G.R. No.

L-1104 May 31, 1949 It shall also be the duty of said proprietor lessee
promoter or operator to deliver to the Office of the
EASTERN THEATRICAL CO., INC., ET AL., plaintiffs- City Treasurer the fees corresponding to the
appellants, number of ticket old by him within two days after
vs. the performances or exhibition has taken place.
VICTOR, ALFONSO as City Treasurer of Manila, THE
MUNICIPAL BOARD OF THE CITY OF MANILA, and SEC. 3. The fees herein prescribed shall not be
JUAN NOLASCO, as Mayor of the City of paid where the admission fees or charge are
Manila, defendants-appellees. collection for and in behalf of any charitable
education or religion institution or association.
Francisco Zulueta and Poblador Jr. for appellants.
City Fiscal Jose P. Bengzon and Assistant City Fiscal All place of amusement which are operate by
Julio Villamor for appellees. U.S. Army and Navy with fund belonging to the
Assistant Solicitor General Carmelino G. Alvendia, U.S. Government are hereby exempted from fees
Solicitor Guillermo E.Torres and Manuel D. Baldeo as herein imposed.
amicus curiae.
SEC. 4. Any person violation any of the provision
PERFECTO, J.: of this ordinance shall upon conviction thereof be
punished by a fine of not more than P200 or by
Twelve corporation engaged in motion picture business imprisonment for not more than six months or by
have initiated these proceeding through a complaint dated both such fine and imprisonment in the discretion
May 5, 1946, to impugn the validity of Ordinance No. 2958 of the court. If the violation is committed by the
of the City of Manila which was enacted by the club firm or corporation the manager the
municipalBoard of said city on April 25 1946 approved by managing director or person charged with the
the Mayor on April 27, 1946 and took effect on May 1, management of the business of such club firm or
1946 said ordinance reading as follows: corporation shall be criminally responsible
therefor.
AN ORDINANCE IMPOSING A FEE ON
THE PRICE OF EVERY ADMISSION SEC. 5. This Ordinance shall take effect on the
TICKET SOLD BY May 1, 1946.
CINEMATOGRAPHS, THEATERS
VAUDEVILLE COMPANIES Plaintiffs, operator of theaters in Manila And distributor of
THEATRICAL SHOWS AND BOXING local or imported films allege that they are interested in
EXHIBITION AND PROVIDING FOR the provision of section 1,2 and 4 of said ordinance which
OTHER PURPOSES. they impugn as null and void upon the following grounds:
(a) For violation the Constitution more particular the
SEC. 1. In addition to the fees paid by provision regarding the uniformity and equality of taxation
cinematographers, theaters, vaudeville and thee equal protection of the laws; (b) because the
companies, theatrical shows and boxing Municipal Board of Manila exceeded and over-stepped
exhibitions, as provided for in sections 633 and the power granted it the Charter of the City of Manila; (c)
778 of Ordinance No. 1600, known as the because it contravenes violates and is inconsistent with,
Revised Ordinance of the City of Manila, as existing nationallegislation more particularly revenue and
amended, there shall be collected from the place tax laws and (d) because it is unfair, unjust, arbitrary
of amusement which are specifically mentioned capricious unreasonable oppressive and is contrary to
above the following fees on the price of every and violation our basic and recognizes principles of
admission ticket sold by such enterprises: taxation and licensing laws.

a. For every ticket sold the price of which is from Defendants

P0.25 to allege
P0.05 as affirmative defenses the following:
P0.99 (a) That the ordinance was passed by the Municipal
Board of Manila by virtue of its express legislative power
b. For every ticket sold the price of which is from P1 to P1.99
to tax fix the0.10
license fee and regulate the business of
theaters, cinematographs
c. For every ticket sold the price of which is from P2 to P2.99 0.15 and further to fix the location of
and to tax, fix the license fee for and regulate the business
d. for every ticket sold the price of which is from P3 to P4.99 0.20
of theatrical performances public exhibition circus and
e. or every ticket sold the price of which is from P5 to P5.99
other 0.25
performances and places of amusement; (b) that
the graduated
f. For every ticket sold the price of which is from P0 to P14.99 0.35 tax required by said ordinance being
applied to all cinematographs, theaters, vaudeville
g. For ticket sold thee price of which is from P15 companies
or more 0.50
theatricalshow and boxing exhibitions
similarly situated and as a class without distinction or
SEC. 2 It shall be the duty of every proprietor exception the same does not violate the prohibition
lessee, promoter, or operatorof such against uniformity and equality of taxation; (c) that the
cinematographs, theater, vaudeville companies, graduated tax onadmission tickets to theaters and other
theatrical show and boxing exhibition to provide places of amusement imposed by the National Internal
himself with tickets which shall be serially Revenue Code (Commonwealth Act No. 466) is collected
numbered, indication therein the name of by and for the purposes of the National Government,
amusement place and the fee charge for whereas, Ordinance No.2958 imposes and requires the
admission. Before such ticket are sold he same collection of a similar tax by and for the purposes of the
shall be presented to the office of the city Government of the City of Manila, and there is no case of
Treasurer for registration. Tickets once issued double taxation, (d) that said ordinance having been
and presented at the gate of entrance shall be cut enacted under the express power of the Municipal Board
by the gatekeeper into halves, the first half to be to tax for revenue as distinguishedfrom its power to
returned to the customer and the other half to be license for purely police purposes, the fact that the
retained by the gate keeper. amount collected thereunder are higher than what are
needed for police regulation and supervision does not
render said ordinance unfair unjust capricious
unreasonable and oppressive; (e) that consideration the
nature of the business of the plaintiffs and the enormous
volume of business they handle the graduated tax fixed
by the ordinance is not unreasonable.
Defendants allege also that since May 1, 1946, when the
ordinance in question took effect plaintiffs have been
charging the theater-going public increased prices for
admission to the cinematographs owned and operated to
the graduated tax imposed by said ordinance and as a
result while refusing to pay said tax but at the same time
collecting an amount equal to said tax plaintiffs have
taken undue advantage of said ordinance to realized
more profits.
On September 5, 1946, Judge Emilio Pena of the court of
first Instance of Manila rendered a decision upholding the
validity of Ordinance No. 2958.
Plaintiffs appellants assign in the their brief three errors
committed by the trial court. We will consider them
separately.
Appellants contend that the lower court erred in holding
that under section 2444 (m) of the Revised administrative
Code the Municipal Board of the City ofManila had the
power to enact Ordinance No. 2958.
Section 2444 (m) of the Revised Administrative code
reads as follows:
To tax fix the license fee and regulate the
business of hotels restaurants refreshment
places, cafes, lodging houses, boarding houses
livery garages warehouses, pawnshops theaters,
cinematographs; and further to fix the location of
and to tax fix the license fee for and regulate the
businessof lively stables, the license fee for and
regulate the business of livery stable, boarding
stables, embalmers, public billiard table public
pool tables, bowling alleys, dance halls, public
dancing halls, cabarets, circusand other similar
parades, public vehicles, race tracks, horse
races,Junk dealers, theatrical performances,
public exhibitions, circus andother performances
and places of amusements, match factories,
blacksmith shops, foundries, steam boilers,
lumber yards, shipyards, thestorage and sale of
gunpowder, tar, pitch, resin, coal, oil,
gasoline,benzene, turpentine, 'hemp, cotton,
nitroglycerin, petroleum or any Ofthe products
thereof and of all other highly combustible or
explosivematerials and other establishment likely
to endanger the public safety or give rise to
conflagration or explosion and subject to the
provision of ordinance issue by the (Philippines
Health Service) Bureau of Health in accordance
with law tanneries, renders tallow chandlers bone
factories and soap factories.
Appellants line of argument runs as follows:
By virtue of the specific power granted in the above
quoted provision of the Revised Administration Code
Ordinance No. 2958 was enacted.
On August 7, 1940 the National Assembly enacted
Commonwealth Act No. 466, known as the National
Internal Revenue Code section 18, 260 and 261 of which
read as follows:
SEC. 18. Sources of revenue. — The following
taxes fees and charges are deemed to be
national internal revenue taxes:
(a) Income tax;
(b) Estate inheritance and gift taxes;
(c) Specific taxes on certain articles;
(d) Privilege taxes on business or
occupation;
(e) Documentary stamp taxes;
(f) Mining taxes;
(g) Miscellaneous taxes fees and
charges, namely, taxes on banks and
insurance companies franchise taxes on
amusements charges on forest product
fees for sealing weights and measures
firearms license fees radio registration
fees and water rentals.
SEC. 260. Amusement taxes. — There shall be
collected from the proprietor, lessee, or operation
of theater cinematographs, concert halls,
circuses, boxing exhibition and other places of
amusement the following taxes:
(a) When the amount paid for admission exceeds
twenty-nine centavos, two centavos on each
admission;
(b) When the amount paid for admission exceeds
twenty-nine but does not exceed thirty-nine
centavos, three centavos on each admission;
(c) When the amount paid for admission exceeds
thirty-nine centavos but does not exceed forty-
nine centavos four centavos on each admission.
(d) When the amount paid for admission exceeds
forty-nine centavos but does not exceed fifty-nine
centavos five admission.
(e) When the amount paid for admission exceeds
fifty-nine centavos but does not exceed sixty-nine
centavos six centavos on each admission.
(f) When the amount paid for admission exceeds
sixty-nine centavos but does not exceed seventy
nine centavos seven centavos on each
admission.
(g) When the amount paid for admission exceeds
seventy nine centavos but does not exceed
eighty-nine centavos eight centavos on each
admission;
(h) When the amount paid for admission exceeds
eighty-nine centavos but does not exceed ninty-
nine centavos, nine centavos on each admission;
(i) When the amount paid for admission exceeds
ninety-nine centavos, ten centavos on each
admission.
In the case of theaters or cinematographs, the
taxes herein prescribed shall first be decuted and
withheld by the proprietros, lessees, or operators
of such theaters or cinematogrphs and paid to the
Collector of Internal Revenue before the gross
receipts are divided between the proprietros,
lessees, or operators of the theaters of
cinematographs and the distributors of the
cinematographic films.
 In the case of cockpits, race tracks, and cabarets,
there shall be collected from the proprietor,
lessee, or operator a tax equivalent to ten per
centum of the gross receipts, irrespective of
whether or not any amount is charged or paid for
admission: Provided, however, That in the case
of race tracks, this tax is in addition to the
privilege tax prescribed in seciton 193. for the
purpose of the amusement tax, the term "gross
receipts" embraces all the receipts of the
proprietor, lessee, or operator of the amusement
place, excluding the receipts derived by him from
the sale of liquors, beverages, or other articles
subject to specific tax, or from any business
subject to tax under this Code. (This section was
amended by section 8, Republic Act No. 39,
effective October 1, 1946. We are quoting the
original provision to show the status of the law
when the Ordinance was passed.)
SEC. 261. Exemption. — The tax herein imposed
shall not be paid where the admission fee or
charges are collected by or for and in behalf of
any religious, charitable, scientific, or educational
institution or association, and where no part of the
net proceeds of such admission fees or charges
inures to the benefit of any private stockholder or
individual.
Ordinance No. 2958 does not specify the kind of the tax
sought to be imposed but the seven schedules and other
details of said ordinance are, in every respect, identical
with the amusement tax provided by section 260 of
Commonwealth Act No. 466.
But, plaintiffs argue, that section 2444(m) of the Revised
Administrative Code confers upon the City of Manila the
power to impose a tax on business but not on amusement
and, consequently, Ordinance No. 2958 was enacted
beyond the charter powers of the City of Manila.
The whole argument of plaintiffs hinges, therefore, on the
assumption that the power granted to the City of Manila
by section 2444(m) of the Revised Administrative Code is
limited to the authority to impose a tax on business, with
exclusion of the power to impose a tax amusement; but,
the assumption is based on an arbitrary labeling of the
kind of tax authorized by said section 2444(m). The
distinction made by plaintiffs as to the power to tax on
business and the power to tax on amusement has no
ground under the provisions of section 2444(m) of the
Revised Administrative Code. The tax therein authorized
cannot be defined as tax on business and cannot be
restricted within a smaller scope than what is authorized
by the words used, to the extent of excluding what
plaintiffs describe as tax on amusement.
The very fact that section 2444 (m) of the Revised
Administrative Code includes theaters, cinematographs,
public billiard tables, public pool tables, bowling alleys,
dance halls, public dancing halls, cabarets, circuses and
other similar places, race tracks, horse races, theatrical
performances, public exhibition, circus and other
performances and places of amusements, will show
conclusively that the power to tax amusement is expressly
included within the power granted by section 2444(m) of
the Revised Administrative Code.
Plaintiffs-appellants contend that the lower court erred in
not holding that section 2444 (m) of the Revised
Administrative Code was repealed or the power therein
contained was withdrawn by the National Assembly by the
enactment of Commonwealth Act No. 466 known as the
National Internal Revenue Code.
In support of this contention, plaintiffs aver that the
Charter of the City of Manila, containing section 2444(m)
of the Revised Administrative Code, was enacted on
December 8, 1929. On April 25, 1940, the National
Assembly enacted Commonwealth Act No. 466, including
provisions on amusement tax, covering the whole field on
taxation and provided for more than what the ordinance in
question has provided. As a result, there are two taxing
powers seeking to occupy exactly the same field of
legislation, and so the apparent conflict must be resolved
with the conclusion that, with the enactment of
Commonwealth Act No. 466, as later amended by
Republic Act No. 39, section 2444(m) of the Revised
Administrative Code has been impliedly repealed and the
power therein delegated to the City of Manila withdrawn.
We see absolutely no force in plaintiffs' contention. The
conflict pointed out by them is imaginary. Both provisions
of law may stand together and be enforced at the same
time without any incompatibility among themselves.
Finally, plaintiffs contend that the trial court erred in not
holding that Ordinance No. 2958 violated the principle of
equality and uniformity of taxation enjoined by the
Constitution (sec. 22, sub-sec. 1, Art. VI, Constitution of
the philippines).
To support this contenttion, appellantts point out to the
fact that the ordinance in question does not tax "many
more kinds of amusements" than those therein specified,
such as "race tracks, cockpits, cabarets, concert halls,
circuses, and other places of amusement." the argument
has absolutely no merit. The fact that some places of
amusement are not taxed while others, such as
cinematographs, theaters, vaudeville companies,
theatrical shows, and boxing exhibitions and other kinds
of amusements or places of amusement are taxed, is no
argument at all against the equality and uniformity of the
tax imposition. Equality and uniformity of the tax
imposition. Equality and uniformity in taxation means that
all taxable articles or kinds of property of the same class
shall be taxed at the same rate. The taxing power has the
authority to make reasonable and natural classifications
for purposes of taxation; and the appellants cannot point
out what places of amusement taxed by the ordinance do
not constitute a class by themselves and which can be
confused with those not included in the ordinance.
The judgment of the trial court is affirmed with costs
against appellants.
G.R. No. L-59431 July 25, 1984
ANTERO M. SISON, JR., petitioner,
vs.
RUBEN B. ANCHETA, Acting Commissioner, Bureau
of Internal Revenue; ROMULO VILLA, Deputy
Commissioner, Bureau of Internal Revenue; TOMAS
TOLEDO Deputy Commissioner, Bureau of Internal
Revenue; MANUEL ALBA, Minister of Budget,
FRANCISCO TANTUICO, Chairman, Commissioner
on Audit, and CESAR E. A. VIRATA, Minister of
Finance, respondents.
Antero Sison for petitioner and for his own behalf.
The Solicitor General for respondents.

FERNANDO, C.J.:
The success of the challenge posed in this suit for
declaratory relief or prohibition proceeding 1 on the
validity of Section I of Batas Pambansa Blg. 135 depends
upon a showing of its constitutional infirmity. The assailed
provision further amends Section 21 of the National
Internal Revenue Code of 1977, which provides for rates
of tax on citizens or residents on (a) taxable
compensation income, (b) taxable net income, (c)
royalties, prizes, and other winnings, (d) interest from
bank deposits and yield or any other monetary benefit
from deposit substitutes and from trust fund and similar
arrangements, (e) dividends and share of individual
partner in the net profits of taxable partnership, (f)
adjusted gross income. 2 Petitioner 3 as taxpayer alleges
that by virtue thereof, "he would be unduly discriminated
against by the imposition of higher rates of tax upon his
income arising from the exercise of his profession vis-a-
visthose which are imposed upon fixed income or salaried
individual taxpayers. 4 He characterizes the above sction
as arbitrary amounting to class legislation, oppressive and
capricious in character 5 For petitioner, therefore, there is
a transgression of both the equal protection and due
process clauses 6 of the Constitution as well as of the rule
requiring uniformity in taxation. 7
The Court, in a resolution of January 26, 1982, required
respondents to file an answer within 10 days from notice.
Such an answer, after two extensions were granted the
Office of the Solicitor General, was filed on May 28,
1982. 8The facts as alleged were admitted but not the
allegations which to their mind are "mere arguments,
opinions or conclusions on the part of the petitioner, the
truth [for them] being those stated [in their] Special and
Affirmative Defenses." 9 The answer then affirmed:
"Batas Pambansa Big. 135 is a valid exercise of the
State's power to tax. The authorities and cases cited while
correctly quoted or paraghraph do not support petitioner's
stand." 10 The prayer is for the dismissal of the petition
for lack of merit.
This Court finds such a plea more than justified. The
petition must be dismissed.
1. It is manifest that the field of state activity has assumed
a much wider scope, The reason was so clearly set forth
by retired Chief Justice Makalintal thus: "The areas which
used to be left to private enterprise and initiative and
which the government was called upon to enter optionally,
and only 'because it was better equipped to administer for
the public welfare than is any private individual or group
of individuals,' continue to lose their well-defined
boundaries and to be absorbed within activities that the
government must undertake in its sovereign capacity if it
is to meet the increasing social challenges of the
times." 11 Hence the need for more revenues. The power
to tax, an inherent prerogative, has to be availed of to
assure the performance of vital state functions. It is the
source of the bulk of public funds. To praphrase a recent
decision, taxes being the lifeblood of the government,
their prompt and certain availability is of the essence. 12
2. The power to tax moreover, to borrow from Justice
Malcolm, "is an attribute of sovereignty. It is the strongest
of all the powers of of government." 13 It is, of course, to
be admitted that for all its plenitude 'the power to tax is not
unconfined. There are restrictions. The Constitution sets
forth such limits . Adversely affecting as it does properly
rights, both the due process and equal protection clauses
inay properly be invoked, all petitioner does, to invalidate
in appropriate cases a revenue measure. if it were
otherwise, there would -be truth to the 1803 dictum of
Chief Justice Marshall that "the power to tax involves the
power to destroy." 14 In a separate opinion in Graves v.
New York, 15 Justice Frankfurter, after referring to it as
an 1, unfortunate remark characterized it as "a flourish of
rhetoric [attributable to] the intellectual fashion of the
times following] a free use of absolutes." 16 This is merely
to emphasize that it is riot and there cannot be such a
constitutional mandate. Justice Frankfurter could rightfully
conclude: "The web of unreality spun from Marshall's
famous dictum was brushed away by one stroke of Mr.
Justice Holmess pen: 'The power to tax is not the power
to destroy while this Court sits." 17 So it is in the
Philippines.
3. This Court then is left with no choice. The Constitution
as the fundamental law overrides any legislative or
executive, act that runs counter to it. In any case therefore
where it can be demonstrated that the challenged
statutory provision — as petitioner here alleges — fails to
abide by its command, then this Court must so declare
and adjudge it null. The injury thus is centered on the
question of whether the imposition of a higher tax rate on
taxable net income derived from business or profession
than on compensation is constitutionally infirm.
4, The difficulty confronting petitioner is thus apparent. He
alleges arbitrariness. A mere allegation, as here. does not
suffice. There must be a factual foundation of such
unconstitutional taint. Considering that petitioner here
would condemn such a provision as void or its face, he
has not made out a case. This is merely to adhere to the
authoritative doctrine that were the due process and equal
protection clauses are invoked, considering that they arc
not fixed rules but rather broad standards, there is a need
for of such persuasive character as would lead to such a
conclusion. Absent such a showing, the presumption of
validity must prevail. 18
5. It is undoubted that the due process clause may be
invoked where a taxing statute is so arbitrary that it finds
no support in the Constitution. An obvious example is
where it can be shown to amount to the confiscation of
property. That would be a clear abuse of power. It then
becomes the duty of this Court to say that such an
arbitrary act amounted to the exercise of an authority not
conferred. That properly calls for the application of the
Holmes dictum. It has also been held that where the
assailed tax measure is beyond the jurisdiction of the
state, or is not for a public purpose, or, in case of a
retroactive statute is so harsh and unreasonable, it is
subject to attack on due process grounds. 19
6. Now for equal protection. The applicable standard to
avoid the charge that there is a denial of this constitutional
mandate whether the assailed act is in the exercise of the
lice power or the power of eminent domain is to
demonstrated that the governmental act assailed, far from
being inspired by the attainment of the common weal was
prompted by the spirit of hostility, or at the very least,
discrimination that finds no support in reason. It suffices
then that the laws operate equally and uniformly on all
persons under similar circumstances or that all persons
must be treated in the same manner, the conditions not
being different, both in the privileges conferred and the
liabilities imposed. Favoritism and undue preference
cannot be allowed. For the principle is that equal
protection and security shall be given to every person
under circumtances which if not Identical are analogous.
If law be looked upon in terms of burden or charges, those
that fall within a class should be treated in the same
fashion, whatever restrictions cast on some in the group
equally binding on the rest." 20 That same formulation
applies as well to taxation measures. The equal protection
clause is, of course, inspired by the noble concept of
approximating the Ideal of the laws benefits being
available to all and the affairs of men being governed by
that serene and impartial uniformity, which is of the very
essence of the Idea of law. There is, however, wisdom,
as well as realism in these words of Justice Frankfurter:
"The equality at which the 'equal protection' clause aims
is not a disembodied equality. The Fourteenth
Amendment enjoins 'the equal protection of the laws,' and
laws are not abstract propositions. They do not relate to
abstract units A, B and C, but are expressions of policy
arising out of specific difficulties, address to the
attainment of specific ends by the use of specific
remedies. The Constitution does not require things which
are different in fact or opinion to be treated in law as
though they were the same." 21 Hence the constant
reiteration of the view that classification if rational in
character is allowable. As a matter of fact, in a leading
case of Lutz V. Araneta, 22 this Court, through Justice
J.B.L. Reyes, went so far as to hold "at any rate, it is
inherent in the power to tax that a state be free to select
the subjects of taxation, and it has been repeatedly held
that 'inequalities which result from a singling out of one
particular class for taxation, or exemption infringe no
constitutional limitation.'" 23
7. Petitioner likewise invoked the kindred concept of
uniformity. According to the Constitution: "The rule of
taxation shag be uniform and equitable." 24 This
requirement is met according to Justice Laurel
in Philippine Trust Company v. Yatco,25 decided in 1940,
when the tax "operates with the same force and effect in
every place where the subject may be found. " 26 He
likewise added: "The rule of uniformity does not call for
perfect uniformity or perfect equality, because this is
hardly attainable." 27 The problem of classification did not
present itself in that case. It did not arise until nine years
later, when the Supreme Court held: "Equality and
uniformity in taxation means that all taxable articles or
kinds of property of the same class shall be taxed at the
same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of
taxation, ... . 28 As clarified by Justice Tuason, where "the
differentiation" complained of "conforms to the practical
dictates of justice and equity" it "is not discriminatory
within the meaning of this clause and is therefore
uniform." 29 There is quite a similarity then to the standard
of equal protection for all that is required is that the tax
"applies equally to all persons, firms and corporations
placed in similar situation."30
8. Further on this point. Apparently, what misled petitioner
is his failure to take into consideration the distinction
between a tax rate and a tax base. There is no legal
objection to a broader tax base or taxable income by
eliminating all deductible items and at the same time
reducing the applicable tax rate. Taxpayers may be
classified into different categories. To repeat, it. is enough
that the classification must rest upon substantial
distinctions that make real differences. In the case of the
gross income taxation embodied in Batas Pambansa Blg.
135, the, discernible basis of classification is the
susceptibility of the income to the application of
generalized rules removing all deductible items for all
taxpayers within the class and fixing a set of reduced tax
rates to be applied to all of them. Taxpayers who are
recipients of compensation income are set apart as a
class. As there is practically no overhead expense, these
taxpayers are e not entitled to make deductions for
income tax purposes because they are in the same
situation more or less. On the other hand, in the case of
professionals in the practice of their calling and
businessmen, there is no uniformity in the costs or
expenses necessary to produce their income. It would not
be just then to disregard the disparities by giving all of
them zero deduction and indiscriminately impose on all
alike the same tax rates on the basis of gross income.
There is ample justification then for the Batasang
Pambansa to adopt the gross system of income taxation
to compensation income, while continuing the system of
net income taxation as regards professional and business
income.
9. Nothing can be clearer, therefore, than that the petition
is without merit, considering the (1) lack of factual
foundation to show the arbitrary character of the assailed
provision; 31 (2) the force of controlling doctrines on due
process, equal protection, and uniformity in taxation and
(3) the reasonableness of the distinction between
compensation and taxable net income of professionals
and businessman certainly not a suspect classification,
WHEREFORE, the petition is dismissed. Costs against
petitioner.
G.R. No. L-7859 December 22, 1955
WALTER LUTZ, as Judicial Administrator of the
Intestate Estate of the deceased Antonio Jayme
Ledesma,plaintiff-appellant,
vs.
J. ANTONIO ARANETA, as the Collector of Internal
Revenue, defendant-appellee.
Ernesto J. Gonzaga for appellant.
Office of the Solicitor General Ambrosio Padilla, First
Assistant Solicitor General Guillermo E. Torres and
Solicitor Felicisimo R. Rosete for appellee.
REYES, J.B L., J.:
This case was initiated in the Court of First Instance of
Negros Occidental to test the legality of the taxes imposed
by Commonwealth Act No. 567, otherwise known as the
Sugar Adjustment Act.
Promulgated in 1940, the law in question opens (section
1) with a declaration of emergency, due to the threat to
our industry by the imminent imposition of export taxes
upon sugar as provided in the Tydings-McDuffe Act, and
the "eventual loss of its preferential position in the United
States market"; wherefore, the national policy was
expressed "to obtain a readjustment of the benefits
derived from the sugar industry by the component
elements thereof" and "to stabilize the sugar industry so
as to prepare it for the eventuality of the loss of its
preferential position in the United States market and the
imposition of the export taxes."
In section 2, Commonwealth Act 567 provides for an
increase of the existing tax on the manufacture of sugar,
on a graduated basis, on each picul of sugar
manufactured; while section 3 levies on owners or
persons in control of lands devoted to the cultivation of
sugar cane and ceded to others for a consideration, on
lease or otherwise —
a tax equivalent to the difference between the
money value of the rental or consideration
 collected and the amount representing 12 per
centum of the assessed value of such land.
According to section 6 of the law —
SEC. 6. All collections made under this Act shall
accrue to a special fund in the Philippine
Treasury, to be known as the 'Sugar Adjustment
and Stabilization Fund,' and shall be paid out only
for any or all of the following purposes or to attain
any or all of the following objectives, as may be
provided by law.
First, to place the sugar industry in a position to
maintain itself, despite the gradual loss of the
preferntial position of the Philippine sugar in the
United States market, and ultimately to insure its
continued existence notwithstanding the loss of
that market and the consequent necessity of
meeting competition in the free markets of the
world;
Second, to readjust the benefits derived from the
sugar industry by all of the component elements
thereof — the mill, the landowner, the planter of
the sugar cane, and the laborers in the factory
and in the field — so that all might continue
profitably to engage therein;lawphi1.net
Third, to limit the production of sugar to areas
more economically suited to the production
thereof; and
Fourth, to afford labor employed in the industry a
living wage and to improve their living and
working conditions: Provided, That the President
of the Philippines may, until the adjourment of the
next regular session of the National Assembly,
make the necessary disbursements from the fund
herein created (1) for the establishment and
operation of sugar experiment station or stations
and the undertaking of researchers (a) to
increase the recoveries of the centrifugal sugar
factories with the view of reducing manufacturing
costs, (b) to produce and propagate higher
yielding varieties of sugar cane more adaptable
to different district conditions in the Philippines,
(c) to lower the costs of raising sugar cane, (d) to
improve the buying quality of denatured alcohol
from molasses for motor fuel, (e) to determine the
possibility of utilizing the other by-products of the
industry, (f) to determine what crop or crops are
suitable for rotation and for the utilization of
excess cane lands, and (g) on other problems the
solution of which would help rehabilitate and
stabilize the industry, and (2) for the improvement
of living and working conditions in sugar mills and
sugar plantations, authorizing him to organize the
necessary agency or agencies to take charge of
the expenditure and allocation of said funds to
carry out the purpose hereinbefore enumerated,
and, likewise, authorizing the disbursement from
the fund herein created of the necessary amount
or amounts needed for salaries, wages, travelling
expenses, equipment, and other sundry
expenses of said agency or agencies.
Plaintiff, Walter Lutz, in his capacity as Judicial
Administrator of the Intestate Estate of Antonio Jayme
Ledesma, seeks to recover from the Collector of Internal
Revenue the sum of P14,666.40 paid by the estate as
taxes, under section 3 of the Act, for the crop years 1948-
1949 and 1949-1950; alleging that such tax is
unconstitutional and void, being levied for the aid and
support of the sugar industry exclusively, which in
plaintiff's opinion is not a public purpose for which a tax
may be constitutioally levied. The action having been
dismissed by the Court of First Instance, the plaintifs
appealed the case directly to this Court (Judiciary Act,
section 17).
The basic defect in the plaintiff's position is his
assumption that the tax provided for in Commonwealth
Act No. 567 is a pure exercise of the taxing power.
Analysis of the Act, and particularly of section 6
(heretofore quoted in full), will show that the tax is levied
with a regulatory purpose, to provide means for the
rehabilitation and stabilization of the threatened sugar
industry. In other words, the act is primarily an exercise of
the police power.
This Court can take judicial notice of the fact that sugar
production is one of the great industries of our nation,
sugar occupying a leading position among its export
products; that it gives employment to thousands of
laborers in fields and factories; that it is a great source of
the state's wealth, is one of the important sources of
foreign exchange needed by our government, and is thus
pivotal in the plans of a regime committed to a policy of
currency stability. Its promotion, protection and
advancement, therefore redounds greatly to the general
welfare. Hence it was competent for the legislature to find
that the general welfare demanded that the sugar industry
should be stabilized in turn; and in the wide field of its
police power, the lawmaking body could provide that the
distribution of benefits therefrom be readjusted among its
components to enable it to resist the added strain of the
increase in taxes that it had to sustain (Sligh vs. Kirkwood,
237 U. S. 52, 59 L. Ed. 835; Johnson vs. State ex rel.
Marey, 99 Fla. 1311, 128 So. 853; Maxcy Inc. vs. Mayo,
103 Fla. 552, 139 So. 121).
As stated in Johnson vs. State ex rel. Marey, with
reference to the citrus industry in Florida —
The protection of a large industry constituting one
of the great sources of the state's wealth and
therefore directly or indirectly affecting the
welfare of so great a portion of the population of
the State is affected to such an extent by public
interests as to be within the police power of the
sovereign. (128 Sp. 857).
Once it is conceded, as it must, that the protection and
promotion of the sugar industry is a matter of public
concern, it follows that the Legislature may determine
within reasonable bounds what is necessary for its
protection and expedient for its promotion. Here, the
legislative discretion must be allowed fully play, subject
only to the test of reasonableness; and it is not contended
that the means provided in section 6 of the law (above
quoted) bear no relation to the objective pursued or are
oppressive in character. If objective and methods are
alike constitutionally valid, no reason is seen why the
state may not levy taxes to raise funds for their
prosecution and attainment. Taxation may be made the
implement of the state's police power (Great Atl. & Pac.
Tea Co. vs. Grosjean, 301 U. S. 412, 81 L. Ed. 1193; U.
S. vs. Butler, 297 U. S. 1, 80 L. Ed. 477; M'Culloch vs.
Maryland, 4 Wheat. 316, 4 L. Ed. 579).
That the tax to be levied should burden the sugar
producers themselves can hardly be a ground of
complaint; indeed, it appears rational that the tax be
obtained precisely from those who are to be benefited
from the expenditure of the funds derived from it. At any
rate, it is inherent in the power to tax that a state be free Manila, Philippines, September 17, 1968.
to select the subjects of taxation, and it has been
repeatedly held that "inequalities which result from a
singling out of one particular class for taxation, or
exemption infringe no constitutional limitation"
(Carmichael vs. Southern Coal & Coke Co., 301 U. S.
495, 81 L. Ed. 1245, citing numerous authorities, at p.
1251).

From the point of view we have taken it appears of no

moment that the funds raised under the Sugar
Stabilization Act, now in question, should be exclusively
spent in aid of the sugar industry, since it is that very
enterprise that is being protected. It may be that other
industries are also in need of similar protection; that the
legislature is not required by the Constitution to adhere to
a policy of "all or none." As ruled in Minnesota ex rel.
Pearson vs. Probate Court, 309 U. S. 270, 84 L. Ed. 744,
"if the law presumably hits the evil where it is most felt, it
is not to be overthrown because there are other instances
to which it might have been applied;" and that "the
legislative authority, exerted within its proper field, need
not embrace all the evils within its reach" (N. L. R. B. vs.
Jones & Laughlin Steel Corp. 301 U. S. 1, 81 L. Ed. 893).

Even from the standpoint that the Act is a pure tax

measure, it cannot be said that the devotion of tax money
to experimental stations to seek increase of efficiency in
sugar production, utilization of by-products and solution of
allied problems, as well as to the improvements of living The controverted Ordinance No. 6537 was passed by the
and working conditions in sugar mills or plantations, Municipal Board of Manila on February 22, 1968 and
without any part of such money being channeled directly signed by the herein petitioner Mayor Antonio J. Villegas
to private persons, constitutes expenditure of tax money of Manila on March 27, 1968. 2
for private purposes, (compare Everson vs. Board of
Education, 91 L. Ed. 472, 168 ALR 1392, 1400). City Ordinance No. 6537 is entitled:

The decision appealed from is affirmed, with costs against

AN ORDINANCE MAKING IT
appellant. So ordered.
UNLAWFUL FOR ANY PERSON NOT A
CITIZEN OF THE PHILIPPINES TO BE
EMPLOYED IN ANY PLACE OF
EMPLOYMENT OR TO BE ENGAGED
G.R. No. L-29646 November 10, 1978 IN ANY KIND OF TRADE, BUSINESS
OR OCCUPATION WITHIN THE CITY
MAYOR ANTONIO J. VILLEGAS, petitioner, OF MANILA WITHOUT FIRST
vs. SECURING AN EMPLOYMENT
HIU CHIONG TSAI PAO HO and JUDGE FRANCISCO PERMIT FROM THE MAYOR OF
ARCA, respondents. MANILA; AND FOR OTHER
PURPOSES. 3
Angel C. Cruz, Gregorio A. Ejercito, Felix C. Chaves &
Jose Laureta for petitioner. Section 1 of said Ordinance No. 6537 4 prohibits aliens
from being employed or to engage or participate in any
position or occupation or business enumerated therein,
Sotero H. Laurel for respondents.
whether permanent, temporary or casual, without first
securing an employment permit from the Mayor of Manila
and paying the permit fee of P50.00 except persons
employed in the diplomatic or consular missions of foreign
FERNANDEZ, J.: countries, or in the technical assistance programs of both
the Philippine Government and any foreign government,
This is a petition for certiorari to review tile decision dated and those working in their respective households, and
September 17, 1968 of respondent Judge Francisco Arca members of religious orders or congregations, sect or
of the Court of First Instance of Manila, Branch I, in Civil denomination, who are not paid monetarily or in kind.
Case No. 72797, the dispositive portion of winch reads.
Violations of this ordinance is punishable by an
Wherefore, judgment is hereby rendered imprisonment of not less than three (3) months to six (6)
in favor of the petitioner and against the months or fine of not less than P100.00 but not more than
respondents, declaring Ordinance No. 6 P200.00 or both such fine and imprisonment, upon
37 of the City of Manila null and void. The conviction. 5
preliminary injunction is made
permanent. No pronouncement as to On May 4, 1968, private respondent Hiu Chiong Tsai Pao
cost. Ho who was employed in Manila, filed a petition with the
Court of First Instance of Manila, Branch I, denominated
SO ORDERED. as Civil Case No. 72797, praying for the issuance of the
writ of preliminary injunction and restraining order to stop
the enforcement of Ordinance No. 6537 as well as for a
judgment declaring said Ordinance No. 6537 null and
void. 6
In this petition, Hiu Chiong Tsai Pao Ho assigned the
following as his grounds for wanting the ordinance
declared null and void:
1) As a revenue measure imposed on
aliens employed in the City of Manila,
Ordinance No. 6537 is discriminatory and
violative of the rule of the uniformity in
taxation;
2) As a police power measure, it makes
no distinction between useful and non-
useful occupations, imposing a fixed
P50.00 employment permit, which is out
of proportion to the cost of registration
and that it fails to prescribe any standard
to guide and/or limit the action of the
Mayor, thus, violating the fundamental
principle on illegal delegation of
legislative powers:
3) It is arbitrary, oppressive and
unreasonable, being applied only to
aliens who are thus, deprived of their
rights to life, liberty and property and
therefore, violates the due process and
equal protection clauses of the
Constitution.7
On May 24, 1968, respondent Judge issued the writ of
preliminary injunction and on September 17, 1968
rendered judgment declaring Ordinance No. 6537 null
and void and making permanent the writ of preliminary
injunction. 8
Contesting the aforecited decision of respondent Judge,
then Mayor Antonio J. Villegas filed the present petition
on March 27, 1969. Petitioner assigned the following as
errors allegedly committed by respondent Judge in the
latter's decision of September 17,1968: 9
I enumerates no conditions for its grant or refusal, and
THE RESPONDENT JUDGE
COMMITTED A SERIOUS AND
PATENT ERROR OF LAW IN RULING
THAT ORDINANCE NO. 6537
VIOLATED THE CARDINAL RULE OF
UNIFORMITY OF TAXATION.
II
RESPONDENT JUDGE LIKEWISE
COMMITTED A GRAVE AND PATENT
ERROR OF LAW IN RULING THAT
ORDINANCE NO. 6537 VIOLATED THE
PRINCIPLE AGAINST UNDUE
DESIGNATION OF LEGISLATIVE
POWER.
III
RESPONDENT JUDGE FURTHER
COMMITTED A SERIOUS AND
PATENT ERROR OF LAW IN RULING
THAT ORDINANCE NO. 6537
VIOLATED THE DUE PROCESS AND
EQUAL PROTECTION CLAUSES OF
THE CONSTITUTION.
Petitioner Mayor Villegas argues that Ordinance No. 6537
cannot be declared null and void on the ground that it
violated the rule on uniformity of taxation because the rule
on uniformity of taxation applies only to purely tax or
revenue measures and that Ordinance No. 6537 is not a
tax or revenue measure but is an exercise of the police
power of the state, it being principally a regulatory
measure in nature.
The contention that Ordinance No. 6537 is not a purely
tax or revenue measure because its principal purpose is
regulatory in nature has no merit. While it is true that the
first part which requires that the alien shall secure an
employment permit from the Mayor involves the exercise
of discretion and judgment in the processing and approval
or disapproval of applications for employment permits and
therefore is regulatory in character the second part which
requires the payment of P50.00 as employee's fee is not
regulatory but a revenue measure. There is no logic or
justification in exacting P50.00 from aliens who have been
cleared for employment. It is obvious that the purpose of
the ordinance is to raise money under the guise of
regulation.
The P50.00 fee is unreasonable not only because it is
excessive but because it fails to consider valid substantial
differences in situation among individual aliens who are
required to pay it. Although the equal protection clause of
the Constitution does not forbid classification, it is
imperative that the classification should be based on real
and substantial differences having a reasonable relation
to the subject of the particular legislation. The same
amount of P50.00 is being collected from every employed
alien whether he is casual or permanent, part time or full
time or whether he is a lowly employee or a highly paid
executive
Ordinance No. 6537 does not lay down any criterion or
standard to guide the Mayor in the exercise of his
discretion. It has been held that where an ordinance of a
municipality fails to state any policy or to set up any
standard to guide or limit the mayor's action, expresses
no purpose to be attained by requiring a permit,
entirely lacks standard, thus conferring upon the Mayor
arbitrary and unrestricted power to grant or deny the
issuance of building permits, such ordinance is invalid,
being an undefined and unlimited delegation of power to
allow or prevent an activity per se lawful. 10
In Chinese Flour Importers Association vs. Price
Stabilization Board, 11 where a law granted a government
agency power to determine the allocation of wheat flour
among importers, the Supreme Court ruled against the
interpretation of uncontrolled power as it vested in the
administrative officer an arbitrary discretion to be
exercised without a policy, rule, or standard from which it
can be measured or controlled.
It was also held in Primicias vs. Fugoso 12 that the
authority and discretion to grant and refuse permits of all
classes conferred upon the Mayor of Manila by the
Revised Charter of Manila is not uncontrolled discretion
but legal discretion to be exercised within the limits of the
law.
Ordinance No. 6537 is void because it does not contain
or suggest any standard or criterion to guide the mayor in
the exercise of the power which has been granted to him
by the ordinance.
The ordinance in question violates the due process of law
and equal protection rule of the Constitution.
Requiring a person before he can be employed to get a
permit from the City Mayor of Manila who may withhold or
refuse it at will is tantamount to denying him the basic right
of the people in the Philippines to engage in a means of
livelihood. While it is true that the Philippines as a State is
not obliged to admit aliens within its territory, once an
alien is admitted, he cannot be deprived of life without due
process of law. This guarantee includes the means of
livelihood. The shelter of protection under the due process
and equal protection clause is given to all persons, both
aliens and citizens. 13
The trial court did not commit the errors assigned.
WHEREFORE, the decision appealed from is hereby
affirmed, without pronouncement as to costs.
SO ORDERED.
G.R. No. 11572 September 22, 1916
FRANCIS A. CHURCHILL and STEWART TAIT, ET
AL, plaintiffs-appellants,
vs.
VENANCIO CONCEPCION, as Acting Collector of
Internal Revenue, defendant-appellee.
Aitken and De Selms for appellants.
Attorney-General Avanceña for appellee.
TRENT, J.:
Section 100 of Act No. 2339, passed February 27, 1914,
effective July 1, 1914, imposed an annual tax of P4 per
square meter upon "electric signs, billboards, and spaces
used for posting or displaying temporary signs, and all
signs displayed on premises not occupied by buildings."
This section was subsequently amended by Act No. 2432,
effective January 1, 1915, by reducing the tax on such
signs, billboards, etc., to P2 per square meter or fraction
thereof. Section 26 of Act No. 2432 was in turn amended
by Act No. 2445, but this amendment does not in any way
affect the questions involved in the case under
consideration. The taxes imposed by Act No. 2432, as
amended, were ratified by the Congress of the United
States on March 4, 1915. The ratifying clause reads as
follows:
The internal-revenue taxes imposed by the
Philippine Legislature under the law enacted by
that body on December twenty-third, nineteen
hundred and fourteen (Act No. 2432), as
amended by the law enacted by it on January
sixteenth, nineteen hundred and fifteen (Act No.
2445), are hereby legalized and ratified, and the
collection of all such taxes heretofore or hereafter
is hereby legalized, ratified and confirmed as fully
to all intents and purposes as if the same had by
prior Act of Congress been specifically authorized
and directed.
Francis A. Churchill and Stewart Tait, copartners doing
business under the firm name and style of the Mercantile
Advertising Agency, owners of a sign or billboard
containing an area of 52 square meters constructed on
private property in the city of Manila and exposed to public
view, were taxes thereon P104. The tax was paid under
protest and the plaintiffs having exhausted all their
administrative remedies instituted the present action
under section 140 of Act No. 2339 against the Collector
of Internal Revenue to recover back the amount thus paid.
From a judgment dismissing the complaint upon the
merits, with costs, the plaintiffs appealed.
It is now urged that the trial court erred:
(1) In not holding that the tax as imposed by virtue
of Act No. 2339, as amended by Act No. 2432, as
amended by Act No. 2445, constitutes
deprivation of property without compensation or
due process of law, because it is confiscatory and
unjustly discriminatory and (2) in not holding that
the said tax is void for lack of uniformity, because
it is not graded according to value; because the
classification on which it is based on any
reasonable ground; and furthermore, because it
constitutes double taxation.
We will first inquire whether the tax in question is
confiscatory as to the business of the plaintiff Upon this
point the lower court, in accepting the testimony of the
plaintiff, Churchill, to the effect that "the billboard in
question cost P300 to construct, that its annual gross
earning power is P268, and that the annual tax is P104,"
found "that for a five years' period the gross income from
the billboard would be P1,340, and that the expenditures
for original construction and taxes would amount to P820,
leaving a balance of P520," held that "unless the tax
equals or exceeds the gross income, the court would
hardly be justified in declaring the tax confiscatory."
These findings of fact and conclusions of law are attacked
upon the ground that the court failed to take into-
consideration the pertinent facts that the annual
depreciation of the billboard is 20 per cent; that at the end
of five years the capital of P300 would be completely lost;
that the plaintiffs are entitled to receive a reasonable rate
of interest on this capital; and that there should be
charged against the billboard its proportion of the
overhead charges such as labor, management,
maintenance, rental of office premises, rental or purchase
of ground space for board, repair, paints, oils, etc.,
resulting in an actual loss per year on the business,
instead of an apparent profit of P520 for five years, or P44
for one year. If these contentions rested upon a sound
basis it might be said that the tax is, in a sense,
confiscatory; but they do not, as we will attempt to show
from the evidence of record.
The plaintiff Churchill testified in part as follows:
Q. In your opinion, Mr. Churchill, state what
you would think of the rates that are charged by
you for advertising purposes in connection with
this board; could they be raised? —
A. No.
Q. Why? —
A. The business wouldn't allow it; the
business wouldn't afford it; and otherwise it would
mean bankruptcy to try to increase it.
Q. Who couldn't afford it? Explain it fully
Mr. Churchill? —
A. The merchants couldn't afford to pay
more. On cross-examination:
 Q. It is a fact, it is not, Mr. Churchill, that
since the passage of Act No. 2339 you have
never made any attempt to raise the advertising
rates? —
A. It would be impossible to raise them.
Q. My question is: You have never made
any attempt to raise them? —
A. We have talked it over with the
merchants and talked over the price on the event
of a tax being put at a reasonable amount, about
putting up some increase.
Q. But you have never made an actual
attempt to increase your rates? —
A. I would consider that an actual attempt.
Q. You have never fixed the rate higher
than it is now? —
A. No; no.
It was agreed that Tait, the other plaintiff, would testify to
the same effect. The parties, plaintiffs and defendant,
further agreed "that a number of persons have voluntarily
and without protest paid the taxes imposed by section 100
of Act No. 2339, as amended by Act No. 2432, and in turn
amended by Act No. 2445."
It will thus be seen that the contention that the rates
charged for advertising cannot be raised is purely
hypothetical, based entirely upon the opinion of the
plaintiffs, unsupported by actual test, and that the plaintiffs
themselves admit that a number of other persons have
voluntarily and without protest paid the tax herein
complained of. Under these circumstances, can it be held
as a matter of fact that the tax is confiscatory or that, as a
matter of law, the tax is unconstitutional? Is the exercise
of the taxing power of the Legislature dependent upon
and restricted by the opinion of two interested witnesses?
There can be but one answer to these questions,
especially in view of the fact that others are paying the tax
and presumably making a reasonable profit from their
business.
In Chicago and Grand Trunk Railway Co. vs.
Wellman (143 U. S., 339), a question similar to the one
now under consideration was raised and decided by the
Supreme Court of the United States. The principal
contention made in that case was that an Act of the
Legislature of Michigan fixing the amount per mile to be
charged by railways for the transportation of a passenger
was unconstitutional, on the ground that the rate so fixed
was confiscatory. It was agreed in the pleadings that the
total earnings and income of the company from all
sources for a given year were less than the expenses for
the same period. In addition to this agreed statement of
facts, two witnesses were called, one the traffic manager
and the other the treasurer of the company. Their
testimony was to the effect that in view of the competition
prevailing at Chicago for through business, it was
impossible to increase the freight rates then charged by
the company because it would throw the volume of
business into the hands of competing roads. In overruling
the contention of the company that the act in question was
unconstitutional on the ground that the rate fixed thereby
was confiscatory, the court said:
Surely, before the courts are called upon to
adjudge an act of the legislature fixing the
maximum passenger rates for railroad
companies to be unconstitutional, on the ground
that its enforcement would prevent the
stockholders from receiving any dividends on
their investments, or the bondholders any interest
on their loans, they should be fully advised as to
what is done with the receipts and earnings of the
company; for if so advised, it might clearly appear
that a prudent and honest management would,
within the rates prescribed, secure to the
bondholders their interest, and to the
stockholders reasonable dividends. While the
protection of vested rights of property is a
supreme duty of the courts, it has not come to
this, that the legislative power rests subservient
to the discretion of any railroad corporation which
may, by exorbitant and unreasonable salaries, or
in some other improper way, transfer its earnings
into what it is pleased to call `operating
expenses.'
It is further alleged that the tax in question is
unconstitutional because "the law herein complained of
was enacted for the sole purpose of destroying billboards
and advertising business depending on the use of signs
or billboards." If it be conceded that the Legislature has
the power to impose a tax upon signs, signboards, and
billboards, then "the judicial cannot prescribed to the
legislative department of the Government limitation upon
the exercise of its acknowledge powers." (Veazie Bank
vs. Fenno, 8 Wall., 533, 548.) That the Philippine
Legislature has the power to impose such taxes, we think
there can be no serious doubt, because "the power to
impose taxes is one so unlimited in force and so
searching in extent, that the courts scarcely venture to
declare that it is subject to any restrictions whatever,
except such as rest in the discretion of the authority which
exercises it. It reaches to every trade or occupation; to
every object of industry, use, or enjoyment; to every
species of possession; and it imposes a burden which, in
case of failure to discharge it, may be followed by seizure
and sale or confiscation of property. No attribute of
sovereignty is more pervading, and at no point does the
power of the government affect more constantly and
intimately all the relations of life than through the
exactions made under it." (Cooley's Constitutional
Limitations, 6th Edition, p. 587.)
In McCray vs. U.S. (195 U.S., 27), the court, in ruling
adversely to the contention that a federal tax on
oleomargarine artificially colored was void because the
real purpose of Congress was not to raise revenue but to
tax out of existence a substance not harmful of itself and
one which might be lawfully manufactured and sold, said:
Whilst, as a result of our written constitution, it is
axiomatic that the judicial department of the
government is charged with the solemn duty of
enforcing the Constitution, and therefore, in
cases property presented, of determining
whether a given manifestation of authority has
exceeded the power conferred by that instrument,
no instance is afforded from the foundation of the
government where an act which was within a
power conferred, was declared to be repugnant
to the Constitution, because it appeared to the
judicial mind that the particular exertion of
constitutional power was either unwise or unjust.
To announce such a principle would amount to
declaring that, in our constitutional system, the
judiciary was not only charged with the duty of
upholding the Constitution, but also with the
 responsibility of correcting every possible abuse
arising from the exercise by the other
departments of their conceded authority. So to
hold would be to overthrow the entire distinction
between the legislative, judicial, and executive
departments of the government, upon which our
system is founded, and would be a mere act of
judicial usurpation.
If a case were presented where the abuse of the taxing
power of the local legislature was to extreme as to make
it plain to the judicial mind that the power had been
exercised for the sole purpose of destroying rights which
could not be rightfully destroyed consistently with the
principles of freedom and justice upon which the
Philippine Government rests, then it would be the duty of
the courts to say that such an arbitrary act was not merely
an abuse of the power, but was the exercise of an
authority not conferred. (McCray vs. U.S., supra.) But the
instant case is not one of that character, for the reason
that the tax herein complained of falls far short of being
confiscatory. Consequently, it cannot be held that the
Legislature has gone beyond the power conferred upon it
by the Philippine Bill in so far as the amount of the tax is
concerned.
Is the tax void for lack of uniformity or because it is not
graded according to value or constitutes double taxation,
or because the classification upon which it is based is
mere arbitrary selection and not based on any reasonable
grounds? The only limitation, in so far as these questions
are concerned, placed upon the Philippine Legislature in
the exercise of its taxing power is that found in section 5
of the Philippine Bill, wherein it is declared "that the rule
of taxation in said Islands shall be uniform."
Uniformity in taxation — says Black on
Constitutional Law, page 292 — means that all
taxable articles or kinds of property, of the same
class, shall be taxed at the same rate. It does not
mean that lands, chattels, securities, incomes,
occupations, franchises, privileges, necessities,
and luxuries, shall all be assessed at the same
rate. Different articles may be taxed at different
amounts, provided the rate is uniform on the
same class everywhere, with all people, and at all
times.
A tax is uniform when it operates with the same force and
effect in every place where the subject of it is found (State
Railroad Tax Cases, 92 U.S., 575.) The words "uniform
throughout the United States," as required of a tax by the
Constitution, do not signify an intrinsic, but simply a
geographical, uniformity, and such uniformity is therefore
the only uniformity which is prescribed by the Constitution.
(Patton vs. Brady, 184 U.S., 608; 46 L. Ed., 713.) A tax is
uniform, within the constitutional requirement, when it
operates with the same force and effect in every place
where the subject of it is found. (Edye vs. Robertson, 112
U.S., 580; 28 L. Ed., 798.) "Uniformity," as applied to the
constitutional provision that all taxes shall be uniform,
means that all property belonging to the same class shall
be taxed alike. (Adams vs. Mississippi State Bank, 23
South, 395, citing Mississippi Mills vs Cook, 56 Miss., 40.)
The statute under consideration imposes a tax of P2 per
square meter or fraction thereof upon every electric sign,
bill-board, etc., wherever found in the Philippine Islands.
Or in other words, "the rule of taxation" upon such signs
is uniform throughout the Islands. The rule, which we
have just quoted from the Philippine Bill, does not require
taxes to be graded according to the value of the subject
or subjects upon which they are imposed, especially
those levied as privilege or occupation taxes. We can
hardly see wherein the tax in question constitutes double
taxation. The fact that the land upon which the billboards
are located is taxed at so much per unit and the billboards
at so much per square meter does not constitute "double
taxation." Double taxation, within the true meaning of that
expression, does not necessarily affect its validity. (1
Cooley on Taxation, 3d ed., 389.) And again, it is not for
the judiciary to say that the classification upon which the
tax is based "is mere arbitrary selection and not based
upon any reasonable grounds." The Legislature selected
signs and billboards as a subject for taxation and it must
be presumed that it, in so doing, acted with a full
knowledge of the situation.
For the foregoing reasons, the judgment appealed from is
affirmed, with costs against the appellants. So ordered.
G.R. No. L-23771 August 4, 1988
THE COMMISSIONER OF INTERNAL
REVENUE, petitioner,
vs.
LINGAYEN GULF ELECTRIC POWER CO., INC. and
THE COURT OF TAX APPEALS, respondents.
Angel Sanchez for Lingayen Electric Power Co., Inc.
SARMIENTO, J.:
This is an appeal from the decision * of the Court of Tax
Appeals (C.T.A., for brevity) dated September 15, 1964 in
C.T.A. Cases Nos. 581 and 1302, which were jointly
heard upon agreement of the parties, absolving the
respondent taxpayer from liability for the deficiency
percentage, franchise, and fixed taxes and surcharge
assessed against it in the sums of P19,293.41 and
P3,616.86 for the years 1946 to 1954 and 1959 to 1961,
respectively.
The respondent taxpayer, Lingayen Gulf Electric Power
Co., Inc., operates an electric power plant serving the
adjoining municipalities of Lingayen and Binmaley, both
in the province of Pangasinan, pursuant to the municipal
franchise granted it by their respective municipal councils,
under Resolution Nos. 14 and 25 of June 29 and July 2,
1946, respectively. Section 10 of these franchises provide
that:
...The said grantee in consideration of the franchise
hereby granted, shall pay quarterly into the Provincial
Treasury of Pangasinan, one per centum of the gross
earnings obtained thru this privilege during the first twenty
years and two per centum during the remaining fifteen
years of the life of said franchise.
On February 24, 1948, the President of the Philippines
approved the franchises granted to the private
respondent.
On November 21, 1955, the Bureau of Internal Revenue
(BIR) assessed against and demanded from the private
respondent the total amount of P19,293.41 representing
deficiency franchise taxes and surcharges for the years
1946 to 1954 applying the franchise tax rate of 5% on
gross receipts from March 1, 1948 to December 31, 1954
as prescribed in Section 259 of the National Internal
Revenue Code, instead of the lower rates as provided in
the municipal franchises. On September 29, 1956, the
private respondent requested for a reinvestigation of the
case on the ground that instead of incurring a deficiency
liability, it made an overpayment of the franchise tax. On
April 30, 1957, the BIR through its regional director,
denied the private respondent's request for
reinvestigation and reiterated the demand for payment of
the same. In its letters dated July 2, and August 9, 1958
to the petitioner Commissioner, the private respondent
protested the said assessment and requested for a
conference with a view to settling the liability amicably. In
his letters dated July 25 and August 28, 1958, the
Commissioner denied the request of the private
respondent. Thus, the appeal to the respondent Court of
Tax Appeals on September 19, 1958, docketed as C.T.A.
Case No. 581.
In a letter dated August 21, 1962, the Commissioner
demanded from the private respondent the payment of
P3,616.86 representing deficiency franchise tax and
surcharges for the years 1959 to 1961 again applying the
franchise tax rate of 5% on gross receipts as prescribed
in Section 259 of the National Internal Revenue Code. In
a letter dated October 5, 1962, the private respondent
protested the assessment and requested reconsideration
thereof The same was denied on November 9, 1962.
Thus, the appeal to the respondent Court of Appeals on
November 29, 1962, docketed as C.T.A. No. 1302.
Pending the hearing of the said cases, Republic Act (R.A.)
No. 3843 was passed on June 22, 1 963, granting to the
private respondent a legislative franchise for the operation
of the electric light, heat, and power system in the same
municipalities of Pangasinan. Section 4 thereof provides
that:
In consideration of the franchise and rights hereby
granted, the grantee shall pay into the Internal Revenue
office of each Municipality in which it is supplying electric
current to the public under this franchise, a tax equal to
two per centum of the gross receipts from electric current
sold or supplied under this franchise. Said tax shall be due
and payable quarterly and shall be in lieu of any and all
taxes and/or licenses of any kind, nature or description
levied, established, or collected by any authority
whatsoever, municipal, provincial or national, now or in
the future, on its poles, wires, insulator ... and on its
franchise, rights, privileges, receipts, revenues and
profits, from which taxes and/or licenses, the grantee is
hereby expressly exempted and effective further upon the
date the original franchise was granted, no other tax
and/or licenses other than the franchise tax of two per
centum on the gross receipts as provided for in the
original franchise shall be collected, any provision of law
to the contrary notwithstanding.
On September 15, 1964, the respondent court ruled that
the provisions of R.A. No. 3843 should apply and
accordingly dismissed the claim of the Commissioner of
Internal Revenue. The said ruling is now the subject of the
petition at bar.
The issues raised for resolution are:
1. Whether or not the 5% franchise tax prescribed in
Section 259 of the National Internal Revenue Code
assessed against the private respondent on its gross
receipts realized before the effectivity of R.A- No. 3843 is
collectible.
2. Whether or not Section 4 of R.A. No. 3843 is
unconstitutional for being violative of the "uniformity and
equality of taxation" clause of the Constitution.
3. If the abovementioned Section 4 of R.A. No. 3843 is
valid, whether or not it could be given retroactive effect so
as to render uncollectible the taxes in question which
were assessed before its enactment.
4. Whether or not the respondent taxpayer is liable for the
fixed and deficiency percentage taxes in the amount of
P3,025.96 for the period from January 1, 1946 to
February 29, 1948, the period before the approval of its
municipal franchises.
The first issue raised by the petitioner before us is
whether or not the five percent (5%) franchise tax
prescribed in Section 259 of the National Internal
Revenue Code (Commonwealth Act No. 466 as amended
by R.A. No. 39) assessed against the private respondent
on its gross receipts realized before the effectivity of R.A-
No. 3843 is collectible. It is the contention of the petitioner
Commissioner of Internal Revenue that the private
respondent should have been held liable for the 5%
franchise tax on gross receipts prescribed in Section 259
of the Tax Code, instead of the lower franchise tax rates
provided in the municipal franchises (1% of gross
earnings for the first twenty years and 2% for the
remaining fifteen years of the life of the franchises)
because Section 259 of the Tax Code, as amended by RA
No. 39 of October 1, 1946, applied to existing and future
franchises. The franchises of the private respondent were
already in existence at the time of the adoption of the said
amendment, since the franchises were accepted on
March 1, 1948 after approval by the President of the
Philippines on February 24, 1948. The private
respondent's original franchises did not contain the
proviso that the tax provided therein "shall be in lieu of all
taxes;" moreover, the franchises contained a reservation
clause that they shag be subject to amendment,
alteration, or repeal, but even in the absence of such
cause, the power of the Legislature to alter, amend, or
repeal any franchise is always deemed reserved. The
franchise of the private respondent have been modified or
amended by Section 259 of the Tax Code, the petitioner
submits.
We find no merit in petitioner's contention. R.A. No. 3843
granted the private respondent a legislative franchise in
June, 1963, amending, altering, or even repealing the
original municipal franchises, and providing that the
private respondent should pay only a 2% franchise tax on
its gross receipts, "in lieu of any and all taxes and/or
licenses of any kind, nature or description levied,
established, or collected by any authority whatsoever,
municipal, provincial, or national, now or in the future ...
and effective further upon the date the original franchise
was granted, no other tax and/or licenses other than the
franchise tax of two per centum on the gross receipts ...
shall be collected, any provision of law to the contrary
notwithstanding." Thus, by virtue of R.A- No. 3843, the
private respondent was liable to pay only the 2% franchise
tax, effective from the date the original municipal
franchise was granted.
On the question as to whether or not Section 4 of R.A. No.
3843 is unconstitutional for being violative of the
"uniformity and equality of taxation" clause of the
Constitution, and, if adjudged valid, whether or not it
should be given retroactive effect, the petitioner submits
that the said law is unconstitutional insofar as it provides
for the payment by the private respondent of a franchise
tax of 2% of its gross receipts, while other taxpayers
similarly situated were subject to the 5% franchise tax
imposed in Section 259 of the Tax Code, thereby
discriminatory and violative of the rule on uniformity and
equality of taxation.
A tax is uniform when it operates with the same force and
effect in every place where the subject of it is found.
Uniformity means that all property belonging to the same
class shall be taxed alike The Legislature has the inherent
power not only to select the subjects of taxation but to
grant exemptions. Tax exemptions have never been
deemed violative of the equal protection clause. 1 It is true
that the private respondents municipal franchises were
obtained under Act No. 667 2 of the Philippine
Commission, but these original franchises have been
replaced by a new legislative franchise, i.e. R.A. No.
3843. As correctly held by the respondent court, the latter
was granted subject to the terms and conditions
established in Act No. 3636, 3 as amended by C.A. No.
132. These conditions Identify the private respondent's
power plant as falling within that class of power plants
created by Act No. 3636, as amended. The benefits of the
tax reduction provided by law (Act No. 3636 as amended
by C.A. No. 132 and R.A. No. 3843) apply to the
respondent's power plant and others circumscribed within
this class. R.A-No. 3843 merely transferred the
petitioner's power plant from that class provided for in Act
No. 667, as amended, to which it belonged until the
approval of R.A- No. 3843, and placed it within the class
falling under Act No. 3636, as amended. Thus, it only
effected the transfer of a taxable property from one class
to another.
We do not have the authority to inquire into the wisdom of
such act. Furthermore, the 5% franchise tax rate provided
in Section 259 of the Tax Code was never intended to
have a universal application. 4 We note that the said
Section 259 of the Tax Code expressly allows the
payment of taxes at rates lower than 5% when the charter
granting the franchise of a grantee, like the one granted
to the private respondent under Section 4 of R.A. No.
3843, precludes the imposition of a higher tax. R.A. No.
3843 did not only fix and specify a franchise tax of 2% on
its gross receipts, but made it "in lieu of any and all taxes,
all laws to the contrary notwithstanding," thus, leaving no
room for doubt regarding the legislative intent. "Charters
or special laws granted and enacted by the Legislature
are in the nature of private contracts. They do not
constitute a part of the machinery of the general
government. They are usually adopted after careful
consideration of the private rights in relation with resultant
benefits to the State ... in passing a special charter the
attention of the Legislature is directed to the facts and
circumstances which the act or charter is intended to
meet. The Legislature consider (sic) and make (sic)
provision for all the circumstances of a particular
case." 5 In view of the foregoing, we find no reason to
disturb the respondent court's ruling upholding the
constitutionality of the law in question.
Given its validity, should the said law be applied
retroactively so as to render uncollectible the taxes in
question which were assessed before its enactment? The
question of whether a statute operates retrospectively or
only prospectively depends on the legislative intent. In the
instant case, Act No. 3843 provides that "effective ... upon
the date the original franchise was granted, no other tax
and/or licenses other than the franchise tax of two per
centum on the gross receipts ... shall be collected, any
provision to the contrary notwithstanding." Republic Act
No. 3843 therefore specifically provided for the retroactive
effect of the law.
The last issue to be resolved is whether or not the private
respondent is liable for the fixed and deficiency
percentage taxes in the amount of P3,025.96 (i.e. for the
period from January 1, 1946 to February 29, 1948) before
the approval of its municipal franchises. As aforestated,
the franchises were approved by the President only on
February 24, 1948. Therefore, before the said date, the
private respondent was liable for the payment of
percentage and fixed taxes as seller of light, heat, and
power — which as the petitioner claims, amounted to
P3,025.96. The legislative franchise (R.A. No. 3843)
exempted the grantee from all kinds of taxes other than
the 2% tax from the date the original franchise was
granted. The exemption, therefore, did not cover the
period before the franchise was granted, i.e. before
February 24, 1948. However, as pointed out by the
respondent court in its findings, during the period covered
by the instant case, that is from January 1, 1946 to
December 31, 1961, the private respondent paid the
amount of P34,184.36, which was very much more than
the amount rightfully due from it. Hence, the private
respondent should no longer be made to pay for the
deficiency tax in the amount of P3,025.98 for the period
from January 1, 1946 to February 29, 1948.
WHEREFORE, the appealed decision of the respondent
Court of Tax Appeals is hereby AFFIRMED. No
pronouncement as to costs. SO ORDERED.
G.R. No. 163583 August 20, 2008
BRITISH AMERICAN TOBACCO, petitioner,
vs.
JOSE ISIDRO N. CAMACHO, in his capacity as
Secretary of the Department of Finance and
GUILLERMO L. PARAYNO, JR., in his capacity as
Commissioner of the Bureau of Internal
Revenue, respondents.
Philip Morris Philippines Manufacturing, Inc., fortune
tobacco, corp., MIGHTY CORPORATION, and JT
InTERNATIONAL, S.A., respondents-in-intervention.
DECISION
YNARES-SANTIAGO, J.:
This petition for review assails the validity of: (1) Section
145 of the National Internal Revenue Code (NIRC), as
recodified by Republic Act (RA) 8424; (2) RA 9334, which
further amended Section 145 of the NIRC on January 1,
2005; (3) Revenue Regulations Nos. 1-97, 9-2003, and
22-2003; and (4) Revenue Memorandum Order No. 6-
2003. Petitioner argues that the said provisions are
violative of the equal protection and uniformity clauses of
the Constitution.
RA 8240, entitled "An Act Amending Sections 138, 139,
140, and 142 of the NIRC, as Amended and For Other
Purposes," took effect on January 1, 1997. In the same
year, Congress passed RA 8424 or The Tax Reform Act
of 1997, re-codifying the NIRC. Section 142 was
renumbered as Section 145 of the NIRC.
Paragraph (c) of Section 145 provides for four tiers of tax
rates based on the net retail price per pack of cigarettes.
To determine the applicable tax rates of existing cigarette
brands, a survey of the net retail prices per pack of
cigarettes was conducted as of October 1, 1996, the
results of which were embodied in Annex "D" of the
NIRC as the duly registered, existing or active brands of
cigarettes.
Paragraph (c) of Section 145, 1 states –
SEC. 145. Cigars and cigarettes. –
 xxxx
(c) Cigarettes packed by machine. – There shall
be levied, assessed and collected on cigarettes
packed by machine a tax at the rates prescribed
below:
(1) If the net retail price (excluding the
excise tax and the value-added tax) is
above Ten pesos (P10.00) per pack, the
tax shall be Thirteen pesos and forty-four
centavos (P13.44) per pack;
(2) If the net retail price (excluding the
excise tax and the value-added tax)
exceeds Six pesos and fifty centavos
(P6.50) but does not exceed Ten pesos
(10.00) per pack, the tax shall be Eight
pesos and ninety-six centavos (P8.96)
per pack;
(3) If the net retail price (excluding the
excise tax and the value-added tax) is
Five pesos (P5.00) but does not exceed
Six pesos and fifty centavos (P6.50) per
pack, the tax shall be Five pesos and
sixty centavos (P5.60) per pack;
(4) If the net retail price (excluding the
excise tax and the value-added tax) is
below Five pesos (P5.00) per pack, the
tax shall be One peso and twelve
centavos (P1.12) per pack.
Variants of existing brands of cigarettes which are
introduced in the domestic market after the
effectivity of this Act shall be taxed under the
highest classification of any variant of that brand.
xxxx
New brands shall be classified according to
their current net retail price.
For the above purpose, net retail price shall mean
the price at which the cigarette is sold on retail in
20 major supermarkets in Metro Manila (for
brands of cigarettes marketed nationally),
excluding the amount intended to cover the
applicable excise tax and the value-added tax.
For brands which are marketed only outside
Metro Manila, the net retail price shall mean the
price at which the cigarette is sold in five major
supermarkets in the region excluding the amount
intended to cover the applicable excise tax and
the value-added tax.
The classification of each brand of cigarettes
based on its average net retail price as of
October 1, 1996, as set forth in Annex "D" of
this Act, shall remain in force until revised by
Congress. (Emphasis supplied)
As such, new brands of cigarettes shall be taxed
according to their current net retail price while existing
or "old" brands shall be taxed based on their net retail
price as of October 1, 1996.
To implement RA 8240, the Bureau of Internal Revenue
(BIR) issued Revenue Regulations No. 1-97,2 which
classified the existing brands of cigarettes as those duly
registered or active brands prior to January 1, 1997. New
brands, or those registered after January 1, 1997, shall be
initially assessed at their suggested retail price until such
time that the appropriate survey to determine their current
net retail price is conducted. Pertinent portion of the
regulations reads –
SECTION 2. Definition of Terms.
xxxx
3. Duly registered or existing brand of
cigarettes – shall include duly registered, existing
or active brands of cigarettes, prior to January 1,
1997.
xxxx
6. New Brands – shall mean brands duly
registered after January 1, 1997 and shall include
duly registered, inactive brands of cigarette not
sold in commercial quantity before January 1,
1997.
Section 4. Classification and Manner of Taxation
of Existing Brands, New Brands and Variant of
Existing Brands.
xxxx
B. New Brand
New brands shall be classified according to their
current net retail price. In the meantime that the
current net retail price has not yet been
established, the suggested net retail price shall
be used to determine the specific tax
classification. Thereafter, a survey shall be
conducted in 20 major supermarkets or retail
outlets in Metro Manila (for brands of cigarette
marketed nationally) or in five (5) major
supermarkets or retail outlets in the region (for
brands which are marketed only outside Metro
Manila) at which the cigarette is sold on retail in
reams/cartons, three (3) months after the initial
removal of the new brand to determine the actual
net retail price excluding the excise tax and value
added tax which shall then be the basis in
determining the specific tax classification. In case
the current net retail price is higher than the
suggested net retail price, the former shall
prevail. Any difference in specific tax due shall be
assessed and collected inclusive of increments
as provided for by the National Internal Revenue
Code, as amended.
In June 2001, petitioner British American Tobacco
introduced into the market Lucky Strike Filter, Lucky
Strike Lights and Lucky Strike Menthol Lights cigarettes,
with a suggested retail price of P9.90 per pack.3 Pursuant
to Sec. 145 (c) quoted above, the Lucky Strike brands
were initially assessed the excise tax at P8.96 per pack.
On February 17, 2003, Revenue Regulations No. 9-
2003,4 amended Revenue Regulations No. 1-97 by
providing, among others, a periodic review every two
years or earlier of the current net retail price of new brands
and variants thereof for the purpose of establishing and
updating their tax classification, thus:
For the purpose of establishing or updating the
tax classification of new brands and variant(s)
thereof, their current net retail price shall be
 reviewed periodically through the conduct of
survey or any other appropriate activity, as
mentioned above, every two (2) years unless
earlier ordered by the Commissioner. However,
notwithstanding any increase in the current net
retail price, the tax classification of such new
brands shall remain in force until the same is
altered or changed through the issuance of an
appropriate Revenue Regulations.
Pursuant thereto, Revenue Memorandum Order No. 6-
20035 was issued on March 11, 2003, prescribing the
guidelines and procedures in establishing current net
retail prices of new brands of cigarettes and alcohol
products.
Subsequently, Revenue Regulations No. 22-20036 was
issued on August 8, 2003 to implement the revised tax
classification of certain new brands introduced in the
market after January 1, 1997, based on the survey of their
current net retail price. The survey revealed that Lucky
Strike Filter, Lucky Strike Lights, and Lucky Strike
Menthol Lights, are sold at the current net retail price of
P22.54, P22.61 and P21.23, per pack,
respectively.7 Respondent Commissioner of the Bureau
of Internal Revenue thus recommended the applicable tax
rate of P13.44 per pack inasmuch as Lucky Strike’s
average net retail price is above P10.00 per pack.
Thus, on September 1, 2003, petitioner filed before the
Regional Trial Court (RTC) of Makati, Branch 61, a
petition for injunction with prayer for the issuance of a
temporary restraining order (TRO) and/or writ of
preliminary injunction, docketed as Civil Case No. 03-
1032. Said petition sought to enjoin the implementation of
Section 145 of the NIRC, Revenue Regulations Nos. 1-
97, 9-2003, 22-2003 and Revenue Memorandum Order
No. 6-2003 on the ground that they discriminate against
new brands of cigarettes, in violation of the equal
protection and uniformity provisions of the Constitution.
Respondent Commissioner of Internal Revenue filed an
Opposition8 to the application for the issuance of a TRO.
On September 4, 2003, the trial court denied the
application for TRO, holding that the courts have no
authority to restrain the collection of taxes.9 Meanwhile,
respondent Secretary of Finance filed a Motion to
Dismiss,10 contending that the petition is premature for
lack of an actual controversy or urgent necessity to justify
judicial intervention.
In an Order dated March 4, 2004, the trial court denied
the motion to dismiss and issued a writ of preliminary
injunction to enjoin the implementation of Revenue
Regulations Nos. 1-97, 9-2003, 22-2003 and Revenue
Memorandum Order No. 6-2003.11 Respondents filed a
Motion for Reconsideration12 and Supplemental Motion
for Reconsideration.13 At the hearing on the said motions,
petitioner and respondent Commissioner of Internal
Revenue stipulated that the only issue in this case is the
constitutionality of the assailed law, order, and
regulations.14
On May 12, 2004, the trial court rendered a
decision15 upholding the constitutionality of Section 145 of
the NIRC, Revenue Regulations Nos. 1-97, 9-2003, 22-
2003 and Revenue Memorandum Order No. 6-2003. The
trial court also lifted the writ of preliminary injunction. The
dispositive portion of the decision reads:
WHEREFORE, premises considered, the instant
Petition is hereby DISMISSED for lack of merit.
The Writ of Preliminary Injunction previously
issued is hereby lifted and dissolved.
SO ORDERED.16
Petitioner brought the instant petition for review directly
with this Court on a pure question of law.
While the petition was pending, RA 9334 (An Act
Increasing The Excise Tax Rates Imposed on Alcohol
And Tobacco Products, Amending For The Purpose
Sections 131, 141, 143, 144, 145 and 288 of the NIRC of
1997, As Amended), took effect on January 1, 2005. The
statute, among others,–
(1) increased the excise tax rates provided in paragraph
(c) of Section 145;
(2) mandated that new brands of cigarettes shall initially
be classified according to their suggested net retail price,
until such time that their correct tax bracket is finally
determined under a specified period and, after which,
their classification shall remain in force until revised by
Congress;
(3) retained Annex "D" as tax base of those surveyed as
of October 1, 1996 including the classification of brands
for the same products which, although not set forth in said
Annex "D," were registered on or before January 1, 1997
and were being commercially produced and marketed on
or after October 1, 1996, and which continue to be
commercially produced and marketed after the effectivity
of this Act. Said classification shall remain in force until
revised by Congress; and
(4) provided a legislative freeze on brands of cigarettes
introduced between the period January 2, 199717 to
December 31, 2003, such that said cigarettes shall
remain in the classification under which the BIR has
determined them to belong as of December 31, 2003, until
revised by Congress.
Pertinent portions, of RA 9334, provides:
SEC. 145. Cigars and Cigarettes. –
xxxx
(C) Cigarettes Packed by Machine. – There shall
be levied, assessed and collected on cigarettes
packed by machine a tax at the rates prescribed
below:
(1) If the net retail price (excluding the excise tax
and the value-added tax) is below Five pesos
(P5.00) per pack, the tax shall be:
Effective on January 1, 2005, Two pesos (P2.00)
per pack;
Effective on January 1, 2007, Two pesos and
twenty-three centavos (P2.23) per pack;
Effective on January 1, 2009, Two pesos and
forty-seven centavos (P2.47) per pack; and
Effective on January 1, 2011, Two pesos and
seventy-two centavos (P2.72) per pack.
(2) If the net retail price (excluding the excise tax
and the value-added tax) is Five pesos (P5.00)
but does not exceed Six pesos and fifty centavos
(P6.50) per pack, the tax shall be:
Effective on January 1, 2005, Six pesos and
thirty-five centavos (P6.35) per pack;
Effective on January 1, 2007, Six pesos and
seventy-four centavos (P6.74) per pack;
Effective on January 1, 2009, Seven pesos and
fourteen centavos (P7.14) per pack; and
Effective on January 1, 2011, Seven pesos and
fifty-six centavos (P7.56) per pack.
(3) If the net retail price (excluding the excise tax
and the value-added tax) exceeds Six pesos and
fifty centavos (P6.50) but does not exceed Ten
pesos (P10.00) per pack, the tax shall be:
Effective on January 1, 2005, Ten pesos and
thirty-five centavos (10.35) per pack;
Effective on January 1, 2007, Ten pesos and
eighty-eight centavos (P10.88) per pack;
Effective on January 1, 2009, Eleven pesos and
forty-three centavos (P11.43) per pack; and
Effective on January 1, 2011, Twelve pesos
(P12.00) per pack.
(4) If the net retail price (excluding the excise tax
and the value-added tax) is above Ten pesos
(P10.00) per pack, the tax shall be:
Effective on January 1, 2005, Twenty-five pesos
(P25.00) per pack;
Effective on January 1, 2007, Twenty-six pesos
and six centavos (P26.06) per pack;
Effective on January 1, 2009, Twenty-seven
pesos and sixteen centavos (P27.16) per pack;
and
Effective on January 1, 2011, Twenty-eight pesos
and thirty centavos (P28.30) per pack.
xxxx
New brands, as defined in the immediately
following paragraph, shall initially be classified
according to their suggested net retail price.
New brands shall mean a brand registered after
the date of effectivity of R.A. No. 8240.
Suggested net retail price shall mean the net
retail price at which new brands, as defined
above, of locally manufactured or imported
cigarettes are intended by the manufacturer or
importer to be sold on retail in major
supermarkets or retail outlets in Metro Manila for
those marketed nationwide, and in other regions,
for those with regional markets. At the end of
three (3) months from the product launch, the
Bureau of Internal Revenue shall validate the
suggested net retail price of the new brand
against the net retail price as defined herein and
determine the correct tax bracket under which a
particular new brand of cigarette, as defined
above, shall be classified. After the end of
eighteen (18) months from such validation, the
Bureau of Internal Revenue shall revalidate the
initially validated net retail price against the net
retail price as of the time of revalidation in order
to finally determine the correct tax bracket under
which a particular new brand of cigarettes shall
be classified; Provided however, That brands
of cigarettes introduced in the domestic
market between January 1, 1997 [should be
January 2, 1997] and December 31, 2003 shall
remain in the classification under which the
Bureau of Internal Revenue has determined
them to belong as of December 31, 2003. Such
classification of new brands and brands
introduced between January 1, 1997 and
December 31, 2003 shall not be revised except
by an act of Congress.
Net retail price, as determined by the Bureau of
Internal Revenue through a price survey to be
conducted by the Bureau of Internal Revenue
itself, or the National Statistics Office when
deputized for the purpose by the Bureau of
Internal Revenue, shall mean the price at which
the cigarette is sold in retail in at least twenty (20)
major supermarkets in Metro Manila (for brands
of cigarettes marketed nationally), excluding the
amount intended to cover the applicable excise
tax and the value-added tax. For brands which
are marketed only outside Metro Manila, the "net
retail price" shall mean the price at which the
cigarette is sold in at least five (5) major
supermarkets in the region excluding the amount
intended to cover the applicable excise tax and
value-added tax.
The classification of each brand of cigarettes
based on its average net retail price as of
October 1, 1996, as set forth in Annex "D",
including the classification of brands for the
same products which, although not set forth
in said Annex "D", were registered and were
being commercially produced and marketed
on or after October 1, 1996, and which
continue to be commercially produced and
marketed after the effectivity of this Act, shall
remain in force until revised by
Congress. (Emphasis added)
Under RA 9334, the excise tax due on petitioner’s
products was increased to P25.00 per pack. In the
implementation thereof, respondent Commissioner
assessed petitioner’s importation of 911,000 packs of
Lucky Strike cigarettes at the increased tax rate of P25.00
per pack, rendering it liable for taxes in the total sum of
P22,775,000.00.18
Hence, petitioner filed a Motion to Admit Attached
Supplement19 and a Supplement20 to the petition for
review, assailing the constitutionality of RA 9334 insofar
as it retained Annex "D" and praying for a downward
classification of Lucky Strike products at the bracket
taxable at P8.96 per pack. Petitioner contended that the
continued use of Annex "D" as the tax base of existing
brands of cigarettes gives undue protection to said brands
which are still taxed based on their price as of October
1996 notwithstanding that they are now sold at the same
or even at a higher price than new brands like Lucky
Strike. Thus, old brands of cigarettes such as Marlboro
and Philip Morris which, like Lucky Strike, are sold at or
more than P22.00 per pack, are taxed at the rate of
P10.88 per pack, while Lucky Strike products are taxed at
P26.06 per pack.
In its Comment to the supplemental petition, respondents,
through the Office of the Solicitor General (OSG), argued
that the passage of RA 9334, specifically the provision
imposing a legislative freeze on the classification of
cigarettes introduced into the market between January 2,
1997 and December 31, 2003, rendered the instant
petition academic. The OSG claims that the provision in
Section 145, as amended by RA 9334, prohibiting the
reclassification of cigarettes introduced during said
period, "cured’ the perceived defect of Section 145
considering that, like the cigarettes under Annex "D,"
petitioner’s brands and other brands introduced between
January 2, 1997 and December 31, 2003, shall remain in
the classification under which the BIR has placed them
and only Congress has the power to reclassify them.
On March 20, 2006, Philip Morris Philippines
Manufacturing Incorporated filed a Motion for Leave to
Intervene with attached Comment-in-Intervention.21 This
was followed by the Motions for Leave to Intervene of
Fortune Tobacco Corporation,22 Mighty
23
Corporation, and JT International, S.A., with their
respective Comments-in-Intervention. The Intervenors
claim that they are parties-in-interest who stand to be
affected by the ruling of the Court on the constitutionality
of Section 145 of the NIRC and its Annex "D" because
they are manufacturers of cigarette brands which are
included in the said Annex. Hence, their intervention is
proper since the protection of their interest cannot be
addressed in a separate proceeding.
According to the Intervenors, no inequality exists because
cigarettes classified by the BIR based on their net retail
price as of December 31, 2003 now enjoy the same status
quo provision that prevents the BIR from reclassifying
cigarettes included in Annex "D." It added that the Court
has no power to pass upon the wisdom of the legislature
in retaining Annex "D" in RA 9334; and that the
nullification of said Annex would bring about tremendous
loss of revenue to the government, chaos in the collection
of taxes, illicit trade of cigarettes, and cause decline in
cigarette demand to the detriment of the farmers who
depend on the tobacco industry.
Intervenor Fortune Tobacco further contends that
petitioner is estopped from questioning the
constitutionality of Section 145 and its implementing rules
and regulations because it entered into the cigarette
industry fully aware of the existing tax system and its
consequences. Petitioner imported cigarettes into the
country knowing that its suggested retail price, which will
be the initial basis of its tax classification, will be
confirmed and validated through a survey by the BIR to
determine the correct tax that would be levied on its
cigarettes.
Moreover, Fortune Tobacco claims that the challenge to
the validity of the BIR issuances should have been
brought by petitioner before the Court of Tax Appeals
(CTA) and not the RTC because it is the CTA which has
exclusive appellate jurisdiction over decisions of the BIR
in tax disputes.
On August 7, 2006, the OSG manifested that it interposes
no objection to the motions for intervention. 24 Therefore,
considering the substantial interest of the intervenors, and
in the higher interest of justice, the Court admits their
intervention.
Before going into the substantive issues of this case, we
must first address the matter of jurisdiction, in light of
Fortune Tobacco’s contention that petitioner should have
brought its petition before the Court of Tax Appeals rather
than the regional trial court.
The jurisdiction of the Court of Tax Appeals is defined in
Republic Act No. 1125, as amended by Republic Act No.
9282. Section 7 thereof states, in pertinent part:
Sec. 7. Jurisdiction. — The CTA shall exercise:
a. Exclusive appellate jurisdiction to review by
appeal, as herein provided:
1. Decisions of the Commissioner of Internal
Revenue in cases involving disputed
assessments, refunds of internal revenue taxes,
fees or other charges, penalties in relation
thereto, or other matters arising under the
National Internal Revenue or other laws
administered by the Bureau of Internal Revenue;
2. Inaction by the Commissioner of Internal
Revenue in cases involving disputed
assessments, refunds of internal revenue taxes,
fees or other charges, penalties in relations
thereto, or other matters arising under the
National Internal Revenue Code or other laws
administered by the Bureau of Internal Revenue,
where the National Internal Revenue Code
provides a specific period of action, in which case
the inaction shall be deemed a denial; xxx.25
While the above statute confers on the CTA jurisdiction to
resolve tax disputes in general, this does not include
cases where the constitutionality of a law or rule is
challenged. Where what is assailed is the validity or
constitutionality of a law, or a rule or regulation issued by
the administrative agency in the performance of its quasi-
legislative function, the regular courts have jurisdiction to
pass upon the same. The determination of whether a
specific rule or set of rules issued by an administrative
agency contravenes the law or the constitution is within
the jurisdiction of the regular courts. Indeed, the
Constitution vests the power of judicial review or the
power to declare a law, treaty, international or executive
agreement, presidential decree, order, instruction,
ordinance, or regulation in the courts, including the
regional trial courts. This is within the scope of judicial
power, which includes the authority of the courts to
determine in an appropriate action the validity of the acts
of the political departments. Judicial power includes the
duty of the courts of justice to settle actual controversies
involving rights which are legally demandable and
enforceable, and to determine whether or not there has
been a grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of any branch or
instrumentality of the Government.26
In Drilon v. Lim,27 it was held:
We stress at the outset that the lower court had
jurisdiction to consider the constitutionality of
Section 187, this authority being embraced in the
general definition of the judicial power to
determine what are the valid and binding laws by
the criterion of their conformity to the fundamental
law. Specifically, B.P. 129 vests in the regional
trial courts jurisdiction over all civil cases in which
the subject of the litigation is incapable of
pecuniary estimation, even as the accused in a
criminal action has the right to question in his
 defense the constitutionality of a law he is
charged with violating and of the proceedings
taken against him, particularly as they contravene
the Bill of Rights. Moreover, Article X, Section
5(2), of the Constitution vests in the Supreme
Court appellate jurisdiction over final judgments
and orders of lower courts in all cases in which
the constitutionality or validity of any treaty,
international or executive agreement, law,
presidential decree, proclamation, order,
instruction, ordinance, or regulation is in question.
The petition for injunction filed by petitioner before the
RTC is a direct attack on the constitutionality of Section
145(C) of the NIRC, as amended, and the validity of its
implementing rules and regulations. In fact, the RTC
limited the resolution of the subject case to the issue of
the constitutionality of the assailed provisions. The
determination of whether the assailed law and its
implementing rules and regulations contravene the
Constitution is within the jurisdiction of regular courts. The
Constitution vests the power of judicial review or the
power to declare a law, treaty, international or executive
agreement, presidential decree, order, instruction,
ordinance, or regulation in the courts, including the
regional trial courts.28 Petitioner, therefore, properly filed
the subject case before the RTC.
We come now to the issue of whether petitioner is
estopped from assailing the authority of the
Commissioner of Internal Revenue. Fortune Tobacco
raises this objection by pointing out that when petitioner
requested the Commissioner for a ruling that its Lucky
Strike Soft Pack cigarettes was a "new brand" rather than
a variant of an existing brand, and thus subject to a lower
specific tax rate, petitioner executed an undertaking to
comply with the procedures under existing regulations for
the assessment of deficiency internal revenue taxes.
Fortune Tobacco argues that petitioner, after invoking the
authority of the Commissioner of Internal Revenue,
cannot later on turn around when the ruling is adverse to
it.
Estoppel, an equitable principle rooted in natural justice,
prevents persons from going back on their own acts and
representations, to the prejudice of others who have relied
on them.29 The principle is codified in Article 1431 of the
Civil Code, which provides:
Through estoppel, an admission or representation is
rendered conclusive upon the person making it and
cannot be denied or disproved as against the person
relying thereon.
Estoppel can also be found in Rule 131, Section 2 (a) of
the Rules of Court, viz:
Sec. 2. Conclusive presumptions. — The
following are instances of conclusive
presumptions:
(a) Whenever a party has by his own declaration,
act or omission, intentionally and deliberately led
another to believe a particular thing true, and to
act upon such belief, he cannot, in any litigation
arising out of such declaration, act or omission be
permitted to falsify it.
The elements of estoppel are: first, the actor who usually
must have knowledge, notice or suspicion of the true
facts, communicates something to another in a
misleading way, either by words, conduct or
silence; second, the other in fact relies, and relies
reasonably or justifiably, upon that communication; third,
the other would be harmed materially if the actor is later
permitted to assert any claim inconsistent with his earlier
conduct; and fourth, the actor knows, expects or foresees
that the other would act upon the information given or that
a reasonable person in the actor's position would expect
or foresee such action.30
In the early case of Kalalo v. Luz,31 the elements of
estoppel, as related to the party to be estopped, are: (1)
conduct amounting to false representation or
concealment of material facts; or at least calculated to
convey the impression that the facts are other than, and
inconsistent with, those which the party subsequently
attempts to assert; (2) intent, or at least expectation that
this conduct shall be acted upon by, or at least influence,
the other party; and (3) knowledge, actual or constructive,
of the real facts.
We find that petitioner was not guilty of estoppel. When it
made the undertaking to comply with all issuances of the
BIR, which at that time it considered as valid, petitioner
did not commit any false misrepresentation or misleading
act. Indeed, petitioner cannot be faulted for initially
undertaking to comply with, and subjecting itself to the
operation of Section 145(C), and only later on filing the
subject case praying for the declaration of its
unconstitutionality when the circumstances change and
the law results in what it perceives to be unlawful
discrimination. The mere fact that a law has been relied
upon in the past and all that time has not been attacked
as unconstitutional is not a ground for considering
petitioner estopped from assailing its validity. For courts
will pass upon a constitutional question only when
presented before it in bona fide cases for determination,
and the fact that the question has not been raised before
is not a valid reason for refusing to allow it to be raised
later.32
Now to the substantive issues.
To place this case in its proper context, we deem it
necessary to first discuss how the assailed law operates
in order to identify, with precision, the specific provisions
which, according to petitioner, have created a grossly
discriminatory classification scheme between old and
new brands. The pertinent portions of RA 8240, as
amended by RA 9334, are reproduced below for ready
reference:
SEC. 145. Cigars and Cigarettes. –
xxxx
(C) Cigarettes Packed by Machine. – There shall
be levied, assessed and collected on cigarettes
packed by machine a tax at the rates prescribed
below:
(1) If the net retail price (excluding the excise tax
and the value-added tax) is below Five pesos
(P5.00) per pack, the tax shall be:
Effective on January 1, 2005, Two pesos
(P2.00) per pack;
Effective on January 1, 2007, Two pesos
and twenty-three centavos (P2.23) per
pack;
 Effective on January 1, 2009, Two pesos
and forty-seven centavos (P2.47) per
pack; and
Effective on January 1, 2011, Two pesos
and seventy-two centavos (P2.72) per
pack.
(2) If the net retail price (excluding the excise tax
and the value-added tax) is Five pesos (P5.00)
but does not exceed Six pesos and fifty centavos
(P6.50) per pack, the tax shall be:
Effective on January 1, 2005, Six pesos
and thirty-five centavos (P6.35) per pack;
Effective on January 1, 2007, Six pesos
and seventy-four centavos (P6.74) per
pack;
Effective on January 1, 2009, Seven
pesos and fourteen centavos (P7.14) per
pack; and
Effective on January 1, 2011, Seven
pesos and fifty-six centavos (P7.56) per
pack.
(3) If the net retail price (excluding the excise tax
and the value-added tax) exceeds Six pesos and
fifty centavos (P6.50) but does not exceed Ten
pesos (P10.00) per pack, the tax shall be:
Effective on January 1, 2005, Ten pesos
and thirty-five centavos (10.35) per pack;
Effective on January 1, 2007, Ten pesos
and eighty-eight centavos (P10.88) per
pack;
Effective on January 1, 2009, Eleven
pesos and forty-three centavos (P11.43)
per pack; and
Effective on January 1, 2011, Twelve
pesos (P12.00) per pack.
(4) If the net retail price (excluding the excise tax
and the value-added tax) is above Ten pesos
(P10.00) per pack, the tax shall be:
Effective on January 1, 2005, Twenty-five
pesos (P25.00) per pack;
Effective on January 1, 2007, Twenty-six
pesos and six centavos (P26.06) per
pack;
Effective on January 1, 2009, Twenty-
seven pesos and sixteen centavos
(P27.16) per pack; and
Effective on January 1, 2011, Twenty-
eight pesos and thirty centavos (P28.30)
per pack.
xxxx
New brands, as defined in the immediately
following paragraph, shall initially be classified
according to their suggested net retail price.
New brands shall mean a brand registered after
the date of effectivity of R.A. No. 8240.
Suggested net retail price shall mean the net
retail price at which new brands, as defined
above, of locally manufactured or imported
cigarettes are intended by the manufacturer or
importer to be sold on retail in major
supermarkets or retail outlets in Metro Manila for
those marketed nationwide, and in other regions,
for those with regional markets. At the end of
three (3) months from the product launch, the
Bureau of Internal Revenue shall validate the
suggested net retail price of the new brand
against the net retail price as defined herein and
determine the correct tax bracket under which a
particular new brand of cigarette, as defined
above, shall be classified. After the end of
eighteen (18) months from such validation, the
Bureau of Internal Revenue shall revalidate the
initially validated net retail price against the net
retail price as of the time of revalidation in order
to finally determine the correct tax bracket under
which a particular new brand of cigarettes shall
be classified; Provided however, That brands of
cigarettes introduced in the domestic market
between January 1, 1997 [should be January 2,
1997] and December 31, 2003 shall remain in the
classification under which the Bureau of Internal
Revenue has determined them to belong as of
December 31, 2003. Such classification of new
brands and brands introduced between January
1, 1997 and December 31, 2003 shall not be
revised except by an act of Congress.
Net retail price, as determined by the Bureau of
Internal Revenue through a price survey to be
conducted by the Bureau of Internal Revenue
itself, or the National Statistics Office when
deputized for the purpose by the Bureau of
Internal Revenue, shall mean the price at which
the cigarette is sold in retail in at least twenty (20)
major supermarkets in Metro Manila (for brands
of cigarettes marketed nationally), excluding the
amount intended to cover the applicable excise
tax and the value-added tax. For brands which
are marketed only outside Metro Manila, the "net
retail price" shall mean the price at which the
cigarette is sold in at least five (5) major
supermarkets in the region excluding the amount
intended to cover the applicable excise tax and
value-added tax.
The classification of each brand of cigarettes
based on its average net retail price as of October
1, 1996, as set forth in Annex "D", including the
classification of brands for the same products
which, although not set forth in said Annex "D",
were registered and were being commercially
produced and marketed on or after October 1,
1996, and which continue to be commercially
produced and marketed after the effectivity of this
Act, shall remain in force until revised by
Congress.
As can be seen, the law creates a four-tiered system
which we may refer to as the low-priced,33medium-
priced,34 high-priced,35 and premium-priced36 tax
brackets. When a brand is introduced in the market, the
current net retail price is determined through the
aforequoted specified procedure. The current net retail
price is then used to classify under which tax bracket the
brand belongs in order to finally determine the
corresponding excise tax rate on a per pack basis. The
assailed feature of this law pertains to the mechanism
where, after a brand is classified based on its current net
retail price, the classification is frozen and only Congress
can thereafter reclassify the same. From a practical point
of view, Annex "D" is merely a by-product of the whole
mechanism and philosophy of the assailed law. That is,
the brands under Annex "D" were also classified based
on their current net retail price, the only difference being
that they were the first ones so classified since they were
the only brands surveyed as of October 1, 1996, or prior
to the effectivity of RA 8240 on January 1, 1997.37
Due to this legislative classification scheme, it
is possible that over time the net retail price of a
previously classified brand, whether it be a brand under
Annex "D" or a new brand classified after the effectivity of
RA 8240 on January 1, 1997, would increase (due to
inflation, increase of production costs, manufacturer’s
decision to increase its prices, etc.) to a point that its net
retail price pierces the tax bracket to which it was
previously classified.38 Consequently, even if its present
day net retail price would make it fall under a higher tax
bracket, the previously classified brand would continue to
be subject to the excise tax rate under the lower tax
bracket by virtue of the legislative classification freeze.
Petitioner claims that this is what happened in 2004 to the
Marlboro and Philip Morris brands, which were
permanently classified under Annex "D." As of October 1,
1996, Marlboro had net retail prices ranging from P6.78
to P6.84 while Philip Morris had net retail prices ranging
from P7.39 to P7.48. Thus, pursuant to RA
8240,39 Marlboro and Philip Morris were classified under
the high-priced tax bracket and subjected to an excise tax
rate of P8.96 per pack. Petitioner then presented
evidence showing that after the lapse of about seven
years or sometime in 2004, Marlboro’s and Philip Morris’
net retail prices per pack both increased to about
P15.59.40 This meant that they would fall under the
premium-priced tax bracket, with a higher excise tax rate
of P13.44 per pack,41 had they been classified based on
their 2004 net retail prices. However, due to the legislative
classification freeze, they continued to be classified under
the high-priced tax bracket with a lower excise tax rate.
Petitioner thereafter deplores the fact that its Lucky Strike
Filter, Lucky Strike Lights, and Lucky Strike Menthol
Lights cigarettes, introduced in the market sometime in
2001 and validated by a BIR survey in 2003, were found
to have net retail prices of P11.53, P11.59 and
P10.34,42 respectively, which are lower than those of
Marlboro and Philip Morris. However, since petitioner’s
cigarettes were newly introduced brands in the market,
they were taxed based on their current net retail prices
and, thus, fall under the premium-priced tax bracket with
a higher excise tax rate of P13.44 per pack. This unequal
tax treatment between Marlboro and Philip Morris, on the
one hand, and Lucky Strike, on the other, is the crux of
petitioner’s contention that the legislative classification
freeze violates the equal protection and uniformity of
taxation clauses of the Constitution.
It is apparent that, contrary to its assertions, petitioner is
not only questioning the undue favoritism accorded to
brands under Annex "D," but the entire mechanism and
philosophy of the law which freezes the tax classification
of a cigarette brand based on its current net retail price.
Stated differently, the alleged discrimination arising from
the legislative classification freeze between the brands
under Annex "D" and petitioner’s newly introduced brands
arose only because the former were classified based on
their "current" net retail price as of October 1,
1996 and petitioner’s newly introduced brands were
classified based on their "current" net retail price as of
2003. Without this corresponding freezing of the
classification of petitioner’s newly introduced brands
based on their current net retail price, it would be
impossible to establish that a disparate tax treatment
occurred between the Annex "D" brands and petitioner’s
newly introduced brands.
This clarification is significant because, under these
circumstances, a declaration of unconstitutionality would
necessarily entail nullifying the whole mechanism of the
law and not just Annex "D." Consequently, if the assailed
law is declared unconstitutional on equal protection
grounds, the entire method by which a brand of cigarette
is classified would have to be invalidated. As a result, no
method to classify brands under Annex "D" as well as new
brands would be left behind and the whole Section 145 of
the NIRC, as amended, would become inoperative.43
To simplify the succeeding discussions, we shall refer to
the whole mechanism and philosophy of the assailed law
which freezes the tax classification of a cigarette brand
based on its current net retail price and which, thus,
produced different classes of brands based on the time of
their introduction in the market (starting with the brands in
Annex "D" since they were the first brands so classified
as of October 1, 1996) as the classification freeze
provision.44
As thus formulated, the central issue is whether or not
the classification freeze provision violates the equal
protection and uniformity of taxation clauses of the
Constitution.
In Sison, Jr. v. Ancheta,45 this Court, through Chief
Justice Fernando, explained the applicable standard in
deciding equal protection and uniformity of taxation
challenges:
Now for equal protection. The applicable
standard to avoid the charge that there is a denial
of this constitutional mandate whether the
assailed act is in the exercise of the police power
or the power of eminent domain is to demonstrate
"that the governmental act assailed, far from
being inspired by the attainment of the common
weal was prompted by the spirit of hostility, or at
the very least, discrimination that finds no support
in reason. It suffices then that the laws operate
equally and uniformly on all persons under similar
circumstances or that all persons must be treated
in the same manner, the conditions not being
different, both in the privileges conferred and the
liabilities imposed. Favoritism and undue
preference cannot be allowed. For the principle is
that equal protection and security shall be given
to every person under circumstances, which if not
identical are analogous. If law be looks upon in
terms of burden or charges, those that fall within
a class should be treated in the same fashion,
whatever restrictions cast on some in the group
equally binding on the rest." That same
formulation applies as well to taxation measures.
The equal protection clause is, of course, inspired
by the noble concept of approximating the ideal
of the laws's benefits being available to all and
the affairs of men being governed by that serene
and impartial uniformity, which is of the very
essence of the idea of law. There is, however,
wisdom, as well as realism, in these words of
Justice Frankfurter: "The equality at which the
'equal protection' clause aims is not a
disembodied equality. The Fourteenth
Amendment enjoins 'the equal protection of the
laws,' and laws are not abstract propositions.
They do not relate to abstract units A, B and C,
 but are expressions of policy arising out of
specific difficulties, addressed to the attainment
of specific ends by the use of specific remedies.
The Constitution does not require things which
are different in fact or opinion to be treated in law
as though they were the same." Hence the
constant reiteration of the view that
classification if rational in character is
allowable. As a matter of fact, in a leading case
of Lutz v. Araneta, this Court, through Justice
J.B.L. Reyes, went so far as to hold "at any rate,
it is inherent in the power to tax that a state be
free to select the subjects of taxation, and it has
been repeatedly held that 'inequalities which
result from a singling out of one particular class
for taxation, or exemption infringe no
constitutional limitation.'"
Petitioner likewise invoked the kindred concept of
uniformity. According to the Constitution: "The
rule of taxation shall be uniform and equitable."
This requirement is met according to Justice
Laurel in Philippine Trust Company v. Yatco,
decided in 1940, when the tax "operates with the
same force and effect in every place where the
subject may be found." He likewise added: "The
rule of uniformity does not call for perfect
uniformity or perfect equality, because this is
hardly attainable." The problem of classification
did not present itself in that case. It did not arise
until nine years later, when the Supreme Court
held: "Equality and uniformity in taxation means
that all taxable articles or kinds of property of the
same class shall be taxed at the same rate. The
taxing power has the authority to make
reasonable and natural classifications for
purposes of taxation, . . . As clarified by Justice
Tuason, where "the differentiation" complained of
"conforms to the practical dictates of justice and
equity" it "is not discriminatory within the meaning
of this clause and is therefore uniform." There is
quite a similarity then to the standard of equal
protection for all that is required is that the tax
"applies equally to all persons, firms and
corporations placed in similar
situation."46 (Emphasis supplied)
In consonance thereto, we have held that "in our
jurisdiction, the standard and analysis of equal protection
challenges in the main have followed the ‘rational basis’
test, coupled with a deferential attitude to legislative
classifications and a reluctance to invalidate a law unless
there is a showing of a clear and unequivocal breach of
the Constitution."47 Within the present context of tax
legislation on sin products which neither contains a
suspect classification nor impinges on a fundamental
right, the rational-basis test thus finds application. Under
this test, a legislative classification, to survive an equal
protection challenge, must be shown to rationally further
a legitimate state interest.48 The classifications must be
reasonable and rest upon some ground of difference
having a fair and substantial relation to the object of the
legislation.49 Since every law has in its favor the
presumption of constitutionality, the burden of proof is on
the one attacking the constitutionality of the law to prove
beyond reasonable doubt that the legislative classification
is without rational basis.50 The presumption of
constitutionality can be overcome only by the most explicit
demonstration that a classification is a hostile and
oppressive discrimination against particular persons and
classes, and that there is no conceivable basis which
might support it.51
A legislative classification that is reasonable does not
offend the constitutional guaranty of the equal protection
of the laws. The classification is considered valid and
reasonable provided that: (1) it rests on substantial
distinctions; (2) it is germane to the purpose of the law;
(3) it applies, all things being equal, to both present and
future conditions; and (4) it applies equally to all those
belonging to the same class.52
The first, third and fourth requisites are satisfied.
The classification freeze provision was inserted in the law
for reasons of practicality and expediency. That is, since
a new brand was not yet in existence at the time of the
passage of RA 8240, then Congress needed a uniform
mechanism to fix the tax bracket of a new brand. The
current net retail price, similar to what was used to classify
the brands under Annex "D" as of October 1, 1996, was
thus the logical and practical choice. Further, with the
amendments introduced by RA 9334, the freezing of the
tax classifications now expressly applies not just to Annex
"D" brands but to newer brands introduced after the
effectivity of RA 8240 on January 1, 1997 and any new
brand that will be introduced in the future.53 (However, as
will be discussed later, the intent to apply the freezing
mechanism to newer brands was already in place even
prior to the amendments introduced by RA 9334 to RA
8240.) This does not explain, however, why the
classification is "frozen" after its determination based on
current net retail price and how this is germane to the
purpose of the assailed law. An examination of the
legislative history of RA 8240 provides interesting
answers to this question.
RA 8240 was the first of three parts in the Comprehensive
Tax Reform Package then being pushed by the Ramos
Administration. It was enacted with the following
objectives stated in the Sponsorship Speech of Senator
Juan Ponce Enrile (Senator Enrile), viz:
First, to evolve a tax structure which will promote
fair competition among the players in the
industries concerned and generate buoyant and
stable revenue for the government.
Second, to ensure that the tax burden is
equitably distributed not only amongst the
industries affected but equally amongst the
various levels of our society that are involved in
various markets that are going to be affected by
the excise tax on distilled spirits, fermented liquor,
cigars and cigarettes.
In the case of firms engaged in the industries
producing the products that we are about to tax,
this means relating the tax burden to their market
share, not only in terms of quantity, Mr. President,
but in terms of value.
In case of consumers, this will mean evolving a
multi-tiered rate structure so that low-priced
products are subject to lower tax rates and
higher-priced products are subject to higher tax
rates.
Third, to simplify the tax administration and
compliance with the tax laws that are about to
unfold in order to minimize losses arising from
inefficiencies and tax avoidance scheme, if not
outright tax evasion.54
In the initial stages of the crafting of the assailed law, the
Department of Finance (DOF) recommended to Congress
a shift from the then existing ad valorem taxation system
to a specific taxation system with respect to sin products,
including cigarettes. The DOF noted that the ad
valoremtaxation system was a source of massive tax
leakages because the taxpayer was able to evade paying
the correct amount of taxes through the undervaluation of
the price of cigarettes using various marketing arms and
dummy corporations. In order to address this problem, the
DOF proposed a specific taxation system where the
cigarettes would be taxed based on volume or on a per
pack basis which was believed to be less susceptible to
price manipulation. The reason was that the BIR would
only need to monitor the sales volume of cigarettes, from
which it could easily compute the corresponding tax
liability of cigarette manufacturers. Thus, the DOF
suggested the use of a three-tiered system which
operates in substantially the same manner as the four-
tiered system under RA 8240 as earlier discussed. The
proposal of the DOF was embodied in House Bill (H.B.)
No. 6060, the pertinent portions of which states—
SEC. 142. Cigars and cigarettes.—
(c) Cigarettes packed by machine.— There shall
be levied, assessed and collected on cigarettes
packed by machine a tax at the rates prescribed
below:
(1) If the manufacturer’s or importer’s wholesale
price (net of excise tax and value-added tax) per
pack exceeds four pesos and twenty centavos
(P4.20), the tax shall be seven pesos and fifty
centavos (P7.50);
(2) If the manufacturer’s or importer’s wholesale
price (net of excise tax and value-added tax) per
pack exceeds three pesos and ninety centavos
(P3.90) but does not exceed four pesos and
twenty centavos (P4.20), the tax shall be five
pesos and fifty centavos (P5.50): provided, that
after two (2) years from the effectivity of this Act,
cigarettes otherwise subject to tax under this
subparagraph shall be taxed under subparagraph
(1) above.
(3) If the manufacturer’s or importer’s wholesale
price (net of excise tax and value-added tax) per
pack does not exceeds three pesos and ninety
centavos (P3.90), the tax rate shall be one peso
(P1.00).
Variants of existing brands and new brands of
cigarettes packed by machine to be introduced in
the domestic market after the effectivity of this
Act, shall be taxed under paragraph (c)(1) hereof.
The rates of specific tax on cigars and
cigarettes under paragraphs (a), (b), and (c)
hereof, including the price levels for purposes
of classifying cigarettes packed by machine,
shall be revised upward two (2) years after the
effectivity of this Act and every two years
thereafter by the Commissioner of Internal
Revenue, subject to the approval of the
Secretary of Finance, taking into account the
movement of the consumer price index for
cigars and cigarettes as established by the
National Statistics Office: provided, that the
increase in taxes and/or price levels shall be
equal to the present change in such
consumer price index for the two-year
period: provided, further, that the President,
upon the recommendation of the Secretary of
Finance, may suspend or defer the
adjustment in price levels and tax rates when
the interest of the national economy and
general welfare so require, such as the need
to obviate unemployment, and economic and
social dislocation: provided, finally, that the
revised price levels and tax rates authorized
herein shall in all cases be rounded off to the
nearest centavo and shall be in force and
effect on the date of publication thereof in a
newspaper of general circulation. x x
x (Emphasis supplied)
What is of particular interest with respect to the proposal
of the DOF is that it contained a provision for the periodic
adjustment of the excise tax rates and tax brackets, and
a corresponding periodic resurvey and reclassification of
cigarette brands based on the increase in the consumer
price index as determined by the Commissioner of
Internal Revenue subject to certain guidelines. The
evident intent was to prevent inflation from eroding the
value of the excise taxes that would be collected from
cigarettes over time by adjusting the tax rate and tax
brackets based on the increase in the consumer price
index. Further, under this proposal, old brands as well as
new brands introduced thereafter would be subjected to a
resurvey and reclassification based on their respective
values at the end of every two years in order to align them
with the adjustment of the excise tax rate and tax brackets
due to the movement in the consumer price index.55
Of course, we now know that the DOF proposal, insofar
as the periodic adjustment of tax rates and tax brackets,
and the periodic resurvey and reclassification of cigarette
brands are concerned, did not gain approval from
Congress. The House and Senate pushed through with
their own versions of the excise tax system on beers and
cigarettes both denominated as H.B. No. 7198. For
convenience, we shall refer to the bill deliberated upon by
the House as the House Version and that of the Senate
as the Senate Version.
The House’s Committee on Ways and Means, then
chaired by Congressman Exequiel B. Javier
(Congressman Javier), roundly rejected the DOF
proposal. Instead, in its Committee Report submitted to
the plenary, it proposed a different excise tax system
which used a specific tax as a basic tax with an ad
valorem comparator. Further, it deleted the proposal to
have a periodic adjustment of tax rates and the tax
brackets as well as periodic resurvey and reclassification
of cigarette brands, to wit:
The rigidity of the specific tax system calls for the
need for frequent congressional intervention to
adjust the tax rates to inflation and to keep pace
with the expanding needs of government for more
revenues. The DOF admits this flaw inherent in
the tax system it proposed. Hence, to obviate the
need for remedial legislation, the DOF is asking
Congress to grant to the Commissioner the power
to revise, one, the specific tax rates: and two, the
price levels of beer and cigarettes. What the DOF
is asking, Mr. Speaker, is for Congress to
delegate to the Commissioner of Internal
Revenue the power to fix the tax rates and
classify the subjects of taxation based on their
price levels for purposes of fixing the tax rates.
While we sympathize with the predicament of the
DOF, it is not for Congress to abdicate such
power. The power sought to be delegated to be
exercised by the Commissioner of Internal
Revenue is a legislative power vested by the
Constitution in Congress pursuant to Section 1,
Article VI of the Constitution. Where the power is
 vested, there it must remain— in Congress, a
body of representatives elected by the people.
Congress may not delegate such power, much
less abdicate it.
xxxx
Moreover, the grant of such power, if at all
constitutionally permissible, to the Commissioner
of Internal Revenue is fraught with ethical
implications. The debates on how much revenue
will be raised, how much money will be taken
from the pockets of taxpayers, will inexorably shift
from the democratic Halls of Congress to the
secret and non-transparent corridors of unelected
agencies of government, the Department of
Finance and the Bureau of Internal Revenue,
which are not accountable to our people. We
cannot countenance the shift for ethical reasons,
lest we be accused of betraying the trust reposed
on this Chamber by the people. x x x
A final point on this proposal, Mr. Speaker, is the
exercise of the taxing power of the Commissioner
of Internal Revenue which will be triggered by
inflation rates based on the consumer price index.
Simply stated, Mr. Speaker, the specific tax rates
will be fixed by the Commissioner depending on
the price levels of beers and cigarettes as
determined by the consumers’ price index. This is
a novel idea, if not necessarily weird in the field
of taxation. What if the brewer or the cigarette
manufacturer sells at a price below the
consumers’ price index? Will it be taxed on the
basis of the consumer’s price index which is over
and above its wholesale or retail price as the case
may be? This is a weird form of exaction where
the tax is based not on what the brewer or
manufacturer actually realized but on an
imaginary wholesale or retail price. This amounts
to a taxation based on presumptive price levels
and renders the specific tax a presumptive tax.
We hope, the DOF and the BIR will also honor a
presumptive tax payment.
Moreover, specific tax rates based on price levels
tied to consumer’s price index as proposed by the
DOF engenders anti-trust concerns. The
proposal if enacted into law will serve as a barrier
to the entry of new players in the beer and
cigarette industries which are presently
dominated by shared monopolies. A new player
in these industries will be denied business
flexibility to fix its price levels to promote its
product and penetrate the market as the price
levels are dictated by the consumer price index.
The proposed tax regime, Mr. Speaker, will
merely enhance the stranglehold of the
oligopolies in the beer and cigarette industries,
thus, reversing the government’s policy of
dismantling monopolies and combinations in
restraint of trade.56
For its part, the Senate’s Committee on Ways and Means,
then chaired by Senator Juan Ponce Enrile (Senator
Enrile), developed its own version of the excise tax
system on cigarettes. The Senate Version consisted of a
four-tiered system and, interestingly enough, contained a
periodic excise tax rate and tax bracket adjustment as
well as a periodic resurvey and reclassification of brands
provision ("periodic adjustment and reclassification
provision," for brevity) to be conducted by the DOF in
coordination with the BIR and the National Statistics
Office based on the increase in the consumer price
index— similar to the one proposed by the DOF, viz:
SEC. 4 Section 142 of the National Internal
Revenue Code, as amended, is hereby further
amended to read as follows:
"SEC. 142. Cigars and cigarettes. –
xxxx
(c) Cigarettes packed by machine. – There shall
be levied, assessed and collected on cigarettes
packed by machine a tax at the rates prescribed
below:
(1) If the net retail price (excluding the excise tax
and the value-added tax) is above Ten pesos
(P10.00) per pack, the tax shall be Twelve pesos
(P12.00) per pack;
(2) If the net retail price (excluding the excise tax
and the value-added tax) exceeds Six pesos and
fifty centavos (P6.50) per pack, the tax shall be
Eight pesos (P8.00) per pack;
(3) If the net retail price (excluding the excise tax
and the value-added tax) is Five pesos (P5.00)
up to Six pesos and fifty centavos (P6.50) per
pack, the tax shall be Five pesos (P5.00) per
pack;
(4) If the net retail price (excluding the excise tax
and the value-added tax) is below Five pesos
(P5.00) per pack, the tax shall be One peso
(P1.00) per pack.
Variants of existing brands of cigarettes which are
introduced in the domestic market after the
effectivity of this Act shall be taxed under the
highest classification of any variant of that brand.
xxx
The rates of specific tax on cigars and
cigarettes under subparagraph (a), (b) and (c)
hereof, including the net retail prices for
purposes of classification, shall be adjusted
on the sixth of January three years after the
effectivity of this Act and every three years
thereafter. The adjustment shall be in
accordance with the inflation rate measured
by the average increase in the consumer price
index over the three-year period. The adjusted
tax rates and net price levels shall be in force
on the eighth of January.
Within the period hereinabove mentioned, the
Secretary of Finance shall direct the conduct
of a survey of retail prices of each brand of
cigarettes in coordination with the Bureau of
Internal Revenue and the National Statistics
Office.
For purposes of this Section, net retail price shall
mean the price at which the cigarette is sold on
retail in 20 major supermarkets in Metro Manila
(for brands of cigarettes marketed nationally),
excluding the amount intended to cover the
applicable excise tax and the value-added tax.
For brands which are marketed only outside
Metro Manila, the net retail price shall mean the
 price at which the cigarette is sold in five major
supermarkets in the region excluding the amount
intended to cover the applicable excise tax and
the value-added tax.
The classification of each brand of cigarettes
in the initial year of implementation of this Act
shall be based on its average net retail price
as of October 1, 1996. The said classification
by brand shall remain in force until January 7,
2000.
New brands shall be classified according to their
current net retail price.57 (Emphasis supplied)
During the period of interpellations, the late Senator Raul
S. Roco (Senator Roco) expressed doubts as to the
legality and wisdom of putting a periodic adjustment and
reclassification provision:
Senator Enrile: This will be the first time that a tax
burden will be allowed to be automatically
adjusted upwards based on a system of indexing
tied up with the Consumers Price Index (CPI).
Although I must add that we have adopted a
similar system in adjusting the personal tax
exemption from income tax of our individual
taxpayers.
Senator Roco: They are not exactly the same, Mr.
President. But even then, we do note that this the
first time we are trying to put an automatic
adjustment. My concern is, why do we propose
now this automatic adjustment? What is the
reason that impels the committee? Maybe we can
be enlightened and maybe we shall embrace it
forthwith. But what is the reason?
Senator Enrile: Mr. President, we will recall that
in the House of Representatives, it has adopted a
tax proposal on these products based on a
specific tax as a basic tax with an ad
valoremcomparator. The Committee on Ways
and Means of the Senate has not seen it fit to
adopt this system, but it recognized the possibility
that there may be an occasion where the price
movement in the country might unwarrantedly
move upwards, in which case, if we peg the
government to a specific tax rate of P6.30, P9.30
and P12.30 for beer, since we are talking of
beer, 58 the government might lose in the
process.
In order to consider the interest of the
government in this, Mr. President, and in order to
obviate the possibility that some of these
products categorized under the different tiers with
different specific tax rates from moving upwards
and piercing their own tiers and thereby expose
themselves to an incremental tax of higher
magnitude, it was felt that we should adopt a
system where, in spite of any escalation in the
price of these products in the future, the tax rates
could be adjusted upwards so that none of these
products would leave their own tier. That was the
basic principle under which we crafted this portion
of the tax proposal.
Senator Roco: Mr. President, we certainly share
the judgment of the distinguished gentleman as
regards the comparator provision in the House of
Representatives and we appreciate the reasons
given. But we are under the impression that the
House also, aside from the comparator, has an
adjustment clause that is fixed. It has fixed rates
for the adjustment. So that one of the basic
differences between the Senate proposed
version now and the House version is that, the
House of Representatives has manifested its will
and judgment as regards the tax to which we will
adjust, whereas the Senate version relegates
fundamentally that judgment to the Department of
Finance.
Senator Enrile: That is correct, Mr. President,
because we felt that in imposing a fixed
adjustment, we might be fixing an amount that is
either too high or too low. We cannot foresee the
economic trends in this country over a period of
two years, three years, let alone ten years. So we
felt that a mechanism ought to be adopted in
order to serve the interest of the government, the
interest of the producers, and the interest of the
consuming public.
Senator Roco: This is where, Mr. President, my
policy difficulties start. Under the Constitution— I
think it is Article VI, Section 24, and it was the
distinguished chairman of the Committee on
Ways and Means who made this Chamber very
conscious of this provision— revenue measures
and tariff measures shall originate exclusively
from the House of Representatives.
The reason for this, Mr. President, is, there is a
long history why the House of Representatives
must originate judgments on tax. The House
members represent specific districts. They
represent specific constituencies, and the whole
history of parliamentarism, the whole history of
Congress as an institution is founded on the
proposition that the direct representatives of the
people must speak about taxes.
Mr. President, while the Senate can concur and
can introduce amendments, the proposed
change here is radical. This is the policy difficulty
that I wish to clarify with the gentleman because
the judgment call now on the amount of tax to be
imposed is not coming from Congress. It is shifted
to the Department of Finance. True, the Secretary
of Finance may have been the best finance officer
two years ago and now the best finance officer in
Asia, but that does not make him qualified to
replace the judgment call of the House of
Representatives. That is my first difficulty.
Senator Enrile: Mr. President, precisely the law,
in effect, authorizes this rate beforehand. The
computation of the rate is the only thing that was
left to the Department of Finance as a tax
implementor of Congress. This is not unusual
because we have already, as I said, adopted a
system similar to this. If we adjust the personal
exemption of an individual taxpayer, we are in
effect adjusting the applicable tax rate to him.
Senator Roco: But the point I was trying to
demonstrate, Mr. President, is that we depart
precisely from the mandate of the Constitution
that judgment on revenue must emanate from
Congress. Here, it is shifted to the Department of
Finance for no visible or patent reason insofar as
I could understand. The only difference is, who
will make the judgment? Should it be Congress?
 Senator Enrile: Mr. President, forgive me for
answering sooner than I should. My
understanding of the Constitution is that all
revenue measures must emanate from the
House. That is all the Constitution says.
Now, it does not say that the judgment call must
belong to the House. The judgment call can
belong both to the House and to the Senate. We
can change whatever proposal the House did.
Precisely, we are now crafting a measure, and we
are saying that this is the rate subject to an
adjustment which we also provide. We are not
giving any unusual power to the Secretary of
Finance because we tell him, "This is the formula
that you must adopt in arriving at the adjustment
so that you do not have to come back to us."59
Apart from his doubts as to the legality of the delegation
of taxing power to the DOF and BIR, Senator Roco also
voiced out his concern about the possible abuse and
corruption that will arise from the periodic adjustment and
reclassification provision. Continuing—
Senator Roco: Mr. President, if that is the
argument, that the distinguished gentleman has a
different legal interpretation, we will then now
examine the choice. Because his legal
interpretation is different from mine, then the
issues becomes: Is it more advantageous that
this judgment be exercised by the House?
Should we not concur or modify in terms of
the exercise by the House of its power or are
we better off giving this judgment call to the
Department of Finance?
Let me now submit, Mr. President, that in so
doing, it is more advantageous to fix the rate
so that even if we modify the rates identified
by Congress, it is better and less susceptible
to abuse.
For instance, Mr. President, would the gentlemen
wish to demonstrate to us how this will be done?
On page 8, lines 5 to 9, there is a provision here
as to when the Secretary of Finance shall direct
the conduct of survey of retail prices of each
brand of fermented liquor in coordination with the
Bureau of Internal Revenue and the National
Statistics Office.
These offices are not exactly noted, Mr.
President, for having been sanctified by the Holy
Spirit in their noble intentions. x x x60 (Emphasis
supplied)
Pressing this point, Senator Roco continued his query:
Senator Roco: x x x [On page 8, lines 5 to 9] it
says that during the two-year period, the
Secretary of Finance shall direct the conduct of
the survey. How? When? Which retail prices and
what brand shall he consider? When he
coordinates with the Bureau of Internal Revenue,
what is the Bureau of Internal Revenue supposed
to be doing? What is the National Statistics Office
supposed to be doing, and under what guides
and standards?
May the gentleman wish to demonstrate how this
will be done? My point, Mr. President, is, by
giving the Secretary of Finance, the BIR and
the National Statistics Office discretion over a
two-year period will invite corruption and
arbitrariness, which is more dangerous than
letting the House of Representatives and this
Chamber set the adjustment rate. Why not set
the adjustment rate? Why should Congress not
exercise that judgment now? x x x
Senator Enrile: x x x
Senator Roco: x x x We respectfully submit that
the Chairman consider choosing the judgment of
this Chamber and the House of Representatives
over a delegated judgment of the Department of
Finance.
Again, it is not to say that I do not trust the
Department of Finance. It has won awards, and I
also trust the undersecretary. But that is beside
the point. Tomorrow, they may not be
there.61(Emphasis supplied)
This point was further dissected by the two senators.
There was a genuine difference of opinion as to which
system— one with a fixed excise tax rate and
classification or the other with a periodic adjustment of
excise tax rate and reclassification— was less susceptible
to abuse, as the following exchanges show:
Senator Enrile: Mr. President, considering the
sensitivity of these products from the viewpoint of
exerted pressures because of the
understandable impact of this measure on the
pockets of the major players producing these
products, the committee felt that perhaps to
lessen such pressures, it is best that we now
establish a norm where the tax will be adjusted
without incurring too much political controversy
as has happened in the case of this proposal.
Senator Roco: But that is exactly the same
reason we say we must rely upon Congress
because Congress, if it is subjected to pressure,
at least balances off because of political factors.
When the Secretary of Finance is now subjected
to pressure, are we saying that the Secretary of
Finance and the Department of Finance is better-
suited to withstand the pressure? Or are we
saying "Let the Finance Secretary decide whom
to yield"?
I am saying that the temptation and the pressure
on the Secretary of Finance is more dangerous
and more corruption-friendly than ascertaining for
ourselves now a fixed rate of increase for a fixed
period.
Senator Enrile: Mr. President, perhaps the
gentleman may not agree with this
representation, but in my humble opinion, this
formulation is less susceptible to pressure
because there is a definite point of reference
which is the consumer price index, and that
consumer price index is not going to be used only
for this purpose. The CPI is used for a national
purpose, and there is less possibility of tinkering
with it.62
Further, Senator Roco, like Congressman Javier,
expressed the view that the periodic adjustment and
reclassification provision would create an anti-competitive
atmosphere. Again, Senators Roco and Enrile had
genuine divergence of opinions on this matter, to wit:
Senator Roco: x x x On the marketing level, an
adjustment clause may, in fact, be
disadvantageous to both companies, whether it is
the Lucio Tan companies or the San Miguel
companies. If we have to adjust our marketing
position every two years based on the adjustment
clause, the established company may survive,
but the new ones will have tremendous difficulty.
Therefore, this provision tends to indicate an
anticompetitive bias.
It is good for San Miguel and the Lucio Tan
companies, but the new companies— assuming
there may be new companies and we want to
encourage them because of the old point of
liberalization— will be at a disadvantage under
this situation. If this observation will find
receptivity in the policy consideration of the
distinguished Gentleman, maybe we can also
further, later on, seek amendments to this
automatic adjustment clause in some manner.
Senator Enrile: Mr. President, I cannot foresee
any anti-competitiveness of this provision with
respect to a new entrant, because a new entrant
will not just come in without studying the market.
He is a lousy businessman if he will just come in
without studying the market. If he comes in, he
will determine at what retail price level he will
market his product, and he will be coming under
any of the tiers depending upon his net retail
price. Therefore, I do not see how this particular
provision will affect a new entrant.
Senator Roco: Be that as it may, Mr. President,
we obviously will not resort to debate until this
evening, and we will have to look for other ways
of resolving the policy options.
Let me just close that particular area of my
interpellation, by summarizing the points we were
hoping could be clarified.
1. That the automatic adjustment clause
is at best questionable in law.
2. It is corruption-friendly in the sense
that it shifts the discretion from the House
of Representatives and this Chamber to
the Secretary of Finance, no matter how
saintly he may be.
3. There is,— although the judgment call
of the gentleman disagrees— to our
view, an anticompetitive situation that is
geared at…63
After these lengthy exchanges, it appears that the views
of Senator Enrile were sustained by the Senate Body
because the Senate Version was passed on Third
Reading without substantially altering the periodic
adjustment and reclassification provision.
It was actually at the Bicameral Conference Committee
level where the Senate Version underwent major
changes. The Senate Panel prevailed upon the House
Panel to abandon the basic excise tax rate and ad
valorem comparator as the means to determine the
applicable excise tax rate. Thus, the Senate’s four-tiered
system was retained with minor adjustments as to the
excise tax rate per tier. However, the House Panel
prevailed upon the Senate Panel to delete the power of
the DOF and BIR to periodically adjust the excise tax rate
and tax brackets, and periodically resurvey and reclassify
the cigarette brands based on the increase in the
consumer price index.
In lieu thereof, the classification of existing brands based
on their average net retail price as of October 1, 1996 was
"frozen" and a fixed across-the-board 12% increase in the
excise tax rate of each tier after three years from the
effectivity of the Act was put in place. There is a dearth of
discussion in the deliberations as to the applicability of the
freezing mechanism to new brands after their
classification is determined based on their current net
retail price. But a plain reading of the text of RA 8240,
even before its amendment by RA 9334, as well as the
previously discussed deliberations would readily lead to
the conclusion that the intent of Congress was to likewise
apply the freezing mechanism to new brands. Precisely,
Congress rejected the proposal to allow the DOF and BIR
to periodically adjust the excise tax rate and tax brackets
as well as to periodically resurvey and reclassify
cigarettes brands which would have encompassed old
and new brands alike. Thus, it would be absurd for us to
conclude that Congress intended to allow the periodic
reclassification of new brands by the BIR after their
classification is determined based on their current net
retail price. We shall return to this point when we tackle
the second issue.
In explaining the changes made at the Bicameral
Conference Committee level, Senator Enrile, in his report
to the Senate plenary, noted that the fixing of the excise
tax rates was done to avoid confusion.64 Congressman
Javier, for his part, reported to the House plenary the
reasons for fixing the excise tax rate and freezing the
classification, thus:
Finally, this twin feature, Mr. Speaker, fixed
specific tax rates and frozen classification, rejects
the Senate version which seeks to abdicate the
power of Congress to tax by pegging the rates as
well as the classification of sin products to
consumer price index which practically vests in
the Secretary of Finance the power to fix the
rates and to classify the products for tax
purposes.65 (Emphasis supplied)
Congressman Javier later added that the frozen
classification was intended to give stability to the industry
as the BIR would be prevented from tinkering with the
classification since it would remain unchanged despite the
increase in the net retail prices of the previously classified
brands.66 This would also assure the industry players that
there would be no new impositions as long as the law is
unchanged.67
From the foregoing, it is quite evident that
the classification freeze provision could hardly be
considered arbitrary, or motivated by a hostile or
oppressive attitude to unduly favor older brands over
newer brands. Congress was unequivocal in its
unwillingness to delegate the power to periodically adjust
the excise tax rate and tax brackets as well as to
periodically resurvey and reclassify the cigarette brands
based on the increase in the consumer price index to the
DOF and the BIR. Congress doubted the constitutionality
of such delegation of power, and likewise, considered the
ethical implications thereof. Curiously, the classification
freeze provision was put in place of the periodic
adjustment and reclassification provision because of the
belief that the latter would foster an anti-competitive
atmosphere in the market. Yet, as it is, this same criticism
is being foisted by petitioner upon the classification freeze
provision.
To our mind, the classification freeze provision was in the
main the result of Congress’s earnest efforts to improve
the efficiency and effectivity of the tax administration over
sin products while trying to balance the same with other
state interests. In particular, the questioned provision
addressed Congress’s administrative concerns regarding
delegating too much authority to the DOF and BIR as this
will open the tax system to potential areas for abuse and
corruption. Congress may have reasonably conceived
that a tax system which would give the least amount of
discretion to the tax implementers would address the
problems of tax avoidance and tax evasion.
To elaborate a little, Congress could have reasonably
foreseen that, under the DOF proposal and the Senate
Version, the periodic reclassification of brands would
tempt the cigarette manufacturers to manipulate their
price levels or bribe the tax implementers in order to allow
their brands to be classified at a lower tax bracket even if
their net retail prices have already migrated to a higher
tax bracket after the adjustment of the tax brackets to the
increase in the consumer price index. Presumably, this
could be done when a resurvey and reclassification is
forthcoming. As briefly touched upon in the Congressional
deliberations, the difference of the excise tax rate
between the medium-priced and the high-priced tax
brackets under RA 8240, prior to its amendment, was
P3.36. For a moderately popular brand which sells around
100 million packs per year, this easily translates to
P336,000,000.68 The incentive for tax avoidance, if not
outright tax evasion, would clearly be present. Then
again, the tax implementers may use the power to
periodically adjust the tax rate and reclassify the brands
as a tool to unduly oppress the taxpayer in order for the
government to achieve its revenue targets for a given
year.
Thus, Congress sought to, among others, simplify the
whole tax system for sin products to remove these
potential areas of abuse and corruption from both the side
of the taxpayer and the government. Without doubt,
the classification freeze provision was an integral part of
this overall plan. This is in line with one of the avowed
objectives of the assailed law "to simplify the tax
administration and compliance with the tax laws that are
about to unfold in order to minimize losses arising from
inefficiencies and tax avoidance scheme, if not outright
tax evasion."69 RA 9334 did not alter this classification
freeze provision of RA 8240. On the contrary, Congress
affirmed this freezing mechanism by clarifying the wording
of the law. We can thus reasonably conclude, as the
deliberations on RA 9334 readily show, that the
administrative concerns in tax administration, which
moved Congress to enact the classification freeze
provision in RA 8240, were merely continued by RA 9334.
Indeed, administrative concerns may provide a legitimate,
rational basis for legislative classification.70 In the case at
bar, these administrative concerns in the measurement
and collection of excise taxes on sin products are readily
apparent as afore-discussed.
Aside from the major concern regarding the elimination of
potential areas for abuse and corruption from the tax
administration of sin products, the legislative deliberations
also show that the classification freeze provision was
intended to generate buoyant and stable revenues for
government. With the frozen tax classifications, the
revenue inflow would remain stable and the government
would be able to predict with a greater degree of certainty
the amount of taxes that a cigarette manufacturer would
pay given the trend in its sales volume over time. The
reason for this is that the previously classified cigarette
brands would be prevented from moving either upward or
downward their tax brackets despite the changes in their
net retail prices in the future and, as a result, the amount
of taxes due from them would remain predictable.
The classification freeze provision would, thus, aid in the
revenue planning of the government.71
All in all, the classification freeze provision addressed
Congress’s administrative concerns in the simplification
of tax administration of sin products, elimination of
potential areas for abuse and corruption in tax collection,
buoyant and stable revenue generation, and ease of
projection of revenues. Consequently, there can be no
denial of the equal protection of the laws since the
rational-basis test is amply satisfied.
Going now to the contention of petitioner that
the classification freeze provision unduly favors older
brands over newer brands, we must first contextualize the
basis of this claim. As previously discussed, the evidence
presented by the petitioner merely showed that in 2004,
Marlboro and Philip Morris, on the one hand, and Lucky
Strike, on the other, would have been taxed at the same
rate had the classification freeze provision been not in
place. But due to the operation of the classification freeze
provision, Lucky Strike was taxed higher. From here,
petitioner generalizes that this differential tax treatment
arising from the classification freeze provision adversely
impacts the fairness of the playing field in the industry,
particularly, between older and newer brands. Thus, it is
virtually impossible for new brands to enter the market.
Petitioner did not, however, clearly demonstrate the exact
extent of such impact. It has not been shown that the net
retail prices of other older brands previously classified
under this classification system have already pierced their
tax brackets, and, if so, how this has affected the overall
competition in the market. Further, it does not necessarily
follow that newer brands cannot compete against older
brands because price is not the only factor in the market
as there are other factors like consumer preference,
brand loyalty, etc. In other words, even if the newer
brands are priced higher due to the differential tax
treatment, it does not mean that they cannot compete in
the market especially since cigarettes contain addictive
ingredients so that a consumer may be willing to pay a
higher price for a particular brand solely due to its unique
formulation. It may also be noted that in 2003, the BIR
surveyed 29 new brands72 that were introduced in the
market after the effectivity of RA 8240 on January 1, 1997,
thus negating the sweeping generalization of petitioner
that the classification freeze provision has become an
insurmountable barrier to the entry of new brands. Verily,
where there is a claim of breach of the due process and
equal protection clauses, considering that they are not
fixed rules but rather broad standards, there is a need for
proof of such persuasive character as would lead to such
a conclusion. Absent such a showing, the presumption of
validity must prevail.73
Be that as it may, petitioner’s evidence does suggest that,
at least in 2004, Philip Morris and Marlboro, older brands,
would have been taxed at the same rate as Lucky Strike,
a newer brand, due to certain conditions (i.e., the increase
of the older brands’ net retail prices beyond the tax
bracket to which they were previously classified after the
lapse of some time) were it not for the classification freeze
provision. It may be conceded that this has adversely
affected, to a certain extent, the ability of petitioner to
competitively price its newer brands vis-à-vis the subject
older brands. Thus, to a limited extent, the assailed law
seems to derogate one of its avowed
objectives, i.e. promoting fair competition among the
players in the industry. Yet, will this occurrence, by itself,
render the assailed law unconstitutional on equal
protection grounds?
We answer in the negative.
Whether Congress acted improvidently in derogating, to
a limited extent, the state’s interest in promoting fair
competition among the players in the industry, while
pursuing other state interests regarding the simplification
of tax administration of sin products, elimination of
potential areas for abuse and corruption in tax collection,
buoyant and stable revenue generation, and ease of
projection of revenues through the classification freeze
provision, and whether the questioned provision is the
best means to achieve these state interests, necessarily
go into the wisdom of the assailed law which we cannot
inquire into, much less overrule. The classification freeze
provision has not been shown to be precipitated by a
veiled attempt, or hostile attitude on the part of Congress
to unduly favor older brands over newer brands. On the
contrary, we must reasonably assume, owing to the
respect due a co-equal branch of government and as
revealed by the Congressional deliberations, that the
enactment of the questioned provision was impelled by an
earnest desire to improve the efficiency and effectivity of
the tax administration of sin products. For as long as the
legislative classification is rationally related to furthering
some legitimate state interest, as here, the rational-basis
test is satisfied and the constitutional challenge is
perfunctorily defeated.
We do not sit in judgment as a supra-legislature to decide,
after a law is passed by Congress, which state interest is
superior over another, or which method is better suited to
achieve one, some or all of the state’s interests, or what
these interests should be in the first place. This policy-
determining power, by constitutional fiat, belongs to
Congress as it is its function to determine and balance
these interests or choose which ones to pursue. Time and
again we have ruled that the judiciary does not settle
policy issues. The Court can only declare what the law is
and not what the law should be. Under our system of
government, policy issues are within the domain of the
political branches of government and of the people
themselves as the repository of all state power. 74 Thus,
the legislative classification under the classification freeze
provision, after having been shown to be rationally related
to achieve certain legitimate state interests and done in
good faith, must, perforce, end our inquiry.
Concededly, the finding that the assailed law seems to
derogate, to a limited extent, one of its avowed objectives
(i.e. promoting fair competition among the players in the
industry) would suggest that, by Congress’s own
standards, the current excise tax system on sin products
is imperfect. But, certainly, we cannot declare a statute
unconstitutional merely because it can be improved or
that it does not tend to achieve all of its stated
objectives.75 This is especially true for tax legislation
which simultaneously addresses and impacts multiple
state interests.76 Absent a clear showing of breach of
constitutional limitations, Congress, owing to its vast
experience and expertise in the field of taxation, must be
given sufficient leeway to formulate and experiment with
different tax systems to address the complex issues and
problems related to tax administration. Whatever
imperfections that may occur, the same should be
addressed to the democratic process to refine and evolve
a taxation system which ideally will achieve most, if not
all, of the state’s objectives.
In fine, petitioner may have valid reasons to disagree with
the policy decision of Congress and the method by which
the latter sought to achieve the same. But its remedy is
with Congress and not this Court. As succinctly articulated
in Vance v. Bradley:77
The Constitution presumes that, absent some
reason to infer antipathy, even improvident
decisions will eventually be rectified by the
democratic process, and that judicial intervention
is generally unwarranted no matter how unwisely
we may think a political branch has acted. Thus,
we will not overturn such a statute unless the
varying treatment of different groups or persons
is so unrelated to the achievement of any
combination of legitimate purposes that we can
only conclude that the legislature's actions were
irrational.78
We now tackle the second issue.
Petitioner asserts that Revenue Regulations No. 1-97, as
amended by Revenue Regulations No. 9-2003, Revenue
Regulations No. 22-2003 and Revenue Memorandum
Order No. 6-2003, are invalid insofar as they empower the
BIR to reclassify or update the classification of new
brands of cigarettes based on their current net retail
prices every two years or earlier. It claims that RA 8240,
even prior to its amendment by RA 9334, did not authorize
the BIR to conduct said periodic resurvey and
reclassification.
The questioned provisions are found in the following
sections of the assailed issuances:
(1) Section 4(B)(e)(c), 2nd paragraph of Revenue
Regulations No. 1-97, as amended by Section 2 of
Revenue Regulations 9-2003, viz:
For the purpose of establishing or updating the
tax classification of new brands and variant(s)
thereof, their current net retail price shall be
reviewed periodically through the conduct of
survey or any other appropriate activity, as
mentioned above, every two (2) years unless
earlier ordered by the Commissioner. However,
notwithstanding any increase in the current net
retail price, the tax classification of such new
brands shall remain in force until the same is
altered or changed through the issuance of an
appropriate Revenue Regulations.
(2) Sections II(1)(b), II(4)(b), II(6), II(7), III (Large Tax
Payers Assistance Division II) II(b) of Revenue
Memorandum Order No. 6-2003, insofar as pertinent to
cigarettes packed by machine, viz:
II. POLICIES AND GUIDELINES
1. The conduct of survey covered by this Order,
for purposes of determining the current retail
prices of new brands of cigarettes and alcohol
products introduced in the market on or after
January 1, 1997, shall be undertaken in the
following instances:
xxxx
b. For reclassification of new brands of said
excisable products that were introduced in the
market after January 1, 1997.
 xxxx
4. The determination of the current retail prices of
new brands of the aforesaid excisable products
shall be initiated as follows:
xxxx
b. After the lapse of the prescribed two-year
period or as the Commissioner may otherwise
direct, the appropriate tax reclassification of these
brands based on the current net retail prices
thereof shall be determined by a survey to be
conducted upon a written directive by the
Commissioner.
For this purpose, a memorandum order to the
Assistant Commissioner, Large Taxpayers
Service, Heads, Excise Tax Areas, and Regional
Directors of all Revenue Regions, except
Revenue Region Nos. 4, 5, 6, 7, 8 and 9, shall be
issued by the Commissioner for the submission
of the list of major supermarkets/retail outlets
where the above excisable products are being
sold, as well as the list of selected revenue
officers who shall be designated to conduct the
said activity(ies).
xxxx
6. The results of the survey conducted in
Revenue Region Nos. 4 to 9 shall be submitted
directly to the Chief, LT Assistance Division II
(LTAD II), National Office for consolidation. On
the other hand, the results of the survey
conducted in Revenue Regions other than
Revenue Region Nos. 4 to 9, shall be submitted
to the Office of the Regional Director for regional
consolidation. The consolidated regional survey,
together with the accomplished survey forms
shall be transmitted to the Chief, LTAD II for
national consolidation within three (3) days from
date of actual receipt from the survey teams. The
LTAD II shall be responsible for the evaluation
and analysis of the submitted survey forms and
the preparation of the recommendation for the
updating/revision of the tax classification of each
brand of cigarettes and alcohol products. The
said recommendation, duly validated by the
ACIR, LTS, shall be submitted to the
Commissioner for final review within ten (10) days
from the date of actual receipt of complete reports
from all the surveying Offices.
7. Upon final review by the Commissioner of the
revised tax classification of the different new
brands of cigarettes and alcohol products, the
appropriate revenue regulations shall be
prepared and submitted for approval by the
Secretary of Finance.
xxxx
III. PROCEDURES
xxxx
Large Taxpayers Assistance Division II
xxxx
1. Perform the following preparatory procedures
on the identification of brands to be surveyed,
supermarkets/retail outlets where the survey
shall be conducted, and the personnel selected
to conduct the survey.
xxxx
b. On the tax reclassification of new brands
i. Submit a master list of registered brands
covered by the survey pursuant to the provisions
of Item II.2 of this Order containing the complete
description of each brand, existing net retail price
and the corresponding tax rate thereof.
ii. Submit to the ACIR, LTS, a list of major
supermarkets/retail outlets within the territorial
jurisdiction of the concerned revenue regions
where the survey will be conducted to be used as
basis in the issuance of Mission Orders. Ensure
that the minimum number of establishments to be
surveyed, as prescribed under existing revenue
laws and regulations, is complied with. In
addition, the names and designations of revenue
officers selected to conduct the survey shall be
clearly indicated opposite the names of the
establishments to be surveyed.
There is merit to the contention.
In order to implement RA 8240 following its effectivity on
January 1, 1997, the BIR issued Revenue Regulations
No. 1-97, dated December 13, 1996, which mandates a
one-time classification only.79Upon their launch, new
brands shall be initially taxed based on their suggested
net retail price. Thereafter, a survey shall be conducted
within three (3) months to determine their current net retail
prices and, thus, fix their official tax classifications.
However, the BIR made a turnaround by issuing Revenue
Regulations No. 9-2003, dated February 17, 2003, which
partly amended Revenue Regulations No. 1-97, by
authorizing the BIR to periodically reclassify new brands
(i.e., every two years or earlier) based on their current net
retail prices. Thereafter, the BIR issued Revenue
Memorandum Order No. 6-2003, dated March 11, 2003,
prescribing the guidelines on the implementation of
Revenue Regulations No. 9-2003. This was patent error
on the part of the BIR for being contrary to the plain text
and legislative intent of RA 8240.
It is clear that the afore-quoted portions of Revenue
Regulations No. 1-97, as amended by Section 2 of
Revenue Regulations 9-2003, and Revenue
Memorandum Order No. 6-2003 unjustifiably emasculate
the operation of Section 145 of the NIRC because they
authorize the Commissioner of Internal Revenue to
update the tax classification of new brands every two
years or earlier subject only to its issuance of the
appropriate Revenue Regulations, when nowhere in
Section 145 is such authority granted to the Bureau.
Unless expressly granted to the BIR, the power to
reclassify cigarette brands remains a prerogative of the
legislature which cannot be usurped by the former.
More importantly, as previously discussed, the clear
legislative intent was for new brands to benefit from the
same freezing mechanism accorded to Annex "D" brands.
To reiterate, in enacting RA 8240, Congress categorically
rejected the DOF proposal and Senate Version which
would have empowered the DOF and BIR to periodically
adjust the excise tax rate and tax brackets, and to
periodically resurvey and reclassify cigarette brands.
(This resurvey and reclassification would have naturally
encompassed both old and new brands.) It would thus, be
absurd for us to conclude that Congress intended to allow
the periodic reclassification of new brands by the BIR after
their classification is determined based on their current
net retail price while limiting the freezing of the
classification to Annex "D" brands. Incidentally, Senator
Ralph G. Recto expressed the following views during the
deliberations on RA 9334, which later amended RA 8240:
Senator Recto: Because, like I said, when
Congress agreed to adopt a specific tax system
[under R.A. 8240], when Congress did not index
the brackets, and Congress did not index the
rates but only provided for a one rate increase in
the year 2000, we shifted from ad valoremwhich
was based on value to a system of specific which
is based on volume. Congress then, in effect,
determined the classification based on the prices
at that particular period of time and classified
these products accordingly.
Of course, Congress then decided on what will
happen to the new brands or variants of existing
brands. To favor government, a variant would be
classified as the highest rate of tax for that
particular brand. In case of a new brand, Mr.
President, then the BIR should classify them. But
I do not think it was the intention of Congress then
to give the BIR the authority to reclassify them
every so often. I do not think it was the intention
of Congress to allow the BIR to classify a new
brand every two years, for example, because it
will be arbitrary for the BIR to do so. x x
x80(Emphasis supplied)
For these reasons, the amendments introduced by RA
9334 to RA 8240, insofar as the freezing mechanism is
concerned, must be seen merely as underscoring the
legislative intent already in place then, i.e. new brands as
being covered by the freezing mechanism after their
classification based on their current net retail prices.
Unfortunately for petitioner, this result will not cause a
downward reclassification of Lucky Strike. It will be
recalled that petitioner introduced Lucky Strike in June
2001. However, as admitted by petitioner itself, the BIR
did not conduct the required market survey within three
months from product launch. As a result, Lucky Strike was
never classified based on its actual current net retail price.
Petitioner failed to timely seek redress to compel the BIR
to conduct the requisite market survey in order to fix the
tax classification of Lucky Strike. In the meantime, Lucky
Strike was taxed based on its suggested net retail price
of P9.90 per pack, which is within the high-priced tax
bracket. It was only after the lapse of two years or in 2003
that the BIR conducted a market survey which was
the first time that Lucky Strike’s actual current net retail
price was surveyed and found to be from P10.34
to P11.53 per pack, which is within the premium-priced
tax bracket. The case of petitioner falls under a situation
where there was no reclassification based on its current
net retail price which would have been invalid as
previously explained. Thus, we cannot grant petitioner’s
prayer for a downward reclassification of Lucky Strike
because it was never reclassified by the BIR based on its
actual current net retail price.
It should be noted though that on August 8, 2003, the BIR
issued Revenue Regulations No. 22-2003 which
implemented the revised tax classifications of new brands
based on their current net retail prices through the market
survey conducted pursuant to Revenue Regulations No.
9-2003. Annex "A" of Revenue Regulations No. 22-2003
lists the result of the market survey and the corresponding
recommended tax classification of the new brands therein
aside from Lucky Strike. However, whether these other
brands were illegally reclassified based on their actual
current net retail prices by the BIR must be determined on
a case-to-case basis because it is possible that these
brands were classified based on their actual current net
retail price for the first time in the year 2003 just like Lucky
Strike. Thus, we shall not make any pronouncement as to
the validity of the tax classifications of the other brands
listed therein.
Finally, it must be noted that RA 9334 introduced changes
in the manner by which the current net retail price of a
new brand is determined and how its classification is
permanently fixed, to wit:
New brands, as defined in the immediately
following paragraph, shall initially be classified
according to their suggested net retail price.
New brands shall mean a brand registered after
the date of effectivity of R.A. No. 8240 [on
January 1, 1997].
Suggested net retail price shall mean the net
retail price at which new brands, as defined
above, of locally manufactured or imported
cigarettes are intended by the manufacture or
importer to be sold on retail in major
supermarkets or retail outlets in Metro Manila for
those marketed nationwide, and in other regions,
for those with regional markets. At the end of
three (3) months from the product launch, the
Bureau of Internal Revenue shall validate the
suggested net retail price of the new brand
against the net retail price as defined herein
and determine the correct tax bracket under
which a particular new brand of cigarette, as
defined above, shall be classified. After the
end of eighteen (18) months from such
validation, the Bureau of Internal Revenue
shall revalidate the initially validated net retail
price against the net retail price as of the time
of revalidation in order to finally determine the
correct tax bracket under which a particular
new brand of cigarettes shall be classified;
Provided however, That brands of cigarettes
introduced in the domestic market between
January 1, 1997 and December 31, 2003 shall
remain in the classification under which the
Bureau of Internal Revenue has determined them
to belong as of December 31, 2003. Such
classification of new brands and brands
introduced between January 1, 1997 and
December 31, 2003 shall not be revised except
by an act of Congress. (Emphasis supplied)
Thus, Revenue Regulations No. 9-2003 and Revenue
Memorandum Order No. 6-2003 should be deemed
modified by the above provisions from the date of
effectivity of RA 9334 on January 1, 2005.
In sum, Section 4(B)(e)(c), 2nd paragraph of Revenue
Regulations No. 1-97, as amended by Section 2 of
Revenue Regulations 9-2003, and Sections II(1)(b),
II(4)(b), II(6), II(7), III (Large Tax Payers Assistance
Division II) II(b) of Revenue Memorandum Order No. 6-
2003, as pertinent to cigarettes packed by machine, are
invalid insofar as they grant the BIR the power to
reclassify or update the classification of new brands every
two years or earlier. Further, these provisions are deemed
modified upon the effectivity of RA 9334 on January 1,
2005 insofar as the manner of determining the permanent
classification of new brands is concerned.
We now tackle the last issue.
Petitioner contends that RA 8240, as amended by RA
9334, and its implementing rules and regulations violate
the General Agreement on Tariffs and Trade (GATT) of
1947, as amended, specifically, Paragraph 2, Article III,
Part II:
2. The products of the territory of any contracting
party imported into the territory of any other
contracting party shall not be subject, directly or
indirectly, to internal taxes or other internal
charges of any kind in excess of those applied,
directly or indirectly, to like domestic products.
Moreover, no contracting party shall otherwise
apply internal taxes or other internal charges to
imported or domestic products in a manner
contrary to the principles set forth in paragraph 1.
It claims that it is the duty of this Court to correct, in favor
of the GATT, whatever inconsistency exists between the
assailed law and the GATT in order to prevent triggering
the international dispute settlement mechanism under the
GATT-WTO Agreement.
We disagree.
The classification freeze provision uniformly applies to all
newly introduced brands in the market, whether imported
or locally manufactured. It does not purport to single out
imported cigarettes in order to unduly favor locally
produced ones. Further, petitioner’s evidence was
anchored on the alleged unequal tax treatment between
old and new brands which involves a different frame of
reference vis-à-vis local and imported products. Petitioner
has, therefore, failed to clearly prove its case, both
factually and legally, within the parameters of the GATT.
At any rate, even assuming arguendo that petitioner was
able to prove that the classification freeze
provision violates the GATT, the outcome would still be
the same. The GATT is a treaty duly ratified by the
Philippine Senate and under Article VII, Section 2181 of
the Constitution, it merely acquired the status of a
statute.82 Applying the basic principles of statutory
construction in case of irreconcilable conflict between
statutes, RA 8240, as amended by RA 9334, would
prevail over the GATT either as a later enactment by
Congress or as a special law dealing with the taxation of
sin products. Thus, in Abbas v. Commission on
Elections,83 we had occasion to explain:
Petitioners premise their arguments on the
assumption that the Tripoli Agreement is part of
the law of the land, being a binding international
agreement. The Solicitor General asserts that the
Tripoli Agreement is neither a binding treaty, not
having been entered into by the Republic of the
Philippines with a sovereign state and ratified
according to the provisions of the 1973 or 1987
Constitutions, nor a binding international
agreement.
We find it neither necessary nor determinative of
the case to rule on the nature of the Tripoli
Agreement and its binding effect on the Philippine
Government whether under public international
or internal Philippine law. In the first place, it is
now the Constitution itself that provides for the
creation of an autonomous region in Muslim
Mindanao. The standard for any inquiry into the
validity of R.A. No. 6734 would therefore be what
is so provided in the Constitution. Thus, any
conflict between the provisions of R.A. No. 6734
and the provisions of the Tripoli Agreement will
not have the effect of enjoining the
implementation of the Organic Act. Assuming for
the sake of argument that the Tripoli Agreement
is a binding treaty or international agreement, it
would then constitute part of the law of the land.
But as internal law it would not be superior to R.A.
No. 6734, an enactment of the Congress of the
Philippines, rather it would be in the same class
as the latter [SALONGA, PUBLIC
INTERNATIONAL LAW 320 (4th ed., 1974),
citing Head Money Cases, 112 U.S. 580 (1884)
and Foster v. Nelson, 2 Pet. 253 (1829)]. Thus, if
at all, R.A. No. 6734 would be amendatory of the
Tripoli Agreement, being a subsequent law. Only
a determination by this Court that R.A. No. 6734
contravenes the Constitution would result in the
granting of the reliefs sought. (Emphasis
supplied)
WHEREFORE, the petition is PARTIALLY
GRANTED and the decision of the Regional Trial Court of
Makati, Branch 61, in Civil Case No. 03-1032,
is AFFIRMED with MODIFICATION. As modified, this
Court declares that:
(1) Section 145 of the NIRC, as amended by Republic Act
No. 9334, is CONSTITUTIONAL; and that
(2) Section 4(B)(e)(c), 2nd paragraph of Revenue
Regulations No. 1-97, as amended by Section 2 of
Revenue Regulations 9-2003, and Sections II(1)(b),
II(4)(b), II(6), II(7), III (Large Tax Payers Assistance
Division II) II(b) of Revenue Memorandum Order No. 6-
2003, insofar as pertinent to cigarettes packed by
machine, are INVALID insofar as they grant the BIR the
power to reclassify or update the classification of new
brands every two years or earlier.
SO ORDERED.
G.R. No. 115455 August 25, 1994
ARTURO M. TOLENTINO, petitioner,
vs.
THE SECRETARY OF FINANCE and THE
COMMISSIONER OF INTERNAL
REVENUE, respondents.
G.R. No. 115525 August 25, 1994
JUAN T. DAVID, petitioner,
vs.
TEOFISTO T. GUINGONA, JR., as Executive
Secretary; ROBERTO DE OCAMPO, as Secretary of
Finance; LIWAYWAY VINZONS-CHATO, as
Commissioner of Internal Revenue; and their
AUTHORIZED AGENTS OR
REPRESENTATIVES, respondents.
G.R. No. 115543 August 25, 1994
RAUL S. ROCO and the INTEGRATED BAR OF THE
PHILIPPINES, petitioners,
vs.
THE SECRETARY OF THE DEPARTMENT OF
FINANCE; THE COMMISSIONERS OF THE BUREAU GUILLERMO PARAYNO, JR., in his capacity as the
OF INTERNAL REVENUE AND BUREAU OF Commissioner of Customs, respondents.
CUSTOMS, respondents.
Arturo M. Tolentino for and in his behalf.
G.R. No. 115544 August 25, 1994
Donna Celeste D. Feliciano and Juan T. David for
PHILIPPINE PRESS INSTITUTE, INC.; EGP petitioners in G.R. No. 115525.
PUBLISHING CO., INC.; PUBLISHING
CORPORATION; PHILIPPINE JOURNALISTS, INC.; Roco, Bunag, Kapunan, Migallos and Jardeleza for
JOSE L. PAVIA; and OFELIA L. petitioner R.S. Roco.
DIMALANTA, petitioners,
vs. Villaranza and Cruz for petitioners in G.R. No. 115544.
HON. LIWAYWAY V. CHATO, in her capacity as
Commissioner of Internal Revenue; HON. TEOFISTO
T. GUINGONA, JR., in his capacity as Executive Carlos A. Raneses and Manuel M. Serrano for petitioner
Secretary; and HON. ROBERTO B. DE OCAMPO, in in G.R. No. 115754.
his capacity as Secretary of Finance, respondents.
Salonga, Hernandez & Allado for Freedon From Debts
G.R. No. 115754 August 25, 1994 Coalition, Inc. & Phil. Bible Society.

CHAMBER OF REAL ESTATE AND BUILDERS Estelito P. Mendoza for petitioner in G.R. No. 115852.
ASSOCIATIONS, INC., (CREBA), petitioner,
vs. Panganiban, Benitez, Parlade, Africa & Barinaga Law
THE COMMISSIONER OF INTERNAL Offices for petitioners in G.R. No. 115873.
REVENUE, respondent.
R.B. Rodriguez & Associates for petitioners in G.R. No.
G.R. No. 115781 August 25, 1994 115931.

KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. Reve A.V. Saguisag for MABINI.
RIGOS, ERME CAMBA, EMILIO C. CAPULONG, JR.,
JOSE T. APOLO, EPHRAIM TENDERO, FERNANDO
SANTIAGO, JOSE ABCEDE, CHRISTINE TAN, FELIPE
L. GOZON, RAFAEL G. FERNANDO, RAOUL V. MENDOZA, J.:
VICTORINO, JOSE CUNANAN, QUINTIN S.
DOROMAL, MOVEMENT OF ATTORNEYS FOR
The value-added tax (VAT) is levied on the sale, barter or
BROTHERHOOD, INTEGRITY AND NATIONALISM,
exchange of goods and properties as well as on the sale
INC. ("MABINI"), FREEDOM FROM DEBT COALITION,
or exchange of services. It is equivalent to 10% of the
INC., PHILIPPINE BIBLE SOCIETY, INC., and
gross selling price or gross value in money of goods or
WIGBERTO TAÑADA, petitioners,
properties sold, bartered or exchanged or of the gross
vs.
receipts from the sale or exchange of services. Republic
THE EXECUTIVE SECRETARY, THE SECRETARY OF
Act No. 7716 seeks to widen the tax base of the existing
FINANCE, THE COMMISSIONER OF INTERNAL
VAT system and enhance its administration by amending
REVENUE and THE COMMISSIONER OF
the National Internal Revenue Code.
CUSTOMS, respondents.
These are various suits for certiorari and prohibition,
G.R. No. 115852 August 25, 1994
challenging the constitutionality of Republic Act No. 7716
on various grounds summarized in the resolution of July
PHILIPPINE AIRLINES, INC., petitioner, 6, 1994 of this Court, as follows:
vs.
THE SECRETARY OF FINANCE, and COMMISSIONER
I. Procedural Issues:
OF INTERNAL REVENUE, respondents.

A. Does Republic Act No. 7716 violate

G.R. No. 115873 August 25, 1994
Art. VI, § 24 of the Constitution?
COOPERATIVE UNION OF THE
B. Does it violate Art. VI, § 26(2) of the
PHILIPPINES, petitioners,
Constitution?
vs.
HON. LIWAYWAY V. CHATO, in her capacity as the
Commissioner of Internal Revenue, HON. TEOFISTO C. What is the extent of the power of the
T. GUINGONA, JR., in his capacity as Executive Bicameral Conference Committee?
Secretary, and HON. ROBERTO B. DE OCAMPO, in
his capacity as Secretary of Finance, respondents. II. Substantive Issues:

G.R. No. 115931 August 25, 1994 A. Does the law violate the following
provisions in the Bill of Rights (Art. III)?
PHILIPPINE EDUCATIONAL PUBLISHERS
ASSOCIATION, INC., and ASSOCIATION OF 1. §1
PHILIPPINE BOOK-SELLERS, petitioners,
vs. 2. § 4
HON. ROBERTO B. DE OCAMPO, as the Secretary of
Finance; HON. LIWAYWAY V. CHATO, as the 3. § 5
Commissioner of Internal Revenue and HON.
 4. § 10
B. Does the law violate the following
other provisions of the Constitution?
1. Art. VI, § 28(1)
2. Art. VI, § 28(3)
These questions will be dealt in the order they are stated
above. As will presently be explained not all of these
questions are judicially cognizable, because not all
provisions of the Constitution are self executing and,
therefore, judicially enforceable. The other departments
of the government are equally charged with the
enforcement of the Constitution, especially the provisions
relating to them.
I. PROCEDURAL ISSUES
The contention of petitioners is that in enacting Republic
Act No. 7716, or the Expanded Value-Added Tax Law,
Congress violated the Constitution because, although H.
No. 11197 had originated in the House of
Representatives, it was not passed by the Senate but was
simply consolidated with the Senate version (S. No. 1630)
in the Conference Committee to produce the bill which the
President signed into law. The following provisions of the
Constitution are cited in support of the proposition that
because Republic Act No. 7716 was passed in this
manner, it did not originate in the House of
Representatives and it has not thereby become a law:
Art. VI, § 24: All appropriation, revenue or
tariff bills, bills authorizing increase of the
public debt, bills of local application, and
private bills shall originate exclusively in
the House of Representatives, but the
Senate may propose or concur with
amendments.
Id., § 26(2): No bill passed by either
House shall become a law unless it has
passed three readings on separate days,
and printed copies thereof in its final form
have been distributed to its Members
three days before its passage, except
when the President certifies to the
necessity of its immediate enactment to
meet a public calamity or emergency.
Upon the last reading of a bill, no
amendment thereto shall be allowed, and
the vote thereon shall be taken
immediately thereafter, and
the yeas and nays entered in the
Journal.
It appears that on various dates between July 22, 1992
and August 31, 1993, several bills 1 were introduced in
the House of Representatives seeking to amend certain
provisions of the National Internal Revenue Code relative
to the value-added tax or VAT. These bills were referred
to the House Ways and Means Committee which
recommended for approval a substitute measure, H. No.
11197, entitled
AN ACT RESTRUCTURING THE
VALUE-ADDED TAX (VAT) SYSTEM
TO WIDEN ITS TAX BASE AND
ENHANCE ITS ADMINISTRATION,
AMENDING FOR THESE PURPOSES
SECTIONS 99, 100, 102, 103, 104, 105,
106, 107, 108 AND 110 OF TITLE IV,
112, 115 AND 116 OF TITLE V, AND
236, 237 AND 238 OF TITLE IX, AND
REPEALING SECTIONS 113 AND 114
OF TITLE V, ALL OF THE NATIONAL
INTERNAL REVENUE CODE, AS
AMENDED
The bill (H. No. 11197) was considered on second reading
starting November 6, 1993 and, on November 17, 1993,
it was approved by the House of Representatives after
third and final reading.
It was sent to the Senate on November 23, 1993 and later
referred by that body to its Committee on Ways and
Means.
On February 7, 1994, the Senate Committee submitted its
report recommending approval of S. No. 1630, entitled
AN ACT RESTRUCTURING THE
VALUE-ADDED TAX (VAT) SYSTEM
TO WIDEN ITS TAX BASE AND
ENHANCE ITS ADMINISTRATION,
AMENDING FOR THESE PURPOSES
SECTIONS 99, 100, 102, 103, 104, 105,
107, 108, AND 110 OF TITLE IV, 112 OF
TITLE V, AND 236, 237, AND 238 OF
TITLE IX, AND REPEALING SECTIONS
113, 114 and 116 OF TITLE V, ALL OF
THE NATIONAL INTERNAL REVENUE
CODE, AS AMENDED, AND FOR
OTHER PURPOSES
It was stated that the bill was being submitted "in
substitution of Senate Bill No. 1129, taking into
consideration P.S. Res. No. 734 and H.B. No. 11197."
On February 8, 1994, the Senate began consideration of
the bill (S. No. 1630). It finished debates on the bill and
approved it on second reading on March 24, 1994. On the
same day, it approved the bill on third reading by the
affirmative votes of 13 of its members, with one
abstention.
H. No. 11197 and its Senate version (S. No. 1630) were
then referred to a conference committee which, after
meeting four times (April 13, 19, 21 and 25, 1994),
recommended that "House Bill No. 11197, in
consolidation with Senate Bill No. 1630, be approved in
accordance with the attached copy of the bill as
reconciled and approved by the conferees."
The Conference Committee bill, entitled "AN ACT
RESTRUCTURING THE VALUE-ADDED TAX (VAT)
SYSTEM, WIDENING ITS TAX BASE AND ENHANCING
ITS ADMINISTRATION AND FOR THESE PURPOSES
AMENDING AND REPEALING THE RELEVANT
PROVISIONS OF THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED, AND FOR OTHER
PURPOSES," was thereafter approved by the House of
Representatives on April 27, 1994 and by the Senate on
May 2, 1994. The enrolled bill was then presented to the
President of the Philippines who, on May 5, 1994, signed
it. It became Republic Act No. 7716. On May 12, 1994,
Republic Act No. 7716 was published in two newspapers
of general circulation and, on May 28, 1994, it took effect,
although its implementation was suspended until June 30,
1994 to allow time for the registration of business entities.
It would have been enforced on July 1, 1994 but its
enforcement was stopped because the Court, by the vote
of 11 to 4 of its members, granted a temporary restraining
order on June 30, 1994.
First. Petitioners' contention is that Republic Act No. 7716
did not "originate exclusively" in the House of
Representatives as required by Art. VI, §24 of the
Constitution, because it is in fact the result of the
consolidation of two distinct bills, H. No. 11197 and S. No.
1630. In this connection, petitioners point out that
although Art. VI, SS 24 was adopted from the American
Federal Constitution, 2 it is notable in two respects: the
verb "shall originate" is qualified in the Philippine
Constitution by the word "exclusively" and the phrase "as
on other bills" in the American version is omitted. This
means, according to them, that to be considered as
having originated in the House, Republic Act No. 7716
must retain the essence of H. No. 11197.
This argument will not bear analysis. To begin with, it is
not the law — but the revenue bill — which is required by
the Constitution to "originate exclusively" in the House of
Representatives. It is important to emphasize this,
because a bill originating in the House may undergo such
extensive changes in the Senate that the result may be a
rewriting of the whole. The possibility of a third version by
the conference committee will be discussed later. At this
point, what is important to note is that, as a result of the
Senate action, a distinct bill may be produced. To insist
that a revenue statute — and not only the bill which
initiated the legislative process culminating in the
enactment of the law — must substantially be the same
as the House bill would be to deny the Senate's power not
only to "concur with amendments" but also to "propose
amendments." It would be to violate the coequality of
legislative power of the two houses of Congress and in
fact make the House superior to the Senate.
The contention that the constitutional design is to limit the
Senate's power in respect of revenue bills in order to
compensate for the grant to the Senate of the treaty-
ratifying power 3 and thereby equalize its powers and
those of the House overlooks the fact that the powers
being compared are different. We are dealing here with
the legislative power which under the Constitution is
vested not in any particular chamber but in the Congress
of the Philippines, consisting of "a Senate and a House of
Representatives." 4 The exercise of the treaty-ratifying
power is not the exercise of legislative power. It is the
exercise of a check on the executive power. There is,
therefore, no justification for comparing the legislative
powers of the House and of the Senate on the basis of
the possession of such nonlegislative power by the
Senate. The possession of a similar power by the U.S.
Senate 5 has never been thought of as giving it more
legislative powers than the House of Representatives.
In the United States, the validity of a provision (§ 37)
imposing an ad valorem tax based on the weight of
vessels, which the U.S. Senate had inserted in the Tariff
Act of 1909, was upheld against the claim that the
provision was a revenue bill which originated in the
Senate in contravention of Art. I, § 7 of the U.S.
Constitution. 6 Nor is the power to amend limited to
adding a provision or two in a revenue bill emanating from
the House. The U.S. Senate has gone so far as changing
the whole of bills following the enacting clause and
substituting its own versions. In 1883, for example, it
struck out everything after the enacting clause of a tariff
bill and wrote in its place its own measure, and the House
subsequently accepted the amendment. The U.S. Senate
likewise added 847 amendments to what later became
the Payne-Aldrich Tariff Act of 1909; it dictated the
schedules of the Tariff Act of 1921; it rewrote an extensive
tax revision bill in the same year and recast most of the
tariff bill of 1922. 7 Given, then, the power of the Senate
to propose amendments, the Senate can propose its own
version even with respect to bills which are required by
the Constitution to originate in the House.
It is insisted, however, that S. No. 1630 was passed not
in substitution of H. No. 11197 but of another Senate bill
(S. No. 1129) earlier filed and that what the Senate did
was merely to "take [H. No. 11197] into consideration" in
enacting S. No. 1630. There is really no difference
between the Senate preserving H. No. 11197 up to the
enacting clause and then writing its own version following
the enacting clause (which, it would seem, petitioners
admit is an amendment by substitution), and, on the other
hand, separately presenting a bill of its own on the same
subject matter. In either case the result are two bills on
the same subject.
Indeed, what the Constitution simply means is that the
initiative for filing revenue, tariff, or tax bills, bills
authorizing an increase of the public debt, private bills and
bills of local application must come from the House of
Representatives on the theory that, elected as they are
from the districts, the members of the House can be
expected to be more sensitive to the local needs and
problems. On the other hand, the senators, who are
elected at large, are expected to approach the same
problems from the national perspective. Both views are
thereby made to bear on the enactment of such laws.
Nor does the Constitution prohibit the filing in the Senate
of a substitute bill in anticipation of its receipt of the bill
from the House, so long as action by the Senate as a body
is withheld pending receipt of the House bill. The Court
cannot, therefore, understand the alarm expressed over
the fact that on March 1, 1993, eight months before the
House passed H. No. 11197, S. No. 1129 had been filed
in the Senate. After all it does not appear that the Senate
ever considered it. It was only after the Senate had
received H. No. 11197 on November 23, 1993 that the
process of legislation in respect of it began with the
referral to the Senate Committee on Ways and Means of
H. No. 11197 and the submission by the Committee on
February 7, 1994 of S. No. 1630. For that matter, if the
question were simply the priority in the time of filing of
bills, the fact is that it was in the House that a bill (H. No.
253) to amend the VAT law was first filed on July 22,
1992. Several other bills had been filed in the House
before S. No. 1129 was filed in the Senate, and H. No.
11197 was only a substitute of those earlier bills.
Second. Enough has been said to show that it was within
the power of the Senate to propose S. No. 1630. We now
pass to the next argument of petitioners that S. No. 1630
did not pass three readings on separate days as required
by the Constitution 8 because the second and third
readings were done on the same day, March 24, 1994.
But this was because on February 24, 1994 9 and again
on March 22, 1994, 10 the President had certified S. No.
1630 as urgent. The presidential certification dispensed
with the requirement not only of printing but also that of
reading the bill on separate days. The phrase "except
when the President certifies to the necessity of its
immediate enactment, etc." in Art. VI, § 26(2) qualifies the
two stated conditions before a bill can become a law: (i)
the bill has passed three readings on separate days and
(ii) it has been printed in its final form and distributed three
days before it is finally approved.
In other words, the "unless" clause must be read in
relation to the "except" clause, because the two are really
coordinate clauses of the same sentence. To construe the
"except" clause as simply dispensing with the second
requirement in the "unless" clause (i.e., printing and
distribution three days before final approval) would not
only violate the rules of grammar. It would also negate the
very premise of the "except" clause: the necessity of
securing the immediate enactment of a bill which is
certified in order to meet a public calamity or emergency.
For if it is only the printing that is dispensed with by
presidential certification, the time saved would be so
negligible as to be of any use in insuring immediate
enactment. It may well be doubted whether doing away
with the necessity of printing and distributing copies of the
bill three days before the third reading would insure
speedy enactment of a law in the face of an emergency
requiring the calling of a special election for President and
Vice-President. Under the Constitution such a law is
required to be made within seven days of the convening
of Congress in emergency session. 11
That upon the certification of a bill by the President the
requirement of three readings on separate days and of
printing and distribution can be dispensed with is
supported by the weight of legislative practice. For
example, the bill defining the certiorari jurisdiction of this
Court which, in consolidation with the Senate version,
became Republic Act No. 5440, was passed on second
and third readings in the House of Representatives on the
same day (May 14, 1968) after the bill had been certified
by the President as urgent. 12
There is, therefore, no merit in the contention that
presidential certification dispenses only with the
requirement for the printing of the bill and its distribution
three days before its passage but not with the requirement
of three readings on separate days, also.
It is nonetheless urged that the certification of the bill in
this case was invalid because there was no emergency,
the condition stated in the certification of a "growing
budget deficit" not being an unusual condition in this
country.
It is noteworthy that no member of the Senate saw fit to
controvert the reality of the factual basis of the
certification. To the contrary, by passing S. No. 1630 on
second and third readings on March 24, 1994, the Senate
accepted the President's certification. Should such
certification be now reviewed by this Court, especially
when no evidence has been shown that, because S. No.
1630 was taken up on second and third readings on the
same day, the members of the Senate were deprived of
the time needed for the study of a vital piece of
legislation?
The sufficiency of the factual basis of the suspension of
the writ of habeas corpus or declaration of martial law
under Art. VII, § 18, or the existence of a national
emergency justifying the delegation of extraordinary
powers to the President under Art. VI, § 23(2), is subject
to judicial review because basic rights of individuals may
be at hazard. But the factual basis of presidential
certification of bills, which involves doing away with
procedural requirements designed to insure that bills are
duly considered by members of Congress, certainly
should elicit a different standard of review.
Petitioners also invite attention to the fact that the
President certified S. No. 1630 and not H. No. 11197.
That is because S. No. 1630 was what the Senate was
considering. When the matter was before the House, the
President likewise certified H. No. 9210 the pending in the
House.
Third. Finally it is contended that the bill which became
Republic Act No. 7716 is the bill which the Conference
Committee prepared by consolidating H. No. 11197 and
S. No. 1630. It is claimed that the Conference Committee
report included provisions not found in either the House
bill or the Senate bill and that these provisions were
"surreptitiously" inserted by the Conference Committee.
Much is made of the fact that in the last two days of its
session on April 21 and 25, 1994 the Committee met
behind closed doors. We are not told, however, whether
the provisions were not the result of the give and take that
often mark the proceedings of conference committees.
Nor is there anything unusual or extraordinary about the
fact that the Conference Committee met in executive
sessions. Often the only way to reach agreement on
conflicting provisions is to meet behind closed doors, with
only the conferees present. Otherwise, no compromise is
likely to be made. The Court is not about to take the
suggestion of a cabal or sinister motive attributed to the
conferees on the basis solely of their "secret meetings" on
April 21 and 25, 1994, nor read anything into the
incomplete remarks of the members, marked in the
transcript of stenographic notes by ellipses. The
incomplete sentences are probably due to the
stenographer's own limitations or to the incoherence that
sometimes characterize conversations. William Safire
noted some such lapses in recorded talks even by recent
past Presidents of the United States.
In any event, in the United States conference committees
had been customarily held in executive sessions with only
the conferees and their staffs in attendance. 13 Only in
November 1975 was a new rule adopted requiring open
sessions. Even then a majority of either chamber's
conferees may vote in public to close the meetings. 14
As to the possibility of an entirely new bill emerging out of
a Conference Committee, it has been explained:
Under congressional rules of procedure,
conference committees are not expected
to make any material change in the
measure at issue, either by deleting
provisions to which both houses have
already agreed or by inserting new
provisions. But this is a difficult provision
to enforce. Note the problem when one
house amends a proposal originating in
either house by striking out everything
following the enacting clause and
substituting provisions which make it an
entirely new bill. The versions are now
altogether different, permitting a
conference committee to draft essentially
a new bill. . . . 15
The result is a third version, which is considered an
"amendment in the nature of a substitute," the only
requirement for which being that the third version be
germane to the subject of the House and Senate bills. 16
Indeed, this Court recently held that it is within the power
of a conference committee to include in its report an
entirely new provision that is not found either in the House
bill or in the Senate bill. 17 If the committee can propose
an amendment consisting of one or two provisions, there
is no reason why it cannot propose several provisions,
collectively considered as an "amendment in the nature of
a substitute," so long as such amendment is germane to
the subject of the bills before the committee. After all, its
report was not final but needed the approval of both
houses of Congress to become valid as an act of the
legislative department. The charge that in this case the
Conference Committee acted as a third legislative
chamber is thus without any basis. 18
Nonetheless, it is argued that under the respective Rules
of the Senate and the House of Representatives a
conference committee can only act on the differing
provisions of a Senate bill and a House bill, and that
contrary to these Rules the Conference Committee
inserted provisions not found in the bills submitted to it.
The following provisions are cited in support of this
contention:
Rules of the Senate
Rule XII:
§ 26. In the event that the Senate does
not agree with the House of
Representatives on the provision of any
bill or joint resolution, the differences
shall be settled by a conference
committee of both Houses which shall
meet within ten days after their
composition.
The President shall designate the
members of the conference committee in
accordance with subparagraph (c),
Section 3 of Rule III.
Each Conference Committee Report
shall contain a detailed and sufficiently
explicit statement of the changes in or
amendments to the subject
measure, and shall be signed by the
conferees.
The consideration of such report shall not
be in order unless the report has been
filed with the Secretary of the Senate and
copies thereof have been distributed to
the Members.
(Emphasis added)
Rules of the House of Representatives
Rule XIV:
§ 85. Conference Committee Reports. —
In the event that the House does not
agree with the Senate on the
amendments to any bill or joint
resolution, the differences may be settled
by conference committees of both
Chambers.
The consideration of conference
committee reports shall always be in
order, except when the journal is being
read, while the roll is being called or the
House is dividing on any question. Each
of the pages of such reports shall be
signed by the conferees. Each report
shall contain a detailed, sufficiently
explicit statement of the changes in or
amendments to the subject measure.
The consideration of such report shall not
be in order unless copies thereof are
distributed to the Members: Provided,
That in the last fifteen days of each
session period it shall be deemed
sufficient that three copies of the report,
signed as above provided, are deposited
in the office of the Secretary General.
(Emphasis added)
To be sure, nothing in the Rules limits a conference
committee to a consideration of conflicting provisions. But
Rule XLIV, § 112 of the Rules of the Senate is cited to the
effect that "If there is no Rule applicable to a specific case
the precedents of the Legislative Department of the
Philippines shall be resorted to, and as a supplement of
these, the Rules contained in Jefferson's Manual." The
following is then quoted from the Jefferson's Manual:
The managers of a conference must
confine themselves to the differences
committed to them. . . and may not
include subjects not within
disagreements, even though germane to
a question in issue.
Note that, according to Rule XLIX, § 112, in case there is
no specific rule applicable, resort must be to the
legislative practice. The Jefferson's Manual is resorted to
only as supplement. It is common place in Congress that
conference committee reports include new matters which,
though germane, have not been committed to the
committee. This practice was admitted by Senator Raul
S. Roco, petitioner in G.R. No. 115543, during the oral
argument in these cases. Whatever, then, may be
provided in the Jefferson's Manual must be considered to
have been modified by the legislative practice. If a change
is desired in the practice it must be sought in Congress
since this question is not covered by any constitutional
provision but is only an internal rule of each house. Thus,
Art. VI, § 16(3) of the Constitution provides that "Each
House may determine the rules of its proceedings. . . ."
This observation applies to the other contention that the
Rules of the two chambers were likewise disregarded in
the preparation of the Conference Committee Report
because the Report did not contain a "detailed and
sufficiently explicit statement of changes in, or
amendments to, the subject measure." The Report used
brackets and capital letters to indicate the changes. This
is a standard practice in bill-drafting. We cannot say that
in using these marks and symbols the Committee violated
the Rules of the Senate and the House. Moreover, this
Court is not the proper forum for the enforcement of these
internal Rules. To the contrary, as we have already ruled,
"parliamentary rules are merely procedural and with their
observance the courts have no concern." 19 Our concern
is with the procedural requirements of the Constitution for
the enactment of laws. As far as these requirements are
concerned, we are satisfied that they have been faithfully
observed in these cases.
Nor is there any reason for requiring that the Committee's
Report in these cases must have undergone three
readings in each of the two houses. If that be the case,
there would be no end to negotiation since each house
may seek modifications of the compromise bill. The
nature of the bill, therefore, requires that it be acted upon
by each house on a "take it or leave it" basis, with the only
alternative that if it is not approved by both houses,
another conference committee must be appointed. But
then again the result would still be a compromise measure
that may not be wholly satisfying to both houses.
Art. VI, § 26(2) must, therefore, be construed as referring
only to bills introduced for the first time in either house of
Congress, not to the conference committee report. For if
the purpose of requiring three readings is to give
members of Congress time to study bills, it cannot be
gainsaid that H. No. 11197 was passed in the House after
three readings; that in the Senate it was considered on
first reading and then referred to a committee of that body;
that although the Senate committee did not report out the
House bill, it submitted a version (S. No. 1630) which it
had prepared by "taking into consideration" the House bill;
that for its part the Conference Committee consolidated
the two bills and prepared a compromise version; that the
Conference Committee Report was thereafter approved
by the House and the Senate, presumably after
appropriate study by their members. We cannot say that,
as a matter of fact, the members of Congress were not
fully informed of the provisions of the bill. The allegation
that the Conference Committee usurped the legislative
power of Congress is, in our view, without warrant in fact
and in law.
Fourth. Whatever doubts there may be as to the formal
validity of Republic Act No. 7716 must be resolved in its
favor. Our cases 20 manifest firm adherence to the rule
that an enrolled copy of a bill is conclusive not only of its
provisions but also of its due enactment. Not even claims
that a proposed constitutional amendment was invalid
because the requisite votes for its approval had not been
obtained 21 or that certain provisions of a statute had been
"smuggled" in the printing of the bill 22 have moved or
persuaded us to look behind the proceedings of a coequal
branch of the government. There is no reason now to
depart from this rule.
No claim is here made that the "enrolled bill" rule is
absolute. In fact in one case 23 we "went behind" an
enrolled bill and consulted the Journal to determine
whether certain provisions of a statute had been approved
by the Senate in view of the fact that the President of the
Senate himself, who had signed the enrolled bill, admitted
a mistake and withdrew his signature, so that in effect
there was no longer an enrolled bill to consider.
But where allegations that the constitutional procedures
for the passage of bills have not been observed have no
more basis than another allegation that the Conference
Committee "surreptitiously" inserted provisions into a bill
which it had prepared, we should decline the invitation to
go behind the enrolled copy of the bill. To disregard the
"enrolled bill" rule in such cases would be to disregard the
respect due the other two departments of our
government.
Fifth. An additional attack on the formal validity of
Republic Act No. 7716 is made by the Philippine Airlines,
Inc., petitioner in G.R. No. 11582, namely, that it violates
Art. VI, § 26(1) which provides that "Every bill passed by
Congress shall embrace only one subject which shall be
expressed in the title thereof." It is contended that neither
H. No. 11197 nor S. No. 1630 provided for removal of
exemption of PAL transactions from the payment of the
VAT and that this was made only in the Conference
Committee bill which became Republic Act No. 7716
without reflecting this fact in its title.
The title of Republic Act No. 7716 is:
AN ACT RESTRUCTURING THE
VALUE- ADDED TAX (VAT) SYSTEM,
WIDENING ITS TAX BASE AND
ENHANCING ITS ADMINISTRATION,
AND FOR THESE PURPOSES
AMENDING AND REPEALING THE
RELEVANT PROVISIONS OF THE
NATIONAL INTERNAL REVENUE
CODE, AS AMENDED, AND FOR
OTHER PURPOSES.
Among the provisions of the NIRC amended is § 103,
which originally read:
§ 103. Exempt transactions. — The
following shall be exempt from the value-
added tax:
....
(q) Transactions which are exempt under
special laws or international agreements
to which the Philippines is a signatory.
Among the transactions exempted from
the VAT were those of PAL because it
was exempted under its franchise (P.D.
No. 1590) from the payment of all "other
taxes . . . now or in the near future," in
consideration of the payment by it either
of the corporate income tax or a franchise
tax of 2%.
As a result of its amendment by Republic Act No. 7716, §
103 of the NIRC now provides:
§ 103. Exempt transactions. — The
following shall be exempt from the value-
added tax:
....
(q) Transactions which are exempt under
special laws, except those granted under
Presidential Decree Nos. 66, 529, 972,
1491, 1590. . . .
The effect of the amendment is to remove the exemption
granted to PAL, as far as the VAT is concerned.
The question is whether this amendment of § 103 of the
NIRC is fairly embraced in the title of Republic Act No.
7716, although no mention is made therein of P.D. No.
1590 as among those which the statute amends. We think
it is, since the title states that the purpose of the statute is
to expand the VAT system, and one way of doing this is
to widen its base by withdrawing some of the exemptions
granted before. To insist that P.D. No. 1590 be mentioned
in the title of the law, in addition to § 103 of the NIRC, in
which it is specifically referred to, would be to insist that
the title of a bill should be a complete index of its content.
The constitutional requirement that every bill passed by
Congress shall embrace only one subject which shall be
expressed in its title is intended to prevent surprise upon
the members of Congress and to inform the people of
pending legislation so that, if they wish to, they can be
heard regarding it. If, in the case at bar, petitioner did not
know before that its exemption had been withdrawn, it is
not because of any defect in the title but perhaps for the
same reason other statutes, although published, pass
unnoticed until some event somehow calls attention to
their existence. Indeed, the title of Republic Act No. 7716
is not any more general than the title of PAL's own
franchise under P.D. No. 1590, and yet no mention is
made of its tax exemption. The title of P.D. No. 1590 is:
AN ACT GRANTING A NEW
FRANCHISE TO PHILIPPINE
AIRLINES, INC. TO ESTABLISH,
OPERATE, AND MAINTAIN AIR-
 TRANSPORT SERVICES IN THE
PHILIPPINES AND BETWEEN THE
PHILIPPINES AND OTHER
COUNTRIES.
The trend in our cases is to construe the constitutional
requirement in such a manner that courts do not unduly
interfere with the enactment of necessary legislation and
to consider it sufficient if the title expresses the general
subject of the statute and all its provisions are germane to
the general subject thus expressed. 24
It is further contended that amendment of petitioner's
franchise may only be made by special law, in view of §
24 of P.D. No. 1590 which provides:
This franchise, as amended, or any
section or provision hereof may only be
modified, amended, or repealed
expressly by a special law or decree that
shall specifically modify, amend, or
repeal this franchise or any section or
provision thereof.
This provision is evidently intended to prevent the
amendment of the franchise by mere implication resulting
from the enactment of a later inconsistent statute, in
consideration of the fact that a franchise is a contract
which can be altered only by consent of the parties. Thus
in Manila Railroad Co. v.
Rafferty, 25 it was held that an Act of the U.S. Congress,
which provided for the payment of tax on certain goods
and articles imported into the Philippines, did not amend
the franchise of plaintiff, which exempted it from all taxes
except those mentioned in its franchise. It was held that a
special law cannot be amended by a general law.
In contrast, in the case at bar, Republic Act No. 7716
expressly amends PAL's franchise (P.D. No. 1590) by
specifically excepting from the grant of exemptions from
the VAT PAL's exemption under P.D. No. 1590. This is
within the power of Congress to do under Art. XII, § 11 of
the Constitution, which provides that the grant of a
franchise for the operation of a public utility is subject to
amendment, alteration or repeal by Congress when the
common good so requires.
II. SUBSTANTIVE ISSUES
A.
Claims
of Press
Freedo
m,
Freedo
m of
Though
t and
Religio
us
Freedo
m laws. He has no special privilege to
The Philippine Press Institute (PPI), petitioner in G.R. No.
115544, is a nonprofit organization of newspaper
publishers established for the improvement of journalism
in the Philippines. On the other hand, petitioner in G.R.
No. 115781, the Philippine Bible Society (PBS), is a
nonprofit organization engaged in the printing and
distribution of bibles and other religious articles. Both
petitioners claim violations of their rights under § § 4 and
5 of the Bill of Rights as a result of the enactment of the
VAT Law.
The PPI questions the law insofar as it has withdrawn the
exemption previously granted to the press under § 103 (f)
of the NIRC. Although the exemption was subsequently
restored by administrative regulation with respect to the
circulation income of newspapers, the PPI presses its
claim because of the possibility that the exemption may
still be removed by mere revocation of the regulation of
the Secretary of Finance. On the other hand, the PBS
goes so far as to question the Secretary's power to grant
exemption for two reasons: (1) The Secretary of Finance
has no power to grant tax exemption because this is
vested in Congress and requires for its exercise the vote
of a majority of all its members 26 and (2) the Secretary's
duty is to execute the law.
§ 103 of the NIRC contains a list of transactions exempted
from VAT. Among the transactions previously granted
exemption were:
(f) Printing, publication, importation or
sale of books and any newspaper,
magazine, review, or bulletin which
appears at regular intervals with fixed
prices for subscription and sale and
which is devoted principally to the
publication of advertisements.
Republic Act No. 7716 amended § 103 by deleting ¶ (f)
with the result that print media became subject to the VAT
with respect to all aspects of their operations. Later,
however, based on a memorandum of the Secretary of
Justice, respondent Secretary of Finance issued
Revenue Regulations No. 11-94, dated June 27, 1994,
exempting the "circulation income of print media pursuant
to § 4 Article III of the 1987 Philippine Constitution
guaranteeing against abridgment of freedom of the press,
among others." The exemption of "circulation income" has
left income from advertisements still subject to the VAT.
It is unnecessary to pass upon the contention that the
exemption granted is beyond the authority of the
Secretary of Finance to give, in view of PPI's contention
that even with the exemption of the circulation revenue of
print media there is still an unconstitutional abridgment of
press freedom because of the imposition of the VAT on
the gross receipts of newspapers from advertisements
and on their acquisition of paper, ink and services for
publication. Even on the assumption that no exemption
has effectively been granted to print media transactions,
we find no violation of press freedom in these cases.
To be sure, we are not dealing here with a statute that on
its face operates in the area of press freedom. The PPI's
claim is simply that, as applied to newspapers, the law
abridges press freedom. Even with due recognition of its
high estate and its importance in a democratic society,
however, the press is not immune from general regulation
by the State. It has been held:
The publisher of a newspaper has no
immunity from the application of general
invade the rights and liberties of others.
He must answer for libel. He may be
punished for contempt of court. . . . Like
others, he must pay equitable and
nondiscriminatory taxes on his business.
. . . 27
The PPI does not dispute this point, either.
What it contends is that by withdrawing the exemption
previously granted to print media transactions involving
printing, publication, importation or sale of newspapers,
Republic Act No. 7716 has singled out the press for
discriminatory treatment and that within the class of mass
media the law discriminates against print media by giving
broadcast media favored treatment. We have carefully
examined this argument, but we are unable to find a
differential treatment of the press by the law, much less
any censorial motivation for its enactment. If the press is
now required to pay a value-added tax on its transactions,
it is not because it is being singled out, much less
targeted, for special treatment but only because of the
removal of the exemption previously granted to it by law.
The withdrawal of exemption is all that is involved in these
cases. Other transactions, likewise previously granted
exemption, have been delisted as part of the scheme to
expand the base and the scope of the VAT system. The
law would perhaps be open to the charge of
discriminatory treatment if the only privilege withdrawn
had been that granted to the press. But that is not the
case.
The situation in the case at bar is indeed a far cry from
those cited by the PPI in support of its claim that Republic
Act No. 7716 subjects the press to discriminatory taxation.
In the cases cited, the discriminatory purpose was clear
either from the background of the law or from its
operation. For example, in Grosjean v. American Press
Co., 28 the law imposed a license tax equivalent to 2% of
the gross receipts derived from advertisements only on
newspapers which had a circulation of more than 20,000
copies per week. Because the tax was not based on the
volume of advertisement alone but was measured by the
extent of its circulation as well, the law applied only to the
thirteen large newspapers in Louisiana, leaving untaxed
four papers with circulation of only slightly less than
20,000 copies a week and 120 weekly newspapers which
were in serious competition with the thirteen newspapers
in question. It was well known that the thirteen
newspapers had been critical of Senator Huey Long, and
the Long-dominated legislature of Louisiana respondent
by taxing what Long described as the "lying newspapers"
by imposing on them "a tax on lying." The effect of the tax
was to curtail both their revenue and their circulation. As
the U.S. Supreme Court noted, the tax was "a deliberate
and calculated device in the guise of a tax to limit the
circulation of information to which the public is entitled in
virtue of the constitutional guaranties." 29 The case is a
classic illustration of the warning that the power to tax is
the power to destroy.
In the other case 30 invoked by the PPI, the press was
also found to have been singled out because everything
was exempt from the "use tax" on ink and paper, except
the press. Minnesota imposed a tax on the sales of goods
in that state. To protect the sales tax, it enacted a
complementary tax on the privilege of "using, storing or
consuming in that state tangible personal property" by
eliminating the residents' incentive to get goods from
outside states where the sales tax might be lower.
The Minnesota Star Tribune was exempted from both
taxes from 1967 to 1971. In 1971, however, the state
legislature amended the tax scheme by imposing the "use
tax" on the cost of paper and ink used for publication. The
law was held to have singled out the press because (1)
there was no reason for imposing the "use tax" since the
press was exempt from the sales tax and (2) the "use tax"
was laid on an "intermediate transaction rather than the
ultimate retail sale." Minnesota had a heavy burden of
justifying the differential treatment and it failed to do so. In
addition, the U.S. Supreme Court found the law to be
discriminatory because the legislature, by again
amending the law so as to exempt the first $100,000 of
paper and ink used, further narrowed the coverage of the
tax so that "only a handful of publishers pay any tax at all
and even fewer pay any significant amount of tax." 31 The
discriminatory purpose was thus very clear.
More recently, in Arkansas Writers' Project, Inc. v.
Ragland, 32 it was held that a law which taxed general
interest magazines but not newspapers and religious,
professional, trade and sports journals was discriminatory
because while the tax did not single out the press as a
whole, it targeted a small group within the press. What is
more, by differentiating on the basis of contents (i.e.,
between general interest and special interests such as
religion or sports) the law became "entirely incompatible
with the First Amendment's guarantee of freedom of the
press."
These cases come down to this: that unless justified, the
differential treatment of the press creates risks of
suppression of expression. In contrast, in the cases at
bar, the statute applies to a wide range of goods and
services. The argument that, by imposing the VAT only on
print media whose gross sales exceeds P480,000 but not
more than P750,000, the law discriminates 33 is without
merit since it has not been shown that as a result the class
subject to tax has been unreasonably narrowed. The fact
is that this limitation does not apply to the press along but
to all sales. Nor is impermissible motive shown by the fact
that print media and broadcast media are treated
differently. The press is taxed on its transactions involving
printing and publication, which are different from the
transactions of broadcast media. There is thus a
reasonable basis for the classification.
The cases canvassed, it must be stressed, eschew any
suggestion that "owners of newspapers are immune from
any forms of ordinary taxation." The license tax in
the Grosjean case was declared invalid because it was
"one single in kind, with a long history of hostile misuse
against the freedom of the
press." 34 On the other hand, Minneapolis
Star acknowledged that "The First Amendment does not
prohibit all regulation of the press [and that] the States
and the Federal Government can subject newspapers to
generally applicable economic regulations without
creating constitutional problems." 35
What has been said above also disposes of the
allegations of the PBS that the removal of the exemption
of printing, publication or importation of books and
religious articles, as well as their printing and publication,
likewise violates freedom of thought and of conscience.
For as the U.S. Supreme Court unanimously held
in Jimmy Swaggart Ministries v. Board of
Equalization, 36 the Free Exercise of Religion Clause
does not prohibit imposing a generally applicable sales
and use tax on the sale of religious materials by a religious
organization.
This brings us to the question whether the registration
provision of the law, 37 although of general applicability,
nonetheless is invalid when applied to the press because
it lays a prior restraint on its essential freedom. The case
of American Bible Society v. City of Manila 38 is cited by
both the PBS and the PPI in support of their contention
that the law imposes censorship. There, this Court held
that an ordinance of the City of Manila, which imposed a
license fee on those engaged in the business of general
merchandise, could not be applied to the appellant's sale
of bibles and other religious literature. This Court relied
on Murdock v. Pennsylvania, 39 in which it was held that,
as a license fee is fixed in amount and unrelated to the
receipts of the taxpayer, the license fee, when applied to
a religious sect, was actually being imposed as a
condition for the exercise of the sect's right under the
Constitution. For that reason, it was held, the license fee
"restrains in advance those constitutional liberties of
press and religion and inevitably tends to suppress their
exercise." 40
But, in this case, the fee in § 107, although a fixed amount
(P1,000), is not imposed for the exercise of a privilege but
only for the purpose of defraying part of the cost of
registration. The registration requirement is a central
feature of the VAT system. It is designed to provide a
record of tax credits because any person who is subject
to the payment of the VAT pays an input tax, even as he
collects an output tax on sales made or services
rendered. The registration fee is thus a mere
administrative fee, one not imposed on the exercise of a
privilege, much less a constitutional right.
For the foregoing reasons, we find the attack on Republic
Act No. 7716 on the ground that it offends the free speech,
press and freedom of religion guarantees of the
Constitution to be without merit. For the same reasons,
we find the claim of the Philippine Educational Publishers
Association (PEPA) in G.R. No. 115931 that the increase
in the price of books and other educational materials as a
result of the VAT would violate the constitutional mandate
to the government to give priority to education, science
and technology (Art. II, § 17) to be untenable.
B.
Claims
of
Regres
sivity,
Denial
of Due
Proces
s, Equal
Protecti
on, and
Impair
ment
of
Contrac
ts
There is basis for passing upon claims that on its face the
statute violates the guarantees of freedom of speech,
press and religion. The possible "chilling effect" which it
may have on the essential freedom of the mind and
conscience and the need to assure that the channels of
communication are open and operating importunately
demand the exercise of this Court's power of review.
There is, however, no justification for passing upon the
claims that the law also violates the rule that taxation must
be progressive and that it denies petitioners' right to due
process and that equal protection of the laws. The reason
for this different treatment has been cogently stated by an
eminent authority on constitutional law thus: "[W]hen
freedom of the mind is imperiled by law, it is freedom that
commands a momentum of respect; when property is
imperiled it is the lawmakers' judgment that commands
respect. This dual standard may not precisely reverse the
presumption of constitutionality in civil liberties cases, but
obviously it does set up a hierarchy of values within the
due process clause." 41
Indeed, the absence of threat of immediate harm makes
the need for judicial intervention less evident and
underscores the essential nature of petitioners' attack on
the law on the grounds of regressivity, denial of due
process and equal protection and impairment of contracts
as a mere academic discussion of the merits of the law.
For the fact is that there have even been no notices of
assessments issued to petitioners and no determinations
at the administrative levels of their claims so as to
illuminate the actual operation of the law and enable us to
reach sound judgment regarding so fundamental
questions as those raised in these suits.
Thus, the broad argument against the VAT is that it is
regressive and that it violates the requirement that "The
rule of taxation shall be uniform and equitable [and]
Congress shall evolve a progressive system of
taxation." 42 Petitioners in G.R. No. 115781 quote from a
paper, entitled "VAT Policy Issues: Structure,
Regressivity, Inflation and Exports" by Alan A. Tait of the
International Monetary Fund, that "VAT payment by low-
income households will be a higher proportion of their
incomes (and expenditures) than payments by higher-
income households. That is, the VAT will be regressive."
Petitioners contend that as a result of the uniform 10%
VAT, the tax on consumption goods of those who are in
the higher-income bracket, which before were taxed at a
rate higher than 10%, has been reduced, while basic
commodities, which before were taxed at rates ranging
from 3% to 5%, are now taxed at a higher rate.
Just as vigorously as it is asserted that the law is
regressive, the opposite claim is pressed by respondents
that in fact it distributes the tax burden to as many goods
and services as possible particularly to those which are
within the reach of higher-income groups, even as the law
exempts basic goods and services. It is thus equitable.
The goods and properties subject to the VAT are those
used or consumed by higher-income groups. These
include real properties held primarily for sale to customers
or held for lease in the ordinary course of business, the
right or privilege to use industrial, commercial or scientific
equipment, hotels, restaurants and similar places, tourist
buses, and the like. On the other hand, small business
establishments, with annual gross sales of less than
P500,000, are exempted. This, according to respondents,
removes from the coverage of the law some 30,000
business establishments. On the other hand, an
occasional paper 43 of the Center for Research and
Communication cities a NEDA study that the VAT has
minimal impact on inflation and income distribution and
that while additional expenditure for the lowest income
class is only P301 or 1.49% a year, that for a family
earning P500,000 a year or more is P8,340 or 2.2%.
Lacking empirical data on which to base any conclusion
regarding these arguments, any discussion whether the
VAT is regressive in the sense that it will hit the "poor" and
middle-income group in society harder than it will the
"rich," as the Cooperative Union of the Philippines (CUP)
claims in G.R. No. 115873, is largely an academic
exercise. On the other hand, the CUP's contention that
Congress' withdrawal of exemption of producers
cooperatives, marketing cooperatives, and service
cooperatives, while maintaining that granted to electric
cooperatives, not only goes against the constitutional
policy to promote cooperatives as instruments of social
justice (Art. XII, § 15) but also denies such cooperatives
the equal protection of the law is actually a policy
argument. The legislature is not required to adhere to a
policy of "all or none" in choosing the subject of
taxation. 44
Nor is the contention of the Chamber of Real Estate and
Builders Association (CREBA), petitioner in G.R. 115754,
that the VAT will reduce the mark up of its members by as
much as 85% to 90% any more concrete. It is a mere
allegation. On the other hand, the claim of the Philippine
Press Institute, petitioner in G.R. No. 115544, that the
VAT will drive some of its members out of circulation
because their profits from advertisements will not be
enough to pay for their tax liability, while purporting to be
based on the financial statements of the newspapers in
question, still falls short of the establishment of facts by
evidence so necessary for adjudicating the question
whether the tax is oppressive and confiscatory.
Indeed, regressivity is not a negative standard for courts
to enforce. What Congress is required by the Constitution
to do is to "evolve a progressive system of taxation." This
is a directive to Congress, just like the directive to it to give
priority to the enactment of laws for the enhancement of
human dignity and the reduction of social, economic and
political inequalities (Art. XIII, § 1), or for the promotion of
the right to "quality education" (Art. XIV, § 1). These
provisions are put in the Constitution as moral incentives
to legislation, not as judicially enforceable rights.
At all events, our 1988 decision in Kapatiran 45 should
have laid to rest the questions now raised against the
VAT. There similar arguments made against the original
VAT Law (Executive Order No. 273) were held to be
hypothetical, with no more basis than newspaper articles
which this Court found to be "hearsay and [without]
evidentiary value." As Republic Act No. 7716 merely
expands the base of the VAT system and its coverage as
provided in the original VAT Law, further debate on the
desirability and wisdom of the law should have shifted to
Congress.
Only slightly less abstract but nonetheless hypothetical is
the contention of CREBA that the imposition of the VAT
on the sales and leases of real estate by virtue of
contracts entered into prior to the effectivity of the law
would violate the constitutional provision that "No law
impairing the obligation of contracts shall be passed." It is
enough to say that the parties to a contract cannot,
through the exercise of prophetic discernment, fetter the
exercise of the taxing power of the State. For not only are
existing laws read into contracts in order to fix obligations
as between parties, but the reservation of essential
attributes of sovereign power is also read into contracts
as a basic postulate of the legal order. The policy of
protecting contracts against impairment presupposes the
maintenance of a government which retains adequate
authority to secure the peace and good order of society. 46
In truth, the Contract Clause has never been thought as a
limitation on the exercise of the State's power of taxation
save only where a tax exemption has been granted for a
valid consideration. 47 Such is not the case of PAL in G.R.
No. 115852, and we do not understand it to make this
claim. Rather, its position, as discussed above, is that the
removal of its tax exemption cannot be made by a
general, but only by a specific, law.
The substantive issues raised in some of the cases are
presented in abstract, hypothetical form because of the
lack of a concrete record. We accept that this Court does
not only adjudicate private cases; that public actions by
"non-Hohfeldian" 48 or ideological plaintiffs are now
cognizable provided they meet the standing requirement
of the Constitution; that under Art. VIII, § 1, ¶ 2 the Court
has a "special function" of vindicating constitutional rights.
Nonetheless the feeling cannot be escaped that we do not
have before us in these cases a fully developed factual
record that alone can impart to our adjudication the impact
of actuality 49 to insure that decision-making is informed
and well grounded. Needless to say, we do not have
power to render advisory opinions or even jurisdiction
over petitions for declaratory judgment. In effect we are
being asked to do what the Conference Committee is
precisely accused of having done in these cases — to sit
as a third legislative chamber to review legislation.
We are told, however, that the power of judicial review is
not so much power as it is duty imposed on this Court by
the Constitution and that we would be remiss in the
performance of that duty if we decline to look behind the
barriers set by the principle of separation of powers. Art.
VIII, § 1, ¶ 2 is cited in support of this view:
Judicial power includes the duty of the
courts of justice to settle actual
controversies involving rights which are
legally demandable and enforceable,
and to determine whether or not there
has been a grave abuse of discretion
amounting to lack or excess of
jurisdiction on the part of any branch or
instrumentality of the Government.
To view the judicial power of review as a duty is nothing
new. Chief Justice Marshall said so in 1803, to justify the
assertion of this power in Marbury v. Madison:
It is emphatically the province and duty of
the judicial department to say what the
law is. Those who apply the rule to
particular cases must of necessity
expound and interpret that rule. If two
laws conflict with each other, the courts
must decide on the operation of each. 50
Justice Laurel echoed this justification in 1936 in Angara
v. Electoral Commission:
And when the judiciary mediates to
allocate constitutional boundaries, it
does not assert any superiority over the
other departments; it does not in reality
nullify or invalidate an act of the
legislature, but only asserts the solemn
and sacred obligation assigned to it by
the Constitution to determine conflicting
claims of authority under the Constitution
and to establish for the parties in an
actual controversy the rights which that
instrument secures and guarantees to
them. 51
This conception of the judicial power has been affirmed in
several
cases 52 of this Court following Angara.
It does not add anything, therefore, to invoke this "duty"
to justify this Court's intervention in what is essentially a
case that at best is not ripe for adjudication. That duty
must still be performed in the context of a concrete case
or controversy, as Art. VIII, § 5(2) clearly defines our
jurisdiction in terms of "cases," and nothing but "cases."
That the other departments of the government may have
committed a grave abuse of discretion is not an
independent ground for exercising our power. Disregard
of the essential limits imposed by the case and
controversy requirement can in the long run only result in
undermining our authority as a court of law. For, as
judges, what we are called upon to render is judgment
according to law, not according to what may appear to be
the opinion of the day.
_______________________________
In the preceeding pages we have endeavored to discuss, Secretary; and HON. ROBERTO B. DE OCAMPO, in
within limits, the validity of Republic Act No. 7716 in its his capacity as Secretary of Finance, respondents.
formal and substantive aspects as this has been raised in
the various cases before us. To sum up, we hold: G.R. No. 115754 October 30, 1995

(1) That the procedural requirements of the Constitution CHAMBER OF REAL ESTATE AND BUILDERS
have been complied with by Congress in the enactment ASSOCIATIONS, INC., (CREBA), petitioner,
of the statute; vs.
THE COMMISSIONER OF INTERNAL
(2) That judicial inquiry whether the formal requirements REVENUE, respondent.
for the enactment of statutes — beyond those prescribed
by the Constitution — have been observed is precluded G.R. No. 115781 October 30, 1995
by the principle of separation of powers;
KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A.
(3) That the law does not abridge freedom of speech, RIGOS, ERME CAMBA, EMILIO C. CAPULONG, JR.,
expression or the press, nor interfere with the free JOSE T. APOLO, EPHRAIM TENDERO, FERNANDO
exercise of religion, nor deny to any of the parties the right SANTIAGO, JOSE ABCEDE, CHRISTINE TAN, FELIPE
to an education; and L. GOZON, RAFAEL G. FERNANDO, RAOUL V.
VICTORINO, JOSE CUNANAN, QUINTIN S.
(4) That, in view of the absence of a factual foundation of DOROMAL, MOVEMENT OF ATTORNEYS FOR
record, claims that the law is regressive, oppressive and BROTHERHOOD, INTEGRITY AND NATIONALISM,
confiscatory and that it violates vested rights protected INC. ("MABINI"), FREEDOM FROM DEBT COALITION,
under the Contract Clause are prematurely raised and do INC., and PHILIPPINE BIBLE SOCIETY, INC. and
not justify the grant of prospective relief by writ of WIGBERTO TAÑADA, petitioners,
prohibition. vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF
WHEREFORE, the petitions in these cases are FINANCE, THE COMMISSIONER OF INTERNAL
DISMISSED. REVENUE and THE COMMISSIONER OF
CUSTOMS, respondents.

G.R. No. 115852 October 30, 1995

G.R. No. 115455 October 30, 1995
PHILIPPINE AIRLINES, INC., petitioner,
vs.
ARTURO M. TOLENTINO, petitioner,
THE SECRETARY OF FINANCE and COMMISSIONER
vs.
OF INTERNAL REVENUE, respondents.
THE SECRETARY OF FINANCE and THE
COMMISSIONER OF INTERNAL
REVENUE, respondents. G.R. No. 115873 October 30, 1995

G.R. No. 115525 October 30, 1995 COOPERATIVE UNION OF THE

PHILIPPINES, petitioner,
vs.
JUAN T. DAVID, petitioner,
HON. LIWAYWAY V. CHATO, in her capacity as the
vs.
Commissioner of Internal Revenue, HON. TEOFISTO
TEOFISTO T. GUINGONA, JR., as Executive
T. GUINGONA, JR., in his capacity as Executive
Secretary; ROBERTO DE OCAMPO, as Secretary of
Secretary, and HON. ROBERTO B. DE OCAMPO, in
Finance; LIWAYWAY VINZONS-CHATO, as
his capacity as Secretary of Finance, respondents.
Commissioner of Internal Revenue; and their
AUTHORIZED AGENTS OR
REPRESENTATIVES, respondents. G.R. No. 115931 October 30, 1995

G.R. No. 115543 October 30, 1995 PHILIPPINE EDUCATIONAL PUBLISHERS

ASSOCIATION, INC. and ASSOCIATION OF
PHILIPPINE BOOK SELLERS, petitioners,
RAUL S. ROCO and the INTEGRATED BAR OF THE
vs.
PHILIPPINES, petitioners,
HON. ROBERTO B. DE OCAMPO, as the Secretary of
vs.
Finance; HON. LIWAYWAY V. CHATO, as the
THE SECRETARY OF THE DEPARTMENT OF
Commissioner of Internal Revenue; and HON.
FINANCE; THE COMMISSIONERS OF THE BUREAU
GUILLERMO PARAYNO, JR., in his capacity as the
OF INTERNAL REVENUE AND BUREAU OF
Commissioner of Customs, respondents.
CUSTOMS, respondents.
RESOLUTION
G.R. No. 115544 October 30, 1995

PHILIPPINE PRESS INSTITUTE, INC.; EGP

PUBLISHING CO., INC.; KAMAHALAN PUBLISHING
CORPORATION; PHILIPPINE JOURNALISTS, INC.; MENDOZA, J.:
JOSE L. PAVIA; and OFELIA L.
DIMALANTA, petitioners, These are motions seeking reconsideration of our
vs. decision dismissing the petitions filed in these cases for
HON. LIWAYWAY V. CHATO, in her capacity as the declaration of unconstitutionality of R.A. No. 7716,
Commissioner of Internal Revenue; HON. TEOFISTO otherwise known as the Expanded Value-Added Tax Law.
T. GUINGONA, JR., in his capacity as Executive The motions, of which there are 10 in all, have been filed
by the several petitioners in these cases, with the
exception of the Philippine Educational Publishers AN ACT INCREASING THE PENALTIES
Association, Inc. and the Association of Philippine FOR TAX EVASION, AMENDING FOR
Booksellers, petitioners in G.R. No. 115931. THIS PURPOSE THE PERTINENT
SECTIONS OF THE NATIONAL
The Solicitor General, representing the respondents, filed INTERNAL REVENUE CODE
a consolidated comment, to which the Philippine Airlines, (December 28, 1992).
Inc., petitioner in G.R. No. 115852, and the Philippine
Press Institute, Inc., petitioner in G.R. No. 115544, and House Bill No. 2165, October 5, 1992
Juan T. David, petitioner in G.R. No. 115525, each filed a
reply. In turn the Solicitor General filed on June 1, 1995 a Senate Bill No. 32, December 7, 1992
rejoinder to the PPI's reply.
2. R.A. NO. 7643
On June 27, 1995 the matter was submitted for resolution.
AN ACT TO EMPOWER THE
I. Power of the Senate to propose amendments to COMMISSIONER OF INTERNAL
revenue bills. Some of the petitioners (Tolentino, REVENUE TO REQUIRE THE
Kilosbayan, Inc., Philippine Airlines (PAL), Roco, and PAYMENT OF THE VALUE-ADDED
Chamber of Real Estate and Builders Association TAX EVERY MONTH AND TO ALLOW
(CREBA)) reiterate previous claims made by them that LOCAL GOVERNMENT UNITS TO
R.A. No. 7716 did not "originate exclusively" in the House SHARE IN VAT REVENUE, AMENDING
of Representatives as required by Art. VI, §24 of the FOR THIS PURPOSE CERTAIN
Constitution. Although they admit that H. No. 11197 was SECTIONS OF THE NATIONAL
filed in the House of Representatives where it passed INTERNAL REVENUE CODE
three readings and that afterward it was sent to the (December 28, 1992)
Senate where after first reading it was referred to the
Senate Ways and Means Committee, they complain that
House Bill No. 1503, September 3, 1992
the Senate did not pass it on second and third readings.
Instead what the Senate did was to pass its own version
(S. No. 1630) which it approved on May 24, 1994. Senate Bill No. 968, December 7, 1992
Petitioner Tolentino adds that what the Senate committee
should have done was to amend H. No. 11197 by striking 3. R.A. NO. 7646
out the text of the bill and substituting it with the text of S.
No. 1630. That way, it is said, "the bill remains a House AN ACT AUTHORIZING THE
bill and the Senate version just becomes the text (only the COMMISSIONER OF INTERNAL
text) of the House bill." REVENUE TO PRESCRIBE THE
PLACE FOR PAYMENT OF INTERNAL
The contention has no merit. REVENUE TAXES BY LARGE
TAXPAYERS, AMENDING FOR THIS
The enactment of S. No. 1630 is not the only instance in PURPOSE CERTAIN PROVISIONS OF
which the Senate proposed an amendment to a House THE NATIONAL INTERNAL REVENUE
revenue bill by enacting its own version of a revenue bill. CODE, AS AMENDED (February 24,
On at least two occasions during the Eighth Congress, the 1993)
Senate passed its own version of revenue bills, which, in
consolidation with House bills earlier passed, became the House Bill No. 1470, October 20, 1992
enrolled bills. These were:
Senate Bill No. 35, November 19, 1992
R.A. No. 7369 (AN ACT TO AMEND THE OMNIBUS
INVESTMENTS CODE OF 1987 BY EXTENDING FROM 4. R.A. NO. 7649
FIVE (5) YEARS TO TEN YEARS THE PERIOD FOR
TAX AND DUTY EXEMPTION AND TAX CREDIT ON AN ACT REQUIRING THE
CAPITAL EQUIPMENT) which was approved by the GOVERNMENT OR ANY OF ITS
President on April 10, 1992. This Act is actually a POLITICAL SUBDIVISIONS,
consolidation of H. No. 34254, which was approved by the INSTRUMENTALITIES OR AGENCIES
House on January 29, 1992, and S. No. 1920, which was INCLUDING GOVERNMENT-OWNED
approved by the Senate on February 3, 1992. OR CONTROLLED CORPORATIONS
(GOCCS) TO DEDUCT AND
R.A. No. 7549 (AN ACT GRANTING TAX EXEMPTIONS WITHHOLD THE VALUE-ADDED TAX
TO WHOEVER SHALL GIVE REWARD TO ANY DUE AT THE RATE OF THREE
FILIPINO ATHLETE WINNING A MEDAL IN OLYMPIC PERCENT (3%) ON GROSS PAYMENT
GAMES) which was approved by the President on May FOR THE PURCHASE OF GOODS AND
22, 1992. This Act is a consolidation of H. No. 22232, SIX PERCENT (6%) ON GROSS
which was approved by the House of Representatives on RECEIPTS FOR SERVICES
August 2, 1989, and S. No. 807, which was approved by RENDERED BY CONTRACTORS (April
the Senate on October 21, 1991. 6, 1993)

On the other hand, the Ninth Congress passed revenue House Bill No. 5260, January 26, 1993
laws which were also the result of the consolidation of
House and Senate bills. These are the following, with Senate Bill No. 1141, March 30, 1993
indications of the dates on which the laws were approved
by the President and dates the separate bills of the two
5. R.A. NO. 7656
chambers of Congress were respectively passed:

1. R.A. NO. 7642

 AN ACT REQUIRING GOVERNMENT-
OWNED OR CONTROLLED
CORPORATIONS TO DECLARE
DIVIDENDS UNDER CERTAIN
CONDITIONS TO THE NATIONAL
GOVERNMENT, AND FOR OTHER
PURPOSES (November 9, 1993)
House Bill No. 11024, November 3, 1993
Senate Bill No. 1168, November 3, 1993
6. R.A. NO. 7660
AN ACT RATIONALIZING FURTHER
THE STRUCTURE AND
ADMINISTRATION OF THE
DOCUMENTARY STAMP TAX,
AMENDING FOR THE PURPOSE
CERTAIN PROVISIONS OF THE
NATIONAL INTERNAL REVENUE
CODE, AS AMENDED, ALLOCATING
FUNDS FOR SPECIFIC PROGRAMS,
AND FOR OTHER PURPOSES
(December 23, 1993)
House Bill No. 7789, May 31, 1993
Senate Bill No. 1330, November 18,
1993
7. R.A. NO. 7717
AN ACT IMPOSING A TAX ON THE
SALE, BARTER OR EXCHANGE OF
SHARES OF STOCK LISTED AND
TRADED THROUGH THE LOCAL
STOCK EXCHANGE OR THROUGH
INITIAL PUBLIC OFFERING,
AMENDING FOR THE PURPOSE THE
NATIONAL INTERNAL REVENUE
CODE, AS AMENDED, BY INSERTING
A NEW SECTION AND REPEALING
CERTAIN SUBSECTIONS THEREOF
(May 5, 1994)
House Bill No. 9187, November 3, 1993
Senate Bill No. 1127, March 23, 1994
Thus, the enactment of S. No. 1630 is not the only
instance in which the Senate, in the exercise of its power
to propose amendments to bills required to originate in the
House, passed its own version of a House revenue
measure. It is noteworthy that, in the particular case of S.
No. 1630, petitioners Tolentino and Roco, as members of
the Senate, voted to approve it on second and third
readings.
On the other hand, amendment by substitution, in the
manner urged by petitioner Tolentino, concerns a mere
matter of form. Petitioner has not shown what substantial
difference it would make if, as the Senate actually did in
this case, a separate bill like S. No. 1630 is instead
enacted as a substitute measure, "taking into
Consideration . . . H.B. 11197."
Indeed, so far as pertinent, the Rules of the Senate only
provide:
RULE XXIX
AMENDMENTS
xxx xxx xxx
§68. Not more than one amendment to
the original amendment shall be
considered.
No amendment by substitution shall be
entertained unless the text thereof is
submitted in writing.
Any of said amendments may be
withdrawn before a vote is taken thereon.
§69. No amendment which seeks the
inclusion of a legislative provision foreign
to the subject matter of a bill (rider) shall
be entertained.
xxx xxx xxx
§70-A. A bill or resolution shall not be
amended by substituting it with another
which covers a subject distinct from that
proposed in the original bill or resolution.
(emphasis added).
Nor is there merit in petitioners' contention that, with
regard to revenue bills, the Philippine Senate possesses
less power than the U.S. Senate because of textual
differences between constitutional provisions giving them
the power to propose or concur with amendments.
Art. I, §7, cl. 1 of the U.S. Constitution reads:
All Bills for raising Revenue shall
originate in the House of
Representatives; but the Senate may
propose or concur with amendments as
on other Bills.
Art. VI, §24 of our Constitution reads:
All appropriation, revenue or tariff bills,
bills authorizing increase of the public
debt, bills of local application, and private
bills shall originate exclusively in the
House of Representatives, but the
Senate may propose or concur with
amendments.
The addition of the word "exclusively" in the Philippine
Constitution and the decision to drop the phrase "as on
other Bills" in the American version, according to
petitioners, shows the intention of the framers of our
Constitution to restrict the Senate's power to propose
amendments to revenue bills. Petitioner Tolentino
contends that the word "exclusively" was inserted to
modify "originate" and "the words 'as in any other bills'
(sic) were eliminated so as to show that these bills were
not to be like other bills but must be treated as a special
kind."
The history of this provision does not support this
contention. The supposed indicia of constitutional intent
are nothing but the relics of an unsuccessful attempt to
limit the power of the Senate. It will be recalled that the
1935 Constitution originally provided for a unicameral
National Assembly. When it was decided in 1939 to
change to a bicameral legislature, it became necessary to
provide for the procedure for lawmaking by the Senate
and the House of Representatives. The work of proposing
amendments to the Constitution was done by the National
Assembly, acting as a constituent assembly, some of
whose members, jealous of preserving the Assembly's
lawmaking powers, sought to curtail the powers of the
proposed Senate. Accordingly they proposed the
following provision:
All bills appropriating public funds,
revenue or tariff bills, bills of local
application, and private bills shall
originate exclusively in the Assembly, but
the Senate may propose or concur with
amendments. In case of disapproval by
the Senate of any such bills, the
Assembly may repass the same by a
two-thirds vote of all its members, and
thereupon, the bill so repassed shall be
deemed enacted and may be submitted
to the President for corresponding action.
In the event that the Senate should fail to
finally act on any such bills, the Assembly
may, after thirty days from the opening of
the next regular session of the same
legislative term, reapprove the same with
a vote of two-thirds of all the members of
the Assembly. And upon such
reapproval, the bill shall be deemed
enacted and may be submitted to the
President for corresponding action.
The special committee on the revision of laws of the
Second National Assembly vetoed the proposal. It deleted
everything after the first sentence. As rewritten, the
proposal was approved by the National Assembly and
embodied in Resolution No. 38, as amended by
Resolution No. 73. (J. ARUEGO, KNOW YOUR
CONSTITUTION 65-66 (1950)). The proposed
amendment was submitted to the people and ratified by
them in the elections held on June 18, 1940.
This is the history of Art. VI, §18 (2) of the 1935
Constitution, from which Art. VI, §24 of the present
Constitution was derived. It explains why the word
"exclusively" was added to the American text from which
the framers of the Philippine Constitution borrowed and
why the phrase "as on other Bills" was not copied.
Considering the defeat of the proposal, the power of the
Senate to propose amendments must be understood to
be full, plenary and complete "as on other Bills." Thus,
because revenue bills are required to originate exclusively
in the House of Representatives, the Senate cannot enact
revenue measures of its own without such bills. After a
revenue bill is passed and sent over to it by the House,
however, the Senate certainly can pass its own version
on the same subject matter. This follows from the
coequality of the two chambers of Congress.
That this is also the understanding of book authors of the
scope of the Senate's power to concur is clear from the
following commentaries:
The power of the Senate to propose or
concur with amendments is apparently
without restriction. It would seem that by
virtue of this power, the Senate can
practically re-write a bill required to come
from the House and leave only a trace of
the original bill. For example, a general
revenue bill passed by the lower house of
the United States Congress contained
provisions for the imposition of an
inheritance tax . This was changed by the
Senate into a corporation tax. The
amending authority of the Senate was
declared by the United States Supreme
Court to be sufficiently broad to enable it
to make the alteration. [Flint v. Stone
Tracy Company, 220 U.S. 107, 55 L. ed.
389].
(L. TAÑADA AND F. CARREON,
POLITICAL LAW OF THE PHILIPPINES
247 (1961))
The above-mentioned bills are supposed
to be initiated by the House of
Representatives because it is more
numerous in membership and therefore
also more representative of the people.
Moreover, its members are presumed to
be more familiar with the needs of the
country in regard to the enactment of the
legislation involved.
The Senate is, however, allowed much
leeway in the exercise of its power to
propose or concur with amendments to
the bills initiated by the House of
Representatives. Thus, in one case, a bill
introduced in the U.S. House of
Representatives was changed by the
Senate to make a proposed inheritance
tax a corporation tax. It is also accepted
practice for the Senate to introduce what
is known as an amendment by
substitution, which may entirely replace
the bill initiated in the House of
Representatives.
(I. CRUZ, PHILIPPINE POLITICAL LAW
144-145 (1993)).
In sum, while Art. VI, §24 provides that all appropriation,
revenue or tariff bills, bills authorizing increase of the
public debt, bills of local application, and private bills must
"originate exclusively in the House of Representatives," it
also adds, "but the Senate may propose or concur with
amendments." In the exercise of this power, the Senate
may propose an entirely new bill as a substitute measure.
As petitioner Tolentino states in a high school text, a
committee to which a bill is referred may do any of the
following:
(1) to endorse the bill without changes;
(2) to make changes in the bill omitting or
adding sections or altering its language;
(3) to make and endorse an entirely new
bill as a substitute, in which case it will be
known as a committee bill; or (4) to make
no report at all.
(A. TOLENTINO, THE GOVERNMENT
OF THE PHILIPPINES 258 (1950))
To except from this procedure the amendment of bills
which are required to originate in the House by
prescribing that the number of the House bill and its other
parts up to the enacting clause must be preserved
although the text of the Senate amendment may be
incorporated in place of the original body of the bill is to
insist on a mere technicality. At any rate there is no rule
prescribing this form. S. No. 1630, as a substitute
measure, is therefore as much an amendment of H. No.
11197 as any which the Senate could have made.
II. S. No. 1630 a mere amendment of H. No. 11197.
Petitioners' basic error is that they assume that S. No.
1630 is an independent and distinct bill. Hence their
repeated references to its certification that it was passed
by the Senate "in substitution of S.B. No. 1129, taking into
consideration P.S. Res. No. 734 and H.B. No. 11197,"
implying that there is something substantially different
between the reference to S. No. 1129 and the reference
to H. No. 11197. From this premise, they conclude that
R.A. No. 7716 originated both in the House and in the
Senate and that it is the product of two "half-baked bills
because neither H. No. 11197 nor S. No. 1630 was
passed by both houses of Congress."
In point of fact, in several instances the provisions of S.
No. 1630, clearly appear to be mere amendments of the
corresponding provisions of H. No. 11197. The very
tabular comparison of the provisions of H. No. 11197 and
S. No. 1630 attached as Supplement A to the basic
petition of petitioner Tolentino, while showing differences
between the two bills, at the same time indicates that the
provisions of the Senate bill were precisely intended to be
amendments to the House bill.
Without H. No. 11197, the Senate could not have enacted
S. No. 1630. Because the Senate bill was a mere
amendment of the House bill, H. No. 11197 in its original
form did not have to pass the Senate on second and three
readings. It was enough that after it was passed on first
reading it was referred to the Senate Committee on Ways
and Means. Neither was it required that S. No. 1630 be
passed by the House of Representatives before the two
bills could be referred to the Conference Committee.
There is legislative precedent for what was done in the
case of H. No. 11197 and S. No. 1630. When the House
bill and Senate bill, which became R.A. No. 1405 (Act
prohibiting the disclosure of bank deposits), were referred
to a conference committee, the question was raised
whether the two bills could be the subject of such
conference, considering that the bill from one house had
not been passed by the other and vice versa. As
Congressman Duran put the question:
MR. DURAN. Therefore, I raise this
question of order as to procedure: If a
House bill is passed by the House but not
passed by the Senate, and a Senate bill
of a similar nature is passed in the
Senate but never passed in the House,
can the two bills be the subject of a
conference, and can a law be enacted
from these two bills? I understand that
the Senate bill in this particular instance
does not refer to investments in
government securities, whereas the bill in
the House, which was introduced by the
Speaker, covers two subject matters: not
only investigation of deposits in banks
but also investigation of investments in
government securities. Now, since the
two bills differ in their subject matter, I
believe that no law can be enacted.
Ruling on the point of order raised, the chair (Speaker
Jose B. Laurel, Jr.) said:
THE SPEAKER. The report of the
conference committee is in order. It is
precisely in cases like this where a
conference should be had. If the House
bill had been approved by the Senate,
there would have been no need of a
conference; but precisely because the
Senate passed another bill on the same
subject matter, the conference
committee had to be created, and we are
now considering the report of that
committee.
(2 CONG. REC. NO. 13, July 27, 1955,
pp. 3841-42 (emphasis added))
III. The President's certification. The fallacy in thinking
that H. No. 11197 and S. No. 1630 are distinct and
unrelated measures also accounts for the petitioners'
(Kilosbayan's and PAL's) contention that because the
President separately certified to the need for the
immediate enactment of these measures, his certification
was ineffectual and void. The certification had to be made
of the version of the same revenue bill which at the
moment was being considered. Otherwise, to follow
petitioners' theory, it would be necessary for the President
to certify as many bills as are presented in a house of
Congress even though the bills are merely versions of the
bill he has already certified. It is enough that he certifies
the bill which, at the time he makes the certification, is
under consideration. Since on March 22, 1994 the Senate
was considering S. No. 1630, it was that bill which had to
be certified. For that matter on June 1, 1993 the President
had earlier certified H. No. 9210 for immediate enactment
because it was the one which at that time was being
considered by the House. This bill was later substituted,
together with other bills, by H. No. 11197.
As to what Presidential certification can accomplish, we
have already explained in the main decision that the
phrase "except when the President certifies to the
necessity of its immediate enactment, etc." in Art. VI, §26
(2) qualifies not only the requirement that "printed copies
[of a bill] in its final form [must be] distributed to the
members three days before its passage" but also the
requirement that before a bill can become a law it must
have passed "three readings on separate days." There is
not only textual support for such construction but historical
basis as well.
Art. VI, §21 (2) of the 1935 Constitution originally
provided:
(2) No bill shall be passed by either
House unless it shall have been printed
and copies thereof in its final form
furnished its Members at least three
calendar days prior to its passage,
except when the President shall have
certified to the necessity of its immediate
enactment. Upon the last reading of a bill,
no amendment thereof shall be allowed
and the question upon its passage shall
be taken immediately thereafter, and
the yeas and nays entered on the
Journal.
When the 1973 Constitution was adopted, it was provided
in Art. VIII, §19 (2):
(2) No bill shall become a law unless it
has passed three readings on separate
days, and printed copies thereof in its
final form have been distributed to the
Members three days before its passage,
except when the Prime Minister certifies
to the necessity of its immediate
enactment to meet a public calamity or
emergency. Upon the last reading of a
 bill, no amendment thereto shall be
allowed, and the vote thereon shall be
taken immediately thereafter, and
the yeas and nays entered in the
Journal.
This provision of the 1973 document, with slight
modification, was adopted in Art. VI, §26 (2) of the present
Constitution, thus:
(2) No bill passed by either House shall
become a law unless it has passed three
readings on separate days, and printed
copies thereof in its final form have been
distributed to its Members three days
before its passage, except when the
President certifies to the necessity of its
immediate enactment to meet a public
calamity or emergency. Upon the last
reading of a bill, no amendment thereto
shall be allowed, and the vote thereon
shall be taken immediately thereafter,
and the yeas and nays entered in the
Journal.
The exception is based on the prudential consideration
that if in all cases three readings on separate days are
required and a bill has to be printed in final form before it
can be passed, the need for a law may be rendered
academic by the occurrence of the very emergency or
public calamity which it is meant to address.
Petitioners further contend that a "growing budget deficit"
is not an emergency, especially in a country like the
Philippines where budget deficit is a chronic condition.
Even if this were the case, an enormous budget deficit
does not make the need for R.A. No. 7716 any less urgent
or the situation calling for its enactment any less an
emergency.
Apparently, the members of the Senate (including some
of the petitioners in these cases) believed that there was
an urgent need for consideration of S. No. 1630, because
they responded to the call of the President by voting on
the bill on second and third readings on the same day.
While the judicial department is not bound by the Senate's
acceptance of the President's certification, the respect
due coequal departments of the government in matters
committed to them by the Constitution and the absence of
a clear showing of grave abuse of discretion caution a
stay of the judicial hand.
At any rate, we are satisfied that S. No. 1630 received
thorough consideration in the Senate where it was
discussed for six days. Only its distribution in advance in
its final printed form was actually dispensed with by
holding the voting on second and third readings on the
same day (March 24, 1994). Otherwise, sufficient time
between the submission of the bill on February 8, 1994 on
second reading and its approval on March 24, 1994
elapsed before it was finally voted on by the Senate on
third reading.
The purpose for which three readings on separate days is
required is said to be two-fold: (1) to inform the members
of Congress of what they must vote on and (2) to give
them notice that a measure is progressing through the
enacting process, thus enabling them and others
interested in the measure to prepare their positions with
reference to it. (1 J. G. SUTHERLAND, STATUTES AND
STATUTORY CONSTRUCTION §10.04, p. 282 (1972)).
These purposes were substantially achieved in the case
of R.A. No. 7716.
IV. Power of Conference Committee. It is contended
(principally by Kilosbayan, Inc. and the Movement of
Attorneys for Brotherhood, Integrity and Nationalism, Inc.
(MABINI)) that in violation of the constitutional policy of
full public disclosure and the people's right to know (Art.
II, §28 and Art. III, §7) the Conference Committee met for
two days in executive session with only the conferees
present.
As pointed out in our main decision, even in the United
States it was customary to hold such sessions with only
the conferees and their staffs in attendance and it was
only in 1975 when a new rule was adopted requiring open
sessions. Unlike its American counterpart, the Philippine
Congress has not adopted a rule prescribing open
hearings for conference committees.
It is nevertheless claimed that in the United States, before
the adoption of the rule in 1975, at least staff members
were present. These were staff members of the Senators
and Congressmen, however, who may be presumed to be
their confidential men, not stenographers as in this case
who on the last two days of the conference were
excluded. There is no showing that the conferees
themselves did not take notes of their proceedings so as
to give petitioner Kilosbayan basis for claiming that even
in secret diplomatic negotiations involving state interests,
conferees keep notes of their meetings. Above all, the
public's right to know was fully served because the
Conference Committee in this case submitted a report
showing the changes made on the differing versions of
the House and the Senate.
Petitioners cite the rules of both houses which provide
that conference committee reports must contain "a
detailed, sufficiently explicit statement of the changes in
or other amendments." These changes are shown in the
bill attached to the Conference Committee Report. The
members of both houses could thus ascertain what
changes had been made in the original bills without the
need of a statement detailing the changes.
The same question now presented was raised when the
bill which became R.A. No. 1400 (Land Reform Act of
1955) was reported by the Conference Committee.
Congressman Bengzon raised a point of order. He said:
MR. BENGZON. My point of order is that
it is out of order to consider the report of
the conference committee
regarding House Bill No. 2557 by reason
of the provision of Section 11, Article XII,
of the Rules of this House which provides
specifically that the conference report
must be accompanied by a detailed
statement of the effects of the
amendment on the bill of the House. This
conference committee report is not
accompanied by that detailed statement,
Mr. Speaker. Therefore it is out of order
to consider it.
Petitioner Tolentino, then the Majority Floor Leader,
answered:
MR. TOLENTINO. Mr. Speaker, I should
just like to say a few words in connection
with the point of order raised by the
gentleman from Pangasinan.
There is no question about the provision
of the Rule cited by the gentleman from
Pangasinan, but this provision applies to
 those cases where only portions of the
bill have been amended. In this case
before us an entire bill is
presented; therefore, it can be easily
seen from the reading of the bill what the
provisions are. Besides, this procedure
has been an established practice.
After some interruption, he continued:
MR. TOLENTINO. As I was saying, Mr.
Speaker, we have to look into the reason
for the provisions of the Rules, and the
reason for the requirement in the
provision cited by the gentleman from
Pangasinan is when there are only
certain words or phrases inserted in or
deleted from the provisions of the bill
included in the conference report, and we
cannot understand what those words and
phrases mean and their relation to the
bill. In that case, it is necessary to make
a detailed statement on how those words
and phrases will affect the bill as a
whole; but when the entire bill itself is
copied verbatim in the conference report,
that is not necessary. So when the
reason for the Rule does not exist, the
Rule does not exist.
(2 CONG. REC. NO. 2, p. 4056.
(emphasis added))
Congressman Tolentino was sustained by the chair. The
record shows that when the ruling was appealed, it was
upheld by viva voce and when a division of the House
was called, it was sustained by a vote of 48 to 5. (Id.,
p. 4058)
Nor is there any doubt about the power of a conference
committee to insert new provisions as long as these are
germane to the subject of the conference. As this Court
held in Philippine Judges Association v. Prado, 227
SCRA 703 (1993), in an opinion written by then Justice
Cruz, the jurisdiction of the conference committee is not
limited to resolving differences between the Senate and
the House. It may propose an entirely new provision.
What is important is that its report is subsequently
approved by the respective houses of Congress. This
Court ruled that it would not entertain allegations that,
because new provisions had been added by the
conference committee, there was thereby a violation of
the constitutional injunction that "upon the last reading of
a bill, no amendment thereto shall be allowed."
Applying these principles, we
shall decline to look into the petitioners'
charges that an amendment was made
upon the last reading of the bill that
eventually became R.A. No. 7354 and
that copies thereof in its final form were
not distributed among the members of
each House. Both the enrolled bill and
the legislative journals certify that the
measure was duly enacted i.e., in
accordance with Article VI, Sec. 26 (2) of
the Constitution. We are bound by such
official assurances from a coordinate
department of the government, to which
we owe, at the very least, a becoming
courtesy.
(Id. at 710. (emphasis added))
It is interesting to note the following description of
conference committees in the Philippines in a 1979 study:
Conference committees may be of two
types: free or instructed. These
committees may be given instructions by
their parent bodies or they may be left
without instructions. Normally the
conference committees are without
instructions, and this is why they are
often critically referred to as "the little
legislatures." Once bills have been sent
to them, the conferees have almost
unlimited authority to change the clauses
of the bills and in fact sometimes
introduce new measures that were not in
the original legislation. No minutes are
kept, and members' activities on
conference committees are difficult to
determine. One congressman known for
his idealism put it this way: "I killed a bill
on export incentives for my interest group
[copra] in the conference committee but I
could not have done so anywhere else."
The conference committee submits a
report to both houses, and usually it is
accepted. If the report is not accepted,
then the committee is discharged and
new members are appointed.
(R. Jackson, Committees in the
Philippine Congress, in COMMITTEES
AND LEGISLATURES: A
COMPARATIVE ANALYSIS 163 (J. D.
LEES AND M. SHAW, eds.)).
In citing this study, we pass no judgment on the methods
of conference committees. We cite it only to say that
conference committees here are no different from their
counterparts in the United States whose vast powers we
noted in Philippine Judges Association v. Prado, supra.
At all events, under Art. VI, §16(3) each house has the
power "to determine the rules of its proceedings,"
including those of its committees. Any meaningful change
in the method and procedures of Congress or its
committees must therefore be sought in that body itself.
V. The titles of S. No. 1630 and H. No. 11197. PAL
maintains that R.A. No. 7716 violates Art. VI, §26 (1) of
the Constitution which provides that "Every bill passed by
Congress shall embrace only one subject which shall be
expressed in the title thereof." PAL contends that the
amendment of its franchise by the withdrawal of its
exemption from the VAT is not expressed in the title of the
law.
Pursuant to §13 of P.D. No. 1590, PAL pays a franchise
tax of 2% on its gross revenue "in lieu of all other taxes,
duties, royalties, registration, license and other fees and
charges of any kind, nature, or description, imposed,
levied, established, assessed or collected by any
municipal, city, provincial or national authority or
government agency, now or in the future."
PAL was exempted from the payment of the VAT along
with other entities by §103 of the National Internal
Revenue Code, which provides as follows:
§103. Exempt transactions. — The
following shall be exempt from the value-
added tax:
xxx xxx xxx
 (q) Transactions which are exempt under To require every end and means
special laws or international agreements necessary for the accomplishment of the
to which the Philippines is a signatory. general objectives of the statute to be
expressed in its title would not only be
R.A. No. 7716 seeks to withdraw certain exemptions, unreasonable but would actually render
including that granted to PAL, by amending §103, as legislation impossible. [Cooley,
follows: Constitutional Limitations, 8th Ed., p.
297] As has been correctly explained:
§103. Exempt transactions. — The
following shall be exempt from the value- The details of a
added tax: legislative act need not
be specifically stated in
xxx xxx xxx its title, but matter
germane to the subject
as expressed in the title,
(q) Transactions which are exempt under and adopted to the
special laws, except those granted under accomplishment of the
Presidential Decree Nos. 66, 529, 972, object in view, may
1491, 1590. . . . properly be included in
the act. Thus, it is proper
The amendment of §103 is expressed in the title of R.A. to create in the same act
No. 7716 which reads: the machinery by which
the act is to be enforced,
AN ACT RESTRUCTURING THE to prescribe the
VALUE-ADDED TAX (VAT) SYSTEM, penalties for its
WIDENING ITS TAX BASE AND infraction, and to remove
ENHANCING ITS ADMINISTRATION, obstacles in the way of
AND FOR THESE PURPOSES its execution. If such
AMENDING AND REPEALING THE matters are properly
RELEVANT PROVISIONS OF THE connected with the
NATIONAL INTERNAL REVENUE subject as expressed in
CODE, AS AMENDED, AND FOR the title, it is
OTHER PURPOSES. unnecessary that they
should also have special
By stating that R.A. No. 7716 seeks to "[RESTRUCTURE] mention in the title.
THE VALUE-ADDED TAX (VAT) SYSTEM [BY] (Southern Pac. Co. v.
WIDENING ITS TAX BASE AND ENHANCING ITS Bartine, 170 Fed. 725)
ADMINISTRATION, AND FOR THESE PURPOSES
AMENDING AND REPEALING THE RELEVANT (227 SCRA at 707-708)
PROVISIONS OF THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED AND FOR OTHER VI. Claims of press freedom and religious liberty. We have
PURPOSES," Congress thereby clearly expresses its held that, as a general proposition, the press is not
intention to amend any provision of the NIRC which exempt from the taxing power of the State and that what
stands in the way of accomplishing the purpose of the law. the constitutional guarantee of free press prohibits are
laws which single out the press or target a group
PAL asserts that the amendment of its franchise must be belonging to the press for special treatment or which in
reflected in the title of the law by specific reference to P.D. any way discriminate against the press on the basis of the
No. 1590. It is unnecessary to do this in order to comply content of the publication, and R.A. No. 7716 is none of
with the constitutional requirement, since it is already these.
stated in the title that the law seeks to amend the pertinent
provisions of the NIRC, among which is §103(q), in order Now it is contended by the PPI that by removing the
to widen the base of the VAT. Actually, it is the bill which exemption of the press from the VAT while maintaining
becomes a law that is required to express in its title the those granted to others, the law discriminates against the
subject of legislation. The titles of H. No. 11197 and S. press. At any rate, it is averred, "even nondiscriminatory
No. 1630 in fact specifically referred to §103 of the NIRC taxation of constitutionally guaranteed freedom is
as among the provisions sought to be amended. We are unconstitutional."
satisfied that sufficient notice had been given of the
pendency of these bills in Congress before they were With respect to the first contention, it would suffice to say
enacted into what is now R.A. that since the law granted the press a privilege, the law
No. 7716. could take back the privilege anytime without offense to
the Constitution. The reason is simple: by granting
In Philippine Judges Association v. Prado, supra, a exemptions, the State does not forever waive the exercise
similar argument as that now made by PAL was rejected. of its sovereign prerogative.
R.A. No. 7354 is entitled AN ACT CREATING THE
PHILIPPINE POSTAL CORPORATION, DEFINING ITS Indeed, in withdrawing the exemption, the law merely
POWERS, FUNCTIONS AND RESPONSIBILITIES, subjects the press to the same tax burden to which other
PROVIDING FOR REGULATION OF THE INDUSTRY businesses have long ago been subject. It is thus different
AND FOR OTHER PURPOSES CONNECTED from the tax involved in the cases invoked by the PPI. The
THEREWITH. It contained a provision repealing all license tax in Grosjean v. American Press Co., 297 U.S.
franking privileges. It was contended that the withdrawal 233, 80 L. Ed. 660 (1936) was found to be discriminatory
of franking privileges was not expressed in the title of the because it was laid on the gross advertising receipts only
law. In holding that there was sufficient description of the of newspapers whose weekly circulation was over 20,000,
subject of the law in its title, including the repeal of with the result that the tax applied only to 13 out of 124
franking privileges, this Court held:
publishers in Louisiana. These large papers were critical
of Senator Huey Long who controlled the state legislature
which enacted the license tax. The censorial motivation
for the law was thus evident.
On the other hand, in Minneapolis Star & Tribune
Co. v. Minnesota Comm'r of Revenue, 460 U.S. 575, 75
L. Ed. 2d 295 (1983), the tax was found to be
discriminatory because although it could have been made
liable for the sales tax or, in lieu thereof, for the use tax on
the privilege of using, storing or consuming tangible
goods, the press was not. Instead, the press was
exempted from both taxes. It was, however, later made to
pay a special use tax on the cost of paper and ink which
made these items "the only items subject to the use tax
that were component of goods to be sold at retail." The
U.S. Supreme Court held that the differential treatment of
the press "suggests that the goal of regulation is not
related to suppression of expression, and such goal is
presumptively unconstitutional." It would therefore appear
that even a law that favors the press is constitutionally
suspect. (See the dissent of Rehnquist, J. in that case)
Nor is it true that only two exemptions previously granted
by E.O. No. 273 are withdrawn "absolutely and
unqualifiedly" by R.A. No. 7716. Other exemptions from
the VAT, such as those previously granted to PAL,
petroleum concessionaires, enterprises registered with
the Export Processing Zone Authority, and many more
are likewise totally withdrawn, in addition to exemptions
which are partially withdrawn, in an effort to broaden the
base of the tax.
The PPI says that the discriminatory treatment of the
press is highlighted by the fact that transactions, which
are profit oriented, continue to enjoy exemption under
R.A. No. 7716. An enumeration of some of these
transactions will suffice to show that by and large this is
not so and that the exemptions are granted for a purpose.
As the Solicitor General says, such exemptions are
granted, in some cases, to encourage agricultural
production and, in other cases, for the personal benefit of
the end-user rather than for profit. The exempt
transactions are:
(a) Goods for consumption or use which
are in their original state (agricultural,
marine and forest products, cotton seeds
in their original state, fertilizers, seeds,
seedlings, fingerlings, fish, prawn
livestock and poultry feeds) and goods or
services to enhance agriculture (milling
of palay, corn, sugar cane and raw sugar,
livestock, poultry feeds, fertilizer,
ingredients used for the manufacture of
feeds).
(b) Goods used for personal
consumption or use (household and
personal effects of citizens returning to
the Philippines) or for professional use,
like professional instruments and
implements, by persons coming to the
Philippines to settle here.
(c) Goods subject to excise tax such as
petroleum products or to be used for
manufacture of petroleum products
subject to excise tax and services subject
to percentage tax.
(d) Educational services, medical, dental,
hospital and veterinary services, and
services rendered under employer-
employee relationship.
(e) Works of art and similar creations sold
by the artist himself.
(f) Transactions exempted under special
laws, or international agreements.
(g) Export-sales by persons not VAT-
registered.
(h) Goods or services with gross annual
sale or receipt not
exceeding P500,000.00.
(Respondents' Consolidated Comment
on the Motions for Reconsideration, pp.
58-60)
The PPI asserts that it does not really matter that the law
does not discriminate against the press because "even
nondiscriminatory taxation on constitutionally guaranteed
freedom is unconstitutional." PPI cites in support of this
assertion the following statement in Murdock
v. Pennsylvania, 319 U.S. 105, 87 L. Ed. 1292 (1943):
The fact that the ordinance is
"nondiscriminatory" is immaterial. The
protection afforded by the First
Amendment is not so restricted. A license
tax certainly does not acquire
constitutional validity because it
classifies the privileges protected by the
First Amendment along with the wares
and merchandise of hucksters and
peddlers and treats them all alike. Such
equality in treatment does not save the
ordinance. Freedom of press, freedom of
speech, freedom of religion are in
preferred position.
The Court was speaking in that case of a license tax,
which, unlike an ordinary tax, is mainly for regulation. Its
imposition on the press is unconstitutional because it lays
a prior restraint on the exercise of its right. Hence,
although its application to others, such those selling
goods, is valid, its application to the press or to religious
groups, such as the Jehovah's Witnesses, in connection
with the latter's sale of religious books and pamphlets, is
unconstitutional. As the U.S. Supreme Court put it, "it is
one thing to impose a tax on income or property of a
preacher. It is quite another thing to exact a tax on him for
delivering a sermon."
A similar ruling was made by this Court in American Bible
Society v. City of Manila, 101 Phil. 386 (1957) which
invalidated a city ordinance requiring a business license
fee on those engaged in the sale of general merchandise.
It was held that the tax could not be imposed on the sale
of bibles by the American Bible Society without restraining
the free exercise of its right to propagate.
The VAT is, however, different. It is not a license tax. It is
not a tax on the exercise of a privilege, much less a
constitutional right. It is imposed on the sale, barter, lease
or exchange of goods or properties or the sale or
exchange of services and the lease of properties purely
for revenue purposes. To subject the press to its payment
is not to burden the exercise of its right any more than to
make the press pay income tax or subject it to general
regulation is not to violate its freedom under the
Constitution.
Additionally, the Philippine Bible Society, Inc. claims that
although it sells bibles, the proceeds derived from the
sales are used to subsidize the cost of printing copies
which are given free to those who cannot afford to pay so
that to tax the sales would be to increase the price, while
reducing the volume of sale. Granting that to be the case,
the resulting burden on the exercise of religious freedom
is so incidental as to make it difficult to differentiate it from
any other economic imposition that might make the right
to disseminate religious doctrines costly. Otherwise, to
follow the petitioner's argument, to increase the tax on the
sale of vestments would be to lay an impermissible
burden on the right of the preacher to make a sermon.
On the other hand the registration fee of P1,000.00
imposed by §107 of the NIRC, as amended by §7 of R.A.
No. 7716, although fixed in amount, is really just to pay
for the expenses of registration and enforcement of
provisions such as those relating to accounting in §108 of
the NIRC. That the PBS distributes free bibles and
therefore is not liable to pay the VAT does not excuse it
from the payment of this fee because it also sells some
copies. At any rate whether the PBS is liable for the VAT
must be decided in concrete cases, in the event it is
assessed this tax by the Commissioner of Internal
Revenue.
VII. Alleged violations of the due process, equal protection
and contract clauses and the rule on taxation. CREBA
asserts that R.A. No. 7716 (1) impairs the obligations of
contracts, (2) classifies transactions as covered or
exempt without reasonable basis and (3) violates the rule
that taxes should be uniform and equitable and that
Congress shall "evolve a progressive system of taxation."
With respect to the first contention, it is claimed that the
application of the tax to existing contracts of the sale of
real property by installment or on deferred payment basis
would result in substantial increases in the monthly
amortizations to be paid because of the 10% VAT. The
additional amount, it is pointed out, is something that the
buyer did not anticipate at the time he entered into the
contract.
The short answer to this is the one given by this Court in
an early case: "Authorities from numerous sources are
cited by the plaintiffs, but none of them show that a lawful
tax on a new subject, or an increased tax on an old one,
interferes with a contract or impairs its obligation, within
the meaning of the Constitution. Even though such
taxation may affect particular contracts, as it may increase
the debt of one person and lessen the security of another,
or may impose additional burdens upon one class and
release the burdens of another, still the tax must be paid
unless prohibited by the Constitution, nor can it be said
that it impairs the obligation of any existing contract in its
true legal sense." (La Insular v. Machuca Go-Tauco and
Nubla Co-Siong, 39 Phil. 567, 574 (1919)). Indeed not
only existing laws but also "the reservation of the essential
attributes of sovereignty, is . . . read into contracts as a
postulate of the legal order." (Philippine-American Life
Ins. Co. v. Auditor General, 22 SCRA 135, 147 (1968))
Contracts must be understood as having been made in
reference to the possible exercise of the rightful authority
of the government and no obligation of contract can
extend to the defeat of that authority. (Norman v.
Baltimore and Ohio R.R., 79 L. Ed. 885 (1935)).
It is next pointed out that while §4 of R.A. No. 7716
exempts such transactions as the sale of agricultural
products, food items, petroleum, and medical and
veterinary services, it grants no exemption on the sale of
real property which is equally essential. The sale of real
property for socialized and low-cost housing is exempted
from the tax, but CREBA claims that real estate
transactions of "the less poor," i.e., the middle class, who
are equally homeless, should likewise be exempted.
The sale of food items, petroleum, medical and veterinary
services, etc., which are essential goods and services
was already exempt under §103, pars. (b) (d) (1) of the
NIRC before the enactment of R.A. No. 7716. Petitioner
is in error in claiming that R.A. No. 7716 granted
exemption to these transactions, while subjecting those of
petitioner to the payment of the VAT. Moreover, there is a
difference between the "homeless poor" and the
"homeless less poor" in the example given by petitioner,
because the second group or middle class can afford to
rent houses in the meantime that they cannot yet buy their
own homes. The two social classes are thus differently
situated in life. "It is inherent in the power to tax that the
State be free to select the subjects of taxation, and it has
been repeatedly held that 'inequalities which result from a
singling out of one particular class for taxation, or
exemption infringe no constitutional limitation.'" (Lutz v.
Araneta, 98 Phil. 148, 153 (1955). Accord, City of Baguio
v. De Leon, 134 Phil. 912 (1968); Sison, Jr. v. Ancheta,
130 SCRA 654, 663 (1984); Kapatiran ng mga
Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163
SCRA 371 (1988)).
Finally, it is contended, for the reasons already noted, that
R.A. No. 7716 also violates Art. VI, §28(1) which provides
that "The rule of taxation shall be uniform and equitable.
The Congress shall evolve a progressive system of
taxation."
Equality and uniformity of taxation means that all taxable
articles or kinds of property of the same class be taxed at
the same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of
taxation. To satisfy this requirement it is enough that the
statute or ordinance applies equally to all persons, forms
and corporations placed in similar situation. (City of
Baguio v. De Leon, supra; Sison, Jr. v. Ancheta, supra)
Indeed, the VAT was already provided in E.O. No. 273
long before R.A. No. 7716 was enacted. R.A. No. 7716
merely expands the base of the tax. The validity of the
original VAT Law was questioned in Kapatiran ng
Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163
SCRA 383 (1988) on grounds similar to those made in
these cases, namely, that the law was "oppressive,
discriminatory, unjust and regressive in violation of Art. VI,
§28(1) of the Constitution." (At 382) Rejecting the
challenge to the law, this Court held:
As the Court sees it, EO 273 satisfies all
the requirements of a valid tax. It is
uniform. . . .
The sales tax adopted in EO 273 is
applied similarly on all goods and
services sold to the public, which are not
exempt, at the constant rate of 0% or
10%.
The disputed sales tax is also equitable.
It is imposed only on sales of goods or
services by persons engaged in business
with an aggregate gross annual sales
exceeding P200,000.00. Small corner
sari-sari stores are consequently exempt
 from its application. Likewise exempt
from the tax are sales of farm and marine
products, so that the costs of basic food
and other necessities, spared as they are
from the incidence of the VAT, are
expected to be relatively lower and within
the reach of the general public.
(At 382-383)
The CREBA claims that the VAT is regressive. A similar
claim is made by the Cooperative Union of the
Philippines, Inc. (CUP), while petitioner Juan T. David
argues that the law contravenes the mandate of Congress
to provide for a progressive system of taxation because
the law imposes a flat rate of 10% and thus places the tax
burden on all taxpayers without regard to their ability to
pay.
The Constitution does not really prohibit the imposition of
indirect taxes which, like the VAT, are regressive. What it
simply provides is that Congress shall "evolve a
progressive system of taxation." The constitutional
provision has been interpreted to mean simply that "direct
taxes are . . . to be preferred [and] as much as possible,
indirect taxes should be minimized." (E. FERNANDO,
THE CONSTITUTION OF THE PHILIPPINES 221
(Second ed. (1977)). Indeed, the mandate to Congress is
not to prescribe, but to evolve, a progressive tax system.
Otherwise, sales taxes, which perhaps are the oldest form
of indirect taxes, would have been prohibited with the
proclamation of Art. VIII, §17(1) of the 1973 Constitution
from which the present Art. VI, §28(1) was taken. Sales
taxes are also regressive.
Resort to indirect taxes should be minimized but
not avoided entirely because it is difficult, if not
impossible, to avoid them by imposing such taxes
according to the taxpayers' ability to pay. In the case of
the VAT, the law minimizes the regressive effects of this
imposition by providing for zero rating of certain
transactions (R.A. No. 7716, §3, amending §102 (b) of the
NIRC), while granting exemptions to other transactions.
(R.A. No. 7716, §4, amending §103 of the NIRC).
Thus, the following transactions involving basic and
essential goods and services are exempted from the VAT:
(a) Goods for consumption or use which
are in their original state (agricultural,
marine and forest products, cotton seeds
in their original state, fertilizers, seeds,
seedlings, fingerlings, fish, prawn
livestock and poultry feeds) and goods or
services to enhance agriculture (milling
of palay, corn sugar cane and raw sugar,
livestock, poultry feeds, fertilizer,
ingredients used for the manufacture of
feeds).
(b) Goods used for personal
consumption or use (household and
personal effects of citizens returning to
the Philippines) and or professional use,
like professional instruments and
implements, by persons coming to the
Philippines to settle here.
(c) Goods subject to excise tax such as
petroleum products or to be used for
manufacture of petroleum products
subject to excise tax and services subject
to percentage tax.
(d) Educational services, medical, dental,
hospital and veterinary services, and
services rendered under employer-
employee relationship.
(e) Works of art and similar creations sold
by the artist himself.
(f) Transactions exempted under special
laws, or international agreements.
(g) Export-sales by persons not VAT-
registered.
(h) Goods or services with gross annual
sale or receipt not
exceeding P500,000.00.
(Respondents' Consolidated Comment
on the Motions for Reconsideration, pp.
58-60)
On the other hand, the transactions which are subject to
the VAT are those which involve goods and services
which are used or availed of mainly by higher income
groups. These include real properties held primarily for
sale to customers or for lease in the ordinary course of
trade or business, the right or privilege to use patent,
copyright, and other similar property or right, the right or
privilege to use industrial, commercial or scientific
equipment, motion picture films, tapes and discs, radio,
television, satellite transmission and cable television time,
hotels, restaurants and similar places, securities, lending
investments, taxicabs, utility cars for rent, tourist buses,
and other common carriers, services of franchise
grantees of telephone and telegraph.
The problem with CREBA's petition is that it presents
broad claims of constitutional violations by tendering
issues not at retail but at wholesale and in the abstract.
There is no fully developed record which can impart to
adjudication the impact of actuality. There is no factual
foundation to show in the concrete the application of the
law to actual contracts and exemplify its effect on property
rights. For the fact is that petitioner's members have not
even been assessed the VAT. Petitioner's case is not
made concrete by a series of hypothetical questions
asked which are no different from those dealt with in
advisory opinions.
The difficulty confronting petitioner is
thus apparent. He alleges arbitrariness.
A mere allegation, as here, does not
suffice. There must be a factual
foundation of such unconstitutional taint.
Considering that petitioner here would
condemn such a provision as void on its
face, he has not made out a case. This is
merely to adhere to the authoritative
doctrine that where the due process and
equal protection clauses are invoked,
considering that they are not fixed rules
but rather broad standards, there is a
need for proof of such persuasive
character as would lead to such a
conclusion. Absent such a showing, the
presumption of validity must prevail.
(Sison, Jr. v. Ancheta, 130 SCRA at 661)
Adjudication of these broad claims must await the
development of a concrete case. It may be that
postponement of adjudication would result in a multiplicity
of suits. This need not be the case, however. Enforcement
of the law may give rise to such a case. A test case,
provided it is an actual case and not an abstract or
hypothetical one, may thus be presented.
Nor is hardship to taxpayers alone an adequate
justification for adjudicating abstract issues. Otherwise,
adjudication would be no different from the giving of
advisory opinion that does not really settle legal issues.
We are told that it is our duty under Art. VIII, §1, ¶2 to
decide whenever a claim is made that "there has been a
grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or instrumentality of
the government." This duty can only arise if an actual case
or controversy is before us. Under Art . VIII, §5 our
jurisdiction is defined in terms of "cases" and all that Art.
VIII, §1, ¶2 can plausibly mean is that in the exercise of
that jurisdiction we have the judicial power to determine
questions of grave abuse of discretion by any branch or
instrumentality of the government.
Put in another way, what is granted in Art. VIII, §1, ¶2 is
"judicial power," which is "the power of a court to hear and
decide cases pending between parties who have the right
to sue and be sued in the courts of law and equity" (Lamb
v. Phipps, 22 Phil. 456, 559 (1912)), as distinguished from
legislative and executive power. This power cannot be
directly appropriated until it is apportioned among several
courts either by the Constitution, as in the case of Art. VIII,
§5, or by statute, as in the case of the Judiciary Act of
1948 (R.A. No. 296) and the Judiciary Reorganization Act
of 1980 (B.P. Blg. 129). The power thus apportioned
constitutes the court's "jurisdiction," defined as "the power
conferred by law upon a court or judge to take cognizance
of a case, to the exclusion of all others." (United States v.
Arceo, 6 Phil. 29 (1906)) Without an actual case coming
within its jurisdiction, this Court cannot inquire into any
allegation of grave abuse of discretion by the other
departments of the government.
VIII. Alleged violation of policy towards cooperatives. On
the other hand, the Cooperative Union of the Philippines
(CUP), after briefly surveying the course of legislation,
argues that it was to adopt a definite policy of granting tax
exemption to cooperatives that the present Constitution
embodies provisions on cooperatives. To subject
cooperatives to the VAT would therefore be to infringe a
constitutional policy. Petitioner claims that in 1973, P.D.
No. 175 was promulgated exempting cooperatives from
the payment of income taxes and sales taxes but in 1984,
because of the crisis which menaced the national
economy, this exemption was withdrawn by P.D. No.
1955; that in 1986, P.D. No. 2008 again granted
cooperatives exemption from income and sales taxes until
December 31, 1991, but, in the same year, E.O. No. 93
revoked the exemption; and that finally in 1987 the
framers of the Constitution "repudiated the previous
actions of the government adverse to the interests of the
cooperatives, that is, the repeated revocation of the tax
exemption to cooperatives and instead upheld the policy
of strengthening the cooperatives by way of the grant of
tax exemptions," by providing the following in Art. XII:
§1. The goals of the national economy
are a more equitable distribution of
opportunities, income, and wealth; a
sustained increase in the amount of
goods and services produced by the
nation for the benefit of the people; and
an expanding productivity as the key to
raising the quality of life for all, especially
the underprivileged.
The State shall promote industrialization
and full employment based on sound
agricultural development and agrarian
reform, through industries that make full
and efficient use of human and natural
resources, and which are competitive in
both domestic and foreign markets.
However, the State shall protect Filipino
enterprises against unfair foreign
competition and trade practices.
In the pursuit of these goals, all sectors
of the economy and all regions of the
country shall be given optimum
opportunity to develop. Private
enterprises, including corporations,
cooperatives, and similar collective
organizations, shall be encouraged to
broaden the base of their ownership.
§15. The Congress shall create an
agency to promote the viability and
growth of cooperatives as instruments for
social justice and economic
development.
Petitioner's contention has no merit. In the first place, it is
not true that P.D. No. 1955 singled out cooperatives by
withdrawing their exemption from income and sales taxes
under P.D. No. 175, §5. What P.D. No. 1955, §1 did was
to withdraw the exemptions and preferential treatments
theretofore granted to private business enterprises in
general, in view of the economic crisis which then beset
the nation. It is true that after P.D. No. 2008, §2 had
restored the tax exemptions of cooperatives in 1986, the
exemption was again repealed by E.O. No. 93, §1, but
then again cooperatives were not the only ones whose
exemptions were withdrawn. The withdrawal of tax
incentives applied to all, including government and private
entities. In the second place, the Constitution does not
really require that cooperatives be granted tax
exemptions in order to promote their growth and viability.
Hence, there is no basis for petitioner's assertion that the
government's policy toward cooperatives had been one of
vacillation, as far as the grant of tax privileges was
concerned, and that it was to put an end to this indecision
that the constitutional provisions cited were adopted.
Perhaps as a matter of policy cooperatives should be
granted tax exemptions, but that is left to the discretion of
Congress. If Congress does not grant exemption and
there is no discrimination to cooperatives, no violation of
any constitutional policy can be charged.
Indeed, petitioner's theory amounts to saying that under
the Constitution cooperatives are exempt from taxation.
Such theory is contrary to the Constitution under which
only the following are exempt from taxation: charitable
institutions, churches and parsonages, by reason of Art.
VI, §28 (3), and non-stock, non-profit educational
institutions by reason of Art. XIV, §4 (3).
CUP's further ground for seeking the invalidation of R.A.
No. 7716 is that it denies cooperatives the equal
protection of the law because electric cooperatives are
exempted from the VAT. The classification between
electric and other cooperatives (farmers cooperatives,
producers cooperatives, marketing cooperatives, etc.)
apparently rests on a congressional determination that
there is greater need to provide cheaper electric power to
as many people as possible, especially those living in the
rural areas, than there is to provide them with other
necessities in life. We cannot say that such classification
is unreasonable.
We have carefully read the various arguments raised
against the constitutional validity of R.A. No. 7716. We
have in fact taken the extraordinary step of enjoining its
enforcement pending resolution of these cases. We have
now come to the conclusion that the law suffers from none
of the infirmities attributed to it by petitioners and that its
enactment by the other branches of the government does
not constitute a grave abuse of discretion. Any question
as to its necessity, desirability or expediency must be
addressed to Congress as the body which is electorally
responsible, remembering that, as Justice Holmes has
said, "legislators are the ultimate guardians of the liberties
and welfare of the people in quite as great a degree as
are the courts." (Missouri, Kansas & Texas Ry. Co. v.
May, 194 U.S. 267, 270, 48 L. Ed. 971, 973 (1904)). It is
not right, as petitioner in G.R. No. 115543 does in arguing
that we should enforce the public accountability of
legislators, that those who took part in passing the law in
question by voting for it in Congress should later thrust to
the courts the burden of reviewing measures in the flush
of enactment. This Court does not sit as a third branch of
the legislature, much less exercise a veto power over
legislation.
WHEREFORE, the motions for reconsideration are
denied with finality and the temporary restraining order
previously issued is hereby lifted.
SO ORDERED.
G.R. No. 168056 October 18, 2005
Agenda for Item No. 45
G.R. No. 168056 (ABAKADA Guro Party List Officer
Samson S. Alcantara, et al. vs. The Hon. Executive
Secretary Eduardo R. Ermita); G.R. No. 168207
(Aquilino Q. Pimentel, Jr., et al. vs. Executive
Secretary Eduardo R. Ermita, et al.); G.R. No. 168461
(Association of Pilipinas Shell Dealers, Inc., et
al. vs. Cesar V. Purisima, et al.); G.R. No. 168463
(Francis Joseph G. Escudero vs. Cesar V. Purisima,
et al); and G.R. No. 168730 (Bataan Governor Enrique
T. Garcia, Jr. vs. Hon. Eduardo R. Ermita, et al.)
RESOLUTION
For resolution are the following motions for
reconsideration of the Court’s Decision dated September
1, 2005 upholding the constitutionality of Republic Act No.
9337 or the VAT Reform Act1:
1) Motion for Reconsideration filed by petitioners in G.R.
No. 168463, Escudero, et al., on the following grounds:
A. THE DELETION OF THE "NO PASS ON
PROVISIONS" FOR THE SALE OF PETROLEUM
PRODUCTS AND POWER GENERATION SERVICES
CONSTITUTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF
JURISDICTION ON THE PART OF THE BICAMERAL
CONFERENCE COMMITTEE.
B. REPUBLIC ACT NO. 9337 GROSSLY VIOLATES THE
CONSTITUTIONAL IMPERATIVE ON EXCLUSIVE
ORIGINATION OF REVENUE BILLS UNDER §24,
ARTICLE VI, 1987 PHILIPPINE CONSTITUTION.
C. REPUBLIC ACT NO. 9337’S STAND-BY AUTHORITY
TO THE EXECUTIVE TO INCREASE THE VAT RATE,
ESPECIALLY ON ACCOUNT OF THE EFFECTIVE
RECOMMENDATORY POWER GRANTED TO THE
SECRETARY OF FINANCE, CONSTITUTES UNDUE
DELEGATION OF LEGISLATIVE AUTHORITY.
2) Motion for Reconsideration of petitioner in G.R. No.
168730, Bataan Governor Enrique T. Garcia, Jr., with the
argument that burdening the consumers with significantly
higher prices under a VAT regime vis-à-vis a 3% gross
tax renders the law unconstitutional for being arbitrary,
oppressive and inequitable.
and
3) Motion for Reconsideration by petitioners Association
of Pilipinas Shell Dealers, Inc. in G.R. No. 168461, on the
grounds that:
I. This Honorable Court erred in upholding the
constitutionality of Section 110(A)(2) and Section 110(B)
of the NIRC, as amended by the EVAT Law, imposing
limitations on the amount of input VAT that may be
claimed as a credit against output VAT, as well as Section
114(C) of the NIRC, as amended by the EVAT Law,
requiring the government or any of its instrumentalities to
withhold a 5% final withholding VAT on their gross
payments on purchases of goods and services, and
finding that the questioned provisions:
A. are not arbitrary, oppressive and consfiscatory as to
amount to a deprivation of property without due process
of law in violation of Article III, Section 1 of the 1987
Philippine Constitution;
B. do not violate the equal protection clause prescribed
under Article III, Section 1 of the 1987 Philippine
Constitution; and
C. apply uniformly to all those belonging to the same class
and do not violate Article VI, Section 28(1) of the 1987
Philippine Constitution.
II. This Honorable Court erred in upholding the
constitutionality of Section 110(B) of the NIRC, as
amended by the EVAT Law, imposing a limitation on the
amount of input VAT that may be claimed as a credit
against output VAT notwithstanding the finding that the
tax is not progressive as exhorted by Article VI, Section
28(1) of the 1987 Philippine Constitution.
Respondents filed their Consolidated Comment.
Petitioner Garcia filed his Reply.
Petitioners Escudero, et al., insist that the bicameral
conference committee should not even have acted on
the no pass-on provisions since there is no disagreement
between House Bill Nos. 3705 and 3555 on the one hand,
and Senate Bill No. 1950 on the other, with regard to
the no pass-on provision for the sale of service for power
generation because both the Senate and the House were
in agreement that the VAT burden for the sale of such
service shall not be passed on to the end-consumer. As
to the no pass-on provision for sale of petroleum
products, petitioners argue that the fact that the presence
of such a no pass-on provision in the House version and
the absence thereof in the Senate Bill means there is no
conflict because "a House provision cannot be in conflict
with something that does not exist."
Such argument is flawed. Note that the rules of both
houses of Congress provide that a conference committee
shall settle the "differences" in the respective bills of each
house. Verily, the fact that a no pass-on provision is
present in one version but absent in the other, and one
version intends two industries, i.e., power generation
companies and petroleum sellers, to bear the burden of
the tax, while the other version intended only the industry
of power generation, transmission and distribution to be
saddled with such burden, clearly shows that there are
indeed differences between the bills coming from each
house, which differences should be acted upon by the
bicameral conference committee. It is incorrect to
conclude that there is no clash between two opposing
forces with regard to the no pass-on provision for VAT on
the sale of petroleum products merely because such
provision exists in the House version while it is absent in
the Senate version. It is precisely the absence of such
provision in the Senate bill and the presence thereof in the
House bills that causes the conflict. The absence of the
provision in the Senate bill shows the Senate’s
disagreement to the intention of the House of
Representatives make the sellers of petroleum bear the
burden of the VAT. Thus, there are indeed two opposing
forces: on one side, the House of Representatives which
wants petroleum dealers to be saddled with the burden of
paying VAT and on the other, the Senate which does not
see it proper to make that particular industry bear said
burden. Clearly, such conflicts and differences between
the no pass-on provisions in the Senate and House bills
had to be acted upon by the bicameral conference
committee as mandated by the rules of both houses of
Congress.
Moreover, the deletion of the no pass-on provision made
the present VAT law more in consonance with the very
nature of VAT which, as stated in the Decision
promulgated on September 1, 2005, is a tax on spending
or consumption, thus, the burden thereof is ultimately
borne by the end-consumer.
Escudero, et al., then claim that there had been changes
introduced in the Rules of the House of Representatives
regarding the conduct of the House panel in a bicameral
conference committee, since the time of Tolentino vs.
Secretary of Finance2 to act as safeguards against
possible abuse of authority by the House members of the
bicameral conference committee. Even assuming that the
rule requiring the House panel to report back to the House
if there are substantial differences in the House and
Senate bills had indeed been introduced after Tolentino,
the Court stands by its ruling that the issue of whether or
not the House panel in the bicameral conference
committee complied with said internal rule cannot be
inquired into by the Court. To reiterate, "mere failure to
conform to parliamentary usage will not invalidate the
action (taken by a deliberative body) when the requisite
number of members have agreed to a particular
measure."3
Escudero, et. al., also contend that Republic Act No. 9337
grossly violates the constitutional imperative on exclusive
origination of revenue bills under Section 24 of Article VI
of the Constitution when the Senate introduced
amendments not connected with VAT.
The Court is not persuaded.
Article VI, Section 24 of the Constitution provides:
Sec. 24 All appropriation, revenue or tariff bills, bills
authorizing increase of the public debt, bills of local
application, and private bills shall originate exclusively in
the House of Representatives, but the Senate may
propose or concur with amendments.
Section 24 speaks of origination of certain bills from the
House of Representatives which has been interpreted in
the Tolentino case as follows:
… To begin with, it is not the law — but the revenue bill
— which is required by the Constitution to "originate
exclusively" in the House of Representatives. It is
important to emphasize this, because a bill originating in
the House may undergo such extensive changes in the
Senate that the result may be a rewriting of the whole …
At this point, what is important to note is that, as a result
of the Senate action, a distinct bill may be produced. To
insist that a revenue statute — and not only the bill which
initiated the legislative process culminating in the
enactment of the law — must substantially be the same
as the House bill would be to deny the Senate's power not
only to "concur with amendments" but also to " propose
amendments." It would be to violate the coequality of
legislative power of the two houses of Congress and in
fact make the House superior to the Senate.
… Given, then, the power of the Senate to propose
amendments, the Senate can propose its own version
even with respect to bills which are required by the
Constitution to originate in the House.
...
Indeed, what the Constitution simply means is that the
initiative for filing revenue, tariff, or tax bills, bills
authorizing an increase of the public debt, private bills and
bills of local application must come from the House of
Representatives on the theory that, elected as they are
from the districts, the members of the House can be
expected to be more sensitive to the local needs and
problems. On the other hand, the senators, who are
elected at large, are expected to approach the same
problems from the national perspective. Both views are
thereby made to bear on the enactment of such laws.4
Clearly, after the House bills as approved on third reading
are duly transmitted to the Senate, the Constitution states
that the latter can propose or concur with amendments.
The Court finds that the subject provisions found in the
Senate bill are within the purview of such constitutional
provision as declared in the Tolentino case.
The intent of the House of Representatives in initiating
House Bill Nos. 3555 and 3705 was to solve the country’s
serious financial problems. It was stated in the respective
explanatory notes that there is a need for the government
to make significant expenditure savings and a credible
package of revenue measures. These measures include
improvement of tax administration and control and
leakages in revenues from income taxes and value added
tax. It is also stated that one opportunity that could be
beneficial to the overall status of our economy is to review
existing tax rates, evaluating the relevance given our
present conditions. Thus, with these purposes in mind
and to accomplish these purposes for which the house
bills were filed, i.e., to raise revenues for the government,
the Senate introduced amendments on income taxes,
which as admitted by Senator Ralph Recto, would yield
about ₱10.5 billion a year.
Moreover, since the objective of these house bills is to
raise revenues, the increase in corporate income taxes
would be a great help and would also soften the impact of
VAT measure on the consumers by distributing the
burden across all sectors instead of putting it entirely on
the shoulders of the consumers.
As to the other National Internal Revenue Code (NIRC)
provisions found in Senate Bill No. 1950, i.e., percentage
taxes, franchise taxes, amusement and excise taxes,
these provisions are needed so as to cushion the effects
of VAT on consumers. As we said in our decision, certain
goods and services which were subject to percentage tax
and excise tax would no longer be VAT exempt, thus, the
consumer would be burdened more as they would be
paying the VAT in addition to these taxes. Thus, there is
a need to amend these sections to soften the impact of
VAT. The Court finds no reason to reverse the earlier
ruling that the Senate introduced amendments that are
germane to the subject matter and purposes of the house
bills.
Petitioners Escudero, et al., also reiterate that R.A. No.
9337’s stand- by authority to the Executive to increase the
VAT rate, especially on account of the recommendatory
power granted to the Secretary of Finance, constitutes
undue delegation of legislative power. They submit that
the recommendatory power given to the Secretary of
Finance in regard to the occurrence of either of two events
using the Gross Domestic Product (GDP) as a benchmark
necessarily and inherently required extended analysis
and evaluation, as well as policy making.
There is no merit in this contention. The Court reiterates
that in making his recommendation to the President on
the existence of either of the two conditions, the Secretary
of Finance is not acting as the alter ego of the President
or even her subordinate. He is acting as the agent of the
legislative department, to determine and declare the
event upon which its expressed will is to take effect. The
Secretary of Finance becomes the means or tool by which
legislative policy is determined and implemented,
considering that he possesses all the facilities to gather
data and information and has a much broader perspective
to properly evaluate them. His function is to gather and
collate statistical data and other pertinent information and
verify if any of the two conditions laid out by Congress is
present. Congress granted the Secretary of Finance the
authority to ascertain the existence of a fact, namely,
whether by December 31, 2005, the value-added tax
collection as a percentage of GDP of the previous year
exceeds two and four-fifth percent (24/5%) or the national
government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1½%).
If either of these two instances has occurred, the
Secretary of Finance, by legislative mandate, must submit
such information to the President. Then the 12% VAT rate
must be imposed by the President effective January 1,
2006. Congress does not abdicate its functions or unduly
delegate power when it describes what job must be done,
who must do it, and what is the scope of his authority; in
our complex economy that is frequently the only way in
which the legislative process can go forward. There is no
undue delegation of legislative power but only of the
discretion as to the execution of a law. This is
constitutionally permissible. Congress did not delegate
the power to tax but the mere implementation of the law.
The intent and will to increase the VAT rate to 12% came
from Congress and the task of the President is to simply
execute the legislative policy. That Congress chose to use
the GDP as a benchmark to determine economic growth
is not within the province of the Court to inquire into, its
task being to interpret the law.
With regard to petitioner Garcia’s arguments, the Court
also finds the same to be without merit. As stated in the
assailed Decision, the Court recognizes the burden that
the consumers will be bearing with the passage of R.A.
No. 9337. But as was also stated by the Court, it cannot
strike down the law as unconstitutional simply because of
its yokes. The legislature has spoken and the only role
that the Court plays in the picture is to determine whether
the law was passed with due regard to the mandates of
the Constitution. Inasmuch as the Court finds that there
are no constitutional infirmities with its passage, the
validity of the law must therefore be upheld.
Finally, petitioners Association of Pilipinas Shell Dealers,
Inc. reiterated their arguments in the petition, citing this
time, the dissertation of Associate Justice Dante O. Tinga
in his Dissenting Opinion.
The glitch in petitioners’ arguments is that it presents
figures based on an event that is yet to happen. Their
illustration of the possible effects of the 70% limitation,
while seemingly concrete, still remains theoretical.
Theories have no place in this case as the Court must
only deal with an existing case or controversy that is
appropriate or ripe for judicial determination, not one
that is conjectural or merely anticipatory.5 The Court
will not intervene absent an actual and substantial
controversy admitting of specific relief through a decree
conclusive in nature, as distinguished from an opinion
advising what the law would be upon a hypothetical state
of facts.6
The impact of the 70% limitation on the creditable input
tax will ultimately depend on how one manages and
operates its business. Market forces, strategy and
acumen will dictate their moves. With or without these
VAT provisions, an entrepreneur who does not have the
ken to adapt to economic variables will surely perish in the
competition. The arguments posed are within the realm of
business, and the solution lies also in business.
Petitioners also reiterate their argument that the input tax
is a property or a property right. In the same breath, the
Court reiterates its finding that it is not a property or a
property right, and a VAT-registered person’s entitlement
to the creditable input tax is a mere statutory privilege.
Petitioners also contend that even if the right to credit the
input VAT is merely a statutory privilege, it has already
evolved into a vested right that the State cannot remove.
As the Court stated in its Decision, the right to credit the
input tax is a mere creation of law. Prior to the enactment
of multi-stage sales taxation, the sales taxes paid at every
level of distribution are not recoverable from the taxes
payable. With the advent of Executive Order No. 273
imposing a 10% multi-stage tax on all sales, it was only
then that the crediting of the input tax paid on purchase or
importation of goods and services by VAT-registered
persons against the output tax was established. This
continued with the Expanded VAT Law (R.A. No. 7716),
and The Tax Reform Act of 1997 (R.A. No. 8424). The
right to credit input tax as against the output tax is clearly
a privilege created by law, a privilege that also the law can
limit. It should be stressed that a person has no vested
right in statutory privileges.7
The concept of "vested right" is a consequence of the
constitutional guaranty of due process that expresses a
present fixed interest which in right reason and natural
justice is protected against arbitrary state action; it
includes not only legal or equitable title to the enforcement
of a demand but also exemptions from new obligations
created after the right has become vested. Rights are
considered vested when the right to enjoyment is a
present interest, absolute, unconditional, and perfect or
fixed and irrefutable.8 As adeptly stated by Associate
Justice Minita V. Chico-Nazario in her Concurring
Opinion, which the Court adopts, petitioners’ right to the
input VAT credits has not yet vested, thus –
It should be remembered that prior to Rep. Act No. 9337,
the petroleum dealers’ input VAT credits were inexistent
– they were unrecognized and disallowed by law. The
petroleum dealers had no such property called input VAT
credits. It is only rational, therefore, that they cannot
acquire vested rights to the use of such input VAT credits
when they were never entitled to such credits in the first
place, at least, not until Rep. Act No. 9337.
My view, at this point, when Rep. Act No. 9337 has not
yet even been implemented, is that petroleum dealers’
right to use their input VAT as credit against their output
VAT unlimitedly has not vested, being a mere expectancy
of a future benefit and being contingent on the
continuance of Section 110 of the National Internal
Revenue Code of 1997, prior to its amendment by Rep.
Act No. 9337.
The elucidation of Associate Justice Artemio V.
Panganiban is likewise worthy of note, to wit:
Moreover, there is no vested right in generally accepted
accounting principles. These refer to accounting
concepts, measurement techniques, and standards of
presentation in a company’s financial statements, and are
not rooted in laws of nature, as are the laws of physical
science, for these are merely developed and continually
modified by local and international regulatory accounting
bodies. To state otherwise and recognize such asset
account as a vested right is to limit the taxing power of the
State. Unlimited, plenary, comprehensive and supreme,
this power cannot be unduly restricted by mere creations
of the State.
More importantly, the assailed provisions of R.A. No.
9337 already involve legislative policy and wisdom. So
long as there is a public end for which R.A. No. 9337 was
passed, the means through which such end shall be
accomplished is for the legislature to choose so long as it
is within constitutional bounds. As stated in Carmichael
vs. Southern Coal & Coke Co.:
If the question were ours to decide, we could not say that
the legislature, in adopting the present scheme rather
than another, had no basis for its choice, or was arbitrary
or unreasonable in its action. But, as the state is free to
distribute the burden of a tax without regard to the
particular purpose for which it is to be used, there is no
warrant in the Constitution for setting the tax aside
because a court thinks that it could have distributed the
burden more wisely. Those are functions reserved for the
legislature.9
WHEREFORE, the Motions for Reconsideration are
hereby DENIED WITH FINALITY. The temporary
restraining order issued by the Court is LIFTED.
SO ORDERED.
G.R. No. L-19201 June 16, 1965
REV. FR. CASIMIRO LLADOC, petitioner,
vs.
The COMMISSIONER OF INTERNAL REVENUE and
The COURT of TAX APPEALS, respondents.
Hilado and Hilado for petitioner.
Office of the Solicitor General for respondents.
PAREDES, J.:
Sometime in 1957, the M.B. Estate, Inc., of Bacolod City,
donated P10,000.00 in cash to Rev. Fr. Crispin Ruiz, then
parish priest of Victorias, Negros Occidental, and
predecessor of herein petitioner, for the construction of a
new Catholic Church in the locality. The total amount was
actually spent for the purpose intended.
On March 3, 1958, the donor M.B. Estate, Inc., filed the
donor's gift tax return. Under date of April 29, 1960, the
respondent Commissioner of Internal Revenue issued an
assessment for donee's gift tax against the Catholic
Parish of Victorias, Negros Occidental, of which petitioner
was the priest. The tax amounted to P1,370.00 including
surcharges, interests of 1% monthly from May 15, 1958
to June 15, 1960, and the compromise for the late filing of
the return.
Petitioner lodged a protest to the assessment and
requested the withdrawal thereof. The protest and the
motion for reconsideration presented to the
Commissioner of Internal Revenue were denied. The
petitioner appealed to the Court of Tax Appeals on
November 2, 1960. In the petition for review, the Rev. Fr.
Casimiro Lladoc claimed, among others, that at the time
of the donation, he was not the parish priest in Victorias;
that there is no legal entity or juridical person known as
the "Catholic Parish Priest of Victorias," and, therefore, he
should not be liable for the donee's gift tax. It was also
asserted that the assessment of the gift tax, even against
the Roman Catholic Church, would not be valid, for such
would be a clear violation of the provisions of the
Constitution.
After hearing, the CTA rendered judgment, the pertinent
portions of which are quoted below:
... . Parish priests of the Roman Catholic Church
under canon laws are similarly situated as its
Archbishops and Bishops with respect to the
properties of the church within their parish. They
are the guardians, superintendents or
administrators of these properties, with the right
of succession and may sue and be sued.
xxx xxx xxx
The petitioner impugns the, fairness of the
assessment with the argument that he should not
be held liable for gift taxes on donation which he
did not receive personally since he was not yet
the parish priest of Victorias in the year 1957
when said donation was given. It is intimated that
if someone has to pay at all, it should be
petitioner's predecessor, the Rev. Fr. Crispin
Ruiz, who received the donation in behalf of the
Catholic parish of Victorias or the Roman Catholic
Church. Following petitioner's line of thinking, we
should be equally unfair to hold that the
assessment now in question should have been
addressed to, and collected from, the Rev. Fr.
Crispin Ruiz to be paid from income derived from
his present parish where ever it may be. It does
not seem right to indirectly burden the present
parishioners of Rev. Fr. Ruiz for donee's gift tax
on a donation to which they were not benefited.
xxx xxx xxx
We saw no legal basis then as we see none now,
to include within the Constitutional exemption,
taxes which partake of the nature of an excise
upon the use made of the properties or upon the
exercise of the privilege of receiving the
 properties. (Phipps vs. Commissioner of Internal
Revenue, 91 F [2d] 627; 1938, 302 U.S. 742.)
It is a cardinal rule in taxation that exemptions
from payment thereof are highly disfavored by
law, and the party claiming exemption must justify
his claim by a clear, positive, or express grant of
such privilege by law. (Collector vs. Manila
Jockey Club, G.R. No. L-8755, March 23, 1956;
53 O.G. 3762.)
The phrase "exempt from taxation" as employed
in Section 22(3), Article VI of the Constitution of
the Philippines, should not be interpreted to mean
exemption from all kinds of taxes. Statutes
exempting charitable and religious property from
taxation should be construed fairly though strictly
and in such manner as to give effect to the main
intent of the lawmakers. (Roman Catholic Church
vs. Hastrings 5 Phil. 701.)
xxx xxx xxx
WHEREFORE, in view of the foregoing
considerations, the decision of the respondent
Commissioner of Internal Revenue appealed
from, is hereby affirmed except with regard to the
imposition of the compromise penalty in the
amount of P20.00 (Collector of Internal Revenue
v. U.S.T., G.R. No. L-11274, Nov. 28, 1958); ...,
and the petitioner, the Rev. Fr. Casimiro Lladoc is
hereby ordered to pay to the respondent the
amount of P900.00 as donee's gift tax, plus the
surcharge of five per centum (5%) as ad
valorem penalty under Section 119 (c) of the Tax
Code, and one per centum (1%) monthly interest
from May 15, 1958 to the date of actual payment.
The surcharge of 25% provided in Section 120 for
failure to file a return may not be imposed as the
failure to file a return was not due to willful
neglect.( ... ) No costs.
The above judgment is now before us on appeal,
petitioner assigning two (2) errors allegedly committed by
the Tax Court, all of which converge on the singular issue
of whether or not petitioner should be liable for the
assessed donee's gift tax on the P10,000.00 donated for
the construction of the Victorias Parish Church.
Section 22 (3), Art. VI of the Constitution of the
Philippines, exempts from taxation
cemeteries, churches and parsonages or convents,
appurtenant thereto, and all lands, buildings, and
improvements used exclusively for religious purposes.
The exemption is only from the payment of taxes
assessed on such properties enumerated, as property
taxes, as contra distinguished from excise taxes. In the
present case, what the Collector assessed was a donee's
gift tax; the assessment was not on the properties
themselves. It did not rest upon general ownership; it was
an excise upon the use made of the properties, upon the
exercise of the privilege of receiving the properties
(Phipps vs. Com. of Int. Rec. 91 F 2d 627). Manifestly, gift
tax is not within the exempting provisions of the section
just mentioned. A gift tax is not a property tax, but an
excise tax imposed on the transfer of property by way of
gift inter vivos, the imposition of which on property used
exclusively for religious purposes, does not constitute an
impairment of the Constitution. As well observed by the
learned respondent Court, the phrase "exempt from
taxation," as employed in the Constitution (supra) should
not be interpreted to mean exemption from all kinds of
taxes. And there being no clear, positive or express grant
of such privilege by law, in favor of petitioner, the
exemption herein must be denied.
The next issue which readily presents itself, in view of
petitioner's thesis, and Our finding that a tax liability
exists, is, who should be called upon to pay the gift tax?
Petitioner postulates that he should not be liable, because
at the time of the donation he was not the priest of
Victorias. We note the merit of the above claim, and in
order to put things in their proper light, this Court, in its
Resolution of March 15, 1965, ordered the parties to show
cause why the Head of the Diocese to which the parish of
Victorias pertains, should not be substituted in lieu of
petitioner Rev. Fr. Casimiro Lladoc it appearing that the
Head of such Diocese is the real party in interest. The
Solicitor General, in representation of the Commissioner
of Internal Revenue, interposed no objection to such a
substitution. Counsel for the petitioner did not also offer
objection thereto.
On April 30, 1965, in a resolution, We ordered the Head
of the Diocese to present whatever legal issues and/or
defenses he might wish to raise, to which resolution
counsel for petitioner, who also appeared as counsel for
the Head of the Diocese, the Roman Catholic Bishop of
Bacolod, manifested that it was submitting itself to the
jurisdiction and orders of this Court and that it was
presenting, by reference, the brief of petitioner Rev. Fr.
Casimiro Lladoc as its own and for all purposes.
In view here of and considering that as heretofore stated,
the assessment at bar had been properly made and the
imposition of the tax is not a violation of the constitutional
provision exempting churches, parsonages or convents,
etc. (Art VI, sec. 22 [3], Constitution), the Head of the
Diocese, to which the parish Victorias Pertains, is liable
for the payment thereof.
The decision appealed from should be, as it is hereby
affirmed insofar as tax liability is concerned; it is modified,
in the sense that petitioner herein is not personally liable
for the said gift tax, and that the Head of the Diocese,
herein substitute petitioner, should pay, as he is presently
ordered to pay, the said gift tax, without special,
pronouncement as to costs.
G.R. No. L-27588 December 31, 1927
THE ROMAN CATHOLIC BISHOP OF NUEVA
SEGOVIA, as representative of the Roman Catholic
Apostolic Church, plaintiff-appellant,
vs.
THE PROVINCIAL BOARD OF ILOCOS NORTE, ET
AL., defendants-appellants.
Vicente Llanes and Proceso Coloma for plaintiff-
appellant.
Provincial Fiscal Santos for defendant-appellants.
AVANCEÑA, J.:
The plaintiff, the Roman Catholic Apostolic Church,
represented by the Bishop of Nueva Segovia, possesses
and is the owner of a parcel of land in the municipality of
San Nicolas, Ilocos Norte, all four sides of which face on
public streets. On the south side is a part of the
churchyard, the convent and an adjacent lot used for a
vegetable garden, containing an area off 1,624 square
meters, in which there is a stable and a well for the use of
the convent. In the center is the remainder of the
churchyard and the church. On the north is an old
cemetery with two of its walls still standing, and a portion
where formerly stood a tower, the base of which still be
seen, containing a total area of 8,955 square meters.
As required by the defendants, on July 3, 1925 the plaintiff
paid, under protest, the land tax on the lot adjoining the
convent and the lot which formerly was the cemetery with
the portion where the tower stood.
The plaintiff filed this action for the recovery of the sum
paid by to the defendants by way of land tax, alleging that
the collection of this tax is illegal. The lower court
absolved the defendants from the complaint in regard to
the lot adjoining convent and declared that the tax
collected on the lot, which formerly was the cemetery and
on the portion where the lower stood, was illegal. Both
parties appealed from this judgment.
The exemption in favor of the convent in the payment of
the land tax (sec. 344 [c] Administrative Code) refers to
the home of the parties who presides over the church and
who has to take care of himself in order to discharge his
duties. In therefore must, in the sense, include not only
the land actually occupied by the church, but also the
adjacent ground destined to the ordinary incidental uses
of man. Except in large cities where the density of the
population and the development of commerce require the
use of larger tracts of land for buildings, a vegetable
garden belongs to a house and, in the case of a convent,
it use is limited to the necessities of the priest, which
comes under the exemption.lawphi1.net
In regard to the lot which formerly was the cemetery, while
it is no longer used as such, neither is it used for
commercial purposes and, according to the evidence, is
now being used as a lodging house by the people who
participate in religious festivities, which constitutes an
incidental use in religious functions, which also comes
within the exemption.
The judgment appealed from is reversed in all it parts and
it is held that both lots are exempt from land tax and the
defendants are ordered to refund to plaintiff whatever was
paid as such tax, without any special pronouncement as
to costs. So ordered.
G.R. No. 144104 June 29, 2004
LUNG CENTER OF THE PHILIPPINES, petitioner,
vs.
QUEZON CITY and CONSTANTINO P. ROSAS, in his
capacity as City Assessor of Quezon
City, respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari under Rule 45 of
the Rules of Court, as amended, of the Decision1 dated
July 17, 2000 of the Court of Appeals in CA-G.R. SP No.
57014 which affirmed the decision of the Central Board of
Assessment Appeals holding that the lot owned by the
petitioner and its hospital building constructed thereon are
subject to assessment for purposes of real property tax.
The Antecedents
The petitioner Lung Center of the Philippines is a non-
stock and non-profit entity established on January 16,
1981 by virtue of Presidential Decree No. 1823. 2 It is the
registered owner of a parcel of land, particularly described
as Lot No. RP-3-B-3A-1-B-1, SWO-04-000495, located at
Quezon Avenue corner Elliptical Road, Central District,
Quezon City. The lot has an area of 121,463 square
meters and is covered by Transfer Certificate of Title
(TCT) No. 261320 of the Registry of Deeds of Quezon
City. Erected in the middle of the aforesaid lot is a hospital
known as the Lung Center of the Philippines. A big space
at the ground floor is being leased to private parties, for
canteen and small store spaces, and to medical or
professional practitioners who use the same as their
private clinics for their patients whom they charge for their
professional services. Almost one-half of the entire area
on the left side of the building along Quezon Avenue is
vacant and idle, while a big portion on the right side, at
the corner of Quezon Avenue and Elliptical Road, is being
leased for commercial purposes to a private enterprise
known as the Elliptical Orchids and Garden Center.
The petitioner accepts paying and non-paying patients. It
also renders medical services to out-patients, both paying
and non-paying. Aside from its income from paying
patients, the petitioner receives annual subsidies from the
government.
On June 7, 1993, both the land and the hospital building
of the petitioner were assessed for real property taxes in
the amount of ₱4,554,860 by the City Assessor of Quezon
City.3 Accordingly, Tax Declaration Nos. C-021-01226
(16-2518) and C-021-01231 (15-2518-A) were issued for
the land and the hospital building, respectively.4 On
August 25, 1993, the petitioner filed a Claim for
Exemption5 from real property taxes with the City
Assessor, predicated on its claim that it is a charitable
institution. The petitioner’s request was denied, and a
petition was, thereafter, filed before the Local Board of
Assessment Appeals of Quezon City (QC-LBAA, for
brevity) for the reversal of the resolution of the City
Assessor. The petitioner alleged that under Section 28,
paragraph 3 of the 1987 Constitution, the property is
exempt from real property taxes. It averred that a
minimum of 60% of its hospital beds are exclusively used
for charity patients and that the major thrust of its hospital
operation is to serve charity patients. The petitioner
contends that it is a charitable institution and, as such, is
exempt from real property taxes. The QC-LBAA rendered
judgment dismissing the petition and holding the
petitioner liable for real property taxes.6
The QC-LBAA’s decision was, likewise, affirmed on
appeal by the Central Board of Assessment Appeals of
Quezon City (CBAA, for brevity)7 which ruled that the
petitioner was not a charitable institution and that its real
properties were not actually, directly and exclusively used
for charitable purposes; hence, it was not entitled to real
property tax exemption under the constitution and the law.
The petitioner sought relief from the Court of Appeals,
which rendered judgment affirming the decision of the
CBAA.8
Undaunted, the petitioner filed its petition in this Court
contending that:
A. THE COURT A QUO ERRED IN DECLARING
PETITIONER AS NOT ENTITLED TO REALTY
TAX EXEMPTIONS ON THE GROUND THAT
ITS LAND, BUILDING AND IMPROVEMENTS,
SUBJECT OF ASSESSMENT, ARE NOT
 ACTUALLY, DIRECTLY AND EXCLUSIVELY
DEVOTED FOR CHARITABLE PURPOSES.
B. WHILE PETITIONER IS NOT DECLARED AS
REAL PROPERTY TAX EXEMPT UNDER ITS
CHARTER, PD 1823, SAID EXEMPTION MAY
NEVERTHELESS BE EXTENDED UPON
PROPER APPLICATION.
The petitioner avers that it is a charitable institution within
the context of Section 28(3), Article VI of the 1987
Constitution. It asserts that its character as a charitable
institution is not altered by the fact that it admits paying
patients and renders medical services to them, leases
portions of the land to private parties, and rents out
portions of the hospital to private medical practitioners
from which it derives income to be used for operational
expenses. The petitioner points out that for the years
1995 to 1999, 100% of its out-patients were charity
patients and of the hospital’s 282-bed capacity, 60%
thereof, or 170 beds, is allotted to charity patients. It
asserts that the fact that it receives subsidies from the
government attests to its character as a charitable
institution. It contends that the "exclusivity" required in the
Constitution does not necessarily mean "solely." Hence,
even if a portion of its real estate is leased out to private
individuals from whom it derives income, it does not lose
its character as a charitable institution, and its exemption
from the payment of real estate taxes on its real property.
The petitioner cited our ruling in Herrera v. QC-BAA9 to
bolster its pose. The petitioner further contends that even
if P.D. No. 1823 does not exempt it from the payment of
real estate taxes, it is not precluded from seeking tax
exemption under the 1987 Constitution.
In their comment on the petition, the respondents aver
that the petitioner is not a charitable entity. The
petitioner’s real property is not exempt from the payment
of real estate taxes under P.D. No. 1823 and even under
the 1987 Constitution because it failed to prove that it is a
charitable institution and that the said property is actually,
directly and exclusively used for charitable purposes. The
respondents noted that in a newspaper report, it appears
that graft charges were filed with the Sandiganbayan
against the director of the petitioner, its administrative
officer, and Zenaida Rivera, the proprietress of the
Elliptical Orchids and Garden Center, for entering into a
lease contract over 7,663.13 square meters of the
property in 1990 for only ₱20,000 a month, when the
monthly rental should be ₱357,000 a month as
determined by the Commission on Audit; and that instead
of complying with the directive of the COA for the
cancellation of the contract for being grossly prejudicial to
the government, the petitioner renewed the same on
March 13, 1995 for a monthly rental of only ₱24,000. They
assert that the petitioner uses the subsidies granted by
the government for charity patients and uses the rest of
its income from the property for the benefit of paying
patients, among other purposes. They aver that the
petitioner failed to adduce substantial evidence that 100%
of its out-patients and 170 beds in the hospital are
reserved for indigent patients. The respondents further
assert, thus:
13. That the claims/allegations of the Petitioner
LCP do not speak well of its record of service.
That before a patient is admitted for treatment in
the Center, first impression is that it is pay-patient
and required to pay a certain amount as deposit.
That even if a patient is living below the poverty
line, he is charged with high hospital bills. And,
without these bills being first settled, the poor
patient cannot be allowed to leave the hospital or
be discharged without first paying the hospital
bills or issue a promissory note guaranteed and
indorsed by an influential agency or person
known only to the Center; that even the remains
of deceased poor patients suffered the same fate.
Moreover, before a patient is admitted for
treatment as free or charity patient, one must
undergo a series of interviews and must submit
all the requirements needed by the Center,
usually accompanied by endorsement by an
influential agency or person known only to the
Center. These facts were heard and admitted by
the Petitioner LCP during the hearings before the
Honorable QC-BAA and Honorable CBAA. These
are the reasons of indigent patients, instead of
seeking treatment with the Center, they prefer to
be treated at the Quezon Institute. Can such
practice by the Center be called charitable?10
The Issues
The issues for resolution are the following: (a) whether the
petitioner is a charitable institution within the context of
Presidential Decree No. 1823 and the 1973 and 1987
Constitutions and Section 234(b) of Republic Act No.
7160; and (b) whether the real properties of the petitioner
are exempt from real property taxes.
The Court’s Ruling
The petition is partially granted.
On the first issue, we hold that the petitioner is a charitable
institution within the context of the 1973 and 1987
Constitutions. To determine whether an enterprise is a
charitable institution/entity or not, the elements which
should be considered include the statute creating the
enterprise, its corporate purposes, its constitution and by-
laws, the methods of administration, the nature of the
actual work performed, the character of the services
rendered, the indefiniteness of the beneficiaries, and the
use and occupation of the properties.11
In the legal sense, a charity may be fully defined as a gift,
to be applied consistently with existing laws, for the
benefit of an indefinite number of persons, either by
bringing their minds and hearts under the influence of
education or religion, by assisting them to establish
themselves in life or otherwise lessening the burden of
government.12 It may be applied to almost anything that
tend to promote the well-doing and well-being of social
man. It embraces the improvement and promotion of the
happiness of man.13 The word "charitable" is not
restricted to relief of the poor or sick.14 The test of a charity
and a charitable organization are in law the same. The
test whether an enterprise is charitable or not is whether
it exists to carry out a purpose reorganized in law as
charitable or whether it is maintained for gain, profit, or
private advantage.
Under P.D. No. 1823, the petitioner is a non-profit and
non-stock corporation which, subject to the provisions of
the decree, is to be administered by the Office of the
President of the Philippines with the Ministry of Health and
the Ministry of Human Settlements. It was organized for
the welfare and benefit of the Filipino people principally to
help combat the high incidence of lung and pulmonary
diseases in the Philippines. The raison d’etre for the
creation of the petitioner is stated in the decree, viz:
Whereas, for decades, respiratory diseases have
been a priority concern, having been the leading
cause of illness and death in the Philippines,
comprising more than 45% of the total annual
 deaths from all causes, thus, exacting a
tremendous toll on human resources, which
ailments are likely to increase and degenerate
into serious lung diseases on account of
unabated pollution, industrialization and
unchecked cigarette smoking in the
country;lavvph!l.net
Whereas, the more common lung diseases are,
to a great extent, preventable, and curable with
early and adequate medical care, immunization
and through prompt and intensive prevention and
health education programs;
Whereas, there is an urgent need to consolidate
and reinforce existing programs, strategies and
efforts at preventing, treating and rehabilitating
people affected by lung diseases, and to
undertake research and training on the cure and
prevention of lung diseases, through a Lung
Center which will house and nurture the above
and related activities and provide tertiary-level
care for more difficult and problematical cases;
Whereas, to achieve this purpose, the
Government intends to provide material and
financial support towards the establishment and
maintenance of a Lung Center for the welfare and
benefit of the Filipino people.15
The purposes for which the petitioner was created are
spelled out in its Articles of Incorporation, thus:
SECOND: That the purposes for which such
corporation is formed are as follows:
1. To construct, establish, equip,
maintain, administer and conduct an
integrated medical institution which shall
specialize in the treatment, care,
rehabilitation and/or relief of lung and
allied diseases in line with the concern of
the government to assist and provide
material and financial support in the
establishment and maintenance of a lung
center primarily to benefit the people of
the Philippines and in pursuance of the
policy of the State to secure the well-
being of the people by providing them
specialized health and medical services
and by minimizing the incidence of lung
diseases in the country and elsewhere.
2. To promote the noble undertaking of
scientific research related to the
prevention of lung or pulmonary ailments
and the care of lung patients, including
the holding of a series of relevant
congresses, conventions, seminars and
conferences;
3. To stimulate and, whenever possible,
underwrite scientific researches on the
biological, demographic, social,
economic, eugenic and physiological
aspects of lung or pulmonary diseases
and their control; and to collect and
publish the findings of such research for
public consumption;
4. To facilitate the dissemination of ideas
and public acceptance of information on
lung consciousness or awareness, and
the development of fact-finding,
information and reporting facilities for and
in aid of the general purposes or objects
aforesaid, especially in human lung
requirements, general health and
physical fitness, and other relevant or
related fields;
5. To encourage the training of
physicians, nurses, health officers, social
workers and medical and technical
personnel in the practical and scientific
implementation of services to lung
patients;
6. To assist universities and research
institutions in their studies about lung
diseases, to encourage advanced
training in matters of the lung and related
fields and to support educational
programs of value to general health;
7. To encourage the formation of other
organizations on the national, provincial
and/or city and local levels; and to
coordinate their various efforts and
activities for the purpose of achieving a
more effective programmatic approach
on the common problems relative to the
objectives enumerated herein;
8. To seek and obtain assistance in any
form from both international and local
foundations and organizations; and to
administer grants and funds that may be
given to the organization;
9. To extend, whenever possible and
expedient, medical services to the public
and, in general, to promote and protect
the health of the masses of our people,
which has long been recognized as an
economic asset and a social blessing;
10. To help prevent, relieve and alleviate
the lung or pulmonary afflictions and
maladies of the people in any and all
walks of life, including those who are
poor and needy, all without regard to or
discrimination, because of race, creed,
color or political belief of the persons
helped; and to enable them to obtain
treatment when such disorders occur;
11. To participate, as circumstances may
warrant, in any activity designed and
carried on to promote the general health
of the community;
12. To acquire and/or borrow funds and
to own all funds or equipment,
educational materials and supplies by
purchase, donation, or otherwise and to
dispose of and distribute the same in
such manner, and, on such basis as the
Center shall, from time to time, deem
proper and best, under the particular
circumstances, to serve its general and
non-profit purposes and
objectives;lavvphil.net
13. To buy, purchase, acquire, own,
lease, hold, sell, exchange, transfer and
 dispose of properties, whether real or
personal, for purposes herein mentioned;
and
14. To do everything necessary, proper,
advisable or convenient for the
accomplishment of any of the powers
herein set forth and to do every other act
and thing incidental thereto or connected
therewith.16
Hence, the medical services of the petitioner are to be
rendered to the public in general in any and all walks of
life including those who are poor and the needy without
discrimination. After all, any person, the rich as well as the
poor, may fall sick or be injured or wounded and become
a subject of charity.17
As a general principle, a charitable institution does not
lose its character as such and its exemption from taxes
simply because it derives income from paying patients,
whether out-patient, or confined in the hospital, or
receives subsidies from the government, so long as the
money received is devoted or used altogether to the
charitable object which it is intended to achieve; and no
money inures to the private benefit of the persons
managing or operating the institution.18 In Congregational
Sunday School, etc. v. Board of Review,19 the State
Supreme Court of Illinois held, thus:
… [A]n institution does not lose its charitable
character, and consequent exemption from
taxation, by reason of the fact that those
recipients of its benefits who are able to pay are
required to do so, where no profit is made by the
institution and the amounts so received are
applied in furthering its charitable purposes, and
those benefits are refused to none on account of
inability to pay therefor. The fundamental ground
upon which all exemptions in favor of charitable
institutions are based is the benefit conferred
upon the public by them, and a consequent relief,
to some extent, of the burden upon the state to
care for and advance the interests of its citizens.20
As aptly stated by the State Supreme Court of South
Dakota in Lutheran Hospital Association of South Dakota
v. Baker:21
… [T]he fact that paying patients are taken, the
profits derived from attendance upon these
patients being exclusively devoted to the
maintenance of the charity, seems rather to
enhance the usefulness of the institution to the
poor; for it is a matter of common observation
amongst those who have gone about at all
amongst the suffering classes, that the deserving
poor can with difficulty be persuaded to enter an
asylum of any kind confined to the reception of
objects of charity; and that their honest pride is
much less wounded by being placed in an
institution in which paying patients are also
received. The fact of receiving money from some
of the patients does not, we think, at all impair the
character of the charity, so long as the money
thus received is devoted altogether to the
charitable object which the institution is intended
to further.22
The money received by the petitioner becomes a part of
the trust fund and must be devoted to public trust
purposes and cannot be diverted to private profit or
benefit.23
Under P.D. No. 1823, the petitioner is entitled to receive
donations. The petitioner does not lose its character as a
charitable institution simply because the gift or donation
is in the form of subsidies granted by the government. As
held by the State Supreme Court of Utah in Yorgason v.
County Board of Equalization of Salt Lake County:24
Second, the … government subsidy payments
are provided to the project. Thus, those payments
are like a gift or donation of any other kind except
they come from the government. In
both Intermountain Health Careand the present
case, the crux is the presence or absence of
material reciprocity. It is entirely irrelevant to this
analysis that the government, rather than a
private benefactor, chose to make up the deficit
resulting from the exchange between St. Mark’s
Tower and the tenants by making a contribution
to the landlord, just as it would have been
irrelevant in Intermountain Health Care if the
patients’ income supplements had come from
private individuals rather than the government.
Therefore, the fact that subsidization of part of the
cost of furnishing such housing is by the
government rather than private charitable
contributions does not dictate the denial of a
charitable exemption if the facts otherwise
support such an exemption, as they do here.25
In this case, the petitioner adduced substantial evidence
that it spent its income, including the subsidies from the
government for 1991 and 1992 for its patients and for the
operation of the hospital. It even incurred a net loss in
1991 and 1992 from its operations.
Even as we find that the petitioner is a charitable
institution, we hold, anent the second issue, that those
portions of its real property that are leased to private
entities are not exempt from real property taxes as these
are not actually, directly and exclusively used for
charitable purposes.
The settled rule in this jurisdiction is that laws granting
exemption from tax are construed strictissimi juris against
the taxpayer and liberally in favor of the taxing power.
Taxation is the rule and exemption is the exception. The
effect of an exemption is equivalent to an appropriation.
Hence, a claim for exemption from tax payments must be
clearly shown and based on language in the law too plain
to be mistaken.26 As held in Salvation Army v. Hoehn:27
An intention on the part of the legislature to grant
an exemption from the taxing power of the state
will never be implied from language which will
admit of any other reasonable construction. Such
an intention must be expressed in clear and
unmistakable terms, or must appear by
necessary implication from the language used,
for it is a well settled principle that, when a special
privilege or exemption is claimed under a statute,
charter or act of incorporation, it is to be
construed strictly against the property owner and
in favor of the public. This principle applies with
peculiar force to a claim of exemption from
taxation . …28
Section 2 of Presidential Decree No. 1823, relied upon by
the petitioner, specifically provides that the petitioner shall
enjoy the tax exemptions and privileges:
SEC. 2. TAX EXEMPTIONS AND PRIVILEGES.
Being a non-profit, non-stock corporation
 organized primarily to help combat the high
incidence of lung and pulmonary diseases in the
Philippines, all donations, contributions,
endowments and equipment and supplies to be
imported by authorized entities or persons and by
the Board of Trustees of the Lung Center of the
Philippines, Inc., for the actual use and benefit of
the Lung Center, shall be exempt from income
and gift taxes, the same further deductible in full
for the purpose of determining the maximum
deductible amount under Section 30, paragraph
(h), of the National Internal Revenue Code, as
amended.
The Lung Center of the Philippines shall be
exempt from the payment of taxes, charges and
fees imposed by the Government or any political
subdivision or instrumentality thereof with respect
to equipment purchases made by, or for the Lung
Center.29
It is plain as day that under the decree, the petitioner does
not enjoy any property tax exemption privileges for its real
properties as well as the building constructed thereon. If
the intentions were otherwise, the same should have
been among the enumeration of tax exempt privileges
under Section 2:
It is a settled rule of statutory construction that the
express mention of one person, thing, or
consequence implies the exclusion of all others.
The rule is expressed in the familiar
maxim, expressio unius est exclusio alterius.
The rule of expressio unius est exclusio alterius is
formulated in a number of ways. One variation of
the rule is the principle that what is expressed
puts an end to that which is implied. Expressium
facit cessare tacitum. Thus, where a statute, by
its terms, is expressly limited to certain matters, it
may not, by interpretation or construction, be
extended to other matters.
...
The rule of expressio unius est exclusio
alterius and its variations are canons of restrictive
interpretation. They are based on the rules of
logic and the natural workings of the human mind.
They are predicated upon one’s own voluntary
act and not upon that of others. They proceed
from the premise that the legislature would not
have made specified enumeration in a statute
had the intention been not to restrict its meaning
and confine its terms to those expressly
mentioned.30
The exemption must not be so enlarged by construction
since the reasonable presumption is that the State has
granted in express terms all it intended to grant at all, and
that unless the privilege is limited to the very terms of the
statute the favor would be intended beyond what was
meant.31
Section 28(3), Article VI of the 1987 Philippine
Constitution provides, thus:
(3) Charitable institutions, churches and
parsonages or convents appurtenant thereto,
mosques, non-profit cemeteries, and all lands,
buildings, and
improvements, actually, directly and exclusively
used for religious, charitable or educational
purposes shall be exempt from taxation.32
The tax exemption under this constitutional provision
covers property taxes only.33 As Chief Justice Hilario G.
Davide, Jr., then a member of the 1986 Constitutional
Commission, explained: ". . . what is exempted is not the
institution itself . . .; those exempted from real estate taxes
are lands, buildings and improvements actually, directly
and exclusively used for religious, charitable or
educational purposes."34
Consequently, the constitutional provision is implemented
by Section 234(b) of Republic Act No. 7160 (otherwise
known as the Local Government Code of 1991) as
follows:
SECTION 234. Exemptions from Real Property
Tax. – The following are exempted from payment
of the real property tax:
...
(b) Charitable institutions, churches,
parsonages or convents appurtenant
thereto, mosques, non-profit or religious
cemeteries and all lands, buildings, and
improvements actually, directly,
and exclusivelyused for religious,
charitable or educational purposes.35
We note that under the 1935 Constitution, "... all lands,
buildings, and improvements used ‘exclusively’ for …
charitable … purposes shall be exempt from
taxation."36 However, under the 1973 and the present
Constitutions, for "lands, buildings, and improvements" of
the charitable institution to be considered exempt, the
same should not only be "exclusively" used for charitable
purposes; it is required that such property be used
"actually" and "directly" for such purposes.37
In light of the foregoing substantial changes in the
Constitution, the petitioner cannot rely on our ruling
in Herrera v. Quezon City Board of Assessment
Appeals which was promulgated on September 30, 1961
before the 1973 and 1987 Constitutions took effect. 38 As
this Court held in Province of Abra v. Hernando:39
… Under the 1935 Constitution: "Cemeteries,
churches, and parsonages or convents
appurtenant thereto, and all lands, buildings, and
improvements used exclusively for religious,
charitable, or educational purposes shall be
exempt from taxation." The present Constitution
added "charitable institutions, mosques, and non-
profit cemeteries" and required that for the
exemption of "lands, buildings, and
improvements," they should not only be
"exclusively" but also "actually" and "directly"
used for religious or charitable purposes. The
Constitution is worded differently. The change
should not be ignored. It must be duly taken into
consideration. Reliance on past decisions would
have sufficed were the words "actually" as well as
"directly" not added. There must be proof
therefore of the actual and direct use of the
lands, buildings, and improvements for religious
or charitable purposes to be exempt from
taxation. …
Under the 1973 and 1987 Constitutions and Rep. Act No.
7160 in order to be entitled to the exemption, the
petitioner is burdened to prove, by clear and unequivocal
proof, that (a) it is a charitable institution; and (b) its real
properties
are ACTUALLY, DIRECTLY and EXCLUSIVELY used
for charitable purposes. "Exclusive" is defined as
possessed and enjoyed to the exclusion of others;
debarred from participation or enjoyment; and
"exclusively" is defined, "in a manner to exclude; as
enjoying a privilege exclusively."40 If real property is used
for one or more commercial purposes, it is not exclusively
used for the exempted purposes but is subject to
taxation.41 The words "dominant use" or "principal use"
cannot be substituted for the words "used exclusively"
without doing violence to the Constitutions and the
law.42 Solely is synonymous with exclusively.43
What is meant by actual, direct and exclusive use of the
property for charitable purposes is the direct and
immediate and actual application of the property itself to
the purposes for which the charitable institution is
organized. It is not the use of the income from the real
property that is determinative of whether the property is
used for tax-exempt purposes.44
The petitioner failed to discharge its burden to prove that
the entirety of its real property is actually, directly and
exclusively used for charitable purposes. While portions
of the hospital are used for the treatment of patients and
the dispensation of medical services to them, whether
paying or non-paying, other portions thereof are being
leased to private individuals for their clinics and a
canteen. Further, a portion of the land is being leased to
a private individual for her business enterprise under the
business name "Elliptical Orchids and Garden Center."
Indeed, the petitioner’s evidence shows that it collected
₱1,136,483.45 as rentals in 1991 and ₱1,679,999.28 for
1992 from the said lessees.
Accordingly, we hold that the portions of the land leased
to private entities as well as those parts of the hospital
leased to private individuals are not exempt from such
taxes.45 On the other hand, the portions of the land
occupied by the hospital and portions of the hospital used
for its patients, whether paying or non-paying, are exempt
from real property taxes.
IN LIGHT OF ALL THE FOREGOING, the petition
is PARTIALLY GRANTED. The respondent Quezon City
Assessor is hereby DIRECTED to determine, after due
hearing, the precise portions of the land and the area
thereof which are leased to private persons, and to
compute the real property taxes due thereon as provided
for by law.
SO ORDERED.
G.R. No. 124043 October 14, 1998
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
COURT OF APPEALS, COURT OF TAX APPEALS and
YOUNG MEN'S CHRISTIAN ASSOCIATION OF THE
PHILIPPINES, INC., respondents.
PANGANIBAN, J.:
Is the income derived from rentals of real property owned
by the Young Men's Christian Association of the
Philippines, Inc. (YMCA) — established as "a welfare,
educational and charitable non-profit corporation" —
subject to income tax under the National Internal Revenue
Code (NIRC) and the Constitution?
The Case
This is the main question raised before us in this petition
for review on certiorari challenging two Resolutions
issued by the Court of Appeals1 on September 28,
19952 and February 29, 19963 in CA-GR SP No. 32007.
Both Resolutions affirmed the Decision of the Court
of Tax Appeals (CTA) allowing the YMCA to claim tax
exemption on the latter's income from the lease of its
real property.
The Facts
The facts are undisputed.4 Private Respondent YMCA
is a non-stock, non-profit institution, which conducts
various programs and activities that are beneficial to
the public, especially the young people, pursuant to
its religious, educational and charitable objectives.
In 1980, private respondent earned, among others, an
income of P676,829.80 from leasing out a portion of
its premises to small shop owners, like restaurants
and canteen operators, and P44,259.00 from parking
fees collected from non-members. On July 2, 1984,
the commissioner of internal revenue (CIR) issued an
assessment to private respondent, in the total
amount of P415,615.01 including surcharge and
interest, for deficiency income tax, deficiency
expanded withholding taxes on rentals and
professional fees and deficiency withholding tax on
wages. Private respondent formally protested the
assessment and, as a supplement to its basic protest,
filed a letter dated October 8, 1985. In reply, the CIR
denied the claims of YMCA.
Contesting the denial of its protest, the YMCA filed a
petition for review at the Court of Tax Appeals (CTA)
on March 14, 1989. In due course, the CTA issued this
ruling in favor of the YMCA:
. . . [T]he leasing of [private
respondent's] facilities to small shop
owners, to restaurant and canteen
operators and the operation of the
parking lot are reasonably incidental
to and reasonably necessary for the
accomplishment of the objectives of
the [private respondents]. It appears
from the testimonies of the witnesses
for the [private respondent]
particularly Mr. James C. Delote,
former accountant of YMCA, that
these facilities were leased to
members and that they have to
service the needs of its members and
their guests. The rentals were minimal
as for example, the barbershop was
only charged P300 per month. He also
testified that there was actually no lot
devoted for parking space but the
parking was done at the sides of the
building. The parking was primarily
for members with stickers on the
windshields of their cars and they
charged P.50 for non-members. The
rentals and parking fees were just
enough to cover the costs of
operation and maintenance only. The
earning[s] from these rentals and
 parking charges including those from
lodging and other charges for the use
of the recreational facilities constitute
[the] bulk of its income which [is]
channeled to support its many
activities and attainment of its
objectives. As pointed out earlier, the
membership dues are very
insufficient to support its program.
We find it reasonably necessary
therefore for [private respondent] to
make [the] most out [of] its existing
facilities to earn some income. It
would have been different if under the
circumstances, [private respondent]
will purchase a lot and convert it to a
parking lot to cater to the needs of the
general public for a fee, or construct a
building and lease it out to the highest
bidder or at the market rate for
commercial purposes, or should it
invest its funds in the buy and sell of
properties, real or personal. Under
these circumstances, we could
conclude that the activities are
already profit oriented, not incidental
and reasonably necessary to the
pursuit of the objectives of the
association and therefore, will fall
under the last paragraph of Section 27
of the Tax Code and any income
derived therefrom shall be taxable.
Considering our findings that [private
respondent] was not engaged in the
business of operating or contracting
[a] parking lot, we find no legal basis
also for the imposition of [a]
deficiency fixed tax and [a]
contractor's tax in the amount[s] of
P353.15 and P3,129.73, respectively.
xxx xxx xxx
WHEREFORE, in view of all the
foregoing, the following assessments
are hereby dismissed for lack of merit:
1980 Deficiency Fixed Tax — P353,15;
1980 Deficiency Contractor's Tax —
P3,129.23;
1980 Deficiency Income Tax — [r]espondent exempting [p]rivate
P372,578.20.
While the following assessments are hereby
sustained:
1980 Deficiency Expanded
Withholding Tax — P1,798.93;
1980 Deficiency Withholding Tax on
Wages — P33,058.82
plus 10% surcharge and 20% interest
per annum from July 2, 1984 until fully
paid but not to exceed three (3) years
pursuant to Section 51(e)(2) & (3) of
the National Internal Revenue Code
effective as of 1984. 5
Dissatisfied with the CTA ruling, the CIR elevated the
case to the Court of Appeals (CA). In its Decision of
February 16, 1994, the CA6 initially decided in favor of
the CIR and disposed of the appeal in the following
manner:
Following the ruling in the afore-cited
cases of Province of Abra vs.
Hernando and Abra Valley College
Inc. vs. Aquino, the ruling of the
respondent Court of Tax Appeals that
"the leasing of petitioner's (herein
respondent's) facilities to small shop
owners, to restaurant and canteen
operators and the operation of the
parking lot are reasonably incidental
to and reasonably necessary for the
accomplishment of the objectives of
the petitioners, and the income
derived therefrom are tax exempt,
must be reversed.
WHEREFORE, the appealed decision
is hereby REVERSED in so far as it
dismissed the assessment for:
1980 Deficiency
Income Tax P 353.15
1980 Deficiency
Contractor's Tax P
3,129.23, &
1980 Deficiency
Income Tax P
372,578.20
but the same is AFFIRMED in all other respect. 7
Aggrieved, the YMCA asked for reconsideration
based on the following grounds:
I
The findings of facts of the Public
Respondent Court of Tax Appeals
being supported by substantial
evidence [are] final and conclusive.
II
The conclusions of law of [p]ublic
[r]espondent from the income on
rentals of small shops and parking
fees [are] in accord with the applicable
law and jurisprudence. 8
Finding merit in the Motion for Reconsideration filed
by the YMCA, the CA reversed itself and promulgated
on September 28, 1995 its first assailed Resolution
which, in part, reads:
The Court cannot depart from the
CTA's findings of fact, as they are
supported by evidence beyond what
is considered as substantial.
xxx xxx xxx
 The second ground raised is that the
respondent CTA did not err in saying
that the rental from small shops and
parking fees do not result in the loss
of the exemption. Not even the
petitioner would hazard the
suggestion that YMCA is designed for
profit. Consequently, the little income
from small shops and parking fees
help[s] to keep its head above the
water, so to speak, and allow it to
continue with its laudable work.
The Court, therefore, finds the second
ground of the motion to be
meritorious and in accord with law
and jurisprudence.
WHEREFORE, the motion for
reconsideration is GRANTED; the
respondent CTA's decision is
AFFIRMED in toto.9
The internal revenue commissioner's own Motion for
Reconsideration was denied by Respondent Court in
its second assailed Resolution of February 29, 1996.
Hence, this petition for review under Rule 45 of the
Rules of Court. 10
The Issues
Before us, petitioner imputes to the Court of Appeals
the following errors:
I
In holding that it had departed from
the findings of fact of Respondent
Court of Tax Appeals when it rendered
its Decision dated February 16, 1994;
and
II
In affirming the conclusion of
Respondent Court of Tax Appeals that
the income of private respondent from
rentals of small shops and parking
fees [is] exempt from taxation. 11
This Court's Ruling
The petition is meritorious.
First Issue:
Factual Findings of the CTA
Private respondent contends that the February 16,
1994 CA Decision reversed the factual findings of the
CTA. On the other hand, petitioner argues that the CA
merely reversed the "ruling of the CTA that the
leasing of private respondent's facilities to small
shop owners, to restaurant and canteen operators
and the operation of parking lots are reasonably
incidental to and reasonably necessary for the
accomplishment of the objectives of the private
respondent and that the income derived therefrom
are tax exempt." 12 Petitioner insists that what the
appellate court reversed was the legal
conclusion, not the factual finding, of the CTA. 13The
commissioner has a point.
Indeed, it is a basic rule in taxation that the factual
findings of the CTA, when supported by substantial
evidence, will be disturbed on appeal unless it is
shown that the said court committed gross error in
the appreciation of facts. 14 In the present case, this
Court finds that the February 16, 1994 Decision of the
CA did not deviate from this rule. The latter merely
applied the law to the facts as found by the CTA and
ruled on the issue raised by the CIR: "Whether or not
the collection or earnings of rental income from the
lease of certain premises and income earned from
parking fees shall fall under the last paragraph of
Section 27 of the National Internal Revenue Code of
1977, as amended." 15
Clearly, the CA did not alter any fact or evidence. It
merely resolved the aforementioned issue, as indeed
it was expected to. That it did so in a manner different
from that of the CTA did not necessarily imply a
reversal of factual findings.
The distinction between a question of law and a
question of fact is clear-cut. It has been held that
"[t]here is a question of law in a given case when the
doubt or difference arises as to what the law is on a
certain state of facts; there is a question of fact when
the doubt or difference arises as to the truth or
falsehood of alleged facts." 16 In the present case, the
CA did not doubt, much less change, the facts
narrated by the CTA. It merely applied the law to the
facts. That its interpretation or conclusion is different
from that of the CTA is not irregular or abnormal.
Second Issue:
Is the Rental Income of the YMCA Taxable?
We now come to the crucial issue: Is the rental
income of the YMCA from its real estate subject to
tax? At the outset, we set forth the relevant provision
of the NIRC:
Sec. 27. Exemptions from tax on
corporations. — The following
organizations shall not be taxed under
this Title in respect to income
received by them as such —
xxx xxx xxx
(g) Civic league or organization not
organized for profit but operated
exclusively for the promotion of social
welfare;
(h) Club organized and operated
exclusively for pleasure, recreation,
and other non-profitable purposes, no
part of the net income of which inures
to the benefit of any private
stockholder or member;
xxx xxx xxx
Notwithstanding the provisions in the
preceding paragraphs, the income of
whatever kind and character of the
foregoing organizations from any of
their properties, real or personal, or
from any of their activities conducted
for profit, regardless of the
disposition made of such income,
shall be subject to the tax imposed
 under this Code. (as amended by
Pres. Decree No. 1457)
Petitioner argues that while the income received by
the organizations enumerated in Section 27 (now
Section 26) of the NIRC is, as a rule, exempted from
the payment of tax "in respect to income received by
them as such," the exemption does not apply to
income derived ". . . from any of their properties, real
or personal, or from any of their activities conducted
for profit, regardless of the disposition made of such
income . . . ."
Petitioner adds that "rental income derived by a tax-
exempt organization from the lease of its properties,
real or personal, [is] not, therefore, exempt from
income taxation, even if such income [is] exclusively
used for the accomplishment of its objectives." 17 We
agree with the commissioner.
Because taxes are the lifeblood of the nation, the
Court has always applied the doctrine of strict in
interpretation in construing tax
exemptions. 18 Furthermore, a claim of statutory
exemption from taxation should be manifest. and
unmistakable from the language of the law on which
it is based. Thus, the claimed exemption "must
expressly be granted in a statute stated in a language
too clear to be mistaken." 19
In the instant case, the exemption claimed by the
YMCA is expressly disallowed by the very wording of
the last paragraph of then Section 27 of the NIRC
which mandates that the income of exempt
organizations (such as the YMCA) from any of their
properties, real or personal, be subject to the tax
imposed by the same Code. Because the last
paragraph of said section unequivocally subjects to
tax the rent income of the YMCA from its real
property, 20 the Court is duty-bound to abide strictly
by its literal meaning and to refrain from resorting to
any convoluted attempt at construction.
It is axiomatic that where the language of the law is
clear and unambiguous, its express terms must be
applied. 21 Parenthetically, a consideration of the
question of construction must not even begin,
particularly when such question is on whether to
apply a strict construction or a liberal one on statutes
that grant tax exemptions to "religious, charitable and
educational propert[ies] or institutions." 22
The last paragraph of Section 27, the YMCA argues,
should be "subject to the qualification that the
income from the properties must arise from activities
'conducted for profit' before it may be considered
taxable." 23This argument is erroneous. As previously
stated, a reading of said paragraph ineludibly shows
that the income from any property of exempt
organizations, as well as that arising from any activity
it conducts for profit, is taxable. The phrase "any of
their activities conducted for profit" does not qualify
the word "properties." This makes from the property
of the organization taxable, regardless of how that
income is used — whether for profit or for lofty non-
profit purposes.
Verba legis non est recedendum. Hence, Respondent
Court of Appeals committed reversible error when it
allowed, on reconsideration, the tax exemption
claimed by YMCA on income it derived from renting
out its real property, on the solitary but unconvincing
ground that the said income is not collected for profit
but is merely incidental to its operation. The law does
not make a distinction. The rental income is taxable
regardless of whence such income is derived and
how it is used or disposed of. Where the law does not
distinguish, neither should we.
Constitutional Provisions
On Taxation
Invoking not only the NIRC but also the fundamental
law, private respondent submits that Article VI,
Section 28 of par. 3 of the 1987
Constitution, 24 exempts "charitable institutions"
from the payment not only of property taxes but also
of income tax from any source. 25 In support of its
novel theory, it compares the use of the words
"charitable institutions," "actually" and "directly" in
the 1973 and the 1987 Constitutions, on the one hand;
and in Article VI, Section 22, par. 3 of the 1935
Constitution, on the other hand. 26
Private respondent enunciates three points. First, the
present provision is divisible into two categories: (1)
"[c]haritable institutions, churches and parsonages
or convents appurtenant thereto, mosques and non-
profit cemeteries," the incomes of which are, from
whatever source, all tax-exempt; 27 and (2) "[a]ll
lands, buildings and improvements actually and
directly used for religious, charitable or educational
purposes," which are exempt only from property
taxes. 28 Second, Lladoc v. Commissioner of Internal
Revenue, 29which limited the exemption only to the
payment of property taxes, referred to the provision
of the 1935 Constitution and not to its counterparts in
the 1973 and the 1987 Constitutions. 30 Third, the
phrase "actually, directly and exclusively used for
religious, charitable or educational purposes" refers
not only to "all lands, buildings and improvements,"
but also to the above-quoted first category which
includes charitable institutions like the private
respondent. 31
The Court is not persuaded. The debates,
interpellations and expressions of opinion of the
framers of the Constitution reveal their intent which,
in turn, may have guided the people in ratifying the
Charter. 32 Such intent must be effectuated.
Accordingly, Justice Hilario G. Davide, Jr., a former
constitutional commissioner, who is now a member
of this Court, stressed during the Concom debates
that ". . . what is exempted is not the institution itself
. . .; those exempted from real estate taxes are lands,
buildings and improvements actually, directly and
exclusively used for religious, charitable or
educational
purposes." 33 Father Joaquin G. Bernas, an eminent
authority on the Constitution and also a member of
the Concom, adhered to the same view that the
exemption created by said provision pertained only
to property taxes. 34
In his treatise on taxation, Mr. Justice Jose C. Vitug
concurs, stating that "[t]he tax exemption
coversproperty taxes only." 35 Indeed, the income tax
exemption claimed by private respondent finds no
basis in Article VI, Section 26, par. 3 of the
Constitution.
Private respondent also invokes Article XIV, Section
4, par. 3 of the Character, 36 claiming that the YMCA
"is a non-stock, non-profit educational institution
whose revenues and assets are used actually,
directly and exclusively for educational purposes so
it is exempt from taxes on its properties and
income." 37 We reiterate that private respondent is
exempt from the payment of property tax, but not
income tax on the rentals from its property. The bare
allegation alone that it is a non-stock, non-profit
educational institution is insufficient to justify its
exemption from the payment of income tax.
As previously discussed, laws allowing tax
exemption are construed strictissimi juris. Hence, for
the YMCA to be granted the exemption it claims under
the aforecited provision, it must prove with
substantial evidence that (1) it falls under the
classification non-stock, non-profit educational
institution; and (2) the income it seeks to be
exempted from taxation is used actually, directly, and
exclusively for educational purposes. However, the
Court notes that not a scintilla of evidence was
submitted by private respondent to prove that it met
the said requisites.
Is the YMCA an educational institution within the
purview of Article XIV, Section 4, par. 3 of the
Constitution? We rule that it is not. The term
"educational institution" or "institution of learning"
has acquired a well-known technical meaning, of
which the members of the Constitutional Commission
are deemed cognizant. 38 Under the Education Act of
1982, such term refers to schools. 39 The school
system is synonymous with formal
education, 40 which "refers to the hierarchically
structured and chronologically graded learnings
organized and provided by the formal school system
and for which certification is required in order for the
learner to progress through the grades or move to the
higher levels." 41 The Court has examined the
"Amended Articles of Incorporation" and "By-
Laws"43 of the YMCA, but found nothing in them that
even hints that it is a school or an educational
institution. 44
Furthermore, under the Education Act of 1982, even
non-formal education is understood to be school-
based and "private auspices such as foundations and
civic-spirited organizations" are ruled out. 45 It is
settled that the term "educational institution," when
used in laws granting tax exemptions, refers to a ". . .
school seminary, college or educational
establishment . . . ." 46 Therefore, the private
respondent cannot be deemed one of the educational
institutions covered by the constitutional provision
under consideration.
. . . Words used in the Constitution are
to be taken in their ordinary
acceptation. While in its broadest and
best sense education embraces all
forms and phases of instruction,
improvement and development of
mind and body, and as well of
religious and moral sentiments, yet in
the common understanding and
application it means a place where
systematic instruction in any or all of
the useful branches of learning is
given by methods common to schools
and institutions of learning. That we
conceive to be the true intent and
scope of the term [educational
institutions,] as used in the
Constitution. 47
Moreover, without conceding that Private
Respondent YMCA is an educational institution, the
Court also notes that the former did not submit proof
of the proportionate amount of the subject income
that was actually, directly and exclusively used for
educational purposes. Article XIII, Section 5 of the
YMCA by-laws, which formed part of the evidence
submitted, is patently insufficient, since the same
merely signified that "[t]he net income derived from
the rentals of the commercial buildings shall be
apportioned to the Federation and Member
Associations as the National Board may decide." 48 In
sum, we find no basis for granting the YMCA
exemption from income tax under the constitutional
provision invoked.
Cases Cited by Private
Respondent Inapplicable
The cases 49 relied on by private respondent do not
support its cause. YMCA of Manila v. Collector of
Internal Revenue 50 and Abra Valley College, Inc. v.
Aquino 51 are not applicable, because the
controversy in both cases involved exemption from
the payment of property tax, not income tax. Hospital
de San Juan de Dios, Inc. v. Pasay City 52 is not in
point either, because it involves a claim for exemption
from the payment of regulatory fees, specifically
electrical inspection fees, imposed by an ordinance
of Pasay City — an issue not at all related to that
involved in a claimed exemption from the payment of
income taxes imposed on property leases. In Jesus
Sacred Heart College v. Com. of Internal
Revenue, 53 the party therein, which claimed an
exemption from the payment of income tax, was an
educational institution which submitted substantial
evidence that the income subject of the controversy
had been devoted or used solely for educational
purposes. On the other hand, the private respondent
in the present case has not given any proof that it is
an educational institution, or that part of its rent
income is actually, directly and exclusively used for
educational purposes.
Epilogue
In deliberating on this petition, the Court expresses
its sympathy with private respondent. It appreciates
the nobility of its cause. However, the Court's power
and function are limited merely to applying the law
fairly and objectively. It cannot change the law or
bend it to suit its sympathies and appreciations.
Otherwise, it would be overspilling its role and
invading the realm of legislation.
We concede that private respondent deserves the
help and the encouragement of the government. It
needs laws that can facilitate, and not frustrate, its
humanitarian tasks. But the Court regrets that, given
its limited constitutional authority, it cannot rule on
the wisdom or propriety of legislation. That
prerogative belongs to the political departments of
government. Indeed, some of the members of the
Court may even believe in the wisdom and prudence
of granting more tax exemptions to private
respondent. But such belief, however well-meaning
and sincere, cannot bestow upon the Court the power
to change or amend the law.
WHEREFORE, the petition is GRANTED. The
Resolutions of the Court of Appeals dated September
28, 1995 and February 29, 1996 are hereby
REVERSED and SET ASIDE. The Decision of the
Court of Appeals dated February 16, 1995 is
REINSTATED, insofar as it ruled that the income
derived by petitioner from rentals of its real property
is subject to income tax. No pronouncement as to
costs.

SO ORDERED.