engaged in premarital sexual
relations with her boyfriend resulting in a pregnancy out
of wedlock.6 The LA further stated that her "immoral
conduct x x x [was] magnified as serious misconduct not
only by heir getting pregnant as a result thereof before and
without marriage, but more than that, also by the fact that
Brent is an institution of the Episcopal Church in the
Philippines operating both a hospital and college where
[Cadiz] was employed."7 The LA also ruled that she was
not entitled to reinstatement "at least until she marries her
boyfriend," to backwages and vacation/sick leave pay.
Brent, however, manifested that it was willing to pay her
1311 month pay. The dispositive portion of the decision
reads:
WHEREFORE, judgment is hereby rendered, ordering
[Brent] to pay [Cadiz] 13th month pay in the sum of Seven
Thousand Nine Hundred Seventy & 11/100 Pesos
(P7,970.11).
All other charges and claims are hereby dismissed for lack
of merit.
SO ORDERED.8ChanRoblesVirtualawlibrary
Cadiz appealed to the National Labor Relations
Commission (NLRC), which affirmed the LA decision in
its Resolution9 dated December 10, 2007. Her motion for
reconsideration having been denied by the NLRC in its
Resolution10 dated February 29, 2008, Cadiz elevated her
case to the CA on petition for certiorari under Rule 65.
Ruling of the CA
The CA, however, dismissed her petition outright due to
technical defects in the petition: (1) incomplete statement
of material dates; (2) failure to attach registry receipts;
and (3) failure to indicate the place of issue of counsel's
PTR and IBP official receipts.11 Cadiz sought
reconsideration of the assailed CA Resolution dated July
22, 2008 but it was denied in the assailed Resolution dated
February 24, 2009.12 The CA further ruled that "a perusal
of the petition will reveal that public respondent NLRC
committed no grave abuse of discretion amounting to lack
or excess of jurisdiction x x x holding [Cadiz's] dismissal
from employment valid."13
Hence, the present petition. Cadiz argues that -
I
THE HONORABLE [NLRC] GRAVELY ABUSED ITS
DISCRETION WHEN IT HELD TFIAT [CADIZ'S]
IMPREGNATION OUTSIDE OF WEDLOCK IS A
GROUND FOR THE TERMINATION OF [CADIZ'S]
EMPLOYMENT14
II
THE [NLRC] COMMITTED GRAVE ABUSE OF
DISCRETION WHEN IT UPHELD THE DISMISSAL
OF [CADIZ] ON THE GROUND THAT THE
INDEFINITE SUSPENSION WAS VALID AND
REQUIRED [CADIZ] TO FIRST ENTER INTO
MARRIAGE BEFORE SHE CAN BE ADMITTED
BACK TO HER EMPLOYMENT15
III
RESPONDENT [NLRC] GRAVELY ABUSED ITS
DISCRETION WHEN IT DENIED [CADIZ'S] CLAIM
FOR BACKWAGES, ALLOWANCES, SICK LEAVE
PAY, MATERNITY PAY AND MORAL AND
EXEMPLARY DAMAGES AND ATTORNEY'S
FEES16
IV
THE [CA] MISPLACED APPLICATION OF THE
MATERIAL DATA RULE RESULTING TO GRAVE
ABUSE OF DISCRETION WHEN IT DISMISSED THE
APPEAL17
Cadiz contends, among others, that getting pregnant
outside of wedlock is not grossly immoral, especially
when both partners do not have any legal impediment to
marry. Cadiz surmises that the reason for her suspension
was not because of her relationship with her then
boyfriend but because of the resulting pregnancy. Cadiz
also lambasts Brent's condition for her reinstatement - that
she gets married to her boyfriend - saying that this violates
the stipulation against marriage under Article 136 of the
Labor Code. Finally, Cadiz contends that there was
substantial compliance with the rules of procedure, and
the CA should not have dismissed the petition.18
Brent, meanwhile, adopts and reiterates its position before
the LA and the NLRC that Cadiz's arguments are
irrational and out of context. Brent argues, among others,
that for Cadiz to limit acts of immorality only to extra-
marital affairs is to "change the norms, beliefs, teachings
and practices of BRENT as a Church institution of the x
x x Episcopal Church in the Philippines."19
Ruling of the Court
Ordinarily, the Court will simply gloss over the
arguments raised by Cadiz, given that the main matter
dealt with by the CA were the infirmities found in the
petition and which caused the dismissal of her case before
it. In view, however, of the significance of the issues
involved in Cadiz's dismissal from employment, the Court
will resolve the petition including the substantial grounds
raised herein.
The issue to be resolved is whether the CA committed a
reversible error in ruling that: (1) Cadiz's petition is
dismissible on ground of technical deficiencies; and (2)
the NLRC did not commit grave abuse of discretion in
upholding her dismissal from employment.
Rules of procedure are mere
tools designed to facilitate the
attainment of justice
In dismissing outright Cadiz's petition, the CA found the
following defects: (1) incomplete statement of material
dates; (2) failure to attach registry receipts; and (3) failure
to indicate the place of issue of counsel's PTR and IBP
official receipts.
Rule 46, Section 3 of the Rules of Court states the
contents of a petition filed with the CA under Rule 65,
viz, "the petition shall x x x indicate the material dates
showing when notice of the judgment or final order or
resolution subject thereof was received, when a motion
for new trial or reconsideration, if any, was filed and when
notice of the denial thereof was received." The rationale
for this is to enable the CA to determine whether the
petition was filed within the period fixed in the
rules.20Cadiz's failure to state the date of receipt of the
copy of the NLRC decision, however, is not fatal to her
case since the more important material date which must
be duly alleged in a petition is the date of receipt of the
resolution of denial of the motion for
reconsideration,21 which she has duly complied with.22
The CA also dismissed the petition for failure to attach
the registry receipt in the affidavit of service.23 Cadiz
points out, on the other hand, that the registry receipt
number was indicated in the petition and this constitutes
substantial compliance with the requirement. What the
rule requires, however, is that the registry receipt must be
appended to the paper being served.24 Clearly, mere
indication of the registry receipt numbers will not suffice.
In fact, the absence of the registry receipts amounts to lack
of proof of service.25 Nevertheless, despite this defect, the
Court finds that the ends of substantial justice would be
better served by relaxing the application of technical rules
of procedure.26 With regard to counsel's failure to indicate
the place where the IBP and PTR receipts were issued,
there was substantial compliance with the requirement
since it was indicated in the verification and certification
of non-forum shopping, as correctly argued by Cadiz's
lawyer.27cralawred
Time and again, the Court has emphasized that rules of
procedure are designed to secure substantial justice.
These are mere tools to expedite the decision or resolution
of cases and if their strict and rigid application would
frustrate rather than promote substantial justice, then it
must be avoided.28
Immorality as a just cause for
termination of employment
Both the LA and the NLRC upheld Cadiz's dismissal as.
one attended with just cause. The LA, while ruling that
Cadiz's indefinite suspension was tantamount to a
constructive dismissal, nevertheless found that there was
just cause for her dismissal. According to the LA, "there
was just cause therefor, consisting in her engaging in
premarital sexual relations with Carl Cadiz, allegedly her
boyfriend, resulting in her becoming pregnant out of
wedlock."29 The LA deemed said act to be immoral,
which was punishable by dismissal under Brent's rules
and which likewise constituted serious misconduct under
Article 282(a) of the Labor Code. The LA also opined that
since Cadiz was Brent's ITuman Resource Officer in
charge of implementing its rules against immoral conduct,
she should have been the "epitome of proper
conduct."30 The LA ruled:
[Cadiz's] immoral conduct by having premarital sexual
relations with her alleged boy friend, a former Brent
worker and her co-employee, is magnified as serious
misconduct not only by her getting pregnant as a result
thereof before and without marriage, but more than that,
also by the fact that Brent is an institution of the Episcopal
Church in the Philippines xxx committed to "developing
competent and dedicated professionals xxx and in
providing excellent medical and other health services to
the community for the Glory of God and Service to
Humanity." x x x As if these were not enough, [Cadiz]
was Brent's Human Resource Officer charged with,
among others, implementing the rules of Brent against
immoral conduct, including premarital sexual relations, or
fornication xxx. She should have been the epitome of
proper conduct, but miserably failed. She herself engaged
in premarital sexual relations, which surely scandalized
the Brent community, x x x.31
The NLRC, for its part, sustained the LA's conclusion.
The Court, however, cannot subscribe to the labor
tribunals' conclusions.
Admittedly, one of the grounds for disciplinary action
under Brent's policies is immorality, which is punishable
by dismissal at first offense32 Brent's Policy Manual
provides:
CATEGORY IV
In accordance with Republic Act No. 1052,33 the
following are just cause for terminating an employment
of an employee without a definite period:
x x x x
2. Serious misconduct or willful disobedience by the
employee of the orders of his employer or representative
in connection with his work, such as, but not limited to
the following:
chanRoblesvirtualLawlibrary
x x x x
b. Commission of immoral conduct or indecency within
the company premises, such as an act of lasciviousness or
any act which is sinful and vulgar in nature.
c. Immorality, concubinage,
34
bigamy. ChanRoblesVirtualawlibrary
Its Employee's Manual of Policies, meanwhile,
enumerates "[a]cts of immorality such as scandalous
behaviour, acts of lasciviousness against any person
(patient, visitors, co-workers) within hospital
premises"35 as a ground for discipline and discharge.
Brent also relied on Section 94 of the Manual of
Regulations for Private Schools (MRPS), which lists
"disgraceful or immoral conduct" as a cause for
terminating employment.36
Thus, the question that must be resolved is whether
Cadiz's premarital relations with her boyfriend and the
resulting pregnancy out of wedlock constitute immorality.
To resolve this, the Court makes reference to the recently
promulgated case of Cheryll Santos Lens v. St.
Scholastica 's College Westgrove and/or Sr. Edna
Quiambao, OSB37
Leus involved the same personal circumstances as the
case at bench, albeit the employer was a Catholic and
sectarian educational institution and the petitioner, Cheryl
1 Santos Leus (Leus), worked as an assistant to the
school's Director of the Lay Apostolate and Community
Outreach Directorate. Leus was dismissed from
employment by the school for having borne a child out of
wedlock. The Court ruled in Leus that the determination
of whether a conduct is disgraceful or immoral involves a
two-step process: first, a consideration of the totality of
the circumstances surrounding the conduct; and second,
an assessment of the said circumstances vis-a-vis the
prevailing norms of conduct, i.e., what the society
generally considers moral and respectable.
In this case, the surrounding facts leading to Cadiz's
dismissal are straightforward - she was employed as a
human resources officer in an educational and medical
institution of the Episcopal Church of the Philippines; she
and her boyfriend at that time were both single; they
engaged in premarital sexual relations, which resulted
into pregnancy. The labor tribunals characterized these as
constituting disgraceful or immoral conduct. They also
sweepingly concluded that as Human Resource Officer,
Cadiz should have been the epitome of proper conduct
and her indiscretion "surely scandalized the Brent
community."38
The foregoing circumstances, however, do not readily
equate to disgraceful and immoral conduct. Brent's Policy
Manual and Employee's Manual of Policies do not define
what constitutes immorality; it simply
stated immorality as a ground for disciplinary action.
Instead, Brent erroneously relied on the standard
dictionary definition of fornication as a form of illicit
relation and proceeded to conclude that Cadiz's acts fell
under such classification, thus constituting immorality.39
Jurisprudence has already set the standard of morality
with which an act should be gauged - it is public and
secular, not religious.40 Whether a conduct is considered
disgraceful or immoral should be made in accordance
with the prevailing norms of conduct, which, as stated
in Leus, refer to those conducts which are proscribed
because they are detrimental to conditions upon which
depend the existence and progress of human society.
The fact that a particular act does not conform to the
traditional moral views of a certain sectarian institution is
not sufficient reason to qualify such act as immoral unless
it, likewise, does not conform to public and secular
standards. More importantly, there must be substantial
evidence to establish that premarital sexual relations and
pregnancy out of wedlock is considered disgraceful or
immoral.41
The totality of the circumstances of this case does not
justify the conclusion that Cadiz committed acts of
immorality. Similar to Leus, Cadiz and her boyfriend
were both single and had no legal impediment to marry at
the time she committed the alleged immoral conduct. In
fact, they eventually married on April 15, 2008.42 Aside
from these, the labor tribunals' respective conclusion that
Cadiz's "indiscretion" "scandalized the Brent community"
is speculative, at most, and there is no proof adduced by
Brent to support such sweeping conclusion. Even Brent
admitted that it came to know of Cadiz's "situation" only
when her pregnancy became manifest.43 Brent also
conceded that "[a]t the time [Cadiz] and Carl R. Cadiz
were just carrying on their boyfriend-girlfriend
relationship, there was no knowledge or evidence by
[Brent] that they were engaged also in premarital
sex."44 This only goes to show that Cadiz did not flaunt
her premarital relations with her boyfriend and it was not
carried on under scandalous or disgraceful circumstances.
As declared in Leus, "there is no law which penalizes an
unmarried mother by reason of her sexual conduct or
proscribes the consensual sexual activity between two
unmarried persons; that neither does such situation
contravene[s] any fundamental state policy enshrined in
the Constitution."45 The fact that Brent is a sectarian
institution does not automatically subject Cadiz to its
religious standard of morality absent an express statement
in its manual of personnel policy and regulations,
prescribing such religious standard as gauge as these
regulations create the obligation on both the employee
and the employer to abide by the same.46
Brent, likewise, cannot resort to the MRPS because the
Court already stressed in Leus that "premarital sexual
relations between two consenting adults who have no
impediment to marry each other, and, consequently,
conceiving a child out of wedlock, gauged from a purely
public and secular view of morality, does not amount to a
disgraceful or immoral conduct under Section 94(e) of the
1992 MRPS."47
Marriage as a condition for reinstatement
The doctrine of management prerogative gives an
employer the right to "regulate, according to his own
discretion and judgment, all aspects of employment,
including hiring, work assignments, working methods,
the time, place and manner of work, work supervision,
transfer of employees, lay-off of workers, and discipline,
dismissal, and recall of employees."48 In this case, Brent
imposed on Cadiz the condition that she subsequently
contract marriage with her then boyfriend for her to be
reinstated. According to Brent, this is "in consonance with
the policy against encouraging illicit or common-law
relations that would subvert the sacrament of marriage."49
Statutory law is replete with legislation protecting labor
and promoting equal opportunity in employment. No less
than the 1987 Constitution mandates that the "State shall
afford full protection to labor, local and overseas,
organized and unorganized, and promote full employment
and equality of employment opportunities for all."50 The
Labor Code of the Philippines, meanwhile, provides:
Art. 136. Stipulation against marriage. It shall be unlawful
for an employer to require as a condition of employment
or continuation of employment that a woman employee
shall not get married, or to stipulate expressly or tacitly
that upon getting married, a woman employee shall be
deemed resigned or separated, or to actually dismiss,
discharge, discriminate or otherwise prejudice a woman
employee merely by reason of her marriage.
With particular regard to women, Republic Act No. 9710
or the Magna Carta of Women51 protects women against
discrimination in all matters relating to marriage and
family relations, including the right to choose freely a
spouse and to enter into marriage only with their free
and full consent.52
Weighed against these safeguards, it becomes apparent
that Brent's condition is coercive, oppressive and
discriminatory. There is no rhyme or reason for it. It
forces Cadiz to marry for economic reasons and deprives
her of the freedom to choose her status, which is a
privilege that inheres in her as an intangible and
inalienable right.53 While a marriage or no-marriage
qualification may be justified as a "bona fide occupational
qualification," Brent must prove two factors necessitating
its imposition, viz: (1) that the employment qualification
is reasonably related to the essential operation of the
job involved; and (2) that there is a factual basis for
believing that all or substantially all persons meeting the
qualification would be unable to properly perform the
duties of the job.54 Brent has not shown the presence of
neither of these factors. Perforce, the Court cannot uphold
the validity of said condition.
Given the foregoing, Cadiz, therefore, is entitled to
reinstatement without loss of seniority rights, and
payment of backwages computed from the time
compensation was withheld up to the date of actual
reinstatement. Where reinstatement is no longer viable as
an option, separation pay should be awarded as an
alternative and as a form of financial assistance.55 In the
computation of separation pay, the Court stresses that it
should not go beyond the date an employee was
deemed to have been actually separated from
employment, or beyond the date when reinstatement
was rendered impossible.56 In this case, the records do
not show whether Cadiz already severed her employment
with Brent or whether she is gainfully employed
elsewhere; thus, the computation of separation pay shall
be pegged based on the findings that she was employed
on August 16, 2002, on her own admission in her
complaint that she was dismissed on November 17, 2006,
and that she was earning a salary of P9,108.70 per
month,57 which shall then be computed at a rate of one (1)
month salary for every year of service,58 as follows:
Monthly salary P9,108.70
multiplied by number of years x
in service (Aug 02 to Nov 06) 4
P36,434.80
The Court also finds that Cadiz is only entitled to limited
backwages. Generally, the computation of backwages is
reckoned from the date of illegal dismissal until actual
reinstatement.59 In case separation pay is ordered in lieu
of reinstatement or reinstatement is waived by the
employee, backwages is computed from the time of
dismissal until the finality of the decision ordering
separation pay.60 Jurisprudence further clarified that the
period for computing the backwages during the period of
appeal should end on the date that a higher court reversed
the labor arbitration ruling of illegal dismissal.61 If
applied in Cadiz's case, then the computation of
backwages should be from November 17, 2006, which
was the time of her illegal dismissal, until the date of
promulgation of this decision. Nevertheless, the Court has
also recognized that the constitutional policy of providing
full protection to labor is not intended to oppress or
destroy management.62 The Court notes that at the time of
Cadiz's indefinite suspension from
employment, Leus was yet to be decided by the Court.
Moreover, Brent was acting in good faith and on its honest
belief that Cadiz's pregnancy out of wedlock constituted
immorality. Thus, fairness and equity dictate that the
award of backwages shall only be equivalent to one (1)
year or P109,304.40, computed as follows:
Monthly salary P9,108.70
multiplied by one year x x
or 12 months 12
 Presidential Commission on Good
P109,304.40
Governance (PCGG)
o President Corazon C. Aquino,
Finally, with regard to Cadiz's prayer for moral and immediately upon
assuming Malacaang, enacts
exemplary damages, the Court finds the same without
Executive Order 1 (EO No. 1) or
merit. A finding of illegal dismissal, by itself, does not the Presidential Commission on
establish bad faith to entitle an employee to moral Good Governance (PCGG). It is
damages.63 Absent clear and convincing evidence mandated to recover all ill-
showing that Cadiz's dismissal from Brent's employ had gotten wealth of former
been carried out in an arbitrary, capricious and malicious President Ferdinand E. Marcos,
manner, moral and exemplary damages cannot be his immediate family, relatives,
subordinates and close
awarded. The Court nevertheless grants the award of
associates.
attorney's fees in the amount often percent (10%) of the o EO No. 1 vested the PCGG with
total monetary award, Cadiz having been forced to litigate the power:
in order to seek redress of her grievances.64 (a) to conduct
investigation as may
WHEREFORE, the petition is GRANTED. The be necessary in
Resolutions dated July 22, 2008 and February 24, 2009 of order to accomplish
and carry out the
the Court of Appeals in CA-G.R. SP No. 02373-M1N purposes of this
are REVERSED and SET ASIDE, and a NEW ONE order and the power
ENTERED finding petitioner Christine Joy Capin-Cadiz (h) to promulgate
to have been dismissed without just cause. such rules and
regulations as may
Respondent Brent Hospital and Colleges, Inc. is be necessary to
carry out the
hereby ORDERED TO PAY petitioner Christine Joy
purpose of this
Capin-Cadiz: order.
o Accordingly, the PCGG, through
(1) One Hundred Nine Thousand Three Hundred Four its then Chairman Jovito R.
Pesos and 40/100 (P109,304.40) as backwages; Salonga, created an AFP Anti-
Graft Board (AFP Board) tasked
(2) Thirty-Six Thousand Four Hundred Thirty-Four Pesos to investigate reports of
and 80/100 (P36,434.80) as separation pay; and unexplained wealth and corrupt
practices by AFP personnel,
whether in the active service or
(3) Attorney's fees equivalent to ten percent (10%) of the retired.
total award. AFP Board
o The AFP Board, in line with its
mandate, investigates Major
The monetary awards granted shall earn legal interest at
General Q. Josephus Ramas.
the rate of six percent (6%) per annumfrom the date of the o On July 1987, the AFP
finality of this Decision until fully paid. Board issues a resolution and
findings on Ramas alleged ill
SO ORDERED gotten wealth. It submits the
following findings:
Evidence in the
17) Republic of the Philippines v. Sandiganbayan, record showed that
Major General Josephus Q. Ramas, Elizabeth respondent is the
Dimaano G.R. No. 104768 owner of a house
and lot located at
15-Yakan St., La
Statement of Facts Vista, Quezon
City. The
 aforementioned confiscate money in
property in Quezon the amount of
City may be P2,870,000.00 and
estimated modestly $50,000 US Dollars
at P700,000.00. in the house of
He is also the owner Elizabeth Dimaano
of a house and lot on 3 March 1986.
located in Cebu Elizabeth Dimaano
City. The lot has an is allegedly Major
area of 3,327 square General Q. Josephus
meters. Ramas mistress.
Communication She does not have
equipment and any means to
facilities are found acquire the
in the premises of communications
Elizabeth Dimaano, equipment as well as
a Confidential the aforementioned
Agent of the money.
Military Security o The AFP Board finds a prima
Unit, and facie case against Major General
are confiscated by Josephus Ramas for ill gotten
elements of the PC wealth and unexplained wealth
Command of in the amount of P2,974,134.00
Batangas. and $50,000 US Dollars.
These items could o Decision: It is recommended
not have been in the that Maj. Gen. Josephus Q.
possession of Ramas (ret.) be prosecuted and
Elizabeth Dimaano tried for violation of RA 3019, as
if not given for her amended, otherwise known as
use by respondent Anti-Graft and Corrupt Practices
Commanding Act and RA 1379, as amended,
General of the otherwise known as The Act for
Philippine Army. the Forfeiture of Unlawfully
Aside from the Acquired Property.
military o On 1 August 1987, the PCGG
equipment/items filed a petition for forfeiture
and under Republic Act No. 1379
communications (RA No. 1379) against Ramas.
equipment, the o Amended
raiding team was Complaint: Amended
also able to Complaint further alleged that
confiscate money in Ramas acquired funds, assets
the amount of and properties manifestly out of
P2,870,000.00 and proportion to his salary as an
$50,000 US Dollars army officer and his other
in the house of income from legitimately
Elizabeth Dimaano acquired property by taking
on 3 March 1986. undue advantage of his public
Aside from the office and/or using his power,
military authority and influence as such
equipment/items officer of the Armed Forces of
and the Philippines and as a
communications subordinate and close associate
equipment, the of the deposed President
raiding team was Ferdinand Marcos.
also able to
 o The Amended Complaint also The Sandiganbayan, however,
alleged that the AFP Board, after warned petitioner that failure to
a previous inquiry, found act would constrain the court to
reasonable ground to believe that take drastic action.
respondents have violated RA o Private respondents then filed
No. 1379. The Amended their motions to dismiss based on
Complaint prayed for, among Republic v. Migrino.The Court
others, the forfeiture of held in Migrino that the PCGG
respondents properties, funds does not have jurisdiction to
and equipment in favor of the investigate and prosecute
State. military officers by reason of
Ramas Answer: mere position held without a
o Ramas contends that his property showing that they are
consisted only of a residential subordinates of former President
house at La Vista Subdivision, Marcos.
Quezon City, valued at o Dispositive: WHEREFORE,
P700,000, which was not out of judgment is hereby
proportion to his salary and other rendered dismissing the
legitimate income. Amended Complaint, without
o He denies ownership of any pronouncement as to costs. The
mansion in Cebu City and the counterclaims are likewise
cash, communications dismissed for lack of merit, but
equipment and other items the confiscated sum of money,
confiscated from the house of communications equipment,
Dimaano. jewelry and land titles are
o Dimaano filed her own Answer ordered returned to Elizabeth
to the Amended Complaint. Dimaano.
Admitting her employment as a o The records of this case are
clerk-typist in the office of hereby remanded and referred
Ramas from January-November to the Hon. Ombudsman, who
1978 only, Dimaano claimed has primary jurisdiction over the
ownership of the monies, forfeiture cases under R.A. No.
communications equipment, 1379, for such appropriate action
jewelry and land titles taken as the evidence warrants. This
from her house by the Philippine case is also referred to the
Constabulary raiding team. Commissioner of the Bureau of
The Sandiganbayan Internal Revenue for a
o On 13 April 1989, petitioner determination of any tax liability
filed a motion for leave to amend of respondent Elizabeth
the complaint in order to charge Dimaano in connection
the delinquent properties with herewith.
being subject to forfeiture as o Ruling of the Sandiganbayan
having been unlawfully acquired (1.) The actions
by defendant Dimaano alone x x taken by the PCGG
x. are not in
o Petitioner fails to present accordance with the
witnesses and delays the court rulings of the
for over a year. Supreme Court in
o on 18 May 1990, petitioner again Cruz, Jr. v.
expressed its inability to proceed Sandiganbayan[10]
to trial because it had no further and Republic v.
evidence to present. Again, in Migrino[11] which
the interest of justice, the involve the same
Sandiganbayan granted issues.
petitioner 60 days within which (2.) No previous
to file an appropriate pleading. inquiry similar to
 preliminary
investigations in
criminal cases was
conducted against
Ramas and
Dimaano.
(3.) The evidence
adduced against
Ramas does not
constitute a prima
facie case against
him.
(4.) There was an
illegal search and
seizure of the items
confiscated.
Issues
1. PCGGs Jurisdiction to Investigate
Private Respondents
2. Propriety of Dismissal of Case Before
Completion of Presentation of
Evidence Petitioner also contends that the
Sandiganbayan erred in dismissing the case
before completion of the presentation of
petitioners evidence.
3. Third Issue: Legality of the Search and
Seizure Petitioner claims that the
Sandiganbayan erred in declaring the
properties confiscated from Dimaanos house
as illegally seized and therefore inadmissible
in evidence. This issue bears a significant
effect on petitioners case since these
properties comprise most of petitioners
evidence against private respondents.
Petitioner will not have much evidence to
support its case against private respondents if
these properties are inadmissible in
evidence.Ruling
1. First issue:
1. The PCGG, through the AFP
Board, can only investigate the
unexplained wealth and corrupt
practices of AFP personnel who
fall under either of the two
categories mentioned in Section
2 of EO No. 1. These are: (1)
AFP personnel who have
accumulated ill-gotten wealth
during the administration of
former President Marcos by
being the latters immediate
family, relative, subordinate or
close associate, taking undue
advantage of their public office
or using their powers, influence
x x x; or (2) AFP personnel
involved in other cases of graft
and corruption provided the
President assigns their cases to
the PCGG.
2. Ramas case should fall under the
first category of AFP personnel
before the PCGG could exercise
its jurisdiction over him.
Petitioner argues that Ramas was
undoubtedly a subordinate of
former President Marcos
because of his position as the
Commanding General of the
Philippine Army. Petitioner
claims that Ramas position
enabled him to receive orders
directly from his commander-in-
chief, undeniably making him a
subordinate of former President
Marcos.
3. We hold that Ramas was not a
subordinate of former President
Marcos in the sense
contemplated under EO No. 1
and its amendments.
4. Mere position held by a military
officer does not automatically
make him a subordinate as this
term is used in EO Nos. 1, 2, 14
and 14-A absent a showing that
he enjoyed close association
with former President Marcos.
2. Second issue:
1. Based on the findings of the
Sandiganbayan and the records
of this case, we find that
petitioner has only itself to
blame for non-completion of the
presentation of its evidence.
First, this case has been pending
for four years before the
Sandiganbayan dismissed it.
3. Third issue:
1. On 3 March 1986, the
Constabulary raiding team
served at Dimaanos residence a
search warrant captioned Illegal
Possession of Firearms and
Ammunition. Dimaano was not
present during the raid but
Dimaanos cousins witnessed the
raid. The raiding team seized the
items detailed in the seizure
 receipt together with other items
not included in the search
warrant. The raiding team seized
these items: one baby armalite
rifle with two magazines; 40
rounds of 5.56 ammunition; one
pistol, caliber .45;
communications equipment,
cash consisting of P2,870,000
and US$50,000, jewelry, and
land titles.
2. Petitioner wants the Court to
take judicial notice that the
raiding team conducted the
search and seizure on March 3,
1986 or five days after the
successful EDSA revolution.
Petitioner argues that a interregnum.
revolutionary government was
operative at that time by virtue of
Proclamation No. 1 announcing
that President Aquino and Vice
President Laurel were taking
power in the name and by the
will of the Filipino
people. Petitioner asserts that
the revolutionary government
effectively withheld the
operation of the 1973
Constitution which
guaranteed private
respondents exclusionary
right.
3. Moreover, petitioner argues that
the exclusionary right arising
from an illegal search applies
only beginning 2 February 1987,
the date of ratification of the
1987 Constitution. Petitioner
contends that all rights under the
Bill of Rights had already
reverted to its embryonic stage at
the time of the search. Therefore,
the government may confiscate
the monies and items taken from
Dimaano and use the same in
evidence against her since at the
time of their seizure, private
respondents did not enjoy any
constitutional right.
4. Petitioner is partly right in its
arguments.
5. The correct issues are: (1)
whether the revolutionary
government was bound by the
Bill of Rights of the 1973
Constitution during the
interregnum, that is, after the
actual and effective take-over of
power by the revolutionary
government following the
cessation of resistance by
loyalist forces up to 24 March
1986 (immediately before the
adoption of the Provisional
Constitution); and (2) whether
the protection accorded to
individuals under the
International Covenant on Civil
and Political Rights (Covenant)
and the Universal Declaration of
Human Rights (Declaration)
remained in effect during the
6. We hold that the Bill of Rights
under the 1973 Constitution was
not operative during the
interregnum. However, we rule
that the protection accorded to
individuals under the Covenant
and the Declaration remained in
effect during the interregnum.
7. During the interregnum, the
directives and orders of the
revolutionary government were
the supreme law because no
constitution limited the extent
and scope of such directives and
orders. With the abrogation of
the 1973 Constitution by the
successful revolution, there was
no municipal law higher than the
directives and orders of the
revolutionary government. Thus,
during the interregnum, a person
could not invoke any
exclusionary right under a Bill of
Rights because there was neither
a constitution nor a Bill of Rights
during the interregnum.
8. As the Court explained in Letter
of Associate Justice Reynato S.
Puno:A revolution has been
defined as the complete
overthrow of the established
government in any country or
state by those who were
previously subject to it or as a
sudden, radical and fundamental
change in the government or
political system, usually effected
with violence or at least some
 acts of violence. In Kelsens
book, General Theory of Law
and State, it is defined as that
which occurs whenever the legal
order of a community is nullified
and replaced by a new order . . .
a way not prescribed by the first
order itself.
9. During the interregnum, the
government in power was
concededly a revolutionary
government bound by no
constitution. No one could
validly question the
sequestration orders as violative
of the Bill of Rights because
there was no Bill of Rights
during the interregnum.
However, upon the adoption of
the Freedom Constitution, the
sequestered companies assailed
the sequestration orders as
contrary to the Bill of Rights of
the Freedom Constitution.
10. The revolutionary government
did not repudiate the Covenant
or the Declaration during the
interregnum. Whether the
revolutionary government could
have repudiated all its
obligations under the Covenant
or the Declaration is another
matter and is not the issue here.
Suffice it to say that the Court
considers the Declaration as part
of customary international law,
and that Filipinos as human
beings are proper subjects of the
rules of international law laid
down in the Covenant. The fact
is the revolutionary government
did not repudiate the Covenant
or the Declaration in the same
way it repudiated the 1973
Constitution. As the de jure
government, the revolutionary
government could not escape
responsibility for the States good
faith compliance with its treaty
obligations under international
law.
11. During the interregnum when no
constitution or Bill of Rights
existed, directives and orders
issued by government officers
were valid so long as these
officers did not exceed the
authority granted them by the
revolutionary government. The
directives and orders should not
have also violated the Covenant
or the Declaration. In this case,
the revolutionary government
presumptively sanctioned the
warrant since the revolutionary
government did not repudiate
it. The warrant, issued by a
judge upon proper
application, specified the items
to be searched and seized. The
warrant is thus valid with
respect to the items specifically
described in the warrant.
12. It is obvious from the testimony
of Captain Sebastian that the
warrant did not include the
monies, communications
equipment, jewelry and land
titles that the raiding team
confiscated. The search
warrant did not particularly
describe these items and the
raiding team confiscated them
on its own authority. The
raiding team had no legal basis
to seize these items without
showing that these items could
be the subject of warrantless
search and seizure. Clearly, the
raiding team exceeded its
authority when it seized these
items.The seizure of these items
was therefore void, and unless
these items are contraband per
se, and they are not, they must be
returned to the person from
whom the raiding seized
them. However, we do not
declare that such person is the
lawful owner of these items,
merely that the search and
seizure warrant could not be
used as basis to seize and
withhold these items from the
possessor. We thus hold that
these items should be returned
immediately to Dimaano.
The Dispositive
WHEREFORE, the petition for certiorari
is DISMISSED. The questioned Resolutions of the
Sandiganbayan dated 18 November 1991 and 25 March
1992 in Civil Case No. 0037, remanding the records of
this case to the Ombudsman for such appropriate action
as the evidence may warrant, and referring this case to the
Commissioner of the Bureau of Internal Revenue for a
determination of any tax liability of respondent Elizabeth
Dimaano, are AFFIRMED.