NATIONAL POWER CORPORATION, petitioner, dated October 5, 1987), NAPOCOR’s tax

vs. THE PROVINCE OF ALBAY, ALBAY
GOVERNOR ROMEO R. SALALIMA, and ALBAY
PROVINCIAL TREASURER ABUNDIO M. NUÑEZ,
respondents.
Real property tax; Exemptions; PD No. 776
empowered FIRB to recommend
exemptions.—As we said, the FIRB, under its
charter, Presidential Decree No. 776, had been
empowered merely to Recommend’’ tax
exemptions. By itself, it could not have validly
prescribed exemptions or restore taxability.
Hence, as of June 11, 1984 (promulgation of
Presidential Decree No. 1931), NAPOCOR had
ceased to enjoy tax exemption privileges.
exemption had been validly restored. What it
questions is NAPOCOR’s liability in the
interregnum between June 11, 1984, the date its
tax privileges were withdrawn, and March 10,
1987, the date they were purportedly restored.
To be sure, it objects to Executive. Order No. 93
tax
as alledgedly a delegation of legislative power,
but only insofar as its (NAPOCOR’s) June 11, 1984
to March 10, 1987 tax accumulation is
concerned. We therefore leave the issue of
“delegation” to the future and its
constitutionality when the proper case arises. For
the nonce, we leave Executive Order No. 93
alone, and so also, its validity as far as it grants
tax exemptions (through the FIRB) beginning
December 17, 1986, the date of its promulgation.

Same; Same; Executive Order No. 93 validly Same; Same; Same; Taxes, purpose.—Taxes are
restored NAPOCOR’S tax exemption.—Does the lifeblood of the nation. Their primary purpose
Executive Order No. 93 constitute an unlawful is to generate funds for the State to finance the
delegation of legislative power? It is to be needs of the citizenry and to advance the
stressed that the provincial government of Albay common weal. National Power Corporation vs.
admits that as of March 10, 1987 (the date Province of Albay, 186 SCRA 198, G.R. No. 87479
Resolution No. 17-87 was affirmed by the June 4, 1990
Memorandum of the Office of the President,
. for, as we said, real property taxes. The back
taxes NAPOCOR has supposedly accumulated
SARMIENTO, J.:
were computed at P214,845,184.76.
The National Power Corporation (NAPOCOR)
NAPOCOR opposed the sale, interposing in
questions the power of the provincial
support of its non-liability Resolution No. 17-87,
government of Albay to collect real property
of the Fiscal Incentives Review Board (FIRB),
taxes on its properties located at Tiwi, Albay,
which provides as follows:
amassed between June 11, 1984 up to March 10,
1987. BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That
the tax and duty exemption privileges of the
It appears that on March 14 and 15, 1989, the
National Power Corporation, including those
respondents caused the publication of a notice
pertaining to its domestic purchases of
of auction sale involving the properties of
petroleum and petroleum products, granted
NAPOCOR and the Philippine Geothermal Inc.
under the terms and conditions of
consisting of buildings, machines, and similar
Commonwealth Act No. 120 (Creating the
improvements standing on their offices at Tiwi,
National Power Corporation, defining its powers,
Albay. The amounts to be realized from this
objectives and functions, and for other
advertised auction sale are supposed to be
purposes), as amended, are restored effective
applied to the tax delinquencies claimed, as and
March 10, 1987, subject to the following
conditions: 1
as well as the Memorandum of Executive
Secretary Catalino Macaraig, which also states
thus:
Pursuant to Sections 1 (f) and 2 (e) of Executive
Order No. 93, series of 1986, FIRB Resolution No.
17-87, series of 1987, restoring, subject to
certain conditions prescribed therein, the tax
and duty exemption privileges of NPC as
provided under Commonwealth Act No. 120, as
amended, effective March 10, 1987, is hereby
confirmed and approved. 2
On March 10, 1989, the Court resolved to issue a
temporary restraining order directing the Albay
provincial government "to CEASE AND DESIST
from selling and disposing of the NAPOCOR
properties subject matter of this petition. 3 It
appears, however, that "the temporary
restraining order failed to reach respondents
before the scheduled bidding at 10:00 a.m. on
March 30, 1989 ... [h]ence, the respondents
proceeded with the bidding wherein the
Province of Albay was the highest bidder. 4
The Court gathers from the records that:
(1) Under Section 13, of Republic Act No. 6395,
amending Commonwealth Act No. 120 (charter
of NAPOCOR):
Section 13. Non-profit Character of the
Corporation; Exemption from All Taxes, Duties,
Fees, Imposts and Other Charges by the
Government and Government Instrumentalities.
The Corporation shall be non-profit and shall
devote all its returns from its capital investment
as well as excess revenues from its operation, for
expansion, To enable the Corporation to pay its
indebtedness and obligations and in furtherance
and effective implementation of the policy
enunciated in Section One of this Act, the
Corporation, including its subsidiaries, is hereby
declared exempt from the payment of all forms
of taxes, duties, fees, imposts as well as costs and
service fees including filing fees, appeal bonds,
supersedeas bonds, in any court or
administrative proceedings. 5
(2) On August 24, 1975, Presidential Decree No.
776 was promulgated, creating the Fiscal
Incentives Review Board (FIRB). Among other
things, the Board was tasked as follows:
Section 2. A Fiscal Incentives Review Board is
hereby created for the purpose of determining
what subsidies and tax exemptions should be
modified, withdrawn, revoked or suspended,
which shall be composed of the following
officials:
Chairman - Secretary of Finance
Members - Secretary of Industry
- Director General of the National Economic and
Development Authority
- Commissioner of Internal Revenue
- Commissioner of Customs
The Board may recommend to the President of
the Philippines and for reasons of compatibility
with the declared economic policy, the
withdrawal, modification, revocation or
suspension of the enforceability of any of the
abovestated statutory subsidies or tax
exemption grants, except those granted by the
Constitution. To attain its objectives, the Board
may require the assistance of any appropriate
government agency or entity. The Board shall
meet once a month, or oftener at the call of the
Secretary of Finance. 6
(3) On June 11, 1984, Presidential Decree No.
1931 was promulgated, prescribing, among
other things, that:
Section 1. The provisions of special or general
law to the contrary notwithstanding, all
exemptions from the payment of duties, taxes,
fees, impost and other charges heretofore
granted in favor of government-owned or
controlled corporations including their
subsidiaries are hereby withdrawn. 7
(4) Meanwhile, FIRB Resolution No. 10-85 was
issued, "restoring" NAPOCOR's tax exemption
effective June 11, 1984 to June 30, 1985;
(5) Thereafter, FIRB Resolution No. 1-86 was
issued, granting tax exemption privileges to
NAPOCOR from July 1, 1985 and indefinitely
thereafter;
(6) Likewise, FIRB Resolution No. 17-87 was
promulgated, giving NAPOCOR tax exemption
privileges effective until March 10, 1987; 8
(7) On December 17, 1986, Executive Order No.
93 was promulgated by President Corazon
Aquino, providing, among other things, as
follows:
SECTION 1. The provisions of any general or
special law to the contrary notwithstanding, all
tax and duty incentives granted to government
and private entities are hereby withdrawn,
except. 9
and
SECTION 2. The Fiscal Incentives Review Board
created under Presidential Decree No. 776, as
amended, is hereby authorized to:
a) restore tax and/or duty exemptions
withdrawn hereunder in whole or in part;
b) revise the scope and coverage of tax and/or
duty exemption that may be restored;
c) impose conditions for the restoration of tax
and/or duty exemption;
d) prescribe the date or period of effectivity of
the restoration of tax and/or duty exemption;
e) formulate and submit to the President for
approval, a complete system for the grant of
subsidies to deserving beneficiaries, in lieu of or
in combination with the restoration of tax and
duty exemptions or preferential treatment in
taxation, indicating the source of funding
therefor, eligible beneficiaries and the terms and
conditions for the grant thereof taking into
consideration the international commitments of
the Philippines and the necessary precautions
such that the grant of subsidies does not become
the basis for countervailing action. 10
(8) On October 5, 1987, the Office of the
President issued the Memorandum, confirming
NAPOCOR's tax exemption aforesaid. 11
The provincial government of Albay now defends
the auction sale in question on the theory that
the various FIRB issuances constitute an undue
delegation of the taxing Power and hence, null
and void, under the Constitution. It is also
contended that, insofar as Executive Order No.
93 authorizes the FIRB to grant tax exemptions,
the same is of no force and effect under the
constitutional provision allowing the legislature
alone to accord tax exemption privileges.
It is to be pointed out that under Presidential
Decree No. 776, the power of the FIRB was
merely to "recommend to the President of the
Philippines and for reasons of compatibility with
the declared economic policy, the withdrawal,
modification, revocation or suspension of the
enforceability of any of the above-cited statutory
subsidies or tax exemption grants, except those
granted by the Constitution." It has no authority
to impose taxes or revoke existing ones, which,
after all, under the Constitution, only the
legislature may accomplish. 12 The question
therefore is whether or not the various tax
exemptions granted by virtue of FIRB
Resolutions Nos. 10-85, 1-86, and 17-87 are valid
and constitutional.
We shall deal with FIRB No. 17-87 later, but with
respect to FIRB Resolutions Nos. 10- 85 and 1-86,
we sustain the provincial government of Albay.
As we said, the FIRB, under its charter,
Presidential Decree No. 776, had been
empowered merely to "recommend" tax
exemptions. By itself, it could not have validly
prescribed exemptions or restore taxability.
Hence, as of June 11, 1984 (promulgation of
Presidential Decree No. 1931), NAPOCOR had
ceased to enjoy tax exemption privileges.
The fact that under Executive Order No. 93, the
FIRB has been given the prerogative to "restore
tax and/or duty exemptions withdrawn
hereunder in whole or in part," 13 and "impose
conditions for ... tax and/or duty exemption" 14is
of no moment. These provisions are prospective
in character and can not affect the Board's past
acts.
The Court is aware that in its preamble,
Executive Order No. 93 states:
WHEREAS, a number of affected entities,
government and private were able to get back
their tax and duty exemption privileges through
the review mechanism implemented by the
Fiscal Incentives Review Board (FIRB); 15but by
no means can we say that it has "ratified" the
acts of FIRB. It is to misinterpret the scope of
FIRB's powers under Presidential Decree No. 776
to say that it has. Apart from that, Section 2 of
the Executive Order was clearly intended to
amend Presidential Decree No. 776, which
means, mutatis mutandis, that FIRB did not have
the right, in the first place, to grant tax
exemptions or withdraw existing ones.
Does Executive Order No. 93 constitute an
unlawful delegation of legislative power? It is to
be stressed that the provincial government of
Albay admits that as of March 10, 1987 (the date
Resolution No. 17-87 was affirmed by the
Memorandum of the Office of the President,
dated October 5, 1987), NAPOCOR's exemption
had been validly restored. What it questions is
NAPOCOR's liability in the interregnum between
June 11, 1984, the date its tax privileges were
withdrawn, and March 10, 1987, the date they
were purportedly restored. To be sure, it objects
to Executive Order No. 93 as alledgedly a
delegation of legislative power, but only insofar
as its (NAPOCOR's) June 11, 1984 to March 10,
1987 tax accumulation is concerned. We
therefore leave the issue of "delegation" to the
future and its constitutionality when the proper
case arises. For the nonce, we leave Executive
Order No. 93 alone, and so also, its validity as far
as it grants tax exemptions (through the FIRB)
beginning December 17, 1986, the date of its
promulgation.
NAPOCOR must then be held liable for the
intervening years aforesaid. So it has been held:
xxx xxx xxx
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. ... 16
Actually, the State has no reason to decry the
taxation of NAPOCOR's properties, as and by way
of real property taxes. Real property taxes, after
all, form part and parcel of the financing
apparatus of the Government in development
and nation-building, particularly in the local
government level, Thus:
SEC. 86. Distribution of proceeds. — (a) The
proceeds of the real property tax, except as
otherwise provided in this Code, shall accrue to
the province, city or municipality where the
property subject to the tax is situated and shall
be applied by the respective local government
unit for its own use and benefit.
(b) Barrio shares in real property tax collections.
— The annual shares of the barrios in real
property tax collections shall be as follows:
(1) Five per cent of the real property tax
collections of the province and another five
percent of the collections of the municipality
shall accrue to the barrio where the property
subject to the tax is situated.
(2) In the case of the city, ten per cent of the
collections of the tax shag likewise accrue to the
barrio where the property is situated.
Thirty per cent of the barrio shares herein
referred to may be spent for salaries or per
diems of the barrio officials and other
administrative expenses, while the remaining
seventy per cent shall be utilized for
development projects approved by the Secretary
of Local Government and Community
Development or by such committee created, or
representatives designated, by him.
SEC. 87. Application of proceeds. — (a) The
proceeds of the real property tax pertaining to
the city and to the municipality shall accrue
entirely to their respective general funds. In the
case of the province, one-fourth thereof shall
accrue to its road and bridge fund and the
remaining three-fourths, to its general fund.
(b) The entire proceeds of the additional one per
cent real property tax levied for the Special
Education Fund created under R.A. No. 5447
collected in the province or city on real property
situated in their respective territorial
jurisdictions shall be distributed as follows:
(1) Collections in the provinces: Fifty per cent
shall accrue to the municipality where the
property subject to the tax is situated; twenty
per cent shall accrue to the province; and thirty
per cent shall be remitted to the Treasurer of the
Philippines to be expended exclusively for
stabilizing the Special Education Fund in
municipalities, cities and provinces in
accordance with the provisions of Section seven
of R.A. No. 5447.
(2) Collections in the cities: Sixty per cent shall be
retained by the city; and forty per cent shall be
remitted to the Treasurer of the Philippines to be
expended exclusively for stabilizing the special
education fund in municipalities, cities and
provinces as provided under Section 7 of R.A. No.
5447.
However, any increase in the shares of
provinces, cities and municipalities from said
additional tax accruing to their respective local
school boards commencing with fiscal year 1973-
74 over what has been actually realized during
the fiscal year 1971-72 which, for purposes of
this Code, shall remain as the based year, shall
be divided equally between the general fund and
the special education fund of the local
government units concerned. The Secretary of
Finance may, however, at his discretion, increase
to not more than seventy-five per cent the
amount that shall accrue annually to the local
general fund.
(c) The proceeds of all delinquent taxes and
penalties, as well as the income realized from the
use, lease or other disposition of real property
acquired by the province or city at a public
auction in accordance with the provisions of this
Code, and the proceeds of the sale of the
delinquent real property or, of the redemption
thereof shall accrue to the province, city or
municipality in the same manner and proportion
as if the tax or taxes had been paid in regular
course.
(d) The proceeds of the additional real property
tax on Idle private lands shall accrue to the
respective general funds of the province, city and
municipality where the land subject to the tax is impose taxes or revoke existing ones, which,
situated. 17 after all, under the
constitution, only the legislature may
To all intents and purposes, real property taxes
accomplish.
are funds taken by the State with one hand and
given to the other. In no measure can the
Government be said to have lost anything.

As a rule finally, claims of tax exemption are

construed strongly against the claimant. 18 They
must also be shown to exist clearly and
categorically, and supported by clear legal
provisions. 19

Taxes are the lifeblood of the nation. 20 Their

primary purpose is to generate funds for the
State to finance the needs of the citizenry and to
advance the common weal.

WHEREFORE, the petition is DENIED. No costs.

The auction sale of the petitioner's properties to
answer for real estate taxes accumulated
between June 11, 1984 through March 10, 1987
is hereby declared valid.

SO ORDERED.

DIGEST:

NPC v Albay

FACTS:
The province of Albay sought to sell Napocor
properties in order for the proceeds to be
applied to the real property taxes Napocor
allegedly owned the Albay provincial
government. Napocor opposed alleging that it
was immune from taxes citing Resolution 17-87
of the Fiscal Incentives Review Board (FIRB).

ISSUE:
Whether the granting of exemption by the FIRB
constituted undue delegation of taxing power

RULING:
Yes, it is undue delegation. It has no authority to
CALTEX PHILIPPINES, INC., petitioner, vs. THE
HONORABLE COMMISSION ON AUDIT,
HONORABLE COMMISSIONER BARTOLOME C.
FERNANDEZ and HONORABLE COMMISSIONER
ALBERTO P. CRUZ, respondents.
Administrative Law; Commission on Audit; The
audit power of the Auditor General under the
1935 Constitution and the Commission on Audit
under the 1973 Constitution authorized them to
disallow illegal expenditures of funds or uses of
funds and property.—There can be no doubt,
however, that the audit power of the Auditor
General under the 1935 Constitution and the
Commission on Audit under the 1973
Constitution authorized them to disallow illegal
expenditures of funds or uses of funds and
property. Our present Constitution retains that
same power and authority, further strengthened
by the definition of the COA’s general jurisdiction
in Section 26 of the Government Auditing Code of
the Philippines and Administrative Code of 1987.
Pursuant to its power to promulgate accounting
and auditing rules and regulations for the
prevention of irregular, unnecessary, excessive or
extravagant expenditures or uses of funds, the
COA promulgated on 29 March 1977 COA
Circular No. 77-55. Since the COA is responsible
for the enforcement of the rules and regulations,
it goes without saying that failure to comply with
them is a ground for disapproving the payment
of the proposed expenditure.
Civil Law; Taxation; LOI 1416 has no binding force
or effect as it was never published in the Official
Gazette after its issuance or at anytime after the
decision in the above-mentioned cases.—LOI
1416 has, therefore, no binding force or effect as
it was never published in the Official Gazette
after its issuance or at any time after the decision
Same; Same; Tax exemptions as a general rule
are construed strictly against the grantee and
liberally in favor of the taxing authority.—
Furthermore, even granting arguendo that LOI
1416 has force and effect, petitioner’s claim must
still fail. Tax exemptions as a general rule are
construed strictly against the grantee and
liberally in favor of the taxing authority. The
burden of proof rests upon the party claiming
exemption to prove that it is in fact covered by
the exemption so claimed. The party claiming
exemption must therefore be expressly
mentioned in the exempting law or at least be
within its purview by clear legislative intent.
Same; Same; Though LOI 1416 may suspend the
payment of taxes by copper mining companies it
does not give petitioner the same privilege with
respect to the payment of OPSF dues.—In the
case at bar, petitioner failed to prove that it is
entitled, as a consequence of its sales to ATLAS
and MARCOPPER, to claim reimbursement from
the OPSF under LOI 1416. Though LOI 1416 may
suspend the payment of taxes by copper mining
companies, it does not give petitioner the same
privilege with respect to the payment of OPSF
dues.
Same; Same; It is settled that a taxpayer may not
affect taxes due from the claims that he may
have against the government.—It is settled that
a taxpayer may not offset taxes due from the
claims that he may have against the
government. Taxes cannot be the subject of
compensation because the government and
taxpayer are not mutually creditors and debtors
of each other and a claim for taxes is not such a
debt, demand, contract or judgment as is
allowed to be set-off. Caltex Philippines, Inc. vs.
Commission on Audit, 208 SCRA 726, G.R. No.
92585 May 8, 1992
DAVIDE, JR., J.:
This is a petition erroneously brought under Rule
44 of the Rules of Court 1 questioning the
authority of the Commission on Audit (COA) in
disallowing petitioner's claims for
reimbursement from the Oil Price Stabilization
Fund (OPSF) and seeking the reversal of said
Commission's decision denying its claims for
recovery of financing charges from the Fund and
reimbursement of underrecovery arising from
sales to the National Power Corporation, Atlas
Consolidated Mining and Development
Corporation (ATLAS) and Marcopper Mining
Corporation (MAR-COPPER), preventing it from
exercising the right to offset its remittances
against its reimbursement vis-a-vis the OPSF and
disallowing its claims which are still pending
resolution before the Office of Energy Affairs
(OEA) and the Department of Finance (DOF).
Pursuant to the 1987 Constitution, 2 any
decision, order or ruling of the Constitutional
Commissions 3 may be brought to this Court
on certiorari by the aggrieved party within thirty
(30) days from receipt of a copy thereof.
The certiorari referred to is the special civil
action for certiorari under Rule 65 of the Rules of
Court. 4
Considering, however, that the allegations that
the COA acted with:
(a) total lack of jurisdiction in completely
ignoring and showing absolutely no respect for
the findings and rulings of the administrator of
the fund itself and in disallowing a claim which is
still pending resolution at the OEA level, and (b)
"grave abuse of discretion and completely
without jurisdiction" 5 in declaring that
petitioner cannot avail of the right to offset any
amount that it may be required under the law to
remit to the OPSF against any amount that it may
receive by way of reimbursement therefrom are
sufficient to bring this petition within Rule 65 of
the Rules of Court, and, considering further the
importance of the issues raised, the error in the
designation of the remedy pursued will, in this
instance, be excused.
The issues raised revolve around the OPSF
created under Section 8 of Presidential Decree
(P.D.) No. 1956, as amended by Executive Order
(E.O.) No. 137. As amended, said Section 8 reads
as follows:
Sec. 8 . There is hereby created a Trust Account
in the books of accounts of the Ministry of
Energy to be designated as Oil Price Stabilization
Fund (OPSF) for the purpose of minimizing
frequent price changes brought about by
exchange rate adjustments and/or changes in
world market prices of crude oil and imported
petroleum products. The Oil Price Stabilization
Fund may be sourced from any of the following:
a) Any increase in the tax collection from ad
valorem tax or customs duty imposed on
petroleum products subject to tax under this
Decree arising from exchange rate adjustment,
as may be determined by the Minister of Finance
in consultation with the Board of Energy;
b) Any increase in the tax collection as a result of
the lifting of tax exemptions of government
corporations, as may be determined by the
Minister of Finance in consultation with the
Board of Energy;
c) Any additional amount to be imposed on
petroleum products to augment the resources of
the Fund through an appropriate Order that may
be issued by the Board of Energy requiring
payment by persons or companies engaged in
the business of importing, manufacturing and/or
marketing petroleum products;
d) Any resulting peso cost differentials in case
the actual peso costs paid by oil companies in the
importation of crude oil and petroleum products
is less than the peso costs computed using the
reference foreign exchange rate as fixed by the
Board of Energy.
The Fund herein created shall be used for the
following:
1) To reimburse the oil companies for cost
increases in crude oil and imported petroleum
products resulting from exchange rate
adjustment and/or increase in world market
prices of crude oil;
2) To reimburse the oil companies for possible
cost under-recovery incurred as a result of the
reduction of domestic prices of petroleum
products. The magnitude of the underrecovery,
if any, shall be determined by the Ministry of
Finance. "Cost underrecovery" shall include the
following:
i. Reduction in oil company take as directed by
the Board of Energy without the corresponding
reduction in the landed cost of oil inventories in
the possession of the oil companies at the time
of the price change;
ii. Reduction in internal ad valorem taxes as a
result of foregoing government mandated price
reductions;
iii. Other factors as may be determined by the
Ministry of Finance to result in cost
underrecovery.
The Oil Price Stabilization Fund (OPSF) shall be
administered by the Ministry of Energy.
The material operative facts of this case, as
gathered from the pleadings of the parties, are
not disputed.
On 2 February 1989, the COA sent a letter to
Caltex Philippines, Inc. (CPI), hereinafter referred
to as Petitioner, directing the latter to remit to
the OPSF its collection, excluding that
unremitted for the years 1986 and 1988, of the
additional tax on petroleum products authorized
under the aforesaid Section 8 of P.D. No. 1956
which, as of 31 December 1987, amounted to
P335,037,649.00 and informing it that, pending
such remittance, all of its claims for
reimbursement from the OPSF shall be held in
abeyance. 6
On 9 March 1989, the COA sent another letter to
petitioner informing it that partial verification
with the OEA showed that the grand total of its
unremitted collections of the above tax is
P1,287,668,820.00, broken down as follows:
1986 — P233,190,916.00
1987 — 335,065,650.00
1988 — 719,412,254.00;
directing it to remit the same, with interest and
surcharges thereon, within sixty (60) days from
receipt of the letter; advising it that the COA will
hold in abeyance the audit of all its claims for
reimbursement from the OPSF; and directing it
to desist from further offsetting the taxes
collected against outstanding claims in 1989 and
subsequent periods. 7
In its letter of 3 May 1989, petitioner requested
the COA for an early release of its
reimbursement certificates from the OPSF
covering claims with the Office of Energy Affairs
since June 1987 up to March 1989, invoking in
support thereof COA Circular No. 89-299 on the
lifting of pre-audit of government transactions of
national government agencies and government-
owned or controlled corporations. 8
In its Answer dated 8 May 1989, the COA denied
petitioner's request for the early release of the
reimbursement certificates from the OPSF and
repeated its earlier directive to petitioner to
forward payment of the latter's unremitted
collections to the OPSF to facilitate COA's audit
action on the reimbursement claims. 9
By way of a reply, petitioner, in a letter dated 31
May 1989, submitted to the COA a proposal for
the payment of the collections and the recovery
of claims, since the outright payment of the sum
of P1.287 billion to the OEA as a prerequisite for
the processing of said claims against the OPSF
will cause a very serious impairment of its cash
position. 10 The proposal reads:
We, therefore, very respectfully propose the
following:
(1) Any procedural arrangement acceptable to
COA to facilitate monitoring of payments and
reimbursements will be administered by the
ERB/Finance Dept./OEA, as agencies designated
by law to administer/regulate OPSF.
(2) For the retroactive period, Caltex will deliver
to OEA, P1.287 billion as payment to OPSF,
similarly OEA will deliver to Caltex the same
amount in cash reimbursement from OPSF.
(3) The COA audit will commence immediately
and will be conducted expeditiously.
(4) The review of current claims (1989) will be
conducted expeditiously to preclude further
accumulation of reimbursement from OPSF.
On 7 June 1989, the COA, with the Chairman
taking no part, handed down Decision No. 921
accepting the above-stated proposal but
prohibiting petitioner from further offsetting
remittances and reimbursements for the current
and ensuing years. 11 Decision No. 921 reads:
This pertains to the within separate requests of
Mr. Manuel A. Estrella, President, Petron
Corporation, and Mr. Francis Ablan, President
and Managing Director, Caltex (Philippines) Inc.,
for reconsideration of this Commission's adverse
action embodied in its letters dated February 2,
1989 and March 9, 1989, the former directing
immediate remittance to the Oil Price
Stabilization Fund of collections made by the
firms pursuant to P.D. 1956, as amended by E.O.
No. 137, S. 1987, and the latter reiterating the
same directive but further advising the firms to
desist from offsetting collections against their
claims with the notice that "this Commission will
hold in abeyance the audit of all . . . claims for
reimbursement from the OPSF."
It appears that under letters of authority issued
by the Chairman, Energy Regulatory Board, the
aforenamed oil companies were allowed to
offset the amounts due to the Oil Price
Stabilization Fund against their outstanding
claims from the said Fund for the calendar years
1987 and 1988, pending with the then Ministry
of Energy, the government entity charged with
administering the OPSF. This Commission,
however, expressing serious doubts as to the
propriety of the offsetting of all types of
reimbursements from the OPSF against all
categories of remittances, advised these oil
companies that such offsetting was bereft of
legal basis. Aggrieved thereby, these companies
now seek reconsideration and in support thereof
clearly manifest their intent to make
arrangements for the remittance to the Office of
Energy Affairs of the amount of collections
equivalent to what has been previously
offset, provided that this Commission authorizes
the Office of Energy Affairs to prepare the
corresponding checks representing
reimbursement from the OPSF. It is alleged that
the implementation of such an arrangement,
whereby the remittance of collections due to the
OPSF and the reimbursement of claims from the
Fund shall be made within a period of not more
than one week from each other, will benefit the
Fund and not unduly jeopardize the continuing
daily cash requirements of these firms.
Upon a circumspect evaluation of the
circumstances herein obtaining, this Commission
perceives no further objectionable feature in the
proposed arrangement, provided that 15% of
whatever amount is due from the Fund is
retained by the Office of Energy Affairs, the same
to be answerable for suspensions or
disallowances, errors or discrepancies which
may be noted in the course of audit and
surcharges for late remittances without
prejudice to similar future retentions to answer
for any deficiency in such surcharges, and
provided further that no offsetting of
remittances and reimbursements for the current
and ensuing years shall be allowed.
Pursuant to this decision, the COA, on 18 August
1989, sent the following letter to Executive
Director Wenceslao R. De la Paz of the Office of
Energy Affairs: 12
Dear Atty. dela Paz:
Pursuant to the Commission on Audit Decision
No. 921 dated June 7, 1989, and based on our
initial verification of documents submitted to us
by your Office in support of Caltex (Philippines),
Inc. offsets (sic) for the year 1986 to May 31,
1989, as well as its outstanding claims against
the Oil Price Stabilization Fund (OPSF) as of May
31, 1989, we are pleased to inform your Office
that Caltex (Philippines), Inc. shall be required to
remit to OPSF an amount of P1,505,668,906,
representing remittances to the OPSF which
were offset against its claims reimbursements
(net of unsubmitted claims). In addition, the
Commission hereby authorize (sic) the Office of
Energy Affairs (OEA) to cause payment of
P1,959,182,612 to Caltex, representing claims
initially allowed in audit, the details of which are
presented hereunder: . . .
As presented in the foregoing computation the
disallowances totalled P387,683,535, which
included P130,420,235 representing those
claims disallowed by OEA, details of which is (sic)
shown in Schedule 1 as summarized as follows:
Disallowance of COA
Particulars Amount
Recovery of financing charges P162,728,475 /a
Product sales 48,402,398 /b
Inventory losses
Borrow loan arrangement 14,034,786 /c
Sales to Atlas/Marcopper 32,097,083 /d
Sales to NPC 558
——————
P257,263,300
Disallowances of OEA 130,420,235
————————— ——————
Total P387,683,535
The reasons for the disallowances are discussed
hereunder:
a. Recovery of Financing Charges
Review of the provisions of P.D. 1596 as
amended by E.O. 137 seems to indicate that
recovery of financing charges by oil companies is
not among the items for which the OPSF may be
utilized. Therefore, it is our view that recovery of
financing charges has no legal basis. The
mechanism for such claims is provided in DOF
Circular 1-87.
b. Product Sales –– Sales to International
Vessels/Airlines
BOE Resolution No. 87-01 dated February 7,
1987 as implemented by OEA Order No. 87-03-
095 indicating that (sic) February 7, 1987 as the
effectivity date that (sic) oil companies should
pay OPSF impost on export sales of petroleum
products. Effective February 7, 1987 sales to
international vessels/airlines should not be
included as part of its domestic sales. Changing
the effectivity date of the resolution from
February 7, 1987 to October 20, 1987 as covered
by subsequent ERB Resolution No. 88-12 dated
November 18, 1988 has allowed Caltex to
include in their domestic sales volumes to
international vessels/airlines and claim the
corresponding reimbursements from OPSF
during the period. It is our opinion that the
effectivity of the said resolution should be
February 7, 1987.
c. Inventory losses –– Settlement of Ad Valorem
We reviewed the system of handling Borrow and
Loan (BLA) transactions including the related BLA
agreement, as they affect the claims for
reimbursements of ad valorem taxes. We
observed that oil companies immediately
settle ad valorem taxes for BLA transaction (sic).
Loan balances therefore are not tax paid
inventories of Caltex subject to reimbursements
but those of the borrower. Hence, we
recommend reduction of the claim for July,
August, and November, 1987 amounting to
P14,034,786.
d. Sales to Atlas/Marcopper
LOI No. 1416 dated July 17, 1984 provides that "I
hereby order and direct the suspension of
payment of all taxes, duties, fees, imposts and
other charges whether direct or indirect due and
payable by the copper mining companies in
distress to the national and local governments."
It is our opinion that LOI 1416 which implements
the exemption from payment of OPSF imposts as
effected by OEA has no legal basis.
Furthermore, we wish to emphasize that
payment to Caltex (Phil.) Inc., of the amount as
herein authorized shall be subject to availability
of funds of OPSF as of May 31, 1989 and
applicable auditing rules and regulations. With
regard to the disallowances, it is further
informed that the aggrieved party has 30 days
within which to appeal the decision of the
Commission in accordance with law.
On 8 September 1989, petitioner filed an
Omnibus Request for the Reconsideration of the
decision based on the following grounds: 13
A) COA-DISALLOWED CLAIMS ARE AUTHORIZED
UNDER EXISTING RULES, ORDERS,
RESOLUTIONS, CIRCULARS ISSUED BY THE
DEPARTMENT OF FINANCE AND THE ENERGY
REGULATORY BOARD PURSUANT TO EXECUTIVE
ORDER NO. 137.
xxx xxx xxx
B) ADMINISTRATIVE INTERPRETATIONS IN THE
COURSE OF EXERCISE OF EXECUTIVE POWER BY
DEPARTMENT OF FINANCE AND ENERGY
REGULATORY BOARD ARE LEGAL AND SHOULD
BE RESPECTED AND APPLIED UNLESS DECLARED
NULL AND VOID BY COURTS OR REPEALED BY
LEGISLATION.
xxx xxx xxx
C) LEGAL BASIS FOR RETENTION OF OFFSET
ARRANGEMENT, AS AUTHORIZED BY THE
EXECUTIVE BRANCH OF GOVERNMENT,
REMAINS VALID.
xxx xxx xxx
On 6 November 1989, petitioner filed with the
COA a Supplemental Omnibus Request for
Reconsideration. 14
On 16 February 1990, the COA, with Chairman
Domingo taking no part and with Commissioner
Fernandez dissenting in part, handed down
Decision No. 1171 affirming the disallowance for
recovery of financing charges, inventory losses,
and sales to MARCOPPER and ATLAS, while
allowing the recovery of product sales or those
arising from export sales. 15 Decision No. 1171
reads as follows:
Anent the recovery of financing charges you
contend that Caltex Phil. Inc. has the .authority
to recover financing charges from the OPSF on
the basis of Department of Finance (DOF)
Circular 1-87, dated February 18, 1987, which
allowed oil companies to "recover cost of
financing working capital associated with crude
oil shipments," and provided a schedule of
reimbursement in terms of peso per barrel. It
appears that on November 6, 1989, the DOF
issued a memorandum to the President of the
Philippines explaining the nature of these
financing charges and justifying their
reimbursement as follows:
As part of your program to promote economic
recovery, . . . oil companies (were authorized) to
refinance their imports of crude oil and
petroleum products from the normal trade
credit of 30 days up to 360 days from date of
loading . . . Conformably . . ., the oil companies
deferred their foreign exchange remittances for
purchases by refinancing their import bills from
the normal 30-day payment term up to the
desired 360 days. This refinancing of
importations carried additional costs (financing
charges) which then became, due to government
mandate, an inherent part of the cost of the
purchases of our country's oil requirement.
We beg to disagree with such contention. The fees and other charges" was issued when OPSF
justification that financing charges increased oil was not yet in existence and could not have
costs and the schedule of reimbursement rate in contemplated OPSF imposts at the time of its
peso per barrel (Exhibit 1) used to support formulation. Moreover, it is evident that OPSF
alleged increase (sic) were not validated in our was not created to aid distressed mining
independent inquiry. As manifested in Exhibit 2, companies but rather to help the domestic oil
using the same formula which the DOF used in industry by stabilizing oil prices.
arriving at the reimbursement rate but using
Unsatisfied with the decision, petitioner filed on
comparable percentages instead of pesos, the
28 March 1990 the present petition wherein it
ineluctable conclusion is that the oil companies
imputes to the COA the commission of the
are actually gaining rather than losing from the
following errors: 16
extension of credit because such extension
enables them to invest the collections in I
marketable securities which have much higher
rates than those they incur due to the extension. RESPONDENT COMMISSION ERRED IN
The Data we used were obtained from CPI DISALLOWING RECOVERY OF FINANCING
(CALTEX) Management and can easily be verified CHARGES FROM THE OPSF.
from our records. II
With respect to product sales or those arising RESPONDENT COMMISSION ERRED IN
from sales to international vessels or airlines, . . DISALLOWING
., it is believed that export sales (product sales) CPI's 17 CLAIM FOR REIMBURSEMENT OF
are entitled to claim refund from the OPSF. UNDERRECOVERY ARISING FROM SALES TO NPC.
As regard your claim for underrecovery arising III
from inventory losses, . . . It is the considered
view of this Commission that the OPSF is not RESPONDENT COMMISSION ERRED IN DENYING
liable to refund such surtax on inventory losses CPI's CLAIMS FOR REIMBURSEMENT ON SALES
because these are paid to BIR and not OPSF, in TO ATLAS AND MARCOPPER.
view of which CPI (CALTEX) should seek refund IV
from BIR. . . .
RESPONDENT COMMISSION ERRED IN
Finally, as regards the sales to Atlas and PREVENTING CPI FROM EXERCISING ITS LEGAL
Marcopper, it is represented that you are RIGHT TO OFFSET ITS REMITTANCES AGAINST ITS
entitled to claim recovery from the OPSF REIMBURSEMENT VIS-A-VIS THE OPSF.
pursuant to LOI 1416 issued on July 17, 1984,
since these copper mining companies did not pay V
CPI (CALTEX) and OPSF imposts which were
RESPONDENT COMMISSION ERRED IN
added to the selling price.
DISALLOWING CPI's CLAIMS WHICH ARE STILL
Upon a circumspect evaluation, this Commission PENDING RESOLUTION BY (SIC) THE OEA AND
believes and so holds that the CPI (CALTEX) has THE DOF.
no authority to claim reimbursement for this
In the Resolution of 5 April 1990, this Court
uncollected OPSF impost because LOI 1416
required the respondents to comment on the
dated July 17, 1984, which exempts distressed
petition within ten (10) days from notice. 18
mining companies from "all taxes, duties, import
On 6 September 1990, respondents COA and
Commissioners Fernandez and Cruz, assisted by
the Office of the Solicitor General, filed their
Comment. 19
This Court resolved to give due course to this
petition on 30 May 1991 and required the parties
to file their respective Memoranda within
twenty (20) days from notice. 20
In a Manifestation dated 18 July 1991, the Office
of the Solicitor General prays that the Comment
filed on 6 September 1990 be considered as the
Memorandum for respondents. 21
Upon the other hand, petitioner filed its
Memorandum on 14 August 1991.
I. Petitioner dwells lengthily on its first assigned
error contending, in support thereof, that:
(1) In view of the expanded role of the OPSF
pursuant to Executive Order No. 137, which
added a second purpose, to wit:
2) To reimburse the oil companies for possible
cost underrecovery incurred as a result of the
reduction of domestic prices of petroleum
products. The magnitude of the underrecovery,
if any, shall be determined by the Ministry of
Finance. "Cost underrecovery" shall include the
following:
i. Reduction in oil company take as directed by
the Board of Energy without the corresponding
reduction in the landed cost of oil inventories in
the possession of the oil companies at the time
of the price change;
ii. Reduction in internal ad valorem taxes as a
result of foregoing government mandated price
reductions;
iii. Other factors as may be determined by the
Ministry of Finance to result in cost
underrecovery.
the "other factors" mentioned therein that may
be determined by the Ministry (now
Department) of Finance may include financing
charges for "in essence, financing charges
constitute unrecovered cost of acquisition of
crude oil incurred by the oil companies," as
explained in the 6 November 1989
Memorandum to the President of the
Department of Finance; they "directly translate
to cost underrecovery in cases where the money
market placement rates decline and at the same
time the tax on interest income increases. The
relationship is such that the presence of
underrecovery or overrecovery is directly
dependent on the amount and extent of
financing charges."
(2) The claim for recovery of financing charges
has clear legal and factual basis; it was filed on
the basis of Department of Finance Circular No.
1-87, dated 18 February 1987, which provides:
To allow oil companies to recover the costs of
financing working capital associated with crude
oil shipments, the following guidelines on the
utilization of the Oil Price Stabilization Fund
pertaining to the payment of the foregoing (sic)
exchange risk premium and recovery of financing
charges will be implemented:
1. The OPSF foreign exchange premium shall be
reduced to a flat rate of one (1) percent for the
first (6) months and 1/32 of one percent per
month thereafter up to a maximum period of
one year, to be applied on crude oil' shipments
from January 1, 1987. Shipments with
outstanding financing as of January 1, 1987 shall
be charged on the basis of the fee applicable to
the remaining period of financing.
2. In addition, for shipments loaded after January
1987, oil companies shall be allowed to recover
financing charges directly from the OPSF per
barrel of crude oil based on the following
schedule:
Financing Period Reimbursement Rate
Pesos per Barrel
Less than 180 days None guidelines for the computation of the foreign
180 days to 239 days 1.90 exchange risk fee and the recovery of financing
241 (sic) days to 299 4.02 charges from the OPSF, to wit:
300 days to 369 (sic) days 6.16
B. FINANCE CHARGES
360 days or more 8.28
1. Oil companies shall be allowed to recover
The above rates shall be subject to review every
financing charges directly from the OPSF for both
sixty
crude and product shipments loaded after
days. 22
January 1, 1987 based on the following rates:
Pursuant to this circular, the Department of
Financing Period Reimbursement Rate
Finance, in its letter of 18 February 1987, advised
(PBbl.)
the Office of Energy Affairs as follows:
Less than 180 days None
HON. VICENTE T. PATERNO
180 days to 239 days 1.90
Deputy Executive Secretary
240 days to 229 (sic) days 4.02
For Energy Affairs
300 days to 359 days 6.16
Office of the President
360 days to more 8.28
Makati, Metro Manila
2. The above rates shall be subject to review
Dear Sir:
every sixty days. 24
This refers to the letters of the Oil Industry dated
Then on 22 November 1988, the Department of
December 4, 1986 and February 5, 1987 and
Finance issued Circular No. 4-88 imposing
subsequent discussions held by the Price Review
further guidelines on the recoverability of
committee on February 6, 1987.
financing charges, to wit:
On the basis of the representations made, the
Following are the supplemental rules to
Department of Finance recognizes the necessity
Department of Finance Circular No. 1-87 dated
to reduce the foreign exchange risk premium
February 18, 1987 which allowed the recovery of
accruing to the Oil Price Stabilization Fund
financing charges directly from the Oil Price
(OPSF). Such a reduction would allow the
Stabilization Fund. (OPSF):
industry to recover partly associated financing
charges on crude oil imports. Accordingly, the 1. The Claim for reimbursement shall be on a per
OPSF foreign exchange risk fee shall be reduced shipment basis.
to a flat charge of 1% for the first six (6) months
plus 1/32% of 1% per month thereafter up to a 2. The claim shall be filed with the Office of
maximum period of one year, effective January Energy Affairs together with the claim on peso
1, 1987. In addition, since the prevailing cost differential for a particular shipment and
company take would still leave unrecovered duly certified supporting documents providedfor
financing charges, reimbursement may be under Ministry of Finance No. 11-85.
secured from the OPSF in accordance with the 3. The reimbursement shall be on the form of
provisions of the attached Department of reimbursement certificate (Annex A) to be issued
Finance circular. 23 by the Office of Energy Affairs. The said
Acting on this letter, the OEA issued on 4 May certificate may be used to offset against
1987 Order No. 87-05-096 which contains the amounts payable to the OPSF. The oil companies
may also redeem said certificates in cash if not
utilized, subject to availability of funds. 25
The OEA disseminated this Circular to all oil
companies in its Memorandum Circular No. 88-
12-017. 26
The COA can neither ignore these issuances nor
formulate its own interpretation of the laws in
the light of the determination of executive
agencies. The determination by the Department
of Finance and the OEA that financing charges
are recoverable from the OPSF is entitled to
great weight and consideration. 27 The function
of the COA, particularly in the matter of allowing
or disallowing certain expenditures, is limited to
the promulgation of accounting and auditing
rules for, among others, the disallowance of
irregular, unnecessary, excessive, extravagant,
or unconscionable expenditures, or uses of
government funds and properties. 28
(3) Denial of petitioner's claim for
reimbursement would be inequitable.
Additionally, COA's claim that petitioner is
gaining, instead of losing, from the extension of
credit, is belatedly raised and not supported by
expert analysis.
In impeaching the validity of petitioner's
assertions, the respondents argue that:
1. The Constitution gives the COA discretionary
power to disapprove irregular or unnecessary
government expenditures and as the monetary
claims of petitioner are not allowed by law, the
COA acted within its jurisdiction in denying
them;
2. P.D. No. 1956 and E.O. No. 137 do not allow
reimbursement of financing charges from the
OPSF;
3. Under the principle of ejusdem generis, the
"other factors" mentioned in the second
purpose of the OPSF pursuant to E.O. No. 137
can only include "factors which are of the same
nature or analogous to those enumerated;"
4. In allowing reimbursement of financing
charges from OPSF, Circular No. 1-87 of the
Department of Finance violates P.D. No. 1956
and E.O. No. 137; and
5. Department of Finance rules and regulations
implementing P.D. No. 1956 do not likewise
allow reimbursement of financing
29
charges.
We find no merit in the first assigned error.
As to the power of the COA, which must first be
resolved in view of its primacy, We find the
theory of petitioner –– that such does not extend
to the disallowance of irregular, unnecessary,
excessive, extravagant, or unconscionable
expenditures, or use of government funds and
properties, but only to the promulgation of
accounting and auditing rules for, among others,
such disallowance –– to be untenable in the light
of the provisions of the 1987 Constitution and
related laws.
Section 2, Subdivision D, Article IX of the 1987
Constitution expressly provides:
Sec. 2(l). The Commission on Audit shall have the
power, authority, and duty to examine, audit,
and settle all accounts pertaining to the revenue
and receipts of, and expenditures or uses of
funds and property, owned or held in trust by, or
pertaining to, the Government, or any of its
subdivisions, agencies, or instrumentalities,
including government-owned and controlled
corporations with original charters, and on a
post-audit basis: (a) constitutional bodies,
commissions and offices that have been granted
fiscal autonomy under this Constitution; (b)
autonomous state colleges and universities; (c)
other government-owned or controlled
corporations and their subsidiaries; and (d) such
non-governmental entities receiving subsidy or
equity, directly or indirectly, from or through the
government, which are required by law or the unnecessary, excessive, or extravagant
granting institution to submit to such audit as a expenditures or uses of funds and property. 31
condition of subsidy or equity. However, where
Upon the other hand, under the 1935
the internal control system of the audited
Constitution, the power and authority of the
agencies is inadequate, the Commission may
COA's precursor, the General Auditing Office,
adopt such measures, including temporary or
were, unfortunately, limited; its very role was
special pre-audit, as are necessary and
markedly passive. Section 2 of Article XI
appropriate to correct the deficiencies. It shall
thereofprovided:
keep the general accounts, of the Government
and, for such period as may be provided by law, Sec. 2. The Auditor General shall examine, audit,
preserve the vouchers and other supporting and settle all accounts pertaining to the
papers pertaining thereto. revenues and receipts from whatever source,
including trust funds derived from bond issues;
(2) The Commission shall have exclusive
and audit, in accordance with law and
authority, subject to the limitations in this
administrative regulations, all expenditures of
Article, to define the scope of its audit and
funds or property pertaining to or held in trust by
examination, establish the techniques and
the Government or the provinces or
methods required therefor, and promulgate
municipalities thereof. He shall keep the general
accounting and auditing rules and regulations,
accounts of the Government and the preserve
including those for the prevention and
the vouchers pertaining thereto. It shall be the
disallowance of irregular, unnecessary,
duty of the Auditor General to bring to the
excessive, extravagant, or, unconscionable
attention of the proper administrative officer
expenditures, or uses of government funds and
expenditures of funds or property which, in his
properties.
opinion, are irregular, unnecessary, excessive, or
These present powers, consistent with the extravagant. He shall also perform such other
declared independence of the functions as may be prescribed by law.
30
Commission, are broader and more extensive
As clearly shown above, in respect to irregular,
than that conferred by the 1973 Constitution.
unnecessary, excessive or extravagant
Under the latter, the Commission was
expenditures or uses of funds, the 1935
empowered to:
Constitution did not grant the Auditor General
Examine, audit, and settle, in accordance with the power to issue rules and regulations to
law and regulations, all accounts pertaining to prevent the same. His was merely to bring that
the revenues, and receipts of, and expenditures matter to the attention of the proper
or uses of funds and property, owned or held in administrative officer.
trust by, or pertaining to, the Government, or
The ruling on this particular point, quoted by
any of its subdivisions, agencies, or
petitioner from the cases of Guevarra
instrumentalities including government-owned
vs. Gimenez 32 and Ramos vs.Aquino, 33 are no
or controlled corporations, keep the general
longer controlling as the two (2) were decided in
accounts of the Government and, for such period
the light of the 1935 Constitution.
as may be provided by law, preserve the
vouchers pertaining thereto; and promulgate There can be no doubt, however, that the audit
accounting and auditing rules and regulations power of the Auditor General under the 1935
including those for the prevention of irregular, Constitution and the Commission on Audit under
the 1973 Constitution authorized them to
disallow illegal expenditures of funds or uses of
funds and property. Our present Constitution
retains that same power and authority, further
strengthened by the definition of the COA's
general jurisdiction in Section 26 of the
Government Auditing Code of the
34
Philippines and Administrative Code of
1987. 35 Pursuant to its power to promulgate
accounting and auditing rules and regulations for
the prevention of irregular, unnecessary,
excessive or extravagant expenditures or uses of
funds, 36 the COA promulgated on 29 March
1977 COA Circular No. 77-55. Since the COA is
responsible for the enforcement of the rules and
regulations, it goes without saying that failure to
comply with them is a ground for disapproving
the payment of the proposed expenditure. As
observed by one of the Commissioners of the
1986 Constitutional Commission, Fr. Joaquin G.
Bernas: 37
It should be noted, however, that whereas under
Article XI, Section 2, of the 1935 Constitution the
Auditor General could not correct "irregular,
unnecessary, excessive or extravagant"
expenditures of public funds but could only
"bring [the matter] to the attention of the proper
administrative officer," under the 1987
Constitution, as also under the 1973
Constitution, the Commission on Audit can
"promulgate accounting and auditing rules and
regulations including those for the prevention
and disallowance of irregular, unnecessary,
excessive, extravagant, or unconscionable
expenditures or uses of government funds and
properties." Hence, since the Commission on
Audit must ultimately be responsible for the
enforcement of these rules and regulations, the
failure to comply with these regulations can be a
ground for disapproving the payment of a
proposed expenditure.
Indeed, when the framers of the last two (2)
Constitutions conferred upon the COA a more
active role and invested it with broader and
more extensive powers, they did not intend
merely to make the COA a toothless tiger, but
rather envisioned a dynamic, effective, efficient
and independent watchdog of the Government.
The issue of the financing charges boils down to
the validity of Department of Finance Circular
No. 1-87, Department of Finance Circular No. 4-
88 and the implementing circulars of the OEA,
issued pursuant to Section 8, P.D. No. 1956, as
amended by E.O. No. 137, authorizing it to
determine "other factors" which may result in
cost underrecovery and a consequent
reimbursement from the OPSF.
The Solicitor General maintains that, following
the doctrine of ejusdem generis, financing
charges are not included in "cost underrecovery"
and, therefore, cannot be considered as one of
the "other factors." Section 8 of P.D. No. 1956, as
amended by E.O. No. 137, does not explicitly
define what "cost underrecovery" is. It merely
states what it includes. Thus:
. . . "Cost underrecovery" shall include the
following:
i. Reduction in oil company takes as directed by
the Board of Energy without the corresponding
reduction in the landed cost of oil inventories in
the possession of the oil companies at the time
of the price change;
ii. Reduction in internal ad valorem taxes as a
result of foregoing government mandated price
reductions;
iii. Other factors as may be determined by the
Ministry of Finance to result in cost
underrecovery.
These "other factors" can include only those
which are of the same class or nature as the two
specifically enumerated in subparagraphs (i) and
(ii). A common characteristic of both is that they
are in the nature of government mandated price
reductions. Hence, any other factor which seeks
to be a part of the enumeration, or which could
qualify as a cost underrecovery, must be of the
same class or nature as those specifically
enumerated.
Petitioner, however, suggests that E.O. No. 137
intended to grant the Department of Finance
broad and unrestricted authority to determine
or define "other factors."
Both views are unacceptable to this Court.
The rule of ejusdem generis states that "[w]here
general words follow an enumeration of persons
or things, by words of a particular and specific
meaning, such general words are not to be
construed in their widest extent, but are held to
be as applying only to persons or things of the
same kind or class as those specifically
mentioned. 38 A reading of subparagraphs (i) and
(ii) easily discloses that they do not have a
common characteristic. The first relates to price
reduction as directed by the Board of Energy
while the second refers to reduction in
internal ad valoremtaxes. Therefore,
subparagraph (iii) cannot be limited by the
enumeration in these subparagraphs. What
should be considered for purposes of
determining the "other factors" in subparagraph
(iii) is the first sentence of paragraph (2) of the
Section which explicitly allows cost
underrecovery only if such were incurred as a
result of the reduction of domestic prices of
petroleum products.
Although petitioner's financing losses, if indeed
incurred, may constitute cost underrecovery in
the sense that such were incurred as a result of
the inability to fully offset financing expenses
from yields in money market placements, they
do not, however, fall under the foregoing
provision of P.D. No. 1956, as amended, because
the same did not result from the reduction of the
domestic price of petroleum products. Until
paragraph (2), Section 8 of the decree, as
amended, is further amended by Congress, this
Court can do nothing. The duty of this Court is
not to legislate, but to apply or interpret the law.
Be that as it may, this Court wishes to emphasize
that as the facts in this case have shown, it was
at the behest of the Government that petitioner
refinanced its oil import payments from the
normal 30-day trade credit to a maximum of 360
days. Petitioner could be correct in its assertion
that owing to the extended period for payment,
the financial institution which refinanced said
payments charged a higher interest, thereby
resulting in higher financing expenses for the
petitioner. It would appear then that equity
considerations dictate that petitioner should
somehow be allowed to recover its financing
losses, if any, which may have been sustained
because it accommodated the request of the
Government. Although under Section 29 of the
National Internal Revenue Code such losses may
be deducted from gross income, the effect of
that loss would be merely to reduce its taxable
income, but not to actually wipe out such losses.
The Government then may consider some
positive measures to help petitioner and others
similarly situated to obtain substantial relief. An
amendment, as aforestated, may then be in
order.
Upon the other hand, to accept petitioner's
theory of "unrestricted authority" on the part of
the Department of Finance to determine or
define "other factors" is to uphold an undue
delegation of legislative power, it clearly
appearing that the subject provision does not
provide any standard for the exercise of the
authority. It is a fundamental rule that
delegation of legislative power may be sustained
only upon the ground that some standard for its
exercise is provided and that the legislature, in
making the delegation, has prescribed the
manner of the exercise of the delegated
authority. 39
Finally, whether petitioner gained or lost by
reason of the extensive credit is rendered
irrelevant by reason of the foregoing National Power Corporation (NPC); and (c) other
disquisitions. It may nevertheless be stated that cost underrecoveries incurred as may be finally
petitioner failed to disprove COA's claim that it decided by the Supreme
had in fact gained in the process. Otherwise Court; . . .
stated, petitioner failed to sufficiently show that
Hence, petitioner can recover its claim arising
it incurred a loss. Such being the case, how can
from sales of petroleum products to the National
petitioner claim for reimbursement? It cannot
Power Corporation.
have its cake and eat it too.
III. With respect to its claim for reimbursement
II. Anent the claims arising from sales to the
on sales to ATLAS and MARCOPPER, petitioner
National Power Corporation, We find for the
relies on Letter of Instruction (LOI) 1416, dated
petitioner. The respondents themselves admit in
17 July 1984, which ordered the suspension of
their Comment that underrecovery arising from
payments of all taxes, duties, fees and other
sales to NPC are reimbursable because NPC was
charges, whether direct or indirect, due and
granted full exemption from the payment of
payable by the copper mining companies in
taxes; to prove this, respondents trace the laws
distress to the national government. Pursuant to
providing for such exemption. 40 The last law
this LOI, then Minister of Energy, Hon. Geronimo
cited is the Fiscal Incentives Regulatory Board's
Velasco, issued Memorandum Circular No. 84-
Resolution No. 17-87 of 24 June 1987 which
11-22 advising the oil companies that Atlas
provides, in part, "that the tax and duty
Consolidated Mining Corporation and
exemption privileges of the National Power
Marcopper Mining Corporation are among those
Corporation, including those pertaining to its
declared to be in distress.
domestic purchases of petroleum and petroleum
products . . . are restored effective March 10, In denying the claims arising from sales to ATLAS
1987." In a Memorandum issued on 5 October and MARCOPPER, the COA, in its 18 August 1989
1987 by the Office of the President, NPC's tax letter to Executive Director Wenceslao R. de la
exemption was confirmed and approved. Paz, states that "it is our opinion that LOI 1416
which implements the exemption from payment
Furthermore, as pointed out by respondents, the
of OPSF imposts as effected by OEA has no legal
intention to exempt sales of petroleum products
basis;" 42 in its Decision No. 1171, it ruled that
to the NPC is evident in the recently passed
"the CPI (CALTEX) (Caltex) has no authority to
Republic Act No. 6952 establishing the
claim reimbursement for this uncollected impost
Petroleum Price Standby Fund to support the
because LOI 1416 dated July 17, 1984, . . . was
OPSF. 41 The pertinent part of Section 2, Republic
issued when OPSF was not yet in existence and
Act No. 6952 provides:
could not have contemplated OPSF imposts at
Sec. 2. Application of the Fund shall be subject to the time of its formulation." 43 It is further stated
the following conditions: that: "Moreover, it is evident that OPSF was not
created to aid distressed mining companies but
(1) That the Fund shall be used to reimburse the
rather to help the domestic oil industry by
oil companies for (a) cost increases of imported
stabilizing oil prices."
crude oil and finished petroleum products
resulting from foreign exchange rate In sustaining COA's stand, respondents
adjustments and/or increases in world market vigorously maintain that LOI 1416 could not have
prices of crude oil; (b) cost underrecovery intended to exempt said distressed mining
incurred as a result of fuel oil sales to the
companies from the payment of OPSF dues for
the following reasons:
a. LOI 1416 granting the alleged exemption was
issued on July 17, 1984. P.D. 1956 creating the
OPSF was promulgated on October 10, 1984,
while E.O. 137, amending P.D. 1956, was issued
on February 25, 1987.
b. LOI 1416 was issued in 1984 to assist
distressed copper mining companies in line with
the government's effort to prevent the collapse
of the copper industry. P.D No. 1956, as
amended, was issued for the purpose of
minimizing frequent price changes brought
about by exchange rate adjustments and/or
changes in world market prices of crude oil and
imported petroleum product's; and
c. LOI 1416 caused the "suspension of all taxes,
duties, fees, imposts and other charges, whether
direct or indirect, due and payable by the copper
mining companies in distress to the Notional and
Local Governments . . ." On the other hand, OPSF
dues are not payable by (sic) distressed copper
companies but by oil companies. It is to be noted
that the copper mining companies do not pay
OPSF dues. Rather, such imposts are built in or
already incorporated in the prices of oil
products. 44
Lastly, respondents allege that while LOI 1416
suspends the payment of taxes by distressed
mining companies, it does not accord petitioner
the same privilege with respect to its obligation
to pay OPSF dues.
We concur with the disquisitions of the
respondents. Aside from such reasons, however,
it is apparent that LOI 1416 was never published
in the Official Gazette 45 as required by Article 2
of the Civil Code, which reads:
Laws shall take effect after fifteen days following
the completion of their publication in the Official
Gazette, unless it is otherwise provided. . . .
In applying said provision, this Court ruled in the
case of Tañada vs. Tuvera: 46
WHEREFORE, the Court hereby orders
respondents to publish in the Official Gazette all
unpublished presidential issuances which are of
general application, and unless so published they
shall have no binding force and effect.
Resolving the motion for reconsideration of said
decision, this Court, in its Resolution
promulgated on 29 December 1986, 47 ruled:
We hold therefore that all statutes, including
those of local application and private laws, shall
be published as a condition for their effectivity,
which shall begin fifteen days after publication
unless a different effectivity date is fixed by the
legislature.
Covered by this rule are presidential decrees and
executive orders promulgated by the President
in the exercise of legislative powers whenever
the same are validly delegated by the legislature
or, at present, directly conferred by the
Constitution. Administrative rules and
regulations must also be published if their
purpose is to enforce or implement existing laws
pursuant also to a valid delegation.
xxx xxx xxx
WHEREFORE, it is hereby declared that all laws
as above defined shall immediately upon their
approval, or as soon thereafter as possible, be
published in full in the Official Gazette, to
become effective only after fifteen days from
their publication, or on another date specified by
the legislature, in accordance with Article 2 of
the Civil Code.
LOI 1416 has, therefore, no binding force or
effect as it was never published in the Official
Gazette after its issuance or at any time after the
decision in the abovementioned cases.
Article 2 of the Civil Code was, however, later
amended by Executive Order No. 200, issued on
18 June 1987. As amended, the said provision
now reads:
Laws shall take effect after fifteen days following
the completion of their publication either in the
Official Gazette or in a newspaper of general
circulation in the Philippines, unless it is
otherwise provided.
We are not aware of the publication of LOI 1416
in any newspaper of general circulation pursuant
to Executive Order No. 200.
Furthermore, even granting arguendo that LOI
1416 has force and effect, petitioner's claim
must still fail. Tax exemptions as a general rule
are construed strictly against the grantee and
liberally in favor of the taxing authority. 48The
burden of proof rests upon the party claiming
exemption to prove that it is in fact covered by
the exemption so claimed. The party claiming
exemption must therefore be expressly
mentioned in the exempting law or at least be
within its purview by clear legislative intent.
In the case at bar, petitioner failed to prove that
it is entitled, as a consequence of its sales to
ATLAS and MARCOPPER, to claim
reimbursement from the OPSF under LOI 1416.
Though LOI 1416 may suspend the payment of
taxes by copper mining companies, it does not
give petitioner the same privilege with respect to
the payment of OPSF dues.
IV. As to COA's disallowance of the amount of
P130,420,235.00, petitioner maintains that the
Department of Finance has still to issue a final
and definitive ruling thereon; accordingly, it was
premature for COA to disallow it. By doing so, the
latter acted beyond its
49
jurisdiction. Respondents, on the other hand,
contend that said amount was already
disallowed by the OEA for failure to substantiate
it. 50 In fact, when OEA submitted the claims of
petitioner for pre-audit, the abovementioned
amount was already excluded.
An examination of the records of this case shows
that petitioner failed to prove or substantiate its
contention that the amount of P130,420,235.00
is still pending before the OEA and the DOF.
Additionally, We find no reason to doubt the
submission of respondents that said amount has
already been passed upon by the OEA. Hence,
the ruling of respondent COA disapproving said
claim must be upheld.
V. The last issue to be resolved in this case is
whether or not the amounts due to the OPSF
from petitioner may be offset against
petitioner's outstanding claims from said fund.
Petitioner contends that it should be allowed to
offset its claims from the OPSF against its
contributions to the fund as this has been
allowed in the past, particularly in the years 1987
and 1988. 51
Furthermore, petitioner cites, as bases for
offsetting, the provisions of the New Civil Code
on compensation and Section 21, Book V, Title I-
B of the Revised Administrative Code which
provides for "Retention of Money for
Satisfaction of Indebtedness to
52
Government." Petitioner also mentions
communications from the Board of Energy and
the Department of Finance that supposedly
authorize compensation.
Respondents, on the other hand, citing Francia
vs. IAC and Fernandez, 53 contend that there can
be no offsetting of taxes against the claims that
a taxpayer may have against the government, as
taxes do not arise from contracts or depend
upon the will of the taxpayer, but are imposed by
law. Respondents also allege that petitioner's
reliance on Section 21, Book V, Title I-B of the
Revised Administrative Code, is misplaced
because "while this provision empowers the COA
to withhold payment of a government
indebtedness to a person who is also indebted to
the government and apply the government
indebtedness to the satisfaction of the obligation
of the person to the government, like authority
or right to make compensation is not given to the
private person." 54 The reason for this, as stated
in Commissioner of Internal Revenue vs. Algue,
Inc., 55 is that money due the government, either
in the form of taxes or other dues, is its lifeblood
and should be collected without hindrance.
Thus, instead of giving petitioner a reason for
compensation or set-off, the Revised
Administrative Code makes it the respondents'
duty to collect petitioner's indebtedness to the
OPSF.
Refuting respondents' contention, petitioner
claims that the amounts due from it do not arise
as a result of taxation because "P.D. 1956,
amended, did not create a source of taxation; it
instead established a special fund . . .," 56 and
that the OPSF contributions do not go to the
general fund of the state and are not used for
public purpose, i.e., not for the support of the
government, the administration of law, or the
payment of public expenses. This alleged lack of
a public purpose behind OPSF exactions
distinguishes such from a tax. Hence, the ruling
in the Francia case is inapplicable.
Lastly, petitioner cites R.A. No. 6952 creating the
Petroleum Price Standby Fund to support the
OPSF; the said law provides in part that:
Sec. 2. Application of the fund shall be subject to
the following conditions:
xxx xxx xxx
(3) That no amount of the Petroleum Price
Standby Fund shall be used to pay any oil
company which has an outstanding obligation to
the Government without said obligation being
offset first, subject to the requirements of
compensation or offset under the Civil Code.
We find no merit in petitioner's contention that
the OPSF contributions are not for a public
purpose because they go to a special fund of the
government. Taxation is no longer envisioned as
a measure merely to raise revenue to support
the existence of the government; taxes may be
levied with a regulatory purpose to provide
means for the rehabilitation and stabilization of
a threatened industry which is affected with
public interest as to be within the police power
of the state. 57 There can be no doubt that the oil
industry is greatly imbued with public interest as
it vitally affects the general welfare. Any
unregulated increase in oil prices could hurt the
lives of a majority of the people and cause
economic crisis of untold proportions. It would
have a chain reaction in terms of, among others,
demands for wage increases and upward
spiralling of the cost of basic commodities. The
stabilization then of oil prices is of prime concern
which the state, via its police power, may
properly address.
Also, P.D. No. 1956, as amended by E.O. No. 137,
explicitly provides that the source of OPSF is
taxation. No amount of semantical juggleries
could dim this fact.
It is settled that a taxpayer may not offset taxes
due from the claims that he may have against the
government. 58Taxes cannot be the subject of
compensation because the government and
taxpayer are not mutually creditors and debtors
of each other and a claim for taxes is not such a
debt, demand, contract or judgment as is
allowed to be set-off. 59
We may even further state that technically, in
respect to the taxes for the OPSF, the oil
companies merely act as agents for the
Government in the latter's collection since the
taxes are, in reality, passed unto the end-users –
– the consuming public. In that capacity, the
petitioner, as one of such companies, has the
primary obligation to account for and remit the
taxes collected to the administrator of the OPSF.
This duty stems from the fiduciary relationship
between the two; petitioner certainly cannot be
considered merely as a debtor. In respect,
therefore, to its collection for the OPSF vis-a-
vis its claims for reimbursement, no
compensation is likewise legally feasible. Firstly,
the Government and the petitioner cannot be
said to be mutually debtors and creditors of each
other. Secondly, there is no proof that
petitioner's claim is already due and liquidated.
Under Article 1279 of the Civil Code, in order that
compensation may be proper, it is necessary
that:
(1) each one of the obligors be bound principally,
and that he be at the same time a principal
creditor of the other;
(2) both debts consist in a sum of :money, or if
the things due are consumable, they be of the
same kind, and also of the same quality if the
latter has been stated;
(3) the two (2) debts be due;
(4) they be liquidated and demandable;
(5) over neither of them there be any retention
or controversy, commenced by third persons
and communicated in due time to the debtor.
That compensation had been the practice in the
past can set no valid precedent. Such a practice
has no legal basis. Lastly, R.A. No. 6952 does not
authorize oil companies to offset their claims
against their OPSF contributions. Instead, it
prohibits the government from paying any
amount from the Petroleum Price Standby Fund
to oil companies which have outstanding
obligations with the government, without said
obligation being offset first subject to the rules
on compensation in the Civil Code.
WHEREFORE, in view of the
foregoing, judgment is hereby rendered
AFFIRMING the challenged decision of the
Commission on Audit, except that portion
thereof disallowing petitioner's claim for
reimbursement of underrecovery arising from
sales to the National Power Corporation, which
is hereby allowed.
With costs against petitioner.
SO ORDERED.
DIGEST:
G.R. No. 92585 May 8, 1992CALTEX
PHILIPPINES, INC., petitioner,vs.THE
HONORABLE COMMISSION ON AUDIT,
HONORABLECOMMISSIONER BARTOLOME C.
FERNANDEZ and HONORABLECOMMISSIONER
ALBERTO P. CRUZ, respondents.
Topic: (1) tax vs. ordinary debt, (2)
purpose/objective of taxation: non-revenue /
special / regulatoryPonente: Davide, Jr. J.
DOCTRINE:
A taxpayer may not offset taxes due from the
claims that he may have againstthe government.
QUICK FACTS
: Caltex Philippines questions the decisions of
COA fordisallowing the offsetting of its claims for
reimbursement with its due OPSFremittance
FACTS:
The Oil Price Stabilization Fund (OPSF) was
created under Sec. 8, PD 1956, asamended by
EO 137 for the purpose of minimizing frequent
price changesbrought about by exchange rate
adjustments. It will be used to reimburse theoil
companies for cost increase and possible cost
underrecovery incurred dueto reduction of
domestic prices.COA sent a letter to Caltex
directing the latter to remit to the OPSF
itscollection. Caltex requested COA for an early
release of its reimbursementcertificates which
the latter denied.COA disallowed recover of
financing charges, inventory losses and sales
tomarcopper and atlas but allowed the recovery
of product sale or those arisingfrom export
sales.Petitioner’s Contention:Department of
Finance issued Circular No. 4-88 allowing
reimbursement.Denial of claim
for reimbursement would be inequitable. NCC
(compensation)and Sec. 21, Book V, Title I-B of
the Revised Administrative Code (Retention
of Money for Satisfaction of Indebtedness to
Government) allows offsetting.Amounts due do
not arise as a result of taxation since PD 1956 did
not create asource of taxation, it instead
established a special fund. This lack of
publicpurpose behind OPSF exactions
distinguishes it from tax.
Respondent’s Contention:Based on Francia v.
IAC, there’s no offsetting of taxes against the the
claimsthat a taxpayer may have against the
government, as taxes do not arise fromcontracts
or depend upon the will of the taxpayer, but are
imposed by law.
a special fund of thegovernment. Taxation is no
longer envisioned as a measure merely toraise
revenue to support the existence of the
government; taxes may belevied with a
regulatory purpose to provide means for the
rehabilitationand stabilization of a threatened
industry which is affected with publicinterest as
to be within the police power of the State.
The oil industry is greatly imbued with public
interest as it vitally affectsthe general welfare.
PD 1956, as amended by EO No. 137 explicitly
provides that the sourceof OPSF is taxation.

ISSUE: WON Caltex is entitled to offsetting

DECISION: NO. COA AFFIRMEDHELD:

It is settled that a taxpayer may not offset taxes

due from the claimsthat he may have against the
government. Taxes cannot be subject
of compensation because the government and
taxpayer are not mutuallycreditors and debtors
of each other and a claim for taxes is not such
adebt, demand, contract or judgment as is
allowed to be set-off.

Technically, the oil companies merely act as

agents for the Governmentin the latter’s
collection since the taxes are, in reality, passed
unto theend-users – the consuming public. Their
primary obligation is to accountfor and remit the
taxes collection to the administrator of the OPSF.

There is not merit in Caltex’s contention that the

OPSF contributions
arenot for a public purpose because they go to
VALENTIN TIO doing business under the name Disposition of Videograms. Notwithstanding any
and style of OMI ENTERPRISES, petitioner, vs. provision of law to the contrary, the province
VIDEOGRAM REGULATORY BOARD, MINISTER shall collect a tax of thirty percent (30%) of the
OF FINANCE, METRO MANILA COMMISSION, purchase price or rental rate, as the case may be,
CITY MAYOR and CITY TREASURER OF MANILA, for every sale, lease or disposition of a videogram
respondents. containing a reproduction of any motion picture
or audiovisual program. Fifty percent (50%) of
Constitutional Law; Constitutional requirement
the proceeds of the tax collected shall accrue to
that “every bill shall embrace only one subject
the province, and the other fifty percent (50%)
which shall be expressed in the title thereof’ is
shall accrue to the municipality where the tax is
sufficiently complied with if the title be
collected; PROVIDED, That in Metropolitan
comprehensive enough to include the general
Manila, the tax shall be shared equally by the
purpose it seeks to achieve and if all the parts of
City/Municipality and the Metropolitan Manila
the statute are related and germane to the
Commission. x x x x” The foregoing provision is
subject matter expressed in the title or as long as
allied and germane to, and is reasonably
they are not inconsistent with or foreign to the
necessary for the accomplishment of, the general
general subject and title.—The Constitutional
object of the DECREE, which is the regulation of
requirement that “every bill shall embrace only
the video industry through the Videogram
one subject which shall be expressed in the title
Regulatory Board as expressed in its title. The tax
thereof” is sufficiently complied with if the title
provision is not inconsistent with, nor foreign to
be comprehensive enough to include the general
that general subject and title. As a tool for
purpose which a statute seeks to achieve. It is not
regulation it is simply one of the regulatory and
necessary that the title express each and every
control mechanisms scattered throughout the
end that the statute wishes to accomplish. The
DECREE. The express purpose of the DECREE to
requirement is satisfied if all the parts of the
include taxation of the video industry in order to
statute are related, and are germane to the
regulate and rationalize the heretofore
subject matter expressed in the title, or as long
uncontrolled distribution of videograms is
as they are not inconsistent with or foreign to the
evident from Preambles 2 and 5, supra. Those
general subject and title. An act having a single
preambles explain the motives of the lawmaker
general subject, indicated in the title, may
in presenting the measure. The title of the
contain any number of provisions, no matter how
DECREE, which is the creation of the Videogram
diverse they may be, so long as they are not
Regulatory Board, is comprehensive enough to
inconsistent with or foreign to the general
include the purposes expressed in its Preamble
subject, and may be considered in furtherance of
and reasonably covers all its provisions. It is
such subject by providing for the method and
unnecessary to express all those objectives in the
means of carrying out the general object.” The
title or that the latter be an index to the body of
rule also is that the constitutional requirement as
the DECREE,
to the title of a bill should not be so narrowly
construed as to cripple or impede the power of Same; Same; Same; Tax imposed under the
legislation. It should be given a practical rather Decree is not harsh; oppressive, confiscatory and
than technical construction. in restraint of trade but regulatory and a revenue
measure; The levy is for a public purpose.—
Same; Same; Section 10 PD 1987 otherwise
Petitioner also submits that the thirty percent
known as Videogram Regulatory Board is not a
(30%) tax imposed is harsh and oppressive,
Rider.—Section 10. Tax on Sale, Lease or
confiscatory, and in restraint of trade. However,
it is beyond serious question that a tax does not
cease to be valid merely because it regulates,
discourages, or even definitely deters the
activities taxed. 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. In imposing a tax, the
legislature acts upon its constituents. This is, in
general, a sufficient security against erroneous
and oppressive taxation. The tax imposed by the
DECREE is not only a regulatory but also a
revenue measure prompted by the realization
that earnings of videogram establishments of
around P600 million per annum have not been
subjected to tax, thereby depriving the
Government of an additional source of revenue.
It is an end-user tax, imposed on retailers for
every videogram they make available for public
viewing, It is similar to the 30% amusement tax
imposed or borne by the movie industry which
the theater-owners pay to the government, but
which is passed on to the entire cost of the
admission ticket, thus shifting the tax burden on
the buying or the viewing public. It is a tax that is
imposed uniformly on all videogram operators.
The levy of the 30% tax is for a public purpose. It
was imposed primarily to answer the need for
regulating the video industry, particularly
because of the rampant film piracy, the flagrant
violation of intellectual property rights, and the
proliferation of pornographic video tapes. And
while it was also an objective of the DECREE to
protect the movie industry, the tax remains a
valid imposition.
Same; Same; Same; Same; PD 1987 not an undue
delegation of legislative power.—Neither can it
be successfully argued that the DECREE contains
an undue delegation of legislative power. The
grant in Section 11 of the DECREE of authority to
the BOARD to “solicit the direct assistance of
other agencies and Units of the government and
deputize, for a fixed and limited period, the heads
or personnel of such agencies and units to
perform enforcement functions for the Board” is
not a delegation of the power to legislate but
merely a conferment of authority or discretion as
to its execution, enforcement, and
implementation. “The true distinction is between
the delegation of power to make the law, which
necessarily involves a discretion as to what it
shall be, and conferring authority or discretion as
to its execution to be exercised under and in
pursuance of the law. The first cannot be done;
to the latter, no valid objection can be made.”
Besides, in the very language of the decree, the
authority of the BOARD to solicit such assistance
is for a “fixed and limited period” with the
deputized agencies concerned being “subject to
the direction and control of the BOARD.” That the
grant of such authority might be the source of
graft and corruption would not stigmatize the
DECREE as unconstitutional. Should the
eventuality occur, the aggrieved parties will not
be without adequate remedy in law. Tio vs.
Videogram Regulatory Board, 151 SCRA 208, No.
L-75697 June 18, 1987
MELENCIO-HERRERA, J.:
This petition was filed on September 1, 1986 by
petitioner on his own behalf and purportedly on
behalf of other videogram operators adversely
affected. It assails the constitutionality of
Presidential Decree No. 1987 entitled "An Act
Creating the Videogram Regulatory Board" with
broad powers to regulate and supervise the
videogram industry (hereinafter briefly referred
to as the BOARD). The Decree was promulgated
on October 5, 1985 and took effect on April 10,
1986, fifteen (15) days after completion of its
publication in the Official Gazette.
On November 5, 1985, a month after the
promulgation of the abovementioned decree,
Presidential Decree No. 1994 amended the
National Internal Revenue Code providing, inter
alia:
SEC. 134. Video Tapes. — There shall be Government of approximately P180 Million in
collected on each processed video-tape cassette, taxes each year;
ready for playback, regardless of length, an
3. WHEREAS, the unregulated activities of
annual tax of five pesos; Provided, That locally
videogram establishments have also affected the
manufactured or imported blank video tapes
viability of the movie industry, particularly the
shall be subject to sales tax.
more than 1,200 movie houses and theaters
On October 23, 1986, the Greater Manila throughout the country, and occasioned
Theaters Association, Integrated Movie industry-wide displacement and unemployment
Producers, Importers and Distributors due to the shutdown of numerous moviehouses
Association of the Philippines, and Philippine and theaters;
Motion Pictures Producers Association,
4. "WHEREAS, in order to ensure national
hereinafter collectively referred to as the
economic recovery, it is imperative for the
Intervenors, were permitted by the Court to
Government to create an environment
intervene in the case, over petitioner's
conducive to growth and development of all
opposition, upon the allegations that
business industries, including the movie industry
intervention was necessary for the complete
which has an accumulated investment of about
protection of their rights and that their "survival
P3 Billion;
and very existence is threatened by the
unregulated proliferation of film piracy." The 5. WHEREAS, proper taxation of the activities of
Intervenors were thereafter allowed to file their videogram establishments will not only alleviate
Comment in Intervention. the dire financial condition of the movie industry
upon which more than 75,000 families and
The rationale behind the enactment of the
500,000 workers depend for their livelihood, but
DECREE, is set out in its preambular clauses as
also provide an additional source of revenue for
follows:
the Government, and at the same time
1. WHEREAS, the proliferation and unregulated rationalize the heretofore uncontrolled
circulation of videograms including, among distribution of videograms;
others, videotapes, discs, cassettes or any
6. WHEREAS, the rampant and unregulated
technical improvement or variation thereof,
showing of obscene videogram features
have greatly prejudiced the operations of
constitutes a clear and present danger to the
moviehouses and theaters, and have caused a
moral and spiritual well-being of the youth, and
sharp decline in theatrical attendance by at least
impairs the mandate of the Constitution for the
forty percent (40%) and a tremendous drop in
State to support the rearing of the youth for civic
the collection of sales, contractor's specific,
efficiency and the development of moral
amusement and other taxes, thereby resulting in
character and promote their physical,
substantial losses estimated at P450 Million
intellectual, and social well-being;
annually in government revenues;
7. WHEREAS, civic-minded citizens and groups
2. WHEREAS, videogram(s) establishments
have called for remedial measures to curb these
collectively earn around P600 Million per annum
blatant malpractices which have flaunted our
from rentals, sales and disposition of
censorship and copyright laws;
videograms, and such earnings have not been
subjected to tax, thereby depriving the 8. WHEREAS, in the face of these grave
emergencies corroding the moral values of the
people and betraying the national economic
recovery program, bold emergency measures
must be adopted with dispatch; ... (Numbering of
paragraphs supplied).
Petitioner's attack on the constitutionality of the
DECREE rests on the following grounds:
1. Section 10 thereof, which imposes a tax of 30%
on the gross receipts payable to the local
government is a RIDER and the same is not
germane to the subject matter thereof;
2. The tax imposed is harsh, confiscatory,
oppressive and/or in unlawful restraint of trade
in violation of the due process clause of the
Constitution;
3. There is no factual nor legal basis for the
exercise by the President of the vast powers
conferred upon him by Amendment No. 6;
4. There is undue delegation of power and
authority;
5. The Decree is an ex-post facto law; and
6. There is over regulation of the video industry
as if it were a nuisance, which it is not.
We shall consider the foregoing objections
in seriatim.
1. The Constitutional requirement that "every
bill shall embrace only one subject which shall be
expressed in the title thereof" 1 is sufficiently
complied with if the title be comprehensive
enough to include the general purpose which a
statute seeks to achieve. It is not necessary that
the title express each and every end that the
statute wishes to accomplish. The requirement is
satisfied if all the parts of the statute are related,
and are germane to the subject matter
expressed in the title, or as long as they are not
inconsistent with or foreign to the general
subject and title. 2An act having a single general
subject, indicated in the title, may contain any
number of provisions, no matter how diverse
they may be, so long as they are not inconsistent
with or foreign to the general subject, and may
be considered in furtherance of such subject by
providing for the method and means of carrying
out the general object." 3 The rule also is that the
constitutional requirement as to the title of a bill
should not be so narrowly construed as to cripple
or impede the power of legislation. 4 It should be
given practical rather than technical
construction. 5
Tested by the foregoing criteria, petitioner's
contention that the tax provision of the DECREE
is a rider is without merit. That section
reads, inter alia:
Section 10. Tax on Sale, Lease or Disposition of
Videograms. — Notwithstanding any provision
of law to the contrary, the province shall collect
a tax of thirty percent (30%) of the purchase
price or rental rate, as the case may be, for every
sale, lease or disposition of a videogram
containing a reproduction of any motion picture
or audiovisual program. Fifty percent (50%) of
the proceeds of the tax collected shall accrue to
the province, and the other fifty percent (50%)
shall acrrue to the municipality where the tax is
collected; PROVIDED, That in Metropolitan
Manila, the tax shall be shared equally by the
City/Municipality and the Metropolitan Manila
Commission.
xxx xxx xxx
The foregoing provision is allied and germane to,
and is reasonably necessary for the
accomplishment of, the general object of the
DECREE, which is the regulation of the video
industry through the Videogram Regulatory
Board as expressed in its title. The tax provision
is not inconsistent with, nor foreign to that
general subject and title. As a tool for
regulation 6 it is simply one of the regulatory and
control mechanisms scattered throughout the
DECREE. The express purpose of the DECREE to
include taxation of the video industry in order to
regulate and rationalize the heretofore
uncontrolled distribution of videograms is
evident from Preambles 2 and 5, supra. Those
preambles explain the motives of the lawmaker
in presenting the measure. The title of the
DECREE, which is the creation of the Videogram
Regulatory Board, is comprehensive enough to
include the purposes expressed in its Preamble
and reasonably covers all its provisions. It is
unnecessary to express all those objectives in the
title or that the latter be an index to the body of
the DECREE. 7
2. Petitioner also submits that the thirty percent
(30%) tax imposed is harsh and oppressive,
confiscatory, and in restraint of trade. However,
it is beyond serious question that a tax does not
cease to be valid merely because it regulates,
discourages, or even definitely deters the
activities taxed. 8 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. 9 In imposing a
tax, the legislature acts upon its constituents.
This is, in general, a sufficient security against
erroneous and oppressive taxation. 10
The tax imposed by the DECREE is not only a
regulatory but also a revenue measure
prompted by the realization that earnings of
videogram establishments of around P600
million per annum have not been subjected to
tax, thereby depriving the Government of an
additional source of revenue. It is an end-user
tax, imposed on retailers for every videogram
they make available for public viewing. It is
similar to the 30% amusement tax imposed or
borne by the movie industry which the theater-
owners pay to the government, but which is
passed on to the entire cost of the admission
ticket, thus shifting the tax burden on the buying
or the viewing public. It is a tax that is imposed
uniformly on all videogram operators.
The levy of the 30% tax is for a public purpose. It
was imposed primarily to answer the need for
regulating the video industry, particularly
because of the rampant film piracy, the flagrant
violation of intellectual property rights, and the
proliferation of pornographic video tapes. And
while it was also an objective of the DECREE to
protect the movie industry, the tax remains a
valid imposition.
The public purpose of a tax may legally exist even
if the motive which impelled the legislature to
impose the tax was to favor one industry over
another. 11
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 "inequities which
result from a singling out of one particular class
for taxation or exemption infringe no
constitutional limitation". 12 Taxation has been
made the implement of the state's police
power.13
At bottom, the rate of tax is a matter better
addressed to the taxing legislature.
3. Petitioner argues that there was no legal nor
factual basis for the promulgation of the DECREE
by the former President under Amendment No.
6 of the 1973 Constitution providing that
"whenever in the judgment of the President ... ,
there exists a grave emergency or a threat or
imminence thereof, or whenever the interim
Batasang Pambansa or the regular National
Assembly fails or is unable to act adequately on
any matter for any reason that in his judgment
requires immediate action, he may, in order to
meet the exigency, issue the necessary decrees,
orders, or letters of instructions, which shall
form part of the law of the land."
In refutation, the Intervenors and the Solicitor
General's Office aver that the 8th "whereas"
clause sufficiently summarizes the justification in
that grave emergencies corroding the moral
values of the people and betraying the national
economic recovery program necessitated bold
emergency measures to be adopted with
dispatch. Whatever the reasons "in the
judgment" of the then President, considering
that the issue of the validity of the exercise of
legislative power under the said Amendment still
pends resolution in several other cases, we
reserve resolution of the question raised at the
proper time.
4. Neither can it be successfully argued that the
DECREE contains an undue delegation of
legislative power. The grant in Section 11 of the
DECREE of authority to the BOARD to "solicit the
direct assistance of other agencies and units of
the government and deputize, for a fixed and
limited period, the heads or personnel of such
agencies and units to perform enforcement
functions for the Board" is not a delegation of
the power to legislate but merely a conferment
of authority or discretion as to its execution,
enforcement, and implementation. "The true
distinction is between the delegation of power to
make the law, which necessarily involves a
discretion as to what it shall be, and conferring
authority or discretion as to its execution to be
exercised under and in pursuance of the law. The
first cannot be done; to the latter, no valid
objection can be made." 14 Besides, in the very
language of the decree, the authority of the
BOARD to solicit such assistance is for a "fixed
and limited period" with the deputized agencies
concerned being "subject to the direction and
control of the BOARD." That the grant of such
authority might be the source of graft and
corruption would not stigmatize the DECREE as
unconstitutional. Should the eventuality occur,
the aggrieved parties will not be without
adequate remedy in law.
5. The DECREE is not violative of the ex post
facto principle. An ex post facto law is, among
other categories, one which "alters the legal
rules of evidence, and authorizes conviction
upon less or different testimony than the law
required at the time of the commission of the
offense." It is petitioner's position that Section
15 of the DECREE in providing that:
All videogram establishments in the Philippines
are hereby given a period of forty-five (45) days
after the effectivity of this Decree within which
to register with and secure a permit from the
BOARD to engage in the videogram business and
to register with the BOARD all their inventories
of videograms, including videotapes, discs,
cassettes or other technical improvements or
variations thereof, before they could be sold,
leased, or otherwise disposed of. Thereafter any
videogram found in the possession of any person
engaged in the videogram business without the
required proof of registration by the BOARD,
shall be prima facie evidence of violation of the
Decree, whether the possession of such
videogram be for private showing and/or public
exhibition.
raises immediately a prima facie evidence of
violation of the DECREE when the required proof
of registration of any videogram cannot be
presented and thus partakes of the nature of
an ex post facto law.
The argument is untenable. As this Court held in
the recent case of Vallarta vs. Court of Appeals,
et al. 15
... it is now well settled that "there is no
constitutional objection to the passage of a law
providing that the presumption of innocence
may be overcome by a contrary presumption
founded upon the experience of human conduct,
and enacting what evidence shall be sufficient to
overcome such presumption of innocence"
(People vs. Mingoa 92 Phil. 856 [1953] at 858-59,
citing 1 COOLEY, A TREATISE ON THE
CONSTITUTIONAL LIMITATIONS, 639-641). And
the "legislature may enact that when certain
facts have been proved that they shall be prima
facie evidence of the existence of the guilt of the
accused and shift the burden of proof provided
there be a rational connection between the facts
proved and the ultimate facts presumed so that
the inference of the one from proof of the others
is not unreasonable and arbitrary because of lack
of connection between the two in common
experience". 16
Applied to the challenged provision, there is no
question that there is a rational connection
between the fact proved, which is non-
registration, and the ultimate fact presumed
which is violation of the DECREE, besides the fact
that the prima facie presumption of violation of
the DECREE attaches only after a forty-five-day
period counted from its effectivity and is,
therefore, neither retrospective in character.
6. We do not share petitioner's fears that the
video industry is being over-regulated and being
eased out of existence as if it were a nuisance.
Being a relatively new industry, the need for its
regulation was apparent. While the underlying
objective of the DECREE is to protect the
moribund movie industry, there is no question
that public welfare is at bottom of its enactment,
considering "the unfair competition posed by
rampant film piracy; the erosion of the moral
fiber of the viewing public brought about by the
availability of unclassified and unreviewed video
tapes containing pornographic films and films
with brutally violent sequences; and losses in
government revenues due to the drop in
theatrical attendance, not to mention the fact
that the activities of video establishments are
virtually untaxed since mere payment of Mayor's
permit and municipal license fees are required to
engage in business. 17
The enactment of the Decree since April 10, 1986
has not brought about the "demise" of the video
industry. On the contrary, video establishments
are seen to have proliferated in many places
notwithstanding the 30% tax imposed.
In the last analysis, what petitioner basically
questions is the necessity, wisdom and
expediency of the DECREE. These considerations,
however, are primarily and exclusively a matter
of legislative concern.
Only congressional power or competence, not
the wisdom of the action taken, may be the basis
for declaring a statute invalid. This is as it ought
to be. The principle of separation of powers has
in the main wisely allocated the respective
authority of each department and confined its
jurisdiction to such a sphere. There would then
be intrusion not allowable under the
Constitution if on a matter left to the discretion
of a coordinate branch, the judiciary would
substitute its own. If there be adherence to the
rule of law, as there ought to be, the last
offender should be courts of justice, to which
rightly litigants submit their controversy
precisely to maintain unimpaired the supremacy
of legal norms and prescriptions. The attack on
the validity of the challenged provision likewise
insofar as there may be objections, even if valid
and cogent on its wisdom cannot be sustained. 18
In fine, petitioner has not overcome the
presumption of validity which attaches to a
challenged statute. We find no clear violation of
the Constitution which would justify us in
pronouncing Presidential Decree No. 1987 as
unconstitutional and void.
WHEREFORE, the instant Petition is hereby
dismissed.
No costs.
SO ORDERED.
DIGEST:
Facts:
On September 1, 1986, Valentino Tio (Tio for
brevity), on his own behalf andpurportedly on
behalf of other videogram operators adversely
affected, filed a petition assailingthe
constitutionality of Presidential Decree (P.D.)
No. 1987 entitled “An Act Creating the
Videogram Regulatory Board” with broad
powers to regulate and supervise the videogram
industry. The rationale behind the enactment of
the aforesaid Decree may be summarized in its
eighth (8th ) whereas clause stating that grave
emergencies corroding the moral values of the
People and betraying the national economic
recovery program necessitate the adoption of
bold measures with dispatch. On October 23,
1986, the Greater Manila Theaters
Association,Integrated Movie Producers,
Importers and Distributors Association of the
Philippines, andPhilippine Motion Pictures
Producers Association were permitted by the
Supreme Court (SC) to
intervene in the case over Tio’s opposition
upon the allegations that intervention was
necessaryfor the complete protection
of their rights and that their “survival and very
existence is
threatened by the unregu
lated proliferation of film piracy.”
Issues:
(1)
Whether or not Section 10 of P.D. No. 1987,
which imposes a tax of thirty percent (30%)on
the gross receipts payable to the local
government is a rider and the same is
notgermane to the subject thereof;(2)
Whether or not the tax imposed is harsh,
confiscatory, oppressive and/or in unlawful
restraint of trade in violation of the due process
of the Constitution; and (3) Whether or not there
is undue delegation of power and authority;
Ruling:
As to the first issue, the SC held that Tio’s
contention that the tax provision of the
Decreeis a rider is bereft and devoid of merit
because the title of the Decree, which is the
creation of theVideogram Regulatory Board
(VRB) aimed at regulating and controlling the
video industry, iscomprehensive enough to
include the purposes expressed in its Preamble
and reasonably coversall its provisions.
Moreover, it is unnecessary to express all those
objectives in the title or that thelatter be an
index to the body of the decree. As to the second
issue, the SC held that it isaxiomatic that a tax
does not cease to be valid merely because it
regulates, discourages, or evendefinitely deters
the activities taxed. The legislature acts upon its
constituents in imposing a tax;thus, in general, a
sufficient security against erroneous and
oppressive taxation is afforded thetaxpayer.
More importantly, the tax imposed by the
Decree is also a revenue measure. The tax of 30%
is exacted for a public purpose, i.e. to answer the
need for regulating the video
industry,particularly because of the rampant film
piracy, the flagrant violation of intellectual
propertyrights, and the proliferation of
pornographic video tapes. As to the third issue,
the SC held thatthe grant in Section 11 of the
Decree of authority to the
VRB to “
solicit the direct assistance of other agencies and
units of the government and deputize, for a fixed
and limited period, the heads or personnel of
such agencies and units to perform enforcement
functions for the Board” is not a delegation of
the power to legislate but merely a conferment
of authority or discretion as to its execution,
enforcement, and implementation.
PEPSI-COLA BOTTLING COMPANY OF THE
PHILIPPINES, INC., plaintiff-appellant, vs.
MUNICIPALITY OF TANAUAN, LEYTE, THE
MUNICIPAL MAYOR, ET AL., defendants-
appellees.
Taxation; Delegation of Powers; Power of
taxation may be delegated to local governments
on matters of local concern.—The power of
taxation x x x may be delegated to local
governments in respect of matters of local
concern. This is sanctioned by immoral practice.
By necessary implication, the legislative power to
create political corporations for purposes of local
self-government carries with it the power to
confer on such local governmental agencies the
power to tax. x x x The plenary nature of the
taxing power thus delegated, contrary to
plaintiff-appellant’s pretense, would not suffice
to invalidate the said law as confiscatory and
oppressive. In delegating the authority, the State
is not limited to the exact meassure of that which
is exercised by itself. When it is said that the
taxing power may be delegated to municipalities
and the like, it is meant taxes there may be
delegated such measure of power to impose and
collect taxes as the legislature may deem
expedient. Thus, municipalities may be permitted
to tax subjects which for reasons of public policy
the State has not deemed wise to tax for more
general purposes.
Same; Due process; Taking of property without
due process of law may not be passed over under
the guise of taxing power, except when the latter
is exercised lawfully.—This is not to say though
that the constitutional injunction against
deprivation of property without due process of
law may be passed over under the guise of the
taxing power, except when the taking of the
property is in the lawful exercise of the taxing
power, as when (1) the tax is for a public purpose;
(2) the rule on uniformity of taxation is observed;
(3) either the person or property taxed is within
the jurisdiction of the government levying the
tax; and (4) in the assessment and collection of
certain kinds of taxes notice and opportunity for
hearing are provided.
Same; Same; Delegation of powers; Delegation
of taxing power to local governments may not be
assailed on the ground of double taxation.—
There is no validity to the assertion that the
delegated authority can be declared
unconstitutional on the theory of double
taxation. It must be observed that the delegating
authority specifies the limitations and
enumerates the taxes over which local taxation
may not be exercised. x x x Moreover, double
taxation, in general, is not forbidden by our
fundamental law, since We have not adopted as
part thereof the injunction against double
taxation found in the Constitution of the United
States and some states of the Union. Double
taxation becomes obnoxious only where the
taxpayer is taxed twice for the benefit of the
same governmental entity or by the same
jurisdiction for the same purpose, but not in a
case where one tax is imposed by the State and
the other by the city of municipality.
Taxation; A municipal ordinance which imposes a
tax of P0.01 for every gallon of soft drinks
produced in the municipality does not partake of
a percentage tax.—The imposition of “a tax of
one centavo (P0.01) on each gallon (128 flued
ounces, U.S.) of volume capacity” on all soft
drinks produced or manufactured under
Ordinance No. 27 does not partake of the nature
of a percentage tax on sales, or other taxes in any
form based thereon. The tax is levied on the
produce (whether sold or not) and not on the
sales. The volume capacity of the taxpayer’s
production of soft drinks is considered solely for
purposes of determining the tax rate on the
products, but there is no set ratio between the
volume of sales and the amount of the tax.
Same; A municipal tax on soft drinks is not a
specific tax.—Nor can the tax levied be treated as
a specific tax. Specific taxes are those imposed on
specified articles, such as distilled spirits, wines, x
x x cigars and cigarettes, matches, x x x bunker
fuel oil, diesel fuel oil, cinematographic films,
playing cards, saccharine, opium and other
habit-forming drugs. Soft drinks is not one of
those specified.
Same; A municipal tax of P0.01 on each gallon of
soft drinks produced is not unfair or
oppressive.—The tax of one centavo (P0.01) on
each gallon (128 fluid ounces, U.S.) of volume
capacity on all soft drinks, produced or
manufactured, or an equivalent of 1½ centavos
per case, cannot be considered unjust and unfair.
An increase in the tax alone would not support
the claim that the tax is oppressive, unjust and
confiscatory. Municipal corporations are allowed
much discretion in determining the rates of
imposable taxes. This is in line with the
constitutional policy of according the widest
possible autonomy to local governments in
matters of local taxation, an aspect that is given
expression in the Local Tax Code (PD No. 231, July
1, 1973). Unless the amount is so excessive as to
be prohibitive, courts will go slow in writing off
an ordinance as unreasonable.
Same; Licenses; Municipalities are empowered to
impose not only municipal license but just and
uniform taxes for public purposes.—The
municipal license tax of P1,000.00 per corking
machine with five but not more than ten
crowners x x x imposed on manufacturers,
producers, importers and dealers of soft drinks
and/or mineral waters x x x appears not to affect
the resolution of the validity of Ordinance No. 27.
Municipalities are empowered to impose, not
only municipal license taxes upon persons
engaged in any business or occupation but also
to levy for public purposes, just and uniform
taxes. The ordinance in question (Ordinance No.
27) comes within the second power of a
municipality. Pepsi-Cola Bottling Co. of the
Philippines, Inc. vs. Municipality of Tanauan,
Leyte, 69 SCRA 460, No. L-31156 February 27,
1976
MARTIN, J.:
This is an appeal from the decision of the Court
of First Instance of Leyte in its Civil Case No.
3294, which was certified to Us by the Court of
Appeals on October 6, 1969, as involving only
pure questions of law, challenging the power of
taxation delegated to municipalities under the
Local Autonomy Act (Republic Act No. 2264, as
amended, June 19, 1959).
On February 14, 1963, the plaintiff-appellant,
Pepsi-Cola Bottling Company of the Philippines,
Inc., commenced a complaint with preliminary
injunction before the Court of First Instance of
Leyte for that court to declare Section 2 of
Republic Act No. 2264.1 otherwise known as the
Local Autonomy Act, unconstitutional as an
undue delegation of taxing authority as well as
to declare Ordinances Nos. 23 and 27, series of
1962, of the municipality of Tanauan, Leyte, null
and void.
On July 23, 1963, the parties entered into a
Stipulation of Facts, the material portions of
which state that, first, both Ordinances Nos. 23
and 27 embrace or cover the same subject
matter and the production tax rates imposed
therein are practically the same, and second,
that on January 17, 1963, the acting Municipal
Treasurer of Tanauan, Leyte, as per his letter
addressed to the Manager of the Pepsi-Cola
Bottling Plant in said municipality, sought to
enforce compliance by the latter of the
provisions of said Ordinance No. 27, series of
1962.
Municipal Ordinance No. 23, of Tanauan, Leyte,
which was approved on September 25, 1962,
levies and collects "from soft drinks producers
and manufacturers a tai of one-sixteenth (1/16)
of a centavo for every bottle of soft drink
corked." 2 For the purpose of computing the
taxes due, the person, firm, company or
corporation producing soft drinks shall submit to
the Municipal Treasurer a monthly report, of the
total number of bottles produced and corked
during the month. 3
On the other hand, Municipal Ordinance No. 27,
which was approved on October 28, 1962, levies
and collects "on soft drinks produced or
manufactured within the territorial jurisdiction
of this municipality a tax of ONE CENTAVO
(P0.01) on each gallon (128 fluid ounces, U.S.) of
volume capacity." 4 For the purpose of
computing the taxes due, the person, fun
company, partnership, corporation or plant
producing soft drinks shall submit to the
Municipal Treasurer a monthly report of the
total number of gallons produced or
manufactured during the month. 5
The tax imposed in both Ordinances Nos. 23 and
27 is denominated as "municipal production tax.'
On October 7, 1963, the Court of First Instance
of Leyte rendered judgment "dismissing the
complaint and upholding the constitutionality of
[Section 2, Republic Act No. 2264] declaring
Ordinance Nos. 23 and 27 legal and
constitutional; ordering the plaintiff to pay the
taxes due under the oft the said Ordinances; and
to pay the costs."
From this judgment, the plaintiff Pepsi-Cola
Bottling Company appealed to the Court of
Appeals, which, in turn, elevated the case to Us
pursuant to Section 31 of the Judiciary Act of
1948, as amended.
There are three capital questions raised in this
appeal:
1. — Is Section 2, Republic Act No. 2264 an undue
delegation of power, confiscatory and
oppressive?
2. — Do Ordinances Nos. 23 and 27 constitute
double taxation and impose percentage or
specific taxes?
3. — Are Ordinances Nos. 23 and 27 unjust and
unfair?
1. The power of taxation is an essential and
inherent attribute of sovereignty, belonging as a
matter of right to every independent
government, without being expressly conferred
by the people. 6 It is a power that is purely
legislative and which the central legislative body
cannot delegate either to the executive or
judicial department of the government without
infringing upon the theory of separation of
powers. The exception, however, lies in the case
of municipal corporations, to which, said theory
does not apply. Legislative powers may be
delegated to local governments in respect of
matters of local concern. 7 This is sanctioned by
immemorial practice. 8 By necessary implication,
the legislative power to create political
corporations for purposes of local self-
government carries with it the power to confer
on such local governmental agencies the power
to tax. 9 Under the New Constitution, local
governments are granted the autonomous
authority to create their own sources of revenue
and to levy taxes. Section 5, Article XI provides:
"Each local government unit shall have the
power to create its sources of revenue and to
levy taxes, subject to such limitations as may be
provided by law." Withal, it cannot be said that
Section 2 of Republic Act No. 2264 emanated
from beyond the sphere of the legislative power
to enact and vest in local governments the
power of local taxation.
The plenary nature of the taxing power thus
delegated, contrary to plaintiff-appellant's
pretense, would not suffice to invalidate the said
law as confiscatory and oppressive. In delegating
the authority, the State is not limited 6 the exact
measure of that which is exercised by itself.
When it is said that the taxing power may be
delegated to municipalities and the like, it is
meant that there may be delegated such
measure of power to impose and collect taxes as
the legislature may deem expedient. Thus,
municipalities may be permitted to tax subjects
which for reasons of public policy the State has
not deemed wise to tax for more general
purposes. 10 This is not to say though that the
constitutional injunction against deprivation of
property without due process of law may be
passed over under the guise of the taxing power,
except when the taking of the property is in the
lawful exercise of the taxing power, as when (1)
the tax is for a public purpose; (2) the rule on
uniformity of taxation is observed; (3) either the
person or property taxed is within the
jurisdiction of the government levying the tax;
and (4) in the assessment and collection of
certain kinds of taxes notice and opportunity for
hearing are provided. 11 Due process is usually
violated where the tax imposed is for a private as
distinguished from a public purpose; a tax is
imposed on property outside the State, i.e.,
extraterritorial taxation; and arbitrary or
oppressive methods are used in assessing and
collecting taxes. But, a tax does not violate the
due process clause, as applied to a particular
taxpayer, although the purpose of the tax will
result in an injury rather than a benefit to such
taxpayer. Due process does not require that the
property subject to the tax or the amount of tax
to be raised should be determined by judicial
inquiry, and a notice and hearing as to the
amount of the tax and the manner in which it
shall be apportioned are generally not necessary
to due process of law. 12
There is no validity to the assertion that the
delegated authority can be declared
unconstitutional on the theory of double
taxation. It must be observed that the delegating
authority specifies the limitations and
enumerates the taxes over which local taxation
may not be exercised. 13 The reason is that the
State has exclusively reserved the same for its
own prerogative. Moreover, double taxation, in
general, is not forbidden by our fundamental
law, since We have not adopted as part thereof
the injunction against double taxation found in
the Constitution of the United States and some
states of the Union.14 Double taxation becomes
obnoxious only where the taxpayer is taxed
twice for the benefit of the same governmental
entity 15 or by the same jurisdiction for the same
purpose, 16 but not in a case where one tax is
imposed by the State and the other by the city or
municipality. 17
2. The plaintiff-appellant submits that Ordinance
No. 23 and 27 constitute double taxation,
because these two ordinances cover the same
subject matter and impose practically the same
tax rate. The thesis proceeds from its assumption
that both ordinances are valid and legally
enforceable. This is not so. As earlier quoted,
Ordinance No. 23, which was approved on
September 25, 1962, levies or collects from soft
drinks producers or manufacturers a tax of one-
sixteen (1/16) of a centavo for .every bottle
corked, irrespective of the volume contents of
the bottle used. When it was discovered that the
producer or manufacturer could increase the
volume contents of the bottle and still pay the
same tax rate, the Municipality of Tanauan
enacted Ordinance No. 27, approved on October
28, 1962, imposing a tax of one centavo (P0.01)
on each gallon (128 fluid ounces, U.S.) of volume
capacity. The difference between the two
ordinances clearly lies in the tax rate of the soft
drinks produced: in Ordinance No. 23, it was
1/16 of a centavo for every bottle corked; in
Ordinance No. 27, it is one centavo (P0.01) on
each gallon (128 fluid ounces, U.S.) of volume
capacity. The intention of the Municipal Council
of Tanauan in enacting Ordinance No. 27 is thus
clear: it was intended as a plain substitute for the
prior Ordinance No. 23, and operates as a repeal
of the latter, even without words to that
effect. 18 Plaintiff-appellant in its brief admitted
that defendants-appellees are only seeking to
enforce Ordinance No. 27, series of 1962. Even
the stipulation of facts confirms the fact that the
Acting Municipal Treasurer of Tanauan, Leyte
sought t6 compel compliance by the plaintiff-
appellant of the provisions of said Ordinance No.
27, series of 1962. The aforementioned
admission shows that only Ordinance No. 27,
series of 1962 is being enforced by defendants-
appellees. Even the Provincial Fiscal, counsel for
defendants-appellees admits in his brief "that
Section 7 of Ordinance No. 27, series of 1962
clearly repeals Ordinance No. 23 as the
provisions of the latter are inconsistent with the
provisions of the former."
That brings Us to the question of whether the
remaining Ordinance No. 27 imposes a
percentage or a specific tax. Undoubtedly, the
taxing authority conferred on local governments
under Section 2, Republic Act No. 2264, is broad
enough as to extend to almost "everything,
accepting those which are mentioned therein."
As long as the text levied under the authority of
a city or municipal ordinance is not within the
exceptions and limitations in the law, the same
comes within the ambit of the general rule,
pursuant to the rules of exclucion
attehus and exceptio firmat regulum in cabisus
non excepti 19 The limitation applies, particularly,
to the prohibition against municipalities and
municipal districts to impose "any percentage
tax or other taxes in any form based thereon nor
impose taxes on articles subject to specific
tax except gasoline, under the provisions of the
National Internal Revenue Code." For purposes
of this particular limitation, a municipal
ordinance which prescribes a set ratio between
the amount of the tax and the volume of sale of
the taxpayer imposes a sales tax and is null and
void for being outside the power of the
municipality to enact. 20 But, the imposition of "a
tax of one centavo (P0.01) on each gallon (128
fluid ounces, U.S.) of volume capacity" on all soft
drinks produced or manufactured under
Ordinance No. 27 does not partake of the nature
of a percentage tax on sales, or other taxes in any
form based thereon. The tax is levied on the
produce (whether sold or not) and not on the
sales. The volume capacity of the taxpayer's
production of soft drinks is considered solely for
purposes of determining the tax rate on the
products, but there is not set ratio between the
volume of sales and the amount of the tax.21
Nor can the tax levied be treated as a specific tax.
Specific taxes are those imposed on specified
articles, such as distilled spirits, wines,
fermented liquors, products of tobacco other
than cigars and cigarettes, matches firecrackers,
manufactured oils and other fuels, coal, bunker
fuel oil, diesel fuel oil, cinematographic films,
playing cards, saccharine, opium and other
habit-forming drugs. 22 Soft drink is not one of
those specified.
3. The tax of one (P0.01) on each gallon (128 fluid
ounces, U.S.) of volume capacity on all
softdrinks, produced or manufactured, or an
equivalent of 1-½ centavos per case, 23 cannot be
considered unjust and unfair. 24 an increase in
the tax alone would not support the claim that
the tax is oppressive, unjust and confiscatory.
Municipal corporations are allowed much
discretion in determining the reates of
imposable taxes. 25 This is in line with the
constutional policy of according the widest
possible autonomy to local governments in
matters of local taxation, an aspect that is given
expression in the Local Tax Code (PD No. 231,
July 1, 1973). 26 Unless the amount is so
excessive as to be prohibitive, courts will go slow
in writing off an ordinance as unreasonable. 27
Reluctance should not deter compliance with an
ordinance such as Ordinance No. 27 if the
purpose of the law to further strengthen local
autonomy were to be realized. 28
Finally, the municipal license tax of P1,000.00
per corking machine with five but not more than
ten crowners or P2,000.00 with ten but not more
than twenty crowners imposed on
manufacturers, producers, importers and
dealers of soft drinks and/or mineral waters
Ordinances No. 23 and 27 cover the same subject
under Ordinance No. 54, series of 1964, as
matterand the imposed production tax are the
amended by Ordinance No. 41, series of 1968, of
same. b.
defendant Municipality, 29 appears not to affect
the resolution of the validity of Ordinance No.
27. Municipalities are empowered to impose,
not only municipal license taxes upon persons The Municipal Treasurer is seeking to
engaged in any business or occupation but also enforcecompliance by Pepsi of Ordinance No. 27
to levy for public purposes, just and uniform alone3.
taxes. The ordinance in question (Ordinance No.
27) comes within the second power of a
municipality. Ordinance No. 23 -

ACCORDINGLY, the constitutionality of Section 2 levies and collects from soft drinks producers
of Republic Act No. 2264, otherwise known as and manufacturers at tax of 1/16 of a
the Local Autonomy Act, as amended, is hereby centavo forevery bottle of soft drink corked.
upheld and Municipal Ordinance No. 27 of the
Municipality of Tanauan, Leyte, series of 1962,
re-pealing Municipal Ordinance No. 23, same 4.
series, is hereby declared of valid and legal
effect. Costs against petitioner-appellant.
Ordinance No. 27

–
DIGEST:

Pepsi-Cola Bottling Co. of the Philippines Inc. vs.

Municipality ofTanauan, Leyte levies and collects “on soft drinks

Martin, J.: produced or manufactured within the territorial

jurisdiction ofthe municipality a tax of 1 centavo
Facts:
on each gallon of volumecapacity.
1.

5.
Pepsi filed a complaint before the CFI to declare
SEC 2 of RA No. 2264 (Local Autonomy Act)
as unconstitutional and as anundue delegation Tax imposed on both Ordinances No. 23 and 27
of taxing authority. Pepsi also sought tohave is
Ordinances 23 and 27 by the Municipality of
denominated as “municipal production tax”
Tanauan be declared as null and void2.

6.
In a Stipulation of Facts entered into by the
parties:a.
CFI dismissed the complaint and upheld the
constitutionalityof the 2 ordinances.
Issue/s:
a.
Is Sec 2, RA 2264 an undue delegation of power,
confiscatoryand oppressive? b.
Do ordinances nos. 23 and 27 constitute double
taxation andimpose percentage or specific
taxes?c.
Are ordinances nos. 23 unjust and unfair?
Ruling:
1.
The power of taxation is an essential and
inherent attribute of
sovereignty, belonging as a matter of right to
every gov’t without
being expressly conferred by the people. It
is purely legislativeand which the central
legislative body cannot delegate wither tothe
executiv
e of judicial department of the gov’t without
infringing upon the theory of separation
of powers.
Legislative
powers may be delegated to local governments i
nrespect of matters of local concern
. This is sanctioned byimmemorial practice. By
necessary implication, the legislative power to
create political corporations for purposes of local
self-
gov’t carries with it the power to confer on such
local
governmental agencies the power to tax.The
plenary (unlimited) nature of the taxing power
thusdelegated would not suffice to invalidate the
said law asconfiscatory and oppressive. In
delegating the authority, the Stateis not limited
to the exact measure of that which is exercised
byitself. When it is said that the taxing power
may be delegated tomunicipalities and the like,
it is meant that there may bedelegated such
measure of power to impose and collect taxes
asthe legislature may deem expedient. Thus
municipalities may be permitted to tax subjects
which for reasons of public policy thestate has
not deemed wise to tax for more general
purposes.
There is no validity to the assertion that the
delegated authoritycan be declared
unconstitutional on the theory of doubletaxation.
It must be observed that the delegating
authorityspecifies the limitations and
enumerates the taxes over whichlocal taxation
may not be exercised. Moreover,
double taxation,in general, is not forbidden by
our fundamental law
, since wehave not adopted as part of our
fundamental law the injunction….
DIGEST 2:
"Legislative power to create political
corporations for purposes of local self-
government carries with it the power to confer
on such local governmental agencies the power
to tax.
FACTS: Plaintiff-appellant Pepsi-Cola
commenced a complaint with preliminary
injunction to declare Section 2 of Republic Act
No. 2264, otherwise known as the Local Also, there is no validity to the assertion that
Autonomy Act, unconstitutional as an undue the delegated authority can be declared
delegation of taxing authority as well as to unconstitutional on the theory of double
declare Ordinances Nos. 23 and 27 denominated taxation. It must be observed that the delegating
as "municipal production tax" of the Municipality authority specifies the limitations and
of Tanauan, Leyte, null and void. Ordinance 23 enumerates the taxes over which local taxation
levies and collects from soft drinks producers may not be exercised. The reason is that the
and manufacturers a tax of one-sixteenth (1/16) State has exclusively reserved the same for its
of a centavo for every bottle of soft drink corked, own prerogative. Moreover, double taxation, in
and Ordinance 27 levies and collects on soft general, is not forbidden by our fundamental
drinks produced or manufactured within the law, so that double taxation becomes obnoxious
territorial jurisdiction of this municipality a tax of only where the taxpayer is taxed twice for the
ONE CENTAVO (P0.01) on each gallon (128 fluid benefit of the same governmental entity or by
ounces, U.S.) of volume capacity. Aside from the the same jurisdiction for the same purpose, but
undue delegation of authority, appellant not in a case where one tax is imposed by the
contends that it allows double taxation, and that State and the other by the city or municipality.
the subject ordinances are void for they impose On the last issue raised, the ordinances do not
percentage or specific tax. partake of the nature of a percentage tax on
sales, or other taxes in any form based thereon.
The tax is levied on the produce (whether sold or
ISSUE: Are the contentions of the appellant not) and not on the sales. The volume capacity of
tenable? the taxpayer's production of soft drinks is
considered solely for purposes of determining
the tax rate on the products, but there is not set
HELD: No. On the issue of undue delegation of ratio between the volume of sales and the
taxing power, it is settled that the power of amount of the tax.
taxation is an essential and inherent attribute of
sovereignty, belonging as a matter of right to
every independent government, without being
expressly conferred by the people. It is a power
that is purely legislative and which the central
legislative body cannot delegate either to the
executive or judicial department of the
government without infringing upon the theory
of separation of powers. The exception,
however, lies in the case of municipal
corporations, to which, said theory does not
apply. Legislative powers may be delegated to
local governments in respect of matters of local
concern. By necessary implication, the legislative
power to create political corporations for
purposes of local self-government carries with it
the power to confer on such local governmental
agencies the power to tax.
ASSOCIATION OF SMALL LANDOWNERS IN THE
PHILIP-PINES, INC., JUANITO D. GOMEZ,
GERARDO B. ALARCIO, FELIPE A. GUICO, JR.,
BERNARDO M. ALMONTE, CANUTO RAMIR B.
CABRITO, ISIDRO T. GUICO, FELISA I. LLAMIDO,
FAUSTO J. SALVA, REYNALDO G. ESTRADA,
FELISA C. BAUTISTA, ESMENIA J. CABE,
TEODORO B. MADRIAGA, AUREA J. PRESTOSA,
EMERENCIANA J. ISLA, FELICISIMA C. APRESTO,
CONSUELO M. MORALES, BENJAMIN R.
SEGISMUNDO, CIRILA A. JOSE & NAPOLEON S.
FERRER, petitioners, vs. HONORABLE
SECRETARY OF AGRARIAN REFORM,
respondent.
G.R. No. 79310. July 14, 1989.*
ARSENIO AL. ACUÑA, NEWTON JISON,
VICTORINO FER-RARIS, DENNIS JEREZA,
HERMINIGILDO GUSTILO, PAULINO D.
TOLENTINO and PLANTERS’ COMMITTEE, INC.,
Victorias Mill District, Victorias, Negros
Occidental, petitioners, vs. JOKER ARROYO,
PHILIP E. JUICO and PRESIDENTIAL AGRARIAN
REFORM COUNCIL, respondents.
Constitutional Law; Elements of judicial
inquiry.—In addition, the Constitution itself lays
down stringent conditions for a declaration of
unconstitutionality, requiring therefor the
concurrence of a majority of the members of the
Supreme Court who took part in the deliberations
and voted on the issue during their session en
banc. And as established by judge-made
doctrine, the Court will assume jurisdiction over
a constitutional question only if it is shown that
the essential requisites of a judicial inquiry into
such a question are first satisfied. Thus, there
must be an actual case or controversy involving a
conflict of legal rights susceptible of judicial
determination, the constitutional question must
have been opportunely raised by the proper
party, and the resolution of the question is
unavoidably necessary to the decision of the case
itself.
Same; Agrarian Law; Powers of the President;
Power of President Aquino to promulgate
Proclamation No. 131 and E.O. Nos. 228 and 229,
the same authorized under Section 6 of the
Transitory Provisions of the 1987 Constitution.—
The promulgation of P.D. No. 27 by President
Marcos in the exercise of his powers under
martial law has already been sustained in
Gonzales v. Estrella and we find no reason to
modify or reverse it on that issue. As for the
power of President Aquino to promulgate Proc.
No. 131 and E.O Nos. 228 and 229, the same was
authorized under Section 6 of the Transitory
Provisions of the 1987 Constitution, quoted
above.
Same; Same; Pres. Aquino’s loss of legislative
powers did not have the effect of invalidating all
the measures enacted by her when she possessed
it; Reasons.—The said measures were issued by
President Aquino before July 27, 1987, when the
Congress of the Philippines was formally
convened and took over legislative power from
her. They are not “midnight” enactments
intended to pre-empt the legislature because
E.O. No. 228 was issued on July 17, 1987, and the
other measures, i.e., Proc. No. 131 and E.O. No.
229, were both issued on July 22, 1987. Neither is
it correct to say that these measures ceased to be
valid when she lost her legislative power for, like
any statute, they continue to be in force unless
modified or repealed by subsequent law or
declared invalid by the courts. A statute does not
ipso facto become inoperative simply because of
the dissolution of the legislature that enacted it.
By the same token, President Aquino’s loss of
legislative power did not have the effect of
invalidating all the measures enacted by her
when and as long as she possessed it.
Same; Same; Same; Appropriation Law, defined;
Proc. No. 131 is not an appropriation measure;
Reasons.—That fund, as earlier noted, is itself
being questioned on the ground that it does not approval of this Act shall retain the same areas
conform to the requirements of a valid as long as they continue to cultivate said
appropriation as specified in the Constitution. homestead.
Clearly, however, Proc. No. 131 is not an
Same; Same; Same; Rule that the title of the bill
appropriation measure even if it does provide for
does not have to be a catalogue of its contents.—
the creation of said fund, for that is not its
The argument that E.O. No. 229 violates the
principal purpose. An appropriation law is one
constitutional requirement that a bill shall have
the primary and specific purpose of which is to
only one subject, to be expressed in its title,
authorize the release of public funds from the
deserves only short attention. It is settled that
treasury. The creation of the fund is only
the title of the bill does not have to be a
incidental to the main objective of the
catalogue of its contents and will suffice if the
proclamation, which is agrarian reform.
matters embodied in the text are relevant to
Same; Same; Same; Section 6 of Comprehensive each other and may be inferred from the title.
Agrarian Reform Program of 1988 (R.A. No.
Same; Same; Same; Mandamus; Rule that
6657) provides for retention limits.—The
mandamus can issue to require action only but
argument of some of the petitioners that Proc.
not specific action.—Finally, there is the
No. 131 and E.O. No. 229 should be invalidated
contention of the public respondent in G.R. No.
because they do not provide for retention limits
78742 that the writ of mandamus cannot issue to
as required by Article XIII, Section 4, of the
compel the performance of a discretionary act,
Constitution is no longer tenable. R.A. No. 6657
especially by a specific department of the
does provide for such limits now in Section 6 of
government. That is true as a general proposition
the law, which in fact is one of its most
but is subject to one important qualification.
controversial provisions. This section declares:
Correctly and categorically stated, the rule is that
Retention Limits.—Except as otherwise provided
mandamus will lie to compel the dischrage of the
in this Act, no person may own or retain, directly
discretionary duty itself but not to control the
or indirectly, any public or private agricultural
discretion to be exercised. In other words,
land, the size of which shall vary according to
mandamus can issue to require action only but
factors governing a viable family-sized farm,
not specific action. Whenever a duty is imposed
such as commodity produced, terrain,
upon a public official and an unnecessary and
infrastructure, and soil fertility as determined by
unreasonable delay in the exercise of such duty
the Presidential Agrarian Reform Council (PARC)
occurs, if it is a clear duty imposed by law, the
created hereunder, but in no case shall retention
courts will intervene by the extraordinary legal
by the landowner exceed five (5) hectares. Three
remedy of mandamus to compel action. If the
(3) hectares may be awarded to each child of the
duty is purely ministerial, the courts will require
landowner, subject to the following
specific action. If the duty is purely discretionary,
qualifications: (1) that he is at least fifteen (15)
the courts by mandamus will require action only.
years of age; and (2) that he is actually tilling the
For example, if an inferior court, public official, or
land or directly managing the farm; Provided,
board should, for an unreasonable length of
That landowners whose lands have been covered
time, fail to decide a particular question to the
by Presidential Decree No. 27 shall be allowed to
great detriment of all parties concerned, or a
keep the area originally retained by them
court should refuse to take jurisdiction of a cause
thereunder, further, That original homestead
when the law clearly gave it jurisdiction,
grantees or direct compulsory heirs who still own
mandamus will issue, in the first case to require
the original homestead at the time of the
a decision, and in the second to require that mere limitation of the use of the land. What is
jurisdiction be taken of the cause. required is the surrender of the title to and the
physical possession of the said excess and all
Same; Same; Same; Eminent Domain; Police
beneficial rights accruing to the owner in favor of
Power; Property condemned under Police Power
the farmer-beneficiary. This is definitely an
is noxious or intended for a noxious purpose is
exercise not of the police power but of the power
not compensable.—There are traditional
of eminent domain.
distinctions between the police power and the
power of eminent domain that logically preclude
the application of both powers at the same time
Same; Same; Same; Equal Protection of the Law;
on the same subject. In the case of City of Baguio
Classification defined; Requisites of a valid
v. NAWASA, for example, where a law required
classification.—Classification has been defined
the transfer of all municipal waterworks systems
as the grouping of persons or things similar to
to the NAWASA in exchange for its assets of
each other in certain particulars and different
equivalent value, the Court held that the power
from each other in these same particulars. To be
being exercised was eminent domain because
valid, it must conform to the following
the property involved was wholesome and
requirements: (1) it must be based on substantial
intended for a public use. Property condemned
distinctions; (2) it must be germane to the
under the police power is noxious or intended for
purposes of the law; (3) it must not be limited to
a noxious purpose, such as a building on the
existing conditions only; and (4) it must apply
verge of collapse, which should be demolished for
equally to all the members of the class. The Court
the public safety, or obscene materials, which
finds that all these requisites have been met by
should be destroyed in the interest of public
the measures here challenged as arbitrary and
morals. The confiscation of such property is not
discriminatory.
compensable, unlike the taking of property under
the power of expropriation, which requires the Same; Same; Same; Same; Definition of Equal
payment of just compensation to the owner. Protection.—Equal protection simply means that
all persons or things similarly situated must be
Same; Same; Same; Same; Cases at bar: The
treated alike both as to the rights conferred and
extent, retention limits, police power,
the liabilities imposed. The petitioners have not
deprivation, excess of the maximum area under
shown that they belong to a different class and
power of eminent domain.—The cases before us
entitled to a different treatment. The argument
present no knotty complication insofar as the
that not only landowners but also owners of
question of compensable taking is concerned. To
other properties must be made to share the
the extent that the measures under challenge
burden of implementing land reform must be
merely prescribe retention limits for landowners,
rejected. There is a substantial distinction
there is an exercise of the police power for the
between these two classes of owners that is
regulation of private property in accordance with
clearly visible except to those who will not see.
the Constitution. But where, to carry out such
There is no need to elaborate on this matter. In
regulation, it becomes necessary to deprive such
any event, the Congress is allowed a wide leeway
owners of whatever lands they may own in
in providing for a valid classification. Its decision
excess of the maximum area allowed, there is
is accorded recognition and respect by the courts
definitely a taking under the power of eminent
of justice except only where its discretion is
domain for which payment of just compensation
abused to the detriment of the Bill of Rights.
is imperative. The taking contemplated is not a
Same; Same; Same; Same; Statutes; A statute
may be sustained under the police power only if
there is a concurrence of the lawful subject and
method.—It is worth remarking at this juncture
that a statute may be sustained under the police
power only if there is a concurrence of the lawful
subject and the lawful method. Put otherwise,
the interests of the public generally as
distinguished from those of a particular class
require the interference of the State and, no less
important, the means employed are reasonably
necessary for the attainment of the purpose
sought to be achieved and not unduly oppressive
upon individuals. As the subject and purpose of
agrarian reform have been laid down by the
Constitution itself, we may say that the first
requirement has been satisfied. What remains to
be examined is the validity of the method
employed to achieve the Constitutional goal.
Same; Same; Same; Same; Eminent Domain,
defined.—Eminent domain is an inherent power
of the State that enables it to forcibly acquire
private lands intended for public use upon
payment of just compensation to the owner.
Obviously, there is no need to expropriate where
the owner is willing to sell under terms also
acceptable to the purchaser, in which case an
ordinary deed of sale may be agreed upon by the
parties. It is only where the owner is unwilling to
sell, or cannot accept the price or other
conditions offered by the vendee, that the power
of eminent domain will come into play to assert
the paramount authority of the State over the
interests of the property owner. Private rights
must then yield to the irresistible demands of the
public interest on the time-honored justification,
as in the case of the police power, that the
welfare of the people is the supreme law.
Same; Same; Same; Same; Requirements for a
proper exercise of power of eminent domain.—
But for all its primacy and urgency, the power of
expropriation is by no means absolute (as indeed
no power is absolute). The limitation is found in
the constitutional injunction that “private
property shall not be taken for public use without
just compensation” and in the abundant
jurisprudence that has evolved from the
interpretation of this principle. Basically, the
requirements for a proper exercise of the power
are: (1) public use and (2) just compensation.
Same; Same; Same; Same; Concept of political
question.—A becoming courtesy admonishes us
to respect the decisions of the political
departments when they decide what is known as
the political question. As explained by Chief
Justice Concepcion in the case of Tañada v.
Cuenco: The term “political question” connotes
what it means in ordinary parlance, namely, a
question of policy. It refers to “those questions
which, under the Constitution, are to be decided
by the people in their sovereign capacity; or in
regard to which full discretionary authority has
been delegated to the legislative or executive
branch of the government.” It is concerned with
issues dependent upon the wisdom, not legality,
of a particular measure.
Same; Same; Same; Same; Just Compensation,
defined.—Just compensation is defined as the full
and fair equivalent of the property taken from its
owner by the expropriator. It has been
repeatedly stressed by this Court that the
measure is not the taker’s gain but the owner’s
loss. The word “just” is used to intensify the
meaning of the word “compensation” to convey
the idea that the equivalent to be rendered for
the property to be taken shall be real,
substantial, full, ample.
Same; Same; Same; Same; Requirements of
compensable taking.—As held in Republic of the
Philippines v. Castellvi, there is compensable
taking when the following conditions concur: (1)
the expropriator must enter a private property;
(2) the entry must be for more than a momentary
period; (3) the entry must be under warrant or
color of legal authority; (4) the property must be
devoted to public use or otherwise informally
appropriated or injuriously affected; and (5) the
utilization of the property for public use must be
in such a way as to oust the owner and deprive
him of beneficial enjoyment of the property. All
these requisites are envisioned in the measures
before us.
Same; Same; Same; Same; Determination of Just
Compensation, addressed to the courts of justice
and may not be usurped by any other branch.—
To be sure, the determination of just
compensation is a function addressed to the
courts of justice and may not be usurped by any
other branch or official of the government. EPZA
v. Dulay resolved a challenge to several decrees
promulgated by President Marcos providing that
the just compensation for property under
expropriation should be either the assessment of
the property by the government or the sworn
valuation thereof by the owner, whichever was
lower.
Same; Same; Same; Same; The Court declares
that the content and manner of the just
compensation provided for in the CARP Law is not
violative of the Constitution.—With these
assumptions, the Court hereby declares that the
content and manner of the just compensation
provided for in the afore-quoted Section 18 of the
CARP Law is not violative of the Constitution. We
do not mind admitting that a certain degree of
pragmatism has influenced our decision on this
issue, but after all this Court is not a cloistered
institution removed from the realities and
demands of society or oblivious to the need for its
enhancement. The Court is as acutely anxious as
the rest of our people to see the goal of agrarian
reform achieved at last after the frustrations and
deprivations of our peasant masses during all
these disappointing decades. We are aware that
invalidation of the said section will result in the
nullification of the entire program, killing the
farmer’s hopes even as they approach realization
and resurrecting the spectre of discontent and
dissent in the restless countryside. That is not in
our view the intention of the Constitution, and
that is not what we shall decree today.
Same; Same; Same; Same; Theory that payment
of the just compensation is not always required
to be made fully in money; Other modes of
payment.—Accepting the theory that payment of
the just compensation is not always required to
be made fully in money, we find further that the
proportion of cash payment to the other things
of value constituting the total payment, as
determined on the basis of the areas of the lands
expropriated, is not unduly oppressive upon the
landowner. It is noted that the smaller the land,
the bigger the payment in money, primarily
because the small landwoner will be needing it
more than the big landowners, who can afford a
bigger balance in bonds and other things of
value. No less importantly, the government
financial instruments making up the balance of
the payment are “negotiable at any time.” The
other modes, which are likewise available to the
landowner at his option, are also not
unreasonable because payment is made in
shares of stock, LBP bonds, other properties or
assets, tax credits, and other things of value
equivalent to the amount of just compensation.
Same; Same; Same; Same; CARP Law repeats the
requisites of registration but does not provide
that in case of failure or refusal to register the
land, the valuation thereof shall be that given by
the provincial or city assessor for tax purposes.—
The complaint against the effects of non-
registration of the land under E.O. No. 229 does
not seem to be viable any more as it appears that
Setion 4 of the Order has been superseded by
Section 14 of the CARP Law. This repeats the
requisites of registration as embodied in the
earlier measure but does not provide, as the
latter did, that in case of failure or refusal to
register the land, the valuation thereof shall be
that given by the provincial or city assessor for
tax purposes. On the contrary, the CARP Law says
that the just compensation shall be ascertained
on the basis of the factors mentioned in its
Section 17 and in the manner provided for in
Section 16.
Same; Same; Same; Same; Recognized rule that
title to the property expropriated shall pass from
the owner to the expropriator only upon full
payment of the just compensation.—The
recognized rule, indeed, is that title to the
property expropriated shall pass from the owner
to the expropriator only upon full payment of the
just compensation. Jurisprudence on this settled
principle is consistent both here and in other
democratic jurisdictions.
Same; Same; Same; Same; CARP Law (R.A. 6657)
is more liberal than those granted by P.D. No. 27
as to retention limits; Case at bar.—In connection
with these retained rights, it does not appear in
G.R. No. 78742 that the appeal filed by the
petitioners with the Office of the President has
already been resolved. Although we have said
that the doctrine of exhaustion of administrative
remedies need not preclude immediate resort to
judicial action, there are factual issues that have
yet to be examined on the administrative level,
especially the claim that the petitioners are not
covered by LOI 474 because they do not own
other agricultural lands than the subjects of their
petition. Obviously, the Court cannot resolve
these issues. In any event, assuming that the
petitioners have not yet exercised their retention
rights, if any, under P.D. No. 27, the Court holds
that they are entitled to the new retention rights
provided for by R.A. No. 6657, which in fact are
on the whole more liberal than those granted by
the decree. Association of Small Landowners in
the Philippines, Inc. vs. Secretary of Agrarian
Reform, 175 SCRA 343, G.R. No. 78742, G.R. No.
79310, G.R. No. 79744, G.R. No. 79777 July 14,
1989
G.R. No. 78742 July 14, 1989
ASSOCIATION OF SMALL LANDOWNERS IN THE
PHILIPPINES, INC., JUANITO D. GOMEZ,
GERARDO B. ALARCIO, FELIPE A. GUICO, JR.,
BERNARDO M. ALMONTE, CANUTO RAMIR B.
CABRITO, ISIDRO T. GUICO, FELISA I. LLAMIDO,
FAUSTO J. SALVA, REYNALDO G. ESTRADA,
FELISA C. BAUTISTA, ESMENIA J. CABE,
TEODORO B. MADRIAGA, AUREA J. PRESTOSA,
EMERENCIANA J. ISLA, FELICISIMA C. ARRESTO,
CONSUELO M. MORALES, BENJAMIN R.
SEGISMUNDO, CIRILA A. JOSE & NAPOLEON S.
FERRER, petitioners,
vs.
HONORABLE SECRETARY OF AGRARIAN
REFORM, respondent.
G.R. No. 79310 July 14, 1989
ARSENIO AL. ACUNA, NEWTON JISON,
VICTORINO FERRARIS, DENNIS JEREZA,
HERMINIGILDO GUSTILO, PAULINO D.
TOLENTINO and PLANTERS' COMMITTEE, INC.,
Victorias Mill District, Victorias, Negros
Occidental, petitioners,
vs.
JOKER ARROYO, PHILIP E. JUICO and
PRESIDENTIAL AGRARIAN REFORM
COUNCIL, respondents.
G.R. No. 79744 July 14, 1989
INOCENTES PABICO, petitioner,
vs.
HON. PHILIP E. JUICO, SECRETARY OF THE
DEPARTMENT OF AGRARIAN REFORM, HON.
JOKER ARROYO, EXECUTIVE SECRETARY OF THE
OFFICE OF THE PRESIDENT, and Messrs.
SALVADOR TALENTO, JAIME ABOGADO,
CONRADO AVANCENA and ROBERTO
TAAY, respondents.
G.R. No. 79777 July 14, 1989
NICOLAS S. MANAAY and AGUSTIN HERMANO,
JR., petitioners,
vs.
HON. PHILIP ELLA JUICO, as Secretary of
Agrarian Reform, and LAND BANK OF THE
PHILIPPINES, respondents.
CRUZ, J.:
In ancient mythology, Antaeus was a terrible
giant who blocked and challenged Hercules for
his life on his way to Mycenae after performing
his eleventh labor. The two wrestled mightily
and Hercules flung his adversary to the ground
thinking him dead, but Antaeus rose even
stronger to resume their struggle. This happened
several times to Hercules' increasing
amazement. Finally, as they continued grappling,
it dawned on Hercules that Antaeus was the son
of Gaea and could never die as long as any part
of his body was touching his Mother Earth. Thus
forewarned, Hercules then held Antaeus up in
the air, beyond the reach of the sustaining soil,
and crushed him to death.
Mother Earth. The sustaining soil. The giver of
life, without whose invigorating touch even the
powerful Antaeus weakened and died.
The cases before us are not as fanciful as the
foregoing tale. But they also tell of the elemental
forces of life and death, of men and women who,
like Antaeus need the sustaining strength of the
precious earth to stay alive.
"Land for the Landless" is a slogan that
underscores the acute imbalance in the
distribution of this precious resource among our
people. But it is more than a slogan. Through the
brooding centuries, it has become a battle-cry
dramatizing the increasingly urgent demand of
the dispossessed among us for a plot of earth as
their place in the sun.
Recognizing this need, the Constitution in 1935
mandated the policy of social justice to "insure
the well-being and economic security of all the
people," 1 especially the less privileged. In 1973,
the new Constitution affirmed this goal adding
specifically that "the State shall regulate the
acquisition, ownership, use, enjoyment and
disposition of private property and equitably
diffuse property ownership and
2
profits." Significantly, there was also the
specific injunction to "formulate and implement
an agrarian reform program aimed at
emancipating the tenant from the bondage of
the soil." 3
The Constitution of 1987 was not to be outdone.
Besides echoing these sentiments, it also
adopted one whole and separate Article XIII on
Social Justice and Human Rights, containing
grandiose but undoubtedly sincere provisions for
the uplift of the common people. These include
a call in the following words for the adoption by
the State of an agrarian reform program:
SEC. 4. The State shall, by law, undertake an
agrarian reform program founded on the right of
farmers and regular farmworkers, who are
landless, to own directly or collectively the lands
they till or, in the case of other farmworkers, to
receive a just share of the fruits thereof. To this
end, the State shall encourage and undertake
the just distribution of all agricultural lands,
subject to such priorities and reasonable
retention limits as the Congress may prescribe,
taking into account ecological, developmental,
or equity considerations and subject to the
payment of just compensation. In determining
retention limits, the State shall respect the right
of small landowners. The State shall further
provide incentives for voluntary land-sharing.
Earlier, in fact, R.A. No. 3844, otherwise known
as the Agricultural Land Reform Code, had
already been enacted by the Congress of the
Philippines on August 8, 1963, in line with the
above-stated principles. This was substantially
superseded almost a decade later by P.D. No. 27,
which was promulgated on October 21, 1972,
along with martial law, to provide for the
compulsory acquisition of private lands for
distribution among tenant-farmers and to
specify maximum retention limits for
landowners.
The people power revolution of 1986 did not
change and indeed even energized the thrust for
agrarian reform. Thus, on July 17, 1987,
President Corazon C. Aquino issued E.O. No. 228,
declaring full land ownership in favor of the
beneficiaries of P.D. No. 27 and providing for the
valuation of still unvalued lands covered by the
decree as well as the manner of their payment.
This was followed on July 22, 1987 by
Presidential Proclamation No. 131, instituting a
comprehensive agrarian reform program (CARP),
and E.O. No. 229, providing the mechanics for its
implementation.
Subsequently, with its formal organization, the
revived Congress of the Philippines took over
legislative power from the President and started
its own deliberations, including extensive public
hearings, on the improvement of the interests of
farmers. The result, after almost a year of
spirited debate, was the enactment of R.A. No.
6657, otherwise known as the Comprehensive
Agrarian Reform Law of 1988, which President
Aquino signed on June 10, 1988. This law, while
considerably changing the earlier mentioned
enactments, nevertheless gives them suppletory
effect insofar as they are not inconsistent with its
provisions. 4
The above-captioned cases have been
consolidated because they involve common legal
questions, including serious challenges to the
constitutionality of the several measures
mentioned above. They will be the subject of one
common discussion and resolution, The different
antecedents of each case will require separate
treatment, however, and will first be explained
hereunder.
G.R. No. 79777
Squarely raised in this petition is the
constitutionality of P.D. No. 27, E.O. Nos. 228
and 229, and R.A. No. 6657.
The subjects of this petition are a 9-hectare
riceland worked by four tenants and owned by
petitioner Nicolas Manaay and his wife and a 5-
hectare riceland worked by four tenants and
owned by petitioner Augustin Hermano, Jr. The
tenants were declared full owners of these lands
by E.O. No. 228 as qualified farmers under P.D.
No. 27.
The petitioners are questioning P.D. No. 27 and
E.O. Nos. 228 and 229 on grounds inter alia of
separation of powers, due process, equal
protection and the constitutional limitation that
no private property shall be taken for public use
without just compensation.
They contend that President Aquino usurped
legislative power when she promulgated E.O.
No. 228. The said measure is invalid also for
violation of Article XIII, Section 4, of the
Constitution, for failure to provide for retention
limits for small landowners. Moreover, it does
not conform to Article VI, Section 25(4) and the
other requisites of a valid appropriation.
In connection with the determination of just
compensation, the petitioners argue that the
same may be made only by a court of justice and
not by the President of the Philippines. They
invoke the recent cases of EPZA v.
Dulay 5 andManotok v. National Food
6
Authority. Moreover, the just compensation
contemplated by the Bill of Rights is payable in
money or in cash and not in the form of bonds or
other things of value.
In considering the rentals as advance payment
on the land, the executive order also deprives
the petitioners of their property rights as
protected by due process. The equal protection
clause is also violated because the order places
the burden of solving the agrarian problems on
the owners only of agricultural lands. No similar
obligation is imposed on the owners of other
properties.
The petitioners also maintain that in declaring
the beneficiaries under P.D. No. 27 to be the
owners of the lands occupied by them, E.O. No.
228 ignored judicial prerogatives and so violated
due process. Worse, the measure would not
solve the agrarian problem because even the
small farmers are deprived of their lands and the
retention rights guaranteed by the Constitution.
In his Comment, the Solicitor General stresses
that P.D. No. 27 has already been upheld in the
earlier cases ofChavez v. Zobel, 7 Gonzales v.
Estrella, 8 and Association of Rice and Corn
Producers of the Philippines, Inc. v. The National
Land Reform Council. 9 The determination of just
compensation by the executive authorities
conformably to the formula prescribed under
the questioned order is at best initial or
preliminary only. It does not foreclose judicial
intervention whenever sought or warranted. At
any rate, the challenge to the order is premature
because no valuation of their property has as yet
been made by the Department of Agrarian
Reform. The petitioners are also not proper
parties because the lands owned by them do not
exceed the maximum retention limit of 7
hectares.
Replying, the petitioners insist they are proper
parties because P.D. No. 27 does not provide for
retention limits on tenanted lands and that in
any event their petition is a class suit brought in
behalf of landowners with landholdings below
24 hectares. They maintain that the
determination of just compensation by the
administrative authorities is a final
ascertainment. As for the cases invoked by the
public respondent, the constitutionality of P.D.
No. 27 was merely assumed in Chavez, while
what was decided in Gonzales was the validity of
the imposition of martial law.
In the amended petition dated November 22,
1588, it is contended that P.D. No. 27, E.O. Nos.
228 and 229 (except Sections 20 and 21) have
been impliedly repealed by R.A. No. 6657.
Nevertheless, this statute should itself also be
declared unconstitutional because it suffers
from substantially the same infirmities as the
earlier measures.
A petition for intervention was filed with leave of
court on June 1, 1988 by Vicente Cruz, owner of
a 1. 83- hectare land, who complained that the
DAR was insisting on the implementation of P.D.
No. 27 and E.O. No. 228 despite a compromise
agreement he had reached with his tenant on
the payment of rentals. In a subsequent motion
dated April 10, 1989, he adopted the allegations
in the basic amended petition that the above-
mentioned enactments have been impliedly
repealed by R.A. No. 6657.
G.R. No. 79310
The petitioners herein are landowners and sugar
planters in the Victorias Mill District, Victorias,
Negros Occidental. Co-petitioner Planters'
Committee, Inc. is an organization composed of
1,400 planter-members. This petition seeks to
prohibit the implementation of Proc. No. 131
and E.O. No. 229.
The petitioners claim that the power to provide
for a Comprehensive Agrarian Reform Program
as decreed by the Constitution belongs to
Congress and not the President. Although they
agree that the President could exercise
legislative power until the Congress was
convened, she could do so only to enact
emergency measures during the transition
period. At that, even assuming that the interim
legislative power of the President was properly
exercised, Proc. No. 131 and E.O. No. 229 would
still have to be annulled for violating the
constitutional provisions on just compensation,
due process, and equal protection.
They also argue that under Section 2 of Proc. No.
131 which provides:
Agrarian Reform Fund.-There is hereby created a
special fund, to be known as the Agrarian Reform
Fund, an initial amount of FIFTY BILLION PESOS
(P50,000,000,000.00) to cover the estimated
cost of the Comprehensive Agrarian Reform
Program from 1987 to 1992 which shall be
sourced from the receipts of the sale of the
assets of the Asset Privatization Trust and
Receipts of sale of ill-gotten wealth received
through the Presidential Commission on Good
Government and such other sources as
government may deem appropriate. The
amounts collected and accruing to this special
fund shall be considered automatically
appropriated for the purpose authorized in this
Proclamation the amount appropriated is in
futuro, not in esse. The money needed to cover
the cost of the contemplated expropriation has
yet to be raised and cannot be appropriated at
this time.
Furthermore, they contend that taking must be
simultaneous with payment of just
compensation as it is traditionally understood,
i.e., with money and in full, but no such payment
is contemplated in Section 5 of the E.O. No. 229.
On the contrary, Section 6, thereof provides that
the Land Bank of the Philippines "shall
compensate the landowner in an amount to be
established by the government, which shall be
based on the owner's declaration of current fair
market value as provided in Section 4 hereof, but
subject to certain controls to be defined and
promulgated by the Presidential Agrarian
Reform Council." This compensation may not be
paid fully in money but in any of several modes
that may consist of part cash and part bond, with
interest, maturing periodically, or direct
payment in cash or bond as may be mutually
agreed upon by the beneficiary and the
landowner or as may be prescribed or approved
by the PARC.
The petitioners also argue that in the issuance of
the two measures, no effort was made to make
a careful study of the sugar planters' situation.
There is no tenancy problem in the sugar areas
that can justify the application of the CARP to
them. To the extent that the sugar planters have
been lumped in the same legislation with other
farmers, although they are a separate group with
problems exclusively their own, their right to
equal protection has been violated.
A motion for intervention was filed on August
27,1987 by the National Federation of Sugarcane
Planters (NASP) which claims a membership of at
least 20,000 individual sugar planters all over the
country. On September 10, 1987, another
motion for intervention was filed, this time by
Manuel Barcelona, et al., representing coconut
and riceland owners. Both motions were granted
by the Court.
NASP alleges that President Aquino had no
authority to fund the Agrarian Reform Program
and that, in any event, the appropriation is
invalid because of uncertainty in the amount
appropriated. Section 2 of Proc. No. 131 and
Sections 20 and 21 of E.O. No. 229 provide for an
initial appropriation of fifty billion pesos and thus
specifies the minimum rather than the maximum
authorized amount. This is not allowed.
Furthermore, the stated initial amount has not
been certified to by the National Treasurer as
actually available.
Two additional arguments are made by
Barcelona, to wit, the failure to establish by clear
and convincing evidence the necessity for the
exercise of the powers of eminent domain, and
the violation of the fundamental right to own
property.
The petitioners also decry the penalty for non-
registration of the lands, which is the
expropriation of the said land for an amount
equal to the government assessor's valuation of
the land for tax purposes. On the other hand, if
the landowner declares his own valuation he is
unjustly required to immediately pay the
corresponding taxes on the land, in violation of
the uniformity rule.
In his consolidated Comment, the Solicitor
General first invokes the presumption of
constitutionality in favor of Proc. No. 131 and
E.O. No. 229. He also justifies the necessity for
the expropriation as explained in the "whereas"
clauses of the Proclamation and submits that,
contrary to the petitioner's contention, a pilot
project to determine the feasibility of CARP and
a general survey on the people's opinion thereon
are not indispensable prerequisites to its
promulgation.
On the alleged violation of the equal protection
clause, the sugar planters have failed to show
that they belong to a different class and should
be differently treated. The Comment also
suggests the possibility of Congress first
distributing public agricultural lands and
scheduling the expropriation of private
agricultural lands later. From this viewpoint, the
petition for prohibition would be premature.
The public respondent also points out that the
constitutional prohibition is against the payment
of public money without the corresponding
appropriation. There is no rule that only money
already in existence can be the subject of an
appropriation law. Finally, the earmarking of fifty
billion pesos as Agrarian Reform Fund, although
denominated as an initial amount, is actually the
maximum sum appropriated. The word "initial"
simply means that additional amounts may be
appropriated later when necessary.
On April 11, 1988, Prudencio Serrano, a coconut
planter, filed a petition on his own behalf,
assailing the constitutionality of E.O. No. 229. In
addition to the arguments already raised,
Serrano contends that the measure is
unconstitutional because:
(1) Only public lands should be included in the
CARP;
(2) E.O. No. 229 embraces more than one subject
which is not expressed in the title;
(3) The power of the President to legislate was
terminated on July 2, 1987; and
(4) The appropriation of a P50 billion special fund
from the National Treasury did not originate
from the House of Representatives.
G.R. No. 79744
The petitioner alleges that the then Secretary of
Department of Agrarian Reform, in violation of
due process and the requirement for just
compensation, placed his landholding under the
coverage of Operation Land Transfer.
Certificates of Land Transfer were subsequently
issued to the private respondents, who then
refused payment of lease rentals to him.
On September 3, 1986, the petitioner protested
the erroneous inclusion of his small landholding
under Operation Land transfer and asked for the
recall and cancellation of the Certificates of Land
Transfer in the name of the private respondents.
He claims that on December 24, 1986, his
petition was denied without hearing. On
February 17, 1987, he filed a motion for
reconsideration, which had not been acted upon
when E.O. Nos. 228 and 229 were issued. These
orders rendered his motion moot and academic
because they directly effected the transfer of his
land to the private respondents.
The petitioner now argues that:
(1) E.O. Nos. 228 and 229 were invalidly issued
by the President of the Philippines.
(2) The said executive orders are violative of the
constitutional provision that no private property
shall be taken without due process or just
compensation.
(3) The petitioner is denied the right of maximum
retention provided for under the 1987
Constitution.
The petitioner contends that the issuance of E.0.
Nos. 228 and 229 shortly before Congress
convened is anomalous and arbitrary, besides
violating the doctrine of separation of powers.
The legislative power granted to the President
under the Transitory Provisions refers only to
emergency measures that may be promulgated
in the proper exercise of the police power.
The petitioner also invokes his rights not to be
deprived of his property without due process of
law and to the retention of his small parcels of
riceholding as guaranteed under Article XIII,
Section 4 of the Constitution. He likewise argues
that, besides denying him just compensation for
his land, the provisions of E.O. No. 228 declaring
that:
Lease rentals paid to the landowner by the
farmer-beneficiary after October 21, 1972 shall
be considered as advance payment for the land.
is an unconstitutional taking of a vested property
right. It is also his contention that the inclusion
of even small landowners in the program along
with other landowners with lands consisting of
seven hectares or more is undemocratic.
In his Comment, the Solicitor General submits
that the petition is premature because the
motion for reconsideration filed with the
Minister of Agrarian Reform is still unresolved.
As for the validity of the issuance of E.O. Nos. 228
and 229, he argues that they were enacted
pursuant to Section 6, Article XVIII of the
Transitory Provisions of the 1987 Constitution
which reads:
The incumbent president shall continue to
exercise legislative powers until the first
Congress is convened.
On the issue of just compensation, his position is
that when P.D. No. 27 was promulgated on
October 21. 1972, the tenant-farmer of
agricultural land was deemed the owner of the
land he was tilling. The leasehold rentals paid
after that date should therefore be considered
amortization payments.
In his Reply to the public respondents, the
petitioner maintains that the motion he filed was
resolved on December 14, 1987. An appeal to
the Office of the President would be useless with
the promulgation of E.O. Nos. 228 and 229,
which in effect sanctioned the validity of the
public respondent's acts.
G.R. No. 78742
The petitioners in this case invoke the right of
retention granted by P.D. No. 27 to owners of
rice and corn lands not exceeding seven hectares
as long as they are cultivating or intend to
cultivate the same. Their respective lands do not
exceed the statutory limit but are occupied by
tenants who are actually cultivating such lands.
According to P.D. No. 316, which was
promulgated in implementation of P.D. No. 27:
No tenant-farmer in agricultural lands primarily
devoted to rice and corn shall be ejected or
removed from his farmholding until such time as
the respective rights of the tenant- farmers and
the landowner shall have been determined in
accordance with the rules and regulations
implementing P.D. No. 27.
The petitioners claim they cannot eject their
tenants and so are unable to enjoy their right of
retention because the Department of Agrarian
Reform has so far not issued the implementing
rules required under the above-quoted decree.
They therefore ask the Court for a writ of
mandamus to compel the respondent to issue
the said rules.
In his Comment, the public respondent argues
that P.D. No. 27 has been amended by LOI 474
removing any right of retention from persons
who own other agricultural lands of more than 7
hectares in aggregate area or lands used for
residential, commercial, industrial or other
purposes from which they derive adequate
income for their family. And even assuming that
the petitioners do not fall under its terms, the
regulations implementing P.D. No. 27 have
already been issued, to wit, the Memorandum
dated July 10, 1975 (Interim Guidelines on
Retention by Small Landowners, with an
accompanying Retention Guide Table),
Memorandum Circular No. 11 dated April 21,
1978, (Implementation Guidelines of LOI No.
474), Memorandum Circular No. 18-81 dated
December 29,1981 (Clarificatory Guidelines on
Coverage of P.D. No. 27 and Retention by Small
Landowners), and DAR Administrative Order No.
1, series of 1985 (Providing for a Cut-off Date for
Landowners to Apply for Retention and/or to
Protest the Coverage of their Landholdings
under Operation Land Transfer pursuant to P.D.
No. 27). For failure to file the corresponding
applications for retention under these measures,
the petitioners are now barred from invoking
this right.
The public respondent also stresses that the
petitioners have prematurely initiated this case
notwithstanding the pendency of their appeal to
the President of the Philippines. Moreover, the
issuance of the implementing rules, assuming
this has not yet been done, involves the exercise
of discretion which cannot be controlled through
the writ of mandamus. This is especially true if
this function is entrusted, as in this case, to a
separate department of the government.
In their Reply, the petitioners insist that the
above-cited measures are not applicable to them
because they do not own more than seven
hectares of agricultural land. Moreover,
assuming arguendo that the rules were intended
to cover them also, the said measures are
nevertheless not in force because they have not
been published as required by law and the ruling
of this Court in Tanada v. Tuvera.10 As for LOI
474, the same is ineffective for the additional
reason that a mere letter of instruction could not
have repealed the presidential decree.
I
Although holding neither purse nor sword and so
regarded as the weakest of the three
departments of the government, the judiciary is
nonetheless vested with the power to annul the
acts of either the legislative or the executive or
of both when not conformable to the
fundamental law. This is the reason for what
some quarters call the doctrine of judicial
supremacy. Even so, this power is not lightly
assumed or readily exercised. The doctrine of
separation of powers imposes upon the courts a
proper restraint, born of the nature of their
functions and of their respect for the other
departments, in striking down the acts of the
legislative and the executive as unconstitutional.
The policy, indeed, is a blend of courtesy and
caution. To doubt is to sustain. The theory is that
before the act was done or the law was enacted,
earnest studies were made by Congress or the
President, or both, to insure that the
Constitution would not be breached.
In addition, the Constitution itself lays down
stringent conditions for a declaration of
unconstitutionality, requiring therefor the
concurrence of a majority of the members of the
Supreme Court who took part in the
deliberations and voted on the issue during their
session en banc.11 And as established by judge
made doctrine, the Court will assume jurisdiction
over a constitutional question only if it is shown
that the essential requisites of a judicial inquiry
into such a question are first satisfied. Thus,
there must be an actual case or controversy
involving a conflict of legal rights susceptible of
judicial determination, the constitutional
question must have been opportunely raised by
the proper party, and the resolution of the
question is unavoidably necessary to the
decision of the case itself. 12
With particular regard to the requirement of
proper party as applied in the cases before us,
we hold that the same is satisfied by the
petitioners and intervenors because each of
them has sustained or is in danger of sustaining
an immediate injury as a result of the acts or
measures complained of. 13 And even if, strictly
speaking, they are not covered by the definition,
it is still within the wide discretion of the Court
to waive the requirement and so remove the
impediment to its addressing and resolving the
serious constitutional questions raised.
In the first Emergency Powers Cases, 14 ordinary
citizens and taxpayers were allowed to question
the constitutionality of several executive orders
issued by President Quirino although they were
invoking only an indirect and general interest
shared in common with the public. The Court
dismissed the objection that they were not
proper parties and ruled that "the
transcendental importance to the public of these
cases demands that they be settled promptly
and definitely, brushing aside, if we must,
technicalities of procedure." We have since then
applied this exception in many other cases. 15
The other above-mentioned requisites have also
been met in the present petitions.
In must be stressed that despite the inhibitions
pressing upon the Court when confronted with
constitutional issues like the ones now before it,
it will not hesitate to declare a law or act invalid
when it is convinced that this must be done. In
arriving at this conclusion, its only criterion will
be the Constitution as God and its conscience
give it the light to probe its meaning and discover
its purpose. Personal motives and political
considerations are irrelevancies that cannot
influence its decision. Blandishment is as
ineffectual as intimidation.
For all the awesome power of the Congress and
the Executive, the Court will not hesitate to
"make the hammer fall, and heavily," to use
Justice Laurel's pithy language, where the acts of
these departments, or of any public official,
betray the people's will as expressed in the
Constitution.
It need only be added, to borrow again the words
of Justice Laurel, that —
... 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. This is in truth all that is involved in what
is termed "judicial supremacy" which properly is
the power of judicial review under the
Constitution. 16
The cases before us categorically raise
constitutional questions that this Court must
categorically resolve. And so we shall.
II
We proceed first to the examination of the
preliminary issues before resolving the more
serious challenges to the constitutionality of the
several measures involved in these petitions.
The promulgation of P.D. No. 27 by President
Marcos in the exercise of his powers under
martial law has already been sustained
in Gonzales v. Estrella and we find no reason to
modify or reverse it on that issue. As for the
power of President Aquino to promulgate Proc.
No. 131 and E.O. Nos. 228 and 229, the same was
authorized under Section 6 of the Transitory
Provisions of the 1987 Constitution, quoted
above.
The said measures were issued by President
Aquino before July 27, 1987, when the Congress
of the Philippines was formally convened and
took over legislative power from her. They are
not "midnight" enactments intended to pre-
empt the legislature because E.O. No. 228 was
issued on July 17, 1987, and the other measures,
i.e., Proc. No. 131 and E.O. No. 229, were both
issued on July 22, 1987. Neither is it correct to
say that these measures ceased to be valid when
she lost her legislative power for, like any
statute, they continue to be in force unless
modified or repealed by subsequent law or
declared invalid by the courts. A statute does
not ipso facto become inoperative simply
because of the dissolution of the legislature that
enacted it. By the same token, President
Aquino's loss of legislative power did not have
the effect of invalidating all the measures
enacted by her when and as long as she
possessed it.
Significantly, the Congress she is alleged to have
undercut has not rejected but in fact
substantially affirmed the challenged measures
and has specifically provided that they shall be
suppletory to R.A. No. 6657 whenever not
inconsistent with its provisions. 17 Indeed, some
portions of the said measures, like the creation
of the P50 billion fund in Section 2 of Proc. No.
131, and Sections 20 and 21 of E.O. No. 229, have
been incorporated by reference in the CARP
Law. 18
That fund, as earlier noted, is itself being
questioned on the ground that it does not
conform to the requirements of a valid
appropriation as specified in the Constitution.
Clearly, however, Proc. No. 131 is not an
appropriation measure even if it does provide for
the creation of said fund, for that is not its
principal purpose. An appropriation law is one
the primary and specific purpose of which is to
authorize the release of public funds from the
treasury. 19 The creation of the fund is only
incidental to the main objective of the
proclamation, which is agrarian reform.
It should follow that the specific constitutional
provisions invoked, to wit, Section 24 and
Section 25(4) of Article VI, are not applicable.
With particular reference to Section 24, this
obviously could not have been complied with for
the simple reason that the House of
Representatives, which now has the exclusive
power to initiate appropriation measures, had
not yet been convened when the proclamation
was issued. The legislative power was then solely
vested in the President of the Philippines, who
embodied, as it were, both houses of Congress.
The argument of some of the petitioners that
Proc. No. 131 and E.O. No. 229 should be
invalidated because they do not provide for
retention limits as required by Article XIII,
Section 4 of the Constitution is no longer
tenable. R.A. No. 6657 does provide for such
limits now in Section 6 of the law, which in fact is
one of its most controversial provisions. This
section declares:
Retention Limits. — Except as otherwise
provided in this Act, no person may own or
retain, directly or indirectly, any public or private
agricultural land, the size of which shall vary
according to factors governing a viable family-
sized farm, such as commodity produced,
terrain, infrastructure, and soil fertility as
determined by the Presidential Agrarian Reform
Council (PARC) created hereunder, but in no case
shall retention by the landowner exceed five (5)
hectares. Three (3) hectares may be awarded to
each child of the landowner, subject to the
following qualifications: (1) that he is at least
fifteen (15) years of age; and (2) that he is
actually tilling the land or directly managing the
farm; Provided, That landowners whose lands
have been covered by Presidential Decree No. 27
shall be allowed to keep the area originally
retained by them thereunder, further, That
original homestead grantees or direct
compulsory heirs who still own the original
homestead at the time of the approval of this Act
shall retain the same areas as long as they
continue to cultivate said homestead.
The argument that E.O. No. 229 violates the
constitutional requirement that a bill shall have
only one subject, to be expressed in its title,
deserves only short attention. It is settled that
the title of the bill does not have to be a
catalogue of its contents and will suffice if the
matters embodied in the text are relevant to
each other and may be inferred from the title. 20
The Court wryly observes that during the past
dictatorship, every presidential issuance, by
whatever name it was called, had the force and
effect of law because it came from President
Marcos. Such are the ways of despots. Hence, it
is futile to argue, as the petitioners do in G.R. No.
79744, that LOI 474 could not have repealed P.D.
No. 27 because the former was only a letter of
instruction. The important thing is that it was
issued by President Marcos, whose word was law
during that time.
But for all their peremptoriness, these issuances
from the President Marcos still had to comply
with the requirement for publication as this
Court held in Tanada v. Tuvera. 21 Hence, unless
published in the Official Gazette in accordance
with Article 2 of the Civil Code, they could not
have any force and effect if they were among
those enactments successfully challenged in that
case. LOI 474 was published, though, in the
Official Gazette dated November 29,1976.)
Finally, there is the contention of the public
respondent in G.R. No. 78742 that the writ of
mandamus cannot issue to compel the
performance of a discretionary act, especially by
a specific department of the government. That is
true as a general proposition but is subject to
one important qualification. Correctly and
categorically stated, the rule is that mandamus
will lie to compel the discharge of the
discretionary duty itself but not to control the
discretion to be exercised. In other words,
mandamus can issue to require action only but
not specific action.
Whenever a duty is imposed upon a public
official and an unnecessary and unreasonable
delay in the exercise of such duty occurs, if it is a
clear duty imposed by law, the courts will
intervene by the extraordinary legal remedy of
mandamus to compel action. If the duty is purely
ministerial, the courts will require specific action.
If the duty is purely discretionary, the courts
by mandamus will require action only. For
example, if an inferior court, public official, or
board should, for an unreasonable length of
time, fail to decide a particular question to the
great detriment of all parties concerned, or a
court should refuse to take jurisdiction of a cause
when the law clearly gave it jurisdiction
mandamus will issue, in the first case to require
a decision, and in the second to require that
jurisdiction be taken of the cause. 22
And while it is true that as a rule the writ will not
be proper as long as there is still a plain, speedy
and adequate remedy available from the
administrative authorities, resort to the courts
may still be permitted if the issue raised is a
question of law. 23
III
There are traditional distinctions between the
police power and the power of eminent domain
that logically preclude the application of both
powers at the same time on the same subject. In
the case of City of Baguio v. NAWASA, 24for
example, where a law required the transfer of all
municipal waterworks systems to the NAWASA
in exchange for its assets of equivalent value, the
Court held that the power being exercised was
eminent domain because the property involved
was wholesome and intended for a public use.
Property condemned under the police power is
noxious or intended for a noxious purpose, such
as a building on the verge of collapse, which
should be demolished for the public safety, or
obscene materials, which should be destroyed in
the interest of public morals. The confiscation of
such property is not compensable, unlike the
taking of property under the power of
expropriation, which requires the payment of
just compensation to the owner.
In the case of Pennsylvania Coal Co. v.
Mahon, 25 Justice Holmes laid down the limits of
the police power in a famous aphorism: "The
general rule at least is that while property may
be regulated to a certain extent, if regulation
goes too far it will be recognized as a taking." The
regulation that went "too far" was a law
prohibiting mining which might cause the
subsidence of structures for human habitation
constructed on the land surface. This was
resisted by a coal company which had earlier
granted a deed to the land over its mine but
reserved all mining rights thereunder, with the
grantee assuming all risks and waiving any
damage claim. The Court held the law could not
be sustained without compensating the grantor.
Justice Brandeis filed a lone dissent in which he
argued that there was a valid exercise of the
police power. He said:
Every restriction upon the use of property
imposed in the exercise of the police power
deprives the owner of some right theretofore
enjoyed, and is, in that sense, an abridgment by
the State of rights in property without making
compensation. But restriction imposed to
protect the public health, safety or morals from
dangers threatened is not a taking. The
restriction here in question is merely the
prohibition of a noxious use. The property so
restricted remains in the possession of its owner.
The state does not appropriate it or make any
use of it. The state merely prevents the owner
from making a use which interferes with
paramount rights of the public. Whenever the
use prohibited ceases to be noxious — as it may
because of further changes in local or social
conditions — the restriction will have to be
removed and the owner will again be free to
enjoy his property as heretofore.
Recent trends, however, would indicate not a
polarization but a mingling of the police power
and the power of eminent domain, with the
latter being used as an implement of the former
like the power of taxation. The employment of
the taxing power to achieve a police purpose has
long been accepted. 26 As for the power of
expropriation, Prof. John J. Costonis of the
University of Illinois College of Law (referring to
the earlier case of Euclid v. Ambler Realty Co.,
272 US 365, which sustained a zoning law under
the police power) makes the following significant
remarks:
Euclid, moreover, was decided in an era when
judges located the Police and eminent domain
powers on different planets. Generally speaking,
they viewed eminent domain as encompassing
public acquisition of private property for
improvements that would be available for public
use," literally construed. To the police power, on
the other hand, they assigned the less intrusive
task of preventing harmful externalities a point
reflected in the Euclid opinion's reliance on an
analogy to nuisance law to bolster its support of
zoning. So long as suppression of a privately
authored harm bore a plausible relation to some
legitimate "public purpose," the pertinent
measure need have afforded no compensation
whatever. With the progressive growth of
government's involvement in land use, the
distance between the two powers has
contracted considerably. Today government
often employs eminent domain interchangeably
with or as a useful complement to the police
power-- a trend expressly approved in the
Supreme Court's 1954 decision in Berman v.
Parker, which broadened the reach of eminent
domain's "public use" test to match that of the
police power's standard of "public purpose." 27
The Berman case sustained a redevelopment
project and the improvement of blighted areas in
the District of Columbia as a proper exercise of
the police power. On the role of eminent domain
in the attainment of this purpose, Justice
Douglas declared:
If those who govern the District of Columbia
decide that the Nation's Capital should be
beautiful as well as sanitary, there is nothing in
the Fifth Amendment that stands in the way.
Once the object is within the authority of
Congress, the right to realize it through the
exercise of eminent domain is clear.
For the power of eminent domain is merely the
means to the end. 28
In Penn Central Transportation Co. v. New York
City, 29 decided by a 6-3 vote in 1978, the U.S
Supreme Court sustained the respondent's
Landmarks Preservation Law under which the
owners of the Grand Central Terminal had not
been allowed to construct a multi-story office
building over the Terminal, which had been
designated a historic landmark. Preservation of
the landmark was held to be a valid objective of
the police power. The problem, however, was
that the owners of the Terminal would be
deprived of the right to use the airspace above it
although other landowners in the area could do
so over their respective properties. While
insisting that there was here no taking, the Court
nonetheless recognized certain compensatory
rights accruing to Grand Central Terminal which
it said would "undoubtedly mitigate" the loss
caused by the regulation. This "fair
compensation," as he called it, was explained by
Prof. Costonis in this wise:
In return for retaining the Terminal site in its
pristine landmark status, Penn Central was
authorized to transfer to neighboring properties
the authorized but unused rights accruing to the
site prior to the Terminal's designation as a
landmark — the rights which would have been
exhausted by the 59-story building that the city
refused to countenance atop the Terminal.
Prevailing bulk restrictions on neighboring sites
were proportionately relaxed, theoretically
enabling Penn Central to recoup its losses at the
Terminal site by constructing or selling to others
the right to construct larger, hence more
profitable buildings on the transferee sites. 30
The cases before us present no knotty
complication insofar as the question of
compensable taking is concerned. To the extent
that the measures under challenge merely
prescribe retention limits for landowners, there
is an exercise of the police power for the
regulation of private property in accordance with
the Constitution. But where, to carry out such
regulation, it becomes necessary to deprive such
owners of whatever lands they may own in
excess of the maximum area allowed, there is
definitely a taking under the power of eminent
domain for which payment of just compensation
is imperative. The taking contemplated is not a
mere limitation of the use of the land. What is
required is the surrender of the title to and the
physical possession of the said excess and all
beneficial rights accruing to the owner in favor of
the farmer-beneficiary. This is definitely an
exercise not of the police power but of the power
of eminent domain.
Whether as an exercise of the police power or of
the power of eminent domain, the several
measures before us are challenged as violative of
the due process and equal protection clauses.
The challenge to Proc. No. 131 and E.O. Nos. 228
and 299 on the ground that no retention limits
are prescribed has already been discussed and
dismissed. It is noted that although they excited
many bitter exchanges during the deliberation of
the CARP Law in Congress, the retention limits
finally agreed upon are, curiously enough, not
being questioned in these petitions. We
therefore do not discuss them here. The Court
will come to the other claimed violations of due
process in connection with our examination of
the adequacy of just compensation as required
under the power of expropriation.
The argument of the small farmers that they
have been denied equal protection because of
the absence of retention limits has also become
academic under Section 6 of R.A. No. 6657.
Significantly, they too have not questioned the
area of such limits. There is also the complaint
that they should not be made to share the
burden of agrarian reform, an objection also
made by the sugar planters on the ground that
they belong to a particular class with particular
interests of their own. However, no evidence has
been submitted to the Court that the requisites
of a valid classification have been violated.
Classification has been defined as the grouping
of persons or things similar to each other in
certain particulars and different from each other
in these same particulars. 31 To be valid, it must
conform to the following requirements: (1) it
must be based on substantial distinctions; (2) it
must be germane to the purposes of the law; (3)
it must not be limited to existing conditions only;
and (4) it must apply equally to all the members
of the class. 32 The Court finds that all these
requisites have been met by the measures here
challenged as arbitrary and discriminatory.
Equal protection simply means that all persons
or things similarly situated must be treated alike
both as to the rights conferred and the liabilities
imposed. 33 The petitioners have not shown that
they belong to a different class and entitled to a
different treatment. The argument that not only
landowners but also owners of other properties
must be made to share the burden of
implementing land reform must be rejected.
There is a substantial distinction between these
two classes of owners that is clearly visible
except to those who will not see. There is no
need to elaborate on this matter. In any event,
the Congress is allowed a wide leeway in
providing for a valid classification. Its decision is
accorded recognition and respect by the courts
of justice except only where its discretion is
abused to the detriment of the Bill of Rights.
It is worth remarking at this juncture that a
statute may be sustained under the police power
only if there is a concurrence of the lawful
subject and the lawful method. Put otherwise,
the interests of the public generally as
distinguished from those of a particular class
require the interference of the State and, no less
important, the means employed are reasonably
necessary for the attainment of the purpose
sought to be achieved and not unduly oppressive
upon individuals. 34 As the subject and purpose
of agrarian reform have been laid down by the
Constitution itself, we may say that the first
requirement has been satisfied. What remains to
be examined is the validity of the method
employed to achieve the constitutional goal.
One of the basic principles of the democratic
system is that where the rights of the individual
are concerned, the end does not justify the
means. It is not enough that there be a valid
objective; it is also necessary that the means
employed to pursue it be in keeping with the
Constitution. Mere expediency will not excuse
constitutional shortcuts. There is no question
that not even the strongest moral conviction or
the most urgent public need, subject only to a
few notable exceptions, will excuse the
bypassing of an individual's rights. It is no
exaggeration to say that a, person invoking a
right guaranteed under Article III of the
Constitution is a majority of one even as against
the rest of the nation who would deny him that
right.
That right covers the person's life, his liberty and
his property under Section 1 of Article III of the
Constitution. With regard to his property, the
owner enjoys the added protection of Section 9,
which reaffirms the familiar rule that private
property shall not be taken for public use
without just compensation.
This brings us now to the power of eminent
domain.
IV
Eminent domain is an inherent power of the
State that enables it to forcibly acquire private
lands intended for public use upon payment of
just compensation to the owner. Obviously,
there is no need to expropriate where the owner they decide what is known as the political
is willing to sell under terms also acceptable to question. As explained by Chief Justice
the purchaser, in which case an ordinary deed of Concepcion in the case of Tañada v. Cuenco: 36
sale may be agreed upon by the parties. 35 It is
The term "political question" connotes what it
only where the owner is unwilling to sell, or
means in ordinary parlance, namely, a question
cannot accept the price or other conditions
of policy. It refers to "those questions which,
offered by the vendee, that the power of
under the Constitution, are to be decided by the
eminent domain will come into play to assert the
people in their sovereign capacity; or in regard to
paramount authority of the State over the
which full discretionary authority has been
interests of the property owner. Private rights
delegated to the legislative or executive branch
must then yield to the irresistible demands of the
of the government." It is concerned with issues
public interest on the time-honored justification,
dependent upon the wisdom, not legality, of a
as in the case of the police power, that the
particular measure.
welfare of the people is the supreme law.
It is true that the concept of the political
But for all its primacy and urgency, the power of
question has been constricted with the
expropriation is by no means absolute (as indeed
enlargement of judicial power, which now
no power is absolute). The limitation is found in
includes the authority of the courts "to
the constitutional injunction that "private
determine whether or not there has been a
property shall not be taken for public use
grave abuse of discretion amounting to lack or
without just compensation" and in the abundant
excess of jurisdiction on the part of any branch
jurisprudence that has evolved from the
or instrumentality of the Government." 37 Even
interpretation of this principle. Basically, the
so, this should not be construed as a license for
requirements for a proper exercise of the power
us to reverse the other departments simply
are: (1) public use and (2) just compensation.
because their views may not coincide with ours.
Let us dispose first of the argument raised by the
The legislature and the executive have been seen
petitioners in G.R. No. 79310 that the State
fit, in their wisdom, to include in the CARP the
should first distribute public agricultural lands in
redistribution of private landholdings (even as
the pursuit of agrarian reform instead of
the distribution of public agricultural lands is first
immediately disturbing property rights by
provided for, while also continuing apace under
forcibly acquiring private agricultural lands.
the Public Land Act and other cognate laws). The
Parenthetically, it is not correct to say that only
Court sees no justification to interpose its
public agricultural lands may be covered by the
authority, which we may assert only if we believe
CARP as the Constitution calls for "the just
that the political decision is not unwise, but
distribution of all agricultural lands." In any
illegal. We do not find it to be so.
event, the decision to redistribute private
agricultural lands in the manner prescribed by In U.S. v. Chandler-Dunbar Water Power
the CARP was made by the legislative and Company,38 it was held:
executive departments in the exercise of their
discretion. We are not justified in reviewing that Congress having determined, as it did by the Act
discretion in the absence of a clear showing that of March 3,1909 that the entire St. Mary's river
it has been abused. between the American bank and the
international line, as well as all of the upland
A becoming courtesy admonishes us to respect north of the present ship canal, throughout its
the decisions of the political departments when entire length, was "necessary for the purpose of
navigation of said waters, and the waters
connected therewith," that determination is
conclusive in condemnation proceedings
instituted by the United States under that Act,
and there is no room for judicial review of the
judgment of Congress ... .
As earlier observed, the requirement for public
use has already been settled for us by the
Constitution itself No less than the 1987 Charter
calls for agrarian reform, which is the reason why
private agricultural lands are to be taken from
their owners, subject to the prescribed
maximum retention limits. The purposes
specified in P.D. No. 27, Proc. No. 131 and R.A.
No. 6657 are only an elaboration of the
constitutional injunction that the State adopt the
necessary measures "to encourage and
undertake the just distribution of all agricultural
lands to enable farmers who are landless to own
directly or collectively the lands they till." That
public use, as pronounced by the fundamental
law itself, must be binding on us.
The second requirement, i.e., the payment of
just compensation, needs a longer and more
thoughtful examination.
Just compensation is defined as the full and fair
equivalent of the property taken from its owner
by the expropriator. 39 It has been repeatedly
stressed by this Court that the measure is not the
taker's gain but the owner's loss. 40 The word
"just" is used to intensify the meaning of the
word "compensation" to convey the idea that
the equivalent to be rendered for the property
to be taken shall be real, substantial, full,
ample. 41
It bears repeating that the measures challenged
in these petitions contemplate more than a mere
regulation of the use of private lands under the
police power. We deal here with an actual taking
of private agricultural lands that has
dispossessed the owners of their property and
deprived them of all its beneficial use and
enjoyment, to entitle them to the just
compensation mandated by the Constitution.
As held in Republic of the Philippines v.
Castellvi, 42 there is compensable taking when
the following conditions concur: (1) the
expropriator must enter a private property; (2)
the entry must be for more than a momentary
period; (3) the entry must be under warrant or
color of legal authority; (4) the property must be
devoted to public use or otherwise informally
appropriated or injuriously affected; and (5) the
utilization of the property for public use must be
in such a way as to oust the owner and deprive
him of beneficial enjoyment of the property. All
these requisites are envisioned in the measures
before us.
Where the State itself is the expropriator, it is not
necessary for it to make a deposit upon its taking
possession of the condemned property, as "the
compensation is a public charge, the good faith
of the public is pledged for its payment, and all
the resources of taxation may be employed in
raising the amount." 43 Nevertheless, Section
16(e) of the CARP Law provides that:
Upon receipt by the landowner of the
corresponding payment or, in case of rejection
or no response from the landowner, upon the
deposit with an accessible bank designated by
the DAR of the compensation in cash or in LBP
bonds in accordance with this Act, the DAR shall
take immediate possession of the land and shall
request the proper Register of Deeds to issue a
Transfer Certificate of Title (TCT) in the name of
the Republic of the Philippines. The DAR shall
thereafter proceed with the redistribution of the
land to the qualified beneficiaries.
Objection is raised, however, to the manner of
fixing the just compensation, which it is claimed
is entrusted to the administrative authorities in
violation of judicial prerogatives. Specific
reference is made to Section 16(d), which
provides that in case of the rejection or disregard
by the owner of the offer of the government to
buy his land-
... the DAR shall conduct summary administrative
proceedings to determine the compensation for
the land by requiring the landowner, the LBP and
other interested parties to submit evidence as to
the just compensation for the land, within fifteen
(15) days from the receipt of the notice. After the
expiration of the above period, the matter is
deemed submitted for decision. The DAR shall
decide the case within thirty (30) days after it is
submitted for decision.
To be sure, the determination of just
compensation is a function addressed to the
courts of justice and may not be usurped by any
other branch or official of the government. EPZA
v. Dulay 44 resolved a challenge to several
decrees promulgated by President Marcos
providing that the just compensation for
property under expropriation should be either
the assessment of the property by the
government or the sworn valuation thereof by
the owner, whichever was lower. In declaring
these decrees unconstitutional, the Court held
through Mr. Justice Hugo E. Gutierrez, Jr.:
The method of ascertaining just compensation
under the aforecited decrees constitutes
impermissible encroachment on judicial
prerogatives. It tends to render this Court inutile
in a matter which under this Constitution is
reserved to it for final determination.
Thus, although in an expropriation proceeding
the court technically would still have the power
to determine the just compensation for the
property, following the applicable decrees, its
task would be relegated to simply stating the
lower value of the property as declared either by
the owner or the assessor. As a necessary
consequence, it would be useless for the court to
appoint commissioners under Rule 67 of the
Rules of Court. Moreover, the need to satisfy the
due process clause in the taking of private
property is seemingly fulfilled since it cannot be
said that a judicial proceeding was not had
before the actual taking. However, the strict
application of the decrees during the
proceedings would be nothing short of a mere
formality or charade as the court has only to
choose between the valuation of the owner and
that of the assessor, and its choice is always
limited to the lower of the two. The court cannot
exercise its discretion or independence in
determining what is just or fair. Even a grade
school pupil could substitute for the judge
insofar as the determination of constitutional
just compensation is concerned.
xxx
In the present petition, we are once again
confronted with the same question of whether
the courts under P.D. No. 1533, which contains
the same provision on just compensation as its
predecessor decrees, still have the power and
authority to determine just compensation,
independent of what is stated by the decree and
to this effect, to appoint commissioners for such
purpose.
This time, we answer in the affirmative.
xxx
It is violative of due process to deny the owner
the opportunity to prove that the valuation in
the tax documents is unfair or wrong. And it is
repulsive to the basic concepts of justice and
fairness to allow the haphazard work of a minor
bureaucrat or clerk to absolutely prevail over the
judgment of a court promulgated only after
expert commissioners have actually viewed the
property, after evidence and arguments pro and
con have been presented, and after all factors
and considerations essential to a fair and just
determination have been judiciously evaluated.
A reading of the aforecited Section 16(d) will
readily show that it does not suffer from the
arbitrariness that rendered the challenged
decrees constitutionally objectionable. Although
the proceedings are described as summary, the
landowner and other interested parties are
nevertheless allowed an opportunity to submit
evidence on the real value of the property. But
more importantly, the determination of the just
compensation by the DAR is not by any means
final and conclusive upon the landowner or any
other interested party, for Section 16(f) clearly
provides:
Any party who disagrees with the decision may
bring the matter to the court of proper
jurisdiction for final determination of just
compensation.
The determination made by the DAR is only
preliminary unless accepted by all parties
concerned. Otherwise, the courts of justice will
still have the right to review with finality the said
determination in the exercise of what is
admittedly a judicial function.
The second and more serious objection to the
provisions on just compensation is not as easily
resolved.
This refers to Section 18 of the CARP Law
providing in full as follows:
SEC. 18. Valuation and Mode of Compensation.
— The LBP shall compensate the landowner in
such amount as may be agreed upon by the
landowner and the DAR and the LBP, in
accordance with the criteria provided for in
Sections 16 and 17, and other pertinent
provisions hereof, or as may be finally
determined by the court, as the just
compensation for the land.
The compensation shall be paid in one of the
following modes, at the option of the landowner:
(1) Cash payment, under the following terms and
conditions:
(a) For lands above fifty (50) hectares, insofar as
the excess hectarage is concerned — Twenty-
five percent (25%) cash, the balance to be paid in
government financial instruments negotiable at
any time.
(b) For lands above twenty-four (24) hectares
and up to fifty (50) hectares — Thirty percent
(30%) cash, the balance to be paid in government
financial instruments negotiable at any time.
(c) For lands twenty-four (24) hectares and
below — Thirty-five percent (35%) cash, the
balance to be paid in government financial
instruments negotiable at any time.
(2) Shares of stock in government-owned or
controlled corporations, LBP preferred shares,
physical assets or other qualified investments in
accordance with guidelines set by the PARC;
(3) Tax credits which can be used against any tax
liability;
(4) LBP bonds, which shall have the following
features:
(a) Market interest rates aligned with 91-day
treasury bill rates. Ten percent (10%) of the face
value of the bonds shall mature every year from
the date of issuance until the tenth (10th) year:
Provided, That should the landowner choose to
forego the cash portion, whether in full or in
part, he shall be paid correspondingly in LBP
bonds;
(b) Transferability and negotiability. Such LBP
bonds may be used by the landowner, his
successors-in- interest or his assigns, up to the
amount of their face value, for any of the
following:
(i) Acquisition of land or other real properties of
the government, including assets under the
Asset Privatization Program and other assets
foreclosed by government financial institutions
in the same province or region where the lands
for which the bonds were paid are situated;
(ii) Acquisition of shares of stock of government-
owned or controlled corporations or shares of
stock owned by the government in private
corporations;
(iii) Substitution for surety or bail bonds for the
provisional release of accused persons, or for
performance bonds;
(iv) Security for loans with any government
financial institution, provided the proceeds of
the loans shall be invested in an economic
enterprise, preferably in a small and medium-
scale industry, in the same province or region as
the land for which the bonds are paid;
(v) Payment for various taxes and fees to
government: Provided, That the use of these
bonds for these purposes will be limited to a
certain percentage of the outstanding balance of
the financial instruments; Provided, further, That
the PARC shall determine the percentages
mentioned above;
(vi) Payment for tuition fees of the immediate
family of the original bondholder in government
universities, colleges, trade schools, and other
institutions;
(vii) Payment for fees of the immediate family of
the original bondholder in government hospitals;
and
(viii) Such other uses as the PARC may from time
to time allow.
The contention of the petitioners in G.R. No.
79777 is that the above provision is
unconstitutional insofar as it requires the owners
of the expropriated properties to accept just
compensation therefor in less than money,
which is the only medium of payment allowed. In
support of this contention, they cite
jurisprudence holding that:
The fundamental rule in expropriation matters is
that the owner of the property expropriated is
entitled to a just compensation, which should be
neither more nor less, whenever it is possible to
make the assessment, than the money
equivalent of said property. Just compensation
has always been understood to be the just and
complete equivalent of the loss which the owner
of the thing expropriated has to suffer by reason
of the expropriation . 45 (Emphasis supplied.)
In J.M. Tuazon Co. v. Land Tenure
Administration, 46 this Court held:
It is well-settled that just compensation means
the equivalent for the value of the property at
the time of its taking. Anything beyond that is
more, and anything short of that is less, than just
compensation. It means a fair and full equivalent
for the loss sustained, which is the measure of
the indemnity, not whatever gain would accrue
to the expropriating entity. The market value of
the land taken is the just compensation to which
the owner of condemned property is entitled,
the market value being that sum of money which
a person desirous, but not compelled to buy, and
an owner, willing, but not compelled to sell,
would agree on as a price to be given and
received for such property. (Emphasis supplied.)
In the United States, where much of our
jurisprudence on the subject has been derived,
the weight of authority is also to the effect that
just compensation for property expropriated is
payable only in money and not otherwise. Thus
—
The medium of payment of compensation is
ready money or cash. The condemnor cannot
compel the owner to accept anything but
money, nor can the owner compel or require the
condemnor to pay him on any other basis than
the value of the property in money at the time
and in the manner prescribed by the
Constitution and the statutes. When the power
of eminent domain is resorted to, there must be
a standard medium of payment, binding upon
both parties, and the law has fixed that standard
as money in cash. 47 (Emphasis supplied.)
Part cash and deferred payments are not and
cannot, in the nature of things, be regarded as a
reliable and constant standard of
48
compensation.
"Just compensation" for property taken by
condemnation means a fair equivalent in money,
which must be paid at least within a reasonable
time after the taking, and it is not within the
power of the Legislature to substitute for such
payment future obligations, bonds, or other
valuable advantage. 49(Emphasis supplied.)
It cannot be denied from these cases that the
traditional medium for the payment of just
compensation is money and no other. And so,
conformably, has just compensation been paid in
the past solely in that medium. However, we do
not deal here with the traditional excercise of
the power of eminent domain. This is not an
ordinary expropriation where only a specific
property of relatively limited area is sought to be
taken by the State from its owner for a specific
and perhaps local purpose.
What we deal with here is a revolutionary kind of
expropriation.
The expropriation before us affects all private
agricultural lands whenever found and of
whatever kind as long as they are in excess of the
maximum retention limits allowed their owners.
This kind of expropriation is intended for the
benefit not only of a particular community or of
a small segment of the population but of the
entire Filipino nation, from all levels of our
society, from the impoverished farmer to the
land-glutted owner. Its purpose does not cover
only the whole territory of this country but goes
beyond in time to the foreseeable future, which
it hopes to secure and edify with the vision and
the sacrifice of the present generation of
Filipinos. Generations yet to come are as
involved in this program as we are today,
although hopefully only as beneficiaries of a
richer and more fulfilling life we will guarantee
to them tomorrow through our thoughtfulness
today. And, finally, let it not be forgotten that it
is no less than the Constitution itself that has
ordained this revolution in the farms, calling for
"a just distribution" among the farmers of lands
that have heretofore been the prison of their
dreams but can now become the key at least to
their deliverance.
Such a program will involve not mere millions of
pesos. The cost will be tremendous. Considering
the vast areas of land subject to expropriation
under the laws before us, we estimate that
hundreds of billions of pesos will be needed, far
more indeed than the amount of P50 billion
initially appropriated, which is already staggering
as it is by our present standards. Such amount is
in fact not even fully available at this time.
We assume that the framers of the Constitution
were aware of this difficulty when they called for
agrarian reform as a top priority project of the
government. It is a part of this assumption that
when they envisioned the expropriation that
would be needed, they also intended that the
just compensation would have to be paid not in
the orthodox way but a less conventional if more
practical method. There can be no doubt that
they were aware of the financial limitations of
the government and had no illusions that there
would be enough money to pay in cash and in full
for the lands they wanted to be distributed
among the farmers. We may therefore assume
that their intention was to allow such manner of
payment as is now provided for by the CARP Law,
particularly the payment of the balance (if the
owner cannot be paid fully with money), or
indeed of the entire amount of the just
compensation, with other things of value. We
may also suppose that what they had in mind
was a similar scheme of payment as that
prescribed in P.D. No. 27, which was the law in
force at the time they deliberated on the new
Charter and with which they presumably agreed
in principle.
The Court has not found in the records of the
Constitutional Commission any categorical
agreement among the members regarding the
meaning to be given the concept of just
compensation as applied to the comprehensive
agrarian reform program being contemplated.
There was the suggestion to "fine tune" the
requirement to suit the demands of the project
even as it was also felt that they should "leave it
to Congress" to determine how payment should
be made to the landowner and reimbursement
required from the farmer-beneficiaries. Such
innovations as "progressive compensation" and
"State-subsidized compensation" were also
proposed. In the end, however, no special
definition of the just compensation for the lands
to be expropriated was reached by the
Commission. 50
On the other hand, there is nothing in the
records either that militates against the
assumptions we are making of the general
sentiments and intention of the members on the
content and manner of the payment to be made
to the landowner in the light of the magnitude of
the expenditure and the limitations of the
expropriator.
With these assumptions, the Court hereby
declares that the content and manner of the just
compensation provided for in the afore- quoted
Section 18 of the CARP Law is not violative of the
Constitution. We do not mind admitting that a
certain degree of pragmatism has influenced our
decision on this issue, but after all this Court is
not a cloistered institution removed from the
realities and demands of society or oblivious to
the need for its enhancement. The Court is as
acutely anxious as the rest of our people to see
the goal of agrarian reform achieved at last after
the frustrations and deprivations of our peasant
masses during all these disappointing decades.
We are aware that invalidation of the said
section will result in the nullification of the entire
program, killing the farmer's hopes even as they
approach realization and resurrecting the
spectre of discontent and dissent in the restless
countryside. That is not in our view the intention
of the Constitution, and that is not what we shall
decree today.
Accepting the theory that payment of the just
compensation is not always required to be made
fully in money, we find further that the
proportion of cash payment to the other things
of value constituting the total payment, as
determined on the basis of the areas of the lands
expropriated, is not unduly oppressive upon the
landowner. It is noted that the smaller the land,
the bigger the payment in money, primarily
because the small landowner will be needing it
more than the big landowners, who can afford a
bigger balance in bonds and other things of
value. No less importantly, the government
financial instruments making up the balance of
the payment are "negotiable at any time." The
other modes, which are likewise available to the
landowner at his option, are also not
unreasonable because payment is made in
shares of stock, LBP bonds, other properties or
assets, tax credits, and other things of value
equivalent to the amount of just compensation.
Admittedly, the compensation contemplated in
the law will cause the landowners, big and small,
not a little inconvenience. As already remarked,
this cannot be avoided. Nevertheless, it is
devoutly hoped that these countrymen of ours,
conscious as we know they are of the need for
their forebearance and even sacrifice, will not
begrudge us their indispensable share in the
attainment of the ideal of agrarian reform.
Otherwise, our pursuit of this elusive goal will be
like the quest for the Holy Grail.
The complaint against the effects of non-
registration of the land under E.O. No. 229 does
not seem to be viable any more as it appears that
Section 4 of the said Order has been superseded
by Section 14 of the CARP Law. This repeats the
requisites of registration as embodied in the
earlier measure but does not provide, as the
latter did, that in case of failure or refusal to
register the land, the valuation thereof shall be
that given by the provincial or city assessor for
tax purposes. On the contrary, the CARP Law
says that the just compensation shall be
ascertained on the basis of the factors
mentioned in its Section 17 and in the manner
provided for in Section 16.
The last major challenge to CARP is that the
landowner is divested of his property even
before actual payment to him in full of just
compensation, in contravention of a well-
accepted principle of eminent domain.
The recognized rule, indeed, is that title to the
property expropriated shall pass from the owner
to the expropriator only upon full payment of the
just compensation. Jurisprudence on this settled
principle is consistent both here and in other
democratic jurisdictions. Thus:
Title to property which is the subject of
condemnation proceedings does not vest the
condemnor until the judgment fixing just
compensation is entered and paid, but the
condemnor's title relates back to the date on
which the petition under the Eminent Domain
Act, or the commissioner's report under the
Local Improvement Act, is filed. 51
... although the right to appropriate and use land
taken for a canal is complete at the time of entry,
title to the property taken remains in the owner
until payment is actually made. 52 (Emphasis
supplied.)
In Kennedy v. Indianapolis, 53 the US Supreme
Court cited several cases holding that title to
property does not pass to the condemnor until
just compensation had actually been made. In
fact, the decisions appear to be uniformly to this
effect. As early as 1838, in Rubottom v.
McLure, 54 it was held that "actual payment to
the owner of the condemned property was a
condition precedent to the investment of the
title to the property in the State" albeit "not to
the appropriation of it to public use." In Rexford
v. Knight, 55 the Court of Appeals of New York
said that the construction upon the statutes was
that the fee did not vest in the State until the
payment of the compensation although the
authority to enter upon and appropriate the land
was complete prior to the payment. Kennedy
further said that "both on principle and authority
the rule is ... that the right to enter on and use
the property is complete, as soon as the property
is actually appropriated under the authority of
law for a public use, but that the title does not
pass from the owner without his consent, until
just compensation has been made to him."
Our own Supreme Court has held
in Visayan Refining Co. v. Camus and
Paredes, 56 that:
If the laws which we have exhibited or cited in
the preceding discussion are attentively
examined it will be apparent that the method of
expropriation adopted in this jurisdiction is such
as to afford absolute reassurance that no piece
of land can be finally and irrevocably taken from
an unwilling owner until compensation is paid ...
. (Emphasis supplied.)
It is true that P.D. No. 27 expressly ordered the
emancipation of tenant-farmer as October 21,
1972 and declared that he shall "be deemed the
owner" of a portion of land consisting of a family-
sized farm except that "no title to the land
owned by him was to be actually issued to him
unless and until he had become a full-fledged
member of a duly recognized farmers'
cooperative." It was understood, however, that
full payment of the just compensation also had
to be made first, conformably to the
constitutional requirement.
When E.O. No. 228, categorically stated in its
Section 1 that:
All qualified farmer-beneficiaries are now
deemed full owners as of October 21, 1972 of
the land they acquired by virtue of Presidential President has already been resolved. Although
Decree No. 27. (Emphasis supplied.) we have said that the doctrine of exhaustion of
administrative remedies need not preclude
it was obviously referring to lands already validly
immediate resort to judicial action, there are
acquired under the said decree, after proof of
factual issues that have yet to be examined on
full-fledged membership in the farmers'
the administrative level, especially the claim that
cooperatives and full payment of just
the petitioners are not covered by LOI 474
compensation. Hence, it was also perfectly
because they do not own other agricultural lands
proper for the Order to also provide in its Section
than the subjects of their petition.
2 that the "lease rentals paid to the landowner
by the farmer- beneficiary after October 21, Obviously, the Court cannot resolve these issues.
1972 (pending transfer of ownership after full In any event, assuming that the petitioners have
payment of just compensation), shall be not yet exercised their retention rights, if any,
considered as advance payment for the land." under P.D. No. 27, the Court holds that they are
entitled to the new retention rights provided for
The CARP Law, for its part, conditions the
by R.A. No. 6657, which in fact are on the whole
transfer of possession and ownership of the land
more liberal than those granted by the decree.
to the government on receipt by the landowner
of the corresponding payment or the deposit by V
the DAR of the compensation in cash or LBP
The CARP Law and the other enactments also
bonds with an accessible bank. Until then, title
involved in these cases have been the subject of
also remains with the landowner. 57 No outright
bitter attack from those who point to the
change of ownership is contemplated either.
shortcomings of these measures and ask that
Hence, the argument that the assailed measures they be scrapped entirely. To be sure, these
violate due process by arbitrarily transferring enactments are less than perfect; indeed, they
title before the land is fully paid for must also be should be continuously re-examined and
rejected. rehoned, that they may be sharper instruments
for the better protection of the farmer's rights.
It is worth stressing at this point that all rights
But we have to start somewhere. In the pursuit
acquired by the tenant-farmer under P.D. No. 27,
of agrarian reform, we do not tread on familiar
as recognized under E.O. No. 228, are retained
ground but grope on terrain fraught with pitfalls
by him even now under R.A. No. 6657. This
and expected difficulties. This is inevitable. The
should counter-balance the express provision in
CARP Law is not a tried and tested project. On
Section 6 of the said law that "the landowners
the contrary, to use Justice Holmes's words, "it is
whose lands have been covered by Presidential
an experiment, as all life is an experiment," and
Decree No. 27 shall be allowed to keep the area
so we learn as we venture forward, and, if
originally retained by them thereunder, further,
necessary, by our own mistakes. We cannot
That original homestead grantees or direct
expect perfection although we should strive for
compulsory heirs who still own the original
it by all means. Meantime, we struggle as best
homestead at the time of the approval of this Act
we can in freeing the farmer from the iron
shall retain the same areas as long as they
shackles that have unconscionably, and for so
continue to cultivate said homestead."
long, fettered his soul to the soil.
In connection with these retained rights, it does
By the decision we reach today, all major legal
not appear in G.R. No. 78742 that the appeal
obstacles to the comprehensive agrarian reform
filed by the petitioners with the Office of the
program are removed, to clear the way for the
true freedom of the farmer. We may now
glimpse the day he will be released not only from
want but also from the exploitation and disdain
of the past and from his own feelings of
inadequacy and helplessness. At last his
servitude will be ended forever. At last the farm
on which he toils will be his farm. It will be his
portion of the Mother Earth that will give him
not only the staff of life but also the joy of living.
And where once it bred for him only deep
despair, now can he see in it the fruition of his
hopes for a more fulfilling future. Now at last can
he banish from his small plot of earth his
insecurities and dark resentments and "rebuild
in it the music and the dream."
WHEREFORE, the Court holds as follows:
1. R.A. No. 6657, P.D. No. 27, Proc. No. 131, and
E.O. Nos. 228 and 229 are SUSTAINED against all
the constitutional objections raised in the herein
petitions.
2. Title to all expropriated properties shall be
transferred to the State only upon full payment
of compensation to their respective owners.
3. All rights previously acquired by the tenant-
farmers under P.D. No. 27 are retained and
recognized.
4. Landowners who were unable to exercise their
rights of retention under P.D. No. 27 shall enjoy
the retention rights granted by R.A. No. 6657
under the conditions therein prescribed.
5. Subject to the above-mentioned rulings all the
petitions are DISMISSED, without
pronouncement as to costs.
SO ORDERED.
DIGEST:
Association of Small Landowners in the
Philippines v. Honorable Secretary of Agrarian
Reform
G.R. No. 78742
July 14, 1989
Ponente: CRUZ, J.
FACTS
 Cases have been consolidated because
they involve common legal questions.
They will be subject to one common
discussion and resolution.
G.R. No. 79777:
 The petitioners are Nicolas Manaay and
his wife who own a 9-hectare riceland
worked by four tenants and Augustin
Hermano, Jr. who owns a 5-hectare
riceland worked by four tenants. They
question the constitutionality of P.D. No.
27, E.O. Nos. 228 & 229, and R.A. No.
6657 since their tenants were declared
full owners of the mentioned lands.
G.R. No. 79310
 Landowners and sugar planters in the
Victorias Mill District, Victorias, Negros
Occidental and Planters’ Committee Inc.,
with 1400 planter-members, submitted
a petition seeking to prohibit the
implementation of Proc. No. 131 and
E.O. No. 229.
 Aug. 27, 1987 – A motion for
intervention was filed by the National
Federation of Sugarcane Planters, which
claim 20 000 members). It was granted
by the court.
 Sept. 10, 1987 – A motion for
intervention was filed by Manuel
 Barcelona, et al., representing coconut
and riceland owners. It was granted by
the court.
G.R. No. 79744
 Sept. 3 1986 – The petitioner protested
the erroneous inclusion of his small
landholding under Operation Land
Transfer accusing the then Secretary of
DAR of violation of due process and the
requirement for just compensation.
Certificates of Land Transfer were issued
to the private respondents who then
refused to pay lease rentals. The
petitioner is asking for the recall and
cancellation of these certificates.
 Dec. 24, 1986 – Petitioner claims his
petition was denied without hearing.
 Feb. 17, 1987 – A motion for
reconsideration was filed which had not
been acted upon when E.O. Nos. 228 &
229 were issued which rendered his
motion moot.
ISSUES
1. Whether or not the President had the
power to promulgate Proc. No. 131 and
RULING
E.O. Nos. 228 & 229
2. Whether or not the President had the
legislative power for issuing the
measures
3. Whether or not Proc. No. 131 conforms
to the requirements of a valid
appropriation as specified in the
Constitution
4. Whether or not Proc. No. 131 and E.O.
No. 229 should be invalidated because
they do not provide for retention limits
required by Article 13, Section 4 of the
Constitution
5. Whether or not E.O. No. 229 violates
constitutional requirement that a bill
should only have one subject, to be
expressed in its title
6. Whether or not the writ of mandamus
can issue to compel the performance of
a discretionary act, especially by a
specific department of the government.
7. Whether this statute is an exercise of
police power or the power of eminent
domain
8. Whether or not the statutes are valid
exercises of police power
9. Whether or not the equal protection
clause was violated
10. Whether or not the content and manner
of the just compensation provided for in
the CARP Law is not violative of the
Constitution
11. Whether or not there is contravention of
a well- accepted principle of eminent
domain by divesting the landowner of
his property even before actual payment
to him in full of just compensation
1. YES. P.D. No. 27 by President Marcos
during Martial Law has been sustained in
Gonzales v. Estrella. President Aquino is
authorized under Section 6 of the
Transitory Provisions of the 1987
Constitution to promulgate Proc. No.
131 and E.O. Nos. 228 & 229.
2. YES. The said measures were issued
before July 27, 1987, when the Congress
was formally convened and took over
legislative power.
3. NO. Proc. No. 131 is not an appropriation
measure for that is not its principal
purpose and therefore is not required to
conform to the requirements.
4. NO. R.A. No. 6657 does provide for such
limits now in Section 6 of the law.
5. NO. It is settled that the title of the bill
does not have to be a catalogue of its
contents and will suffice if the matters
embodied in the text are relevant to
each other and may be inferred from the
title.
6. NO. The rule is that mandamus will lie to
compel the discharge of the
discretionary duty itself but not to
control the discretion to be exercised. In
other words, mandamus can issue to
require action only but not specific
action.
7. It is an exercise of the power of eminent
domain because there is payment of just
compensation unlike in the exercise of
police power wherein confiscation of
property is not compensable.
8. YES. A statute may be sustained under
the police power only if there is a
concurrence of the lawful subject and
the lawful method. As the subject and
purpose of agrarian reform have been
laid down by the Constitution itself, we
may say that the first requirement has
been satisfied. What remains to be
examined is the validity of the method
employed to achieve the constitutional
goal.
9. NO. The petitioners have not shown that
they belong to a different class and
entitled to a different treatment. The
argument that not only landowners but
also owners of other properties must be
made to share the burden of
implementing land reform must be
rejected. There is a substantial
distinction between these two classes of
owners that is clearly visible except to
those who will not see.
10. NO. It is declared that although money is
the traditional mode of payment, other
modes of payment shall be permitted as
compensation. The court accepts the
theory that payment of the just
compensation is not always required to
be made fully in money, they find further
that the proportion of cash payment to
the other things of value constituting the
total payment, as determined on the
basis of the areas of the lands
expropriated, is not unduly oppressive
upon the landowner. The other modes,
which are likewise available to the
landowner at his option, are also not
unreasonable because payment is made
in shares of stock, LBP bonds, other
properties or assets, tax credits, and
other things of value equivalent to the
amount of just compensation.
(Court: We do not mind admitting that a certain
degree of pragmatism has influenced our
decision on this issue. The Court is as acutely
anxious as the rest of our people to see the goal
of agrarian reform achieved at last after the
frustrations and deprivations of our peasant
masses during all these disappointing decades.
We are aware that invalidation of the said
section will result in the nullification of the entire
program, killing the farmer's hopes even as they
approach realization and resurrecting the
spectre of discontent and dissent in the restless
countryside. That is not in our view the intention
of the Constitution, and that is not what we shall
decree today.)
11. NO. The CARP Law conditions the
transfer of possession and ownership of
the land to the government on receipt by
 the landowner of the corresponding
payment or the deposit by the DAR of
the compensation in cash or LBP bonds
with an accessible bank. Until then, title
also remains with the landowner.

DISPOSITIVE

WHEREFORE, the Court holds as follows:

1. R.A. No. 6657, P.D. No. 27, Proc. No. 131, and
E.O. Nos. 228 and 229 are SUSTAINED against all
the constitutional objections raised in the herein
petitions.

2. Title to all expropriated properties shall be

transferred to the State only upon full payment
of compensation to their respective owners.

3. All rights previously acquired by the tenant-

farmers under P.D. No. 27 are retained and
recognized.

4. Landowners who were unable to exercise their

rights of retention under P.D. No. 27 shall enjoy
the retention rights granted by R.A. No. 6657
under the conditions therein prescribed.

5. Subject to the above-mentioned rulings all the

petitions are DISMISSED, without
pronouncement as to costs.
COMMISSIONER OF INTERNAL REVENUE,
petitioner, vs. CENTRAL LUZON DRUG
CORPORATION, respondent.
Taxation; Tax Credits and Tax Deductions; Senior
Citizens’ Law (R.A. No. 7432); The tax credit
allowed under R.A. 7432 to establishments as a
result of granting senior citizens 20% discount on
their purchase of medicines from private
establishments may be claimed by such
establishments even though they are operating
at a loss.— Section 4(a) of RA 7432 grants to
senior citizens the privilege of obtaining a 20
percent discount on their purchase of medicine
from any private establishment in the country.
The latter may then claim the cost of the discount
as a tax credit. But can such credit be claimed,
even though an establishment operates at a loss?
We answer in the affirmative.
Same; Same; Same; Words and Phrases; Tax
credit generally refers to an amount that is
subtracted directly from one’s total tax liability,
an allowance against the tax itself, or a
deduction from what is owed; Tax deduction is
defined as a subtraction from income for tax
purposes, or an amount that is allowed by law to
reduce income prior to the application of the tax
rate to compute the amount of tax which is
due.—Although the term is not specifically
defined in our Tax Code, tax credit generally
refers to an amount that is “subtracted directly
from one’s total tax liability.” It is an “allowance
against the tax itself” or “a deduction from what
is owed” by a taxpayer to the government.
Examples of tax credits are withheld taxes,
payments of estimated tax, and investment tax
credits. Tax credit should be understood in
relation to other tax concepts. One of these is tax
deduction—defined as a subtraction “from
income for tax purposes,” or an amount that is
“allowed by law to reduce income prior to [the]
application of the tax rate to compute the
amount of tax which is due.” An example of a tax
deduction is any of the allowable deductions
enumerated in Section 34 of the Tax Code.
Same; Same; Same; Same; A tax credit differs
from a tax deduction; A tax credit reduces the tax
due, including—whenever applicable—the
income tax that is determined after applying the
corresponding tax rates to taxable income; A tax
deduction reduces the income that is subject to
tax in order to arrive at taxable income.—A tax
credit differs from a tax deduction. On the one
hand, a tax credit reduces the tax due,
including—whenever applicable—the income tax
that is determined after applying the
corresponding tax rates to taxable income. A tax
deduction, on the other, reduces the income that
is subject to tax in order to arrive at taxable
income. To think of the former as the latter is to
avoid, if not entirely confuse, the issue. A tax
credit is used only after the tax has been
computed; a tax deduction, before.
Same; Same; Same; Under R.A. 7432, Congress
has granted without conditions a tax credit
benefit to all covered establishments; Although
this tax credit benefit is available, it need not be
used by losing ventures, since there is no tax
liability that calls for its application—by its
nature, the tax credit may still be deducted from
a future, not a present, tax liability, without
which it does not have any use.—If a net loss is
reported by, and no other taxes are currently due
from, a business establishment, there will
obviously be no tax liability against which any tax
credit can be applied. For the establishment to
choose the immediate availment of a tax credit
will be premature and impracticable.
Nevertheless, the irrefutable fact remains that,
under RA 7432, Congress has granted without
conditions a tax credit benefit to all covered
establishments. Although this tax credit benefit is
available, it need not be used by losing ventures,
since there is no tax liability that calls for its
application. Neither can it be reduced to nil by
the quick yet callow stroke of an administrative
pen, simply because no reduction of taxes can
instantly be effected. By its nature, the tax credit
may still be deducted from a future, not a
present, tax liability, without which it does not
have any use. In the meantime, it need not move.
But it breathes.
Same; Same; Same; While a tax liability is
essential to the availment or use of any tax
credit, prior tax payments are not—for the
existence or grant solely of such credit, neither a
tax liability nor a prior tax payment is needed.—
While a tax liability is essential to the availment
or use of any tax credit, prior tax payments are
not. On the contrary, for the existence or grant
solely of such credit, neither a tax liability nor a
prior tax payment is needed. The Tax Code is in
fact replete with provisions granting or allowing
tax credits, even though no taxes have been
previously paid.
Same; Same; Same; To deny the tax credit,
despite the plain mandate of the law and the
regulations carrying out that mandate, is
indefensible.—RA 7432 specifically allows
private establishments to claim as tax credit the
amount of discounts they grant. In turn, the
Implementing Rules and Regulations, issued
pursuant thereto, provide the procedures for its
availment. To deny such credit, despite the plain
mandate of the law and the regulations carrying
out that mandate, is indefensible.
Same; Same; Same; Words and Phrases; By
ordinary acceptation, a discount is an
“abatement or reduction made from the gross
amount or value of anything.”—The definition
given by petitioner is erroneous. It refers to tax
credit as the amount representing the 20 percent
discount that “shall be deducted by the said
establishments from their gross income for
income tax purposes and from their gross sales
for value-added tax or other percentage tax
purposes.” In ordinary business language, the tax
credit represents the amount of such discount.
However, the manner by which the discount shall
be credited against taxes has not been clarified
by the revenue regulations. By ordinary
acceptation, a discount is an “abatement or
reduction made from the gross amount or value
of anything.” To be more precise, it is in business
parlance “a deduction or lowering of an amount
of money”; or “a reduction from the full amount
or value of something, especially a price.” In
business there are many kinds of discount, the
most common of which is that affecting the
income statement or financial report upon which
the income tax is based.
Same; Same; Same; Same; “Cash Discount,”
“Sales Discount,” “Quantity, Volume or Bulk
Discount,” “Trade Discount,” “Chain Discount,”
and “Functional Discount,” Explained.—A cash
discount, for example, is one granted by business
establishments to credit customers for their
prompt payment. It is a “reduction in price
offered to the purchaser if payment is made
within a shorter period of time than the
maximum time specified.” Also referred to as a
sales discount on the part of the seller and a
purchase discount on the part of the buyer, it
may be expressed in such terms as “5/10, n/30.”
A quantity discount, however, is a “reduction in
price allowed for purchases made in large
quantities, justified by savings in packaging,
shipping, and handling.” It is also called a volume
or bulk discount. A “percentage reduction from
the list price x x x allowed by manufacturers to
wholesalers and by wholesalers to retailers” is
known as a trade discount. No entry for it need
be made in the manual or computerized books of
accounts, since the purchase or sale is already
valued at the net price actually charged the
buyer. The purpose for the discount is to
encourage trading or increase sales, and the
prices at which the purchased goods may be
resold are also suggested. Even a chain
discount—a series of discounts from one list
price—is recorded at net. Finally, akin to a trade
discount is a functional discount. It is “a
supplier’s price discount given to a purchaser
based on the [latter’s] role in the [former’s]
distribution system.” This role usually involves
warehousing or advertising.
Same; Same; Same; Same; The term sales
discounts is not expressly defined in the Tax
Code, but one provision adverts to amounts
whose sum—along with sales returns,
allowances and cost of goods sold—is deducted
from gross sales to come up with the gross
income, profit or margin derived from
business.—The term sales discounts is not
expressly defined in the Tax Code, but one
provision adverts to amounts whose sum—along
with sales returns, allowances and cost of goods
sold—is deducted from gross sales to come up
with the gross income, profit or margin derived
from business. In another provision therein, sales
discounts that are granted and indicated in the
invoices at the time of sale—and that do not
depend upon the happening of any future
event—may be excluded from the gross sales
within the same quarter they were given. While
determinative only of the VAT, the latter
provision also appears as a suitable reference
point for income tax purposes already embraced
in the former. After all, these two provisions
affirm that sales discounts are amounts that are
always deductible from gross sales.
Same; Same; Same; To be sure, the privilege
enjoyed by the senior citizen must be equivalent
to the tax credit benefit enjoyed by the private
establishment granting the discount.—A
distinguishing feature of the implementing rules
of RA 7432 is the private establishment’s outright
deduction of the discount from the invoice price
of the medicine sold to the senior citizen. It is,
therefore, expected that for each retail sale
made under this law, the discount period lasts no
more than a day, because such discount is
given—and the net amount thereof collected—
immediately upon perfection of the sale.
PANGANIBAN, J.:
The 20 percent discount required by the law to
be given to senior citizens is a tax credit, not
merely a tax deductionfrom the gross income or
gross sale of the establishment concerned. A tax
credit is used by a private establishment only
after the tax has been computed; a tax
deduction, before the tax is computed. RA 7432
unconditionally grants a tax credit to all covered
entities. Thus, the provisions of the revenue
regulation that withdraw or modify such grant
are void. Basic is the rule that administrative
regulations cannot amend or revoke the law.
The Case
Before us is a Petition for Review1 under Rule 45
of the Rules of Court, seeking to set aside the
August 29, 2002 Decision2 and the August 11,
2003 Resolution3 of the Court of Appeals (CA) in
CA-GR SP No. 67439. The assailed Decision reads
as follows:
"WHEREFORE, premises considered, the
Resolution appealed from is AFFIRMED in
toto. No costs."4
The assailed Resolution denied petitioner’s
Motion for Reconsideration.
The Facts
The CA narrated the antecedent facts as follows:
"Respondent is a domestic corporation primarily
engaged in retailing of medicines and other
pharmaceutical products. In 1996, it operated six
(6) drugstores under the business name and style
‘Mercury Drug.’
"From January to December 1996, respondent
granted twenty (20%) percent sales discount to
qualified senior citizens on their purchases of
medicines pursuant to Republic Act No. [R.A.]
7432 and its Implementing Rules and
Regulations. For the said period, the amount
allegedly representing the 20% sales discount
granted by respondent to qualified senior
citizens totaled ₱904,769.00.
"On April 15, 1997, respondent filed its Annual
Income Tax Return for taxable year 1996
declaring therein that it incurred net losses from
its operations.
"On January 16, 1998, respondent filed with
petitioner a claim for tax refund/credit in the
amount of ₱904,769.00 allegedly arising from
the 20% sales discount granted by respondent to
qualified senior citizens in compliance with [R.A.]
7432. Unable to obtain affirmative response
from petitioner, respondent elevated its claim to
the Court of Tax Appeals [(CTA or Tax
Court)] via a Petition for Review.
"On February 12, 2001, the Tax Court rendered
a Decision5 dismissing respondent’s Petition for
lack of merit. In said decision, the [CTA] justified
its ruling with the following ratiocination:
‘x x x, if no tax has been paid to the government,
erroneously or illegally, or if no amount is due
and collectible from the taxpayer, tax refund or
tax credit is unavailing. Moreover, whether the
recovery of the tax is made by means of a claim
for refund or tax credit, before recovery is
allowed[,] it must be first established that there
was an actual collection and receipt by the
government of the tax sought to be recovered. x
x x.
‘x x x x x x x x x
‘Prescinding from the above, it could logically be
deduced that tax credit is premised on the
existence of tax liability on the part of taxpayer.
In other words, if there is no tax liability, tax
credit is not available.’
"Respondent lodged a Motion for
Reconsideration. The [CTA], in its assailed
resolution,6 granted respondent’s motion for
reconsideration and ordered herein petitioner to
issue a Tax Credit Certificate in favor of
respondent citing the decision of the then
Special Fourth Division of [the CA] in CA G.R. SP
No. 60057 entitled ‘Central [Luzon] Drug
Corporation vs. Commissioner of Internal
Revenue’ promulgated on May 31, 2001, to wit:
‘However, Sec. 229 clearly does not apply in the
instant case because the tax sought to be
refunded or credited by petitioner was not
erroneously paid or illegally collected. We take
exception to the CTA’s sweeping but unfounded
statement that ‘both tax refund and tax credit
are modes of recovering taxes which are either
erroneously or illegally paid to the government.’
Tax refunds or credits do not exclusively pertain
to illegally collected or erroneously paid taxes as
they may be other circumstances where a refund
is warranted. The tax refund provided under
Section 229 deals exclusively with illegally
collected or erroneously paid taxes but there are
other possible situations, such as the refund of
excess estimated corporate quarterly income tax
paid, or that of excess input tax paid by a VAT-
registered person, or that of excise tax paid on
goods locally produced or manufactured but
actually exported. The standards and mechanics
for the grant of a refund or credit under these
situations are different from that under Sec. 229.
Sec. 4[.a)] of R.A. 7432, is yet another instance of
a tax credit and it does not in any way refer to
illegally collected or erroneously paid taxes, x x
x.’"7
Ruling of the Court of Appeals
The CA affirmed in toto the Resolution of the
Court of Tax Appeals (CTA) ordering petitioner to
issue a tax credit certificate in favor of
respondent in the reduced amount of
₱903,038.39. It reasoned that Republic Act No.
(RA) 7432 required neither a tax liability nor a
payment of taxes by private establishments prior
to the availment of a tax credit. Moreover, such
credit is not tantamount to an unintended
benefit from the law, but rather a just
compensation for the taking of private property
for public use.
Hence this Petition.8
The Issues
Petitioner raises the following issues for our
consideration:
"Whether the Court of Appeals erred in holding
that respondent may claim the 20% sales
discount as a tax credit instead of as a deduction
from gross income or gross sales.
"Whether the Court of Appeals erred in holding
that respondent is entitled to a refund."9
These two issues may be summed up in only one:
whether respondent, despite incurring a net loss,
may still claim the 20 percent sales discount as a
tax credit.
The Court’s Ruling
The Petition is not meritorious.
Sole Issue:
Claim of 20 Percent Sales Discount
as Tax Credit Despite Net Loss
Section 4a) of RA 743210 grants to senior citizens
the privilege of obtaining a 20 percent discount
on their purchase of medicine from any private
establishment in the country.11 The latter may
then claim the cost of the discount as a tax
credit.12 But can such credit be claimed, even
though an establishment operates at a loss?
We answer in the affirmative.
Tax Credit versus
Tax Deduction
Although the term is not specifically defined in
our Tax Code,13 tax credit generally refers to an
amount that is "subtracted directly from one’s
total tax liability."14 It is an "allowance against
the tax itself"15 or "a deduction from what is
owed"16 by a taxpayer to the government.
Examples of tax credits are withheld taxes,
payments of estimated tax, and investment tax
credits.17
Tax credit should be understood in relation to
other tax concepts. One of these is tax
deduction -- defined as a subtraction "from
income for tax purposes,"18 or an amount that is
"allowed by law to reduce income prior to [the]
application of the tax rate to compute the
amount of tax which is due."19 An example of
a tax deduction is any of the allowable
deductions enumerated in Section 3420 of the
Tax Code.
A tax credit differs from a tax deduction. On the
one hand, a tax credit reduces the tax due,
including -- whenever applicable -- the income
tax that is determined after applying the
corresponding tax rates to taxable
income.21 A tax deduction, on the other, reduces
the income that is subject to tax22 in order to
arrive at taxable income.23 To think of the former
as the latter is to avoid, if not entirely confuse,
the issue. A tax credit is used only after the tax
has been computed; a tax deduction, before.
Tax Liability Required
for Tax Credit
Since a tax credit is used to reduce directly the
tax that is due, there ought to be a tax
liability before the tax creditcan be applied.
Without that liability, any tax credit application
will be useless. There will be no reason for
deducting the latter when there is, to begin with,
no existing obligation to the government.
However, as will be presented shortly,
the existence of a tax credit or its grant by law is
not the same as the availment or use of such
credit. While the grant is mandatory, the
availment or use is not.
If a net loss is reported by, and no other taxes are
currently due from, a business establishment,
there will obviously be no tax liability against
which any tax credit can be applied.24 For the
establishment to choose the immediate
availment of a tax credit will be premature and
impracticable. Nevertheless, the irrefutable fact
remains that, under RA 7432, Congress has
granted without conditions a tax credit benefit
to all covered establishments.
Although this tax credit benefit is available, it
need not be used by losing ventures, since there
is no tax liability that calls for its application.
Neither can it be reduced to nil by the quick yet
callow stroke of an administrative pen, simply
because no reduction of taxes can instantly be
effected. By its nature, the tax credit may still be
deducted from a future, not a present, tax
liability, without which it does not have any use.
In the meantime, it need not move. But it
breathes.
Prior Tax Payments Not
Required for Tax Credit
While a tax liability is essential to the availment
or use of any tax credit, prior tax payments are
not. On the contrary, for the existence or
grant solely of such credit, neither a tax liability
nor a prior tax payment is needed. The Tax Code
is in fact replete with provisions granting or
allowing tax credits, even though no taxes have
been previously paid.
For example, in computing the estate tax due,
Section 86(E) allows a tax credit -- subject to
certain limitations -- for estate taxes paid to a
foreign country. Also found in Section 101(C) is a
similar provision for donor’s taxes -- again when
paid to a foreign country -- in computing for
the donor’s tax due. The tax credits in both
instances allude to the prior payment of taxes,
even if not made to our government.
Under Section 110, a VAT (Value-Added Tax)-
registered person engaging in transactions --
whether or not subject to the VAT -- is also
allowed a tax credit that includes a ratable
portion of any input tax not directly attributable
to either activity. This input tax may either be the
VAT on the purchase or importation of goods or
services that is merely due from -- not
necessarily paid by -- such VAT-registered person
in the course of trade or business; or the
transitional input tax determined in accordance
with Section 111(A). The latter type may in fact
be an amount equivalent to only eight percent of
the value of a VAT-registered person’s beginning
inventory of goods, materials and supplies, when
such amount -- as computed -- is higher than the
actual VAT paid on the said items.25 Clearly from
this provision, the tax credit refers to an input
tax that is either due only or given a value by
mere comparison with the VAT actually paid --
then later prorated. No tax is actually paid prior
to the availment of such credit.
In Section 111(B), a one and a half percent
input tax credit that is merely presumptive is
allowed. For the purchase of primary agricultural
products used as inputs -- either in the
processing of sardines, mackerel and milk, or in
the manufacture of refined sugar and cooking oil
-- and for the contract price of public work
contracts entered into with the government,
again, no prior tax payments are needed for the
use of the tax credit.
More important, a VAT-registered person whose
sales are zero-rated or effectively zero-rated
may, under Section 112(A), apply for the
issuance of a tax credit certificate for the
amount of creditable input taxes merely due --
again not necessarily paid to -- the government
and attributable to such sales, to the extent that
the input taxes have not been applied against
output taxes.26 Where a taxpayer
is engaged in zero-rated or effectively zero-rated
sales and also in taxable or exempt sales, the
amount of creditable input taxes due that are
not directly and entirely attributable to any one
of these transactions shall be proportionately
allocated on the basis of the volume of sales.
Indeed, in availing of such tax credit for VAT
purposes, this provision -- as well as the one
earlier mentioned -- shows that the prior
payment of taxes is not a requisite.
It may be argued that Section 28(B)(5)(b) of the as a credit against the tax levied in the
Tax Code is another illustration of a tax latter.29 Apparently, payment is made to
credit allowed, even though no prior tax the state of source, not the state of residence. No
payments are not required. Specifically, in this tax, therefore, has been previously paid to the
provision, the imposition of a final withholding latter.
tax rate on cash and/or property dividends
Under special laws that particularly affect
received by a nonresident foreign corporation
businesses, there can also be tax
from a domestic corporation is subjected to the
credit incentives. To illustrate, the incentives
condition that a foreign tax credit will be given
provided for in Article 48 of Presidential Decree
by the domiciliary country in an amount
No. (PD) 1789, as amended by Batas Pambansa
equivalent to taxes that are merely deemed
Blg. (BP) 391, include tax credits equivalent to
paid.27 Although true, this provision actually
either five percent of the net value earned, or
refers to the tax credit as a condition only for the
five or ten percent of the net local content of
imposition of a lower tax rate, not as
exports.30 In order to avail of such credits under
a deduction from the corresponding tax liability.
the said law and still achieve its objectives, no
Besides, it is not our government but the
prior tax payments are necessary.
domiciliary country that credits against the
income tax payable to the latter by the foreign From all the foregoing instances, it is evident that
corporation, the tax to be foregone or spared.28 prior tax payments are not indispensable to the
availment of a tax credit. Thus, the CA correctly
In contrast, Section 34(C)(3), in relation to
held that the availment under RA 7432 did not
Section 34(C)(7)(b), categorically allows as
require prior tax payments by private
credits, against the income tax imposable under
establishments concerned.31 However, we do
Title II, the amount of income taxes merely
not agree with its finding32 that the carry-over
incurred -- not necessarily paid -- by a domestic
of tax credits under the said special law to
corporation during a taxable year in any foreign
succeeding taxable periods, and even their
country. Moreover, Section 34(C)(5) provides
application against internal revenue taxes, did
that for such taxes incurred but not paid, a tax
not necessitate the existence of a tax liability.
credit may be allowed, subject to the condition
precedent that the taxpayer shall simply give a The examples above show that a tax liability is
bond with sureties satisfactory to and approved certainly important in the availment or use, not
by petitioner, in such sum as may be required; the existence or grant, of a tax credit. Regarding
and further conditioned upon payment by the this matter, a private establishment reporting
taxpayer of any tax found due, upon petitioner’s a net loss in its financial statements is no
redetermination of it. different from another that presents a net
income. Both are entitled to the tax
In addition to the above-cited provisions in the
credit provided for under RA 7432, since the law
Tax Code, there are also tax treaties and special
itself accords that unconditional benefit.
laws that grant or allow tax credits, even though
However, for the losing establishment to
no prior tax payments have been made.
immediately apply such credit, where no tax is
Under the treaties in which the tax due, will be an improvident usance.
credit method is used as a relief to avoid double
Sections 2.i and 4 of Revenue
taxation, income that is taxed in the state of
source is also taxable in the state of residence, Regulations No. 2-94 Erroneous
but the tax paid in the former is merely allowed
RA 7432 specifically allows private may be expressed in such
establishments to claim as tax credit the amount terms as "5/10, n/30."42
of discounts they grant.33 In turn, the
A quantity discount, however, is a "reduction in
Implementing Rules and Regulations, issued
price allowed for purchases made in large
pursuant thereto, provide the procedures for its
quantities, justified by savings in packaging,
availment.34To deny such credit, despite the
shipping, and handling."43 It is also called
plain mandate of the law and the regulations
a volume or bulk discount.44
carrying out that mandate, is indefensible.
A "percentage reduction from the list price x x x
First, the definition given by petitioner is
allowed by manufacturers to wholesalers and by
erroneous. It refers to tax credit as the amount
wholesalers to retailers"45 is known as a trade
representing the 20 percent discount that "shall
discount. No entry for it need be made in the
be deducted by the said establishments from
manual or computerized books of accounts,
their gross income for income tax purposes and
since the purchase or sale is already valued at the
from their gross sales for value-added tax or
net price actually charged the buyer.46 The
other percentage tax purposes."35 In ordinary
purpose for the discount is to encourage trading
business language, the tax credit represents the
or increase sales, and the prices at which the
amount of such discount. However, the manner
purchased goods may be resold are also
by which the discount shall be credited against
suggested.47 Even a chain discount -- a series of
taxes has not been clarified by the revenue
discounts from one list price -- is recorded at
regulations.
net.48
By ordinary acceptation, a discount is an
Finally, akin to a trade discount is a functional
"abatement or reduction made from the gross
discount. It is "a supplier’s price discount given to
amount or value of anything."36 To be more
a purchaser based on the [latter’s] role in the
precise, it is in business parlance "a deduction or
[former’s] distribution system."49 This role
lowering of an amount of money;"37 or "a
usually involves warehousing or advertising.
reduction from the full amount or value of
something, especially a price."38 In business Based on this discussion, we find that the nature
there are many kinds of discount, the most of a sales discount is peculiar. Applying generally
common of which is that affecting the income accepted accounting principles (GAAP) in the
statement39 or financial report upon which country, this type of discount is reflected in
the income tax is based. the income statement50 as a line item deducted -
- along with returns, allowances, rebates and
Business Discounts
other similar expenses -- from gross sales to
Deducted from Gross Sales arrive at net sales.51 This type of presentation is
resorted to, because the accounts
A cash discount, for example, is one granted by
receivable and sales figures that arise from sales
business establishments to credit customers for
discounts, -- as well as from quantity,
their prompt payment.40 It is a "reduction in price
volume or bulk discounts -- are recorded in the
offered to the purchaser if payment is made
manual and computerized books of
within a shorter period of time than the
accounts and reflected in the financial
maximum time specified."41 Also referred to as
statements at the gross amounts of the
a sales discount on the part of the seller and
invoices.52This manner of recording credit sales -
a purchase discounton the part of the buyer, it
- known as the gross method -- is most widely
used, because it is simple, more convenient to
apply than the net method, and produces no
material errors over time.53
However, under the net method used in
recording trade, chain or functional discounts,
only the net amounts of the invoices -- after the
discounts have been deducted -- are recorded in
the books of accounts54 and reflected in the
financial statements. A separate line item cannot
be shown,55 because the transactions
themselves involving both accounts
receivable and sales have already been entered
into, net of the said discounts.
The term sales discounts is not expressly defined
in the Tax Code, but one provision adverts to
amounts whose sum -- along with sales
returns, allowances and cost of goods sold56 -- is
deducted from gross sales to come up with
the gross income, profit or margin57 derived
from business.58 In another provision
therein, sales discounts that are granted and
indicated in the invoices at the time of sale -- and
that do not depend upon the happening of any
future event -- may be excluded from the gross
sales within the same quarter they were
given.59 While determinative only of the VAT, the
latter provision also appears as a suitable
reference point for income tax purposes already
embraced in the former. After all, these two
provisions affirm that sales discounts are
amounts that are always deductible from gross
sales.
Reason for the Senior Citizen Discount:
The Law, Not Prompt Payment
A distinguishing feature of the implementing
rules of RA 7432 is the private establishment’s
outright deduction of the discount from the
invoice price of the medicine sold to the senior
citizen.60 It is, therefore, expected that for each
retail sale made under this law, the discount
period lasts no more than a day, because such
discount is given -- and the net amount thereof
collected -- immediately upon perfection of the
sale.61 Although prompt payment is made for an
arm’s-length transaction by the senior citizen,
the real and compelling reason for the private
establishment giving the discount is that the law
itself makes it mandatory.
What RA 7432 grants the senior citizen is a mere
discount privilege, not a sales discount or any of
the above discounts in particular. Prompt
payment is not the reason for (although a
necessary consequence of) such grant. To be
sure, the privilege enjoyed by the senior citizen
must be equivalent to the tax credit benefit
enjoyed by the private establishment granting
the discount. Yet, under the revenue regulations
promulgated by our tax authorities, this benefit
has been erroneously likened and confined to
a sales discount.
To a senior citizen, the monetary effect of the
privilege may be the same as that resulting from
a sales discount. However, to a private
establishment, the effect is different from a
simple reduction in price that results from such
discount. In other words, the tax credit benefit is
not the same as a sales discount. To repeat from
our earlier discourse, this benefit cannot and
should not be treated as a tax deduction.
To stress, the effect of a sales discount on
the income statement and income tax return of
an establishment covered by RA 7432 is different
from that resulting from the availment or use of
its tax credit benefit. While the former is a
deduction before, the latter is a deduction after,
the income tax is computed. As mentioned
earlier, a discount is not necessarily a sales
discount, and a tax credit for a simple discount
privilege should not be automatically treated like
a sales discount. Ubi lex non distinguit, nec nos
distinguere debemus. Where the law does not
distinguish, we ought not to distinguish.
Sections 2.i and 4 of Revenue Regulations No.
(RR) 2-94 define tax credit as the 20 percent
discount deductible from gross
income for income tax purposes, or from gross
sales for VAT or other percentage tax purposes.
In effect, the tax credit benefit under RA 7432 is
related to a sales discount. This contrived
definition is improper, considering that the latter
has to be deducted from gross sales in order to
compute the gross income in the income
statementand cannot be deducted again, even
for purposes of computing the income tax.
When the law says that the cost of the discount
may be claimed as a tax credit, it means that the
amount -- when claimed -- shall be treated as a
reduction from any tax liability, plain and simple.
The option to avail of the tax creditbenefit
depends upon the existence of a tax liability, but
to limit the benefit to a sales discount -- which is
not even identical to the discount privilege that
is granted by law -- does not define it at all and
serves no useful purpose. The definition must,
therefore, be stricken down.
Laws Not Amended
by Regulations
Second, the law cannot be amended by a mere
regulation. In fact, a regulation that "operates to
create a rule out of harmony with
the statute is a mere nullity";62 it cannot prevail.
It is a cardinal rule that courts "will and should
respect the contemporaneous construction
placed upon a statute by the executive officers
whose duty it is to enforce it x x x."63 In the
scheme of judicial tax administration, the need
for certainty and predictability in the
implementation of tax laws is crucial.64 Our tax
authorities fill in the details that "Congress may
not have the opportunity or competence to
provide."65 The regulations these authorities
issue are relied upon by taxpayers, who are
certain that these will be followed by the
courts.66 Courts, however, will not uphold these
authorities’ interpretations when clearly absurd,
erroneous or improper.
In the present case, the tax authorities have
given the term tax credit in Sections 2.i and 4 of
RR 2-94 a meaning utterly in contrast to what RA
7432 provides. Their interpretation has muddled
up the intent of Congress in granting a mere
discount privilege, not a sales discount. The
administrative agency issuing these regulations
may not enlarge, alter or restrict the provisions
of the law it administers; it cannot engraft
additional requirements not contemplated by
the legislature.67
In case of conflict, the law must prevail.68 A
"regulation adopted pursuant to law is
law."69 Conversely, a regulation or any portion
thereof not adopted pursuant to law is no law
and has neither the force nor the effect of law.70
Availment of Tax
Credit Voluntary
Third, the word may in the text of the
statute71 implies that the
availability of the tax credit benefit is neither
unrestricted nor mandatory.72 There is no
absolute right conferred upon respondent, or
any similar taxpayer, to avail itself of the tax
credit remedy whenever it chooses; "neither
does it impose a duty on the part of the
government to sit back and allow an important
facet of tax collection to be at the sole control
and discretion of the taxpayer."73 For the tax
authorities to compel respondent to deduct the
20 percent discount from either its gross
income or its gross sales74 is, therefore, not only
to make an imposition without basis in law, but
also to blatantly contravene the law itself.
What Section 4.a of RA 7432 means is that
the tax credit benefit is merely permissive, not
imperative. Respondent is given two options --
either to claim or not to claim the cost of the
discounts as a tax credit. In fact, it may even
ignore the credit and simply consider the gesture
as an act of beneficence, an expression of its
social conscience.
Granting that there is a tax liability and
respondent claims such cost as a tax credit, then
the tax credit can easily be applied. If there is
none, the credit cannot be used and will just
have to be carried over and
revalidated75 accordingly. If, however, the
business continues to operate at a loss and no
other taxes are due, thus compelling it to close
shop, the credit can never be applied and will be
lost altogether.
In other words, it is the existence or the lack of a
tax liability that determines whether the cost of
the discounts can be used as a tax credit. RA
7432 does not give respondent the unfettered
right to avail itself of the credit whenever it
pleases. Neither does it allow our tax
administrators to expand or contract the
legislative mandate. "The ‘plain meaning rule’
or verba legis in statutory construction is thus
applicable x x x. Where the words of a statute are
clear, plain and free from ambiguity, it must be
given its literal meaning and applied without
attempted interpretation."76
Tax Credit Benefit
Deemed Just Compensation
Fourth, Sections 2.i and 4 of RR 2-94 deny the
exercise by the State of its power of eminent
domain. Be it stressed that the privilege enjoyed
by senior citizens does not come directly from
the State, but rather from the private
establishments concerned. Accordingly, the tax
credit benefit granted to these establishments
can be deemed as their just compensation for
private property taken by the State for public
use.77
The concept of public use is no longer confined
to the traditional notion of use by the public, but
held synonymous with public interest, public
benefit, public welfare, and public
convenience.78 The discount privilege to which
our senior citizens are entitled is actually a
benefit enjoyed by the general public to which
these citizens belong. The discounts given would
have entered the coffers and formed part of
the gross sales of the private establishments
concerned, were it not for RA 7432. The
permanent reduction in their total revenues is a
forced subsidy corresponding to the taking of
private property for public use or benefit.
As a result of the 20 percent discount imposed
by RA 7432, respondent becomes entitled to
a just compensation. This term refers not only to
the issuance of a tax credit certificate indicating
the correct amount of the discounts given, but
also to the promptness in its release. Equivalent
to the payment of property taken by the State,
such issuance -- when not done within
a reasonable time from the grant of the
discounts -- cannot be considered as just
compensation. In effect, respondent is made to
suffer the consequences of being immediately
deprived of its revenues while awaiting actual
receipt, through the certificate, of the equivalent
amount it needs to cope with the reduction in its
revenues.79
Besides, the taxation power can also be used as
an implement for the exercise of the power of
eminent domain.80Tax measures are but
"enforced contributions exacted on pain of penal
sanctions"81 and "clearly imposed for a public
purpose."82 In recent years, the power to tax has
indeed become a most effective tool to realize
social justice, public welfare, and the equitable
distribution of wealth.83
While it is a declared commitment under Section
1 of RA 7432, social justice "cannot be invoked to
trample on the rights of property owners who
under our Constitution and laws are also entitled
to protection. The social justice consecrated in
our [C]onstitution [is] not intended to take away
rights from a person and give them to another
who is not entitled thereto."84 For this reason, a
just compensation for income that is taken away
from respondent becomes necessary. It is in
the tax credit that our legislators find support to
realize social justice, and no administrative body
can alter that fact.
To put it differently, a private establishment that
merely breaks even85 -- without the discounts yet
-- will surely start to incur losses because of such
discounts. The same effect is expected if its
mark-up is less than 20 percent, and if all its sales
come from retail purchases by senior citizens.
Aside from the observation we have already
raised earlier, it will also be grossly unfair to an
establishment if the discounts will be treated
merely as deductions from either its gross
income or its gross sales. Operating at a loss
through no fault of its own, it will realize that
the tax credit limitation under RR 2-94 is inutile,
if not improper. Worse, profit-generating
businesses will be put in a better position if they
avail themselves of tax credits denied those that
are losing, because no taxes are due from the
latter.
Grant of Tax Credit
Intended by the Legislature
Fifth, RA 7432 itself seeks to adopt measures
whereby senior citizens are assisted by the
community as a whole and to establish a
program beneficial to them.86 These objectives
are consonant with the constitutional policy of
making "health x x x services available to all the
people at affordable cost"87 and of giving
"priority for the needs of the x x x
elderly."88 Sections 2.i and 4 of RR 2-94, however,
contradict these constitutional policies and
statutory objectives.
Furthermore, Congress has allowed all private
establishments a simple tax credit, not a
deduction. In fact, no cash outlay is required
from the government for the availment or use of
such credit. The deliberations on February 5,
1992 of the Bicameral Conference Committee
Meeting on Social Justice, which finalized RA
7432, disclose the true intent of our legislators to
treat the sales discounts as a tax credit, rather
than as a deduction from gross income. We
quote from those deliberations as follows:
"THE CHAIRMAN (Rep. Unico). By the way,
before that ano, about deductions from taxable
income. I think we incorporated there a
provision na - on the responsibility of the private
hospitals and drugstores, hindi ba?
SEN. ANGARA. Oo.
THE CHAIRMAN. (Rep. Unico), So, I think we have
to put in also a provision here about the
deductions from taxable income of that private
hospitals, di ba ganon 'yan?
MS. ADVENTO. Kaya lang po sir, and mga
discounts po nila affecting government and
public institutions, so, puwede na po nating hindi
isama yung mga less deductions ng taxable
income.
THE CHAIRMAN. (Rep. Unico). Puwede na. Yung
about the private hospitals. Yung isiningit natin?
MS. ADVENTO. Singit na po ba yung 15% on
credit. (inaudible/did not use the microphone).
SEN. ANGARA. Hindi pa, hindi pa.
THE CHAIRMAN. (Rep. Unico) Ah, 'di pa ba
naisama natin?
SEN. ANGARA. Oo. You want to insert that?
THE CHAIRMAN (Rep. Unico). Yung ang proposal
ni Senator Shahani, e.
SEN. ANGARA. In the case of private hospitals
they got the grant of 15% discount, provided
that, the private hospitals can claim the expense
as a tax credit.
REP. AQUINO. Yah could be allowed as
deductions in the perpetrations of (inaudible)
income.
SEN. ANGARA. I-tax credit na lang natin para
walang cash-out ano?
REP. AQUINO. Oo, tax credit. Tama, Okay.
Hospitals ba o lahat ng establishments na
covered.
THE CHAIRMAN. (Rep. Unico). Sa kuwan lang
yon, as private hospitals lang.
REP. AQUINO. Ano ba yung establishments na
covered?
SEN. ANGARA. Restaurant lodging houses,
recreation centers.
REP. AQUINO. All establishments covered
siguro?
SEN. ANGARA. From all establishments. Alisin na
natin 'Yung kuwan kung ganon. Can we go back
to Section 4 ha?
REP. AQUINO. Oho.
SEN. ANGARA. Letter A. To capture that thought,
we'll say the grant of 20% discount from all
establishments et cetera, et cetera, provided
that said establishments - provided that private
establishments may claim the cost as a tax credit.
Ganon ba 'yon?
REP. AQUINO. Yah.
SEN. ANGARA. Dahil kung government, they
don't need to claim it.
THE CHAIRMAN. (Rep. Unico). Tax credit.
SEN. ANGARA. As a tax credit [rather] than a
kuwan - deduction, Okay.
REP. AQUINO Okay.
SEN. ANGARA. Sige Okay. Di subject to style na
lang sa Letter A".89
Special Law
Over General Law
Sixth and last, RA 7432 is a special law that
should prevail over the Tax Code -- a general law.
"x x x [T]he rule is that on a specific matter the
special law shall prevail over the general law,
which shall
be resorted to only to supply deficiencies in the
former."90 In addition, "[w]here there are two
statutes, the earlier special and the later general
-- the terms of the general broad enough to
include the matter provided for in the special --
the fact that one is special and the other is
general creates a presumption that the special is
to be considered as remaining an exception to
the general,91 one as a general law of the land,
the other as the law of a particular case."92 "It is
a canon of statutory construction that a
later statute, general in its terms and not
expressly repealing a prior special statute, will
ordinarily not affect the special provisions of
such earlier statute."93
RA 7432 is an earlier law not expressly repealed
by, and therefore remains an exception to, the
Tax Code -- a later law. When the former states
that a tax credit may be claimed, then the
requirement of prior tax payments under certain
provisions of the latter, as discussed above,
cannot be made to apply. Neither can the
instances of or references to a tax
deduction under the Tax Code94 be made to
restrict RA 7432. No provision of any revenue
regulation can supplant or modify the acts of
Congress.
WHEREFORE, the Petition is hereby DENIED. The
assailed Decision and Resolution of the Court of
Appeals AFFIRMED. No pronouncement as to
costs.
SO ORDERED.
DIGEST:
Facts:
Respondents operated six drugstores under the
business name Mercury Drug. From January to
December 1996 respondent granted 20% sales
discount to qualified senior citizens on their
purchases of medicines pursuant to RA 7432 for
a total of ₱ 904,769.
On April 15, 1997, respondent filed its annual
Income Tax Return for taxable year 1996
declaring therein net losses. On Jan. 16, 1998
respondent filed with petitioner a claim for tax
refund/credit of ₱ 904,769.00 allegedly arising
from the 20% sales discount. Unable to obtain
affirmative response from petitioner,
respondent elevated its claim to the Court of Tax
Appeals. The court dismissed the same but upon
reconsideration, the latter reversed its earlier
ruling and ordered petitioner to issue a Tax
Credit Certificate in favor of respondent citing CA
GR SP No. 60057 (May 31, 2001, Central Luzon
Drug Corp. vs. CIR) citing that Sec. 229 of RA 7432
deals exclusively with illegally collected or
erroneously paid taxes but that there are other
situations which may warrant a tax
credit/refund.
CA affirmed Court of Tax Appeal's decision
reasoning that RA 7432 required neither a tax
liability nor a payment of taxes by private
establishments prior to the availment of a tax
credit. Moreover, such credit is not tantamount
to an unintended benefit from the law, but
rather a just compensation for the taking of
private property for public use.
Issue:
Whether or not respondent, despite incurring a
net loss, may still claim the 20% sales discount as
a tax credit.
Ruling:
Yes, it is clear that Sec. 4a of RA 7432 grants to
senior citizens the privilege of obtaining a 20%
discount on their purchase of medicine from any
private establishment in the country. The latter
may then claim the cost of the discount as a tax
credit. Such credit can be claimed even if the
establishment operates at a loss.
A tax credit generally refers to an amount that is
“subtracted directly from one’s total tax
liability.” It is an “allowance against the tax itself”
or “a deduction from what is owed” by a
taxpayer to the government.
A tax credit should be understood in relation to
other tax concepts. One of these is tax deduction
– which is subtraction “from income for tax
purposes,” or an amount that is “allowed by law
to reduce income prior to the application of the
tax rate to compute the amount of tax which is
due.” In other words, whereas a tax credit
reduces the tax due, tax deduction reduces the
income subject to tax in order to arrive at the
taxable income.
A tax credit is used to reduce directly the tax that
is due, there ought to be a tax liability before the
tax credit can be applied. Without that liability,
any tax credit application will be useless. There
will be no reason for deducting the latter when
there is, to begin with, no existing obligation to
the government. However, as will be presented
shortly, the existence of a tax credit or its grant
by law is not the same as the availment or use of
such credit. While the grant is mandatory, the
availment or use is not. If a net loss is reported
by, and no other taxes are currently due from, a
business establishment, there will obviously be
no tax liability against which any tax credit can
be applied. For the establishment to choose the
immediate availment of a tax credit will be
premature and impracticable.
NURSERY CARE CORPORATION; SHOEMART,
INC.; STAR APPLIANCE CENTER, INC.; H&B, INC.;
SUPPLIES STATION, INC.; and HARDWARE
WORKSHOP, INC., petitioners, vs. ANTHONY
ACEVEDO, in his capacity as THE TREASURER OF
MANILA; and THE CITY OF MANILA,
respondents.
Remedial Law; Civil Procedure; Appeals; Modes
of Appeal from the Decisions and Final Orders of
the Regional Trial Court (RTC).—The Rules of
Court provides three modes of appeal from the
decisions and final orders of the RTC, namely: (1)
ordinary appeal or appeal by writ of error under
Rule 41, where the decisions and final orders
were rendered in civil or criminal actions by the
RTC in the exercise of original jurisdiction; (2)
petition for review under Rule 42, where the
decisions and final orders were rendered by the
RTC in the exercise of appellate jurisdiction; and
(3) petition for review on certiorari to the
Supreme Court under Rule 45. The first mode of
appeal is taken to the CA on questions of fact, or
mixed questions of fact and law. The second
mode of appeal is brought to the CA on questions
of fact, of law, or mixed questions of fact and
law. The third mode of appeal is elevated to the
Supreme Court only on questions of law.
Same; “Questions of Law” and “Questions of
Fact,” Distinguished.—The distinction between a
question of law and a question of fact is well-
established. On the one hand, a question of law
arises when there is doubt as to what the law is
on a certain state of facts; on the other, there is
a question of fact when the doubt arises as to the
truth or falsity of the alleged facts. According to
Leoncio v. De Vera, 546 SCRA 180 (2008): x x x For
a question to be one of law, the same must not
involve an examination of the probative value of
the evidence presented by the litigants or any of
them. The resolution of the issue must rest solely
on what the law provides on the given set of
circumstances. Once it is clear that the issue
invites a review of the evidence presented, the
question posed is one of fact. Thus, the test of
whether a question is one of law or of fact is not
the appellation given to such question by the
party raising the same; rather, it is whether the
appellate court can determine the issue raised
without reviewing or evaluating the evidence, in
which case, it is a question of law; otherwise it is
a question of fact.
Taxation; Double Taxation; On the basis of the
rulings in City of Manila v. Coca-Cola Bottlers
Philippines, Inc., 595 SCRA 299 (2009) and
Swedish Match Philippines, Inc. v. The Treasurer
of the City of Manila, 700 SCRA 428 (2013), the
Court now holds that all the elements of double
taxation concurred upon the City of Manila’s
assessment on and collection from the
petitioners of taxes for the first quarter of 1999
pursuant to Section 21 of the Revenue Code of
Manila.—On the basis of the rulings in City of
Manila v. Coca-Cola Bottlers Philippines, Inc., 595
SCRA 299 (2009) and Swedish Match Philippines,
Inc. v. The Treasurer of the City of Manila, 700
SCRA 428 (2013), the Court now holds that all the
elements of double taxation concurred upon the
City of Manila’s assessment on and collection
from the petitioners of taxes for the first quarter
of 1999 pursuant to Section 21 of the Revenue
Code of Manila. Firstly, because Section 21 of the
Revenue Code of Manila imposed the tax on a
person who sold goods and services in the course
of trade or business based on a certain
percentage of his gross sales or receipts in the
preceding calendar year, while Section 15 and
Section 17 likewise imposed the tax on a person
who sold goods and services in the course of
trade or business but only identified such person
with particularity, namely, the wholesaler,
distributor or dealer (Section 15), and the retailer
(Section 17), all the taxes — being imposed on
the privilege of doing business in the City of
Manila in order to make the taxpayers contribute
to the city’s revenues — were imposed on the
same subject matter and for the same purpose.
Secondly, the taxes were imposed by the same
taxing authority (the City of Manila) and within
the same jurisdiction in the same taxing period
(i.e., per calendar year). Thirdly, the taxes were
all in the nature of local business taxes. Nursery
Care Corporation vs. Acevedo, 731 SCRA 280,
G.R. No. 180651 July 30, 2014
BERSAMIN, J.:
The issue here concerns double taxation. There
is double taxation when the same taxpayer is
taxed twice when he should be taxed only once
for the same purpose by the same taxing
authority within the same jurisdiction during the
same taxing period, and the taxes are of the
same kind or character. Double taxation is
obnoxious.
The Case
Under review are the resolution promulgated in
CA-G.R. SP No. 72191 on June 18,
2007,1 whereby the Court of Appeals (CA) denied
petitioners' appeal for lack of jurisdiction; and
the resolution promulgated on November 14,
2007,2 whereby the CA denied their motion for
reconsideration for its lack of merit.
Antecedents
The City of Manila assessed and collected taxes
from the individual petitioners pursuant to
Section 15 (Tax on Wholesalers, Distributors, or
Dealers) and Section 17 (Tax on Retailers) of the
Revenue Code of Manila.3 At the same time, the
City of Manila imposed additional taxes upon the
petitioners pursuant to Section 21 ofthe
Revenue Code of Manila,4 as amended, as a
condition for the renewal of their respective
business licenses for the year 1999. Section 21 of
the Revenue Code of Manila stated:
Section 21. Tax on Business Subject to the Excise,
Value-Added or Percentage Taxes under the
NIRC - On any of the following businesses and
articles of commerce subject to the excise, value-
added or percentage taxes under the National
Internal Revenue Code, hereinafter referred to
as NIRC, as amended, a tax of FIFTY PERCENT
(50%) OF ONE PERCENT (1%) per annum on the
gross sales or receipts of the preceding calendar
year is hereby imposed:
A) On person who sells goods and services in the
course of trade or businesses; x x x PROVIDED,
that all registered businesses in the City of
Manila already paying the aforementioned tax
shall be exempted from payment thereof.
To comply with the City of Manila’s
assessmentof taxes under Section 21, supra, the
petitioners paid under protest the following
amounts corresponding to the first quarter of
1999,5 to wit:
(a) Nursery Care Corporation ₱595,190.25
(b) Shoemart Incorporated ₱3,283,520.14
(c) Star Appliance Center ₱236,084.03
(d) H & B, Inc. ₱1,271,118.74
(e) Supplies Station, Inc. ₱239,501.25
(f) Hardware Work Shop, Inc. ₱609,953.24
By letter dated March 1, 1999, the petitioners
formally requested the Office of the City
Treasurer for the tax credit or refund of the local
business taxes paid under protest.6 However,
then City Treasurer Anthony Acevedo (Acevedo)
denied the request through his letter of March
10, 1999.7
On April 8, 1999, the petitioners, through their
representative, Cecilia R. Patricio, sought the
reconsideration of the denial of their
request.8 Still, the City Treasurer did not
reconsider.9 In the meanwhile, Liberty Toledo
succeeded Acevedo as the City Treasurer of
Manila.10
On April 29, 1999, the petitioners filed their
respective petitions for certiorariin the Regional
Trial Court (RTC) in Manila. The petitions,
docketed as Civil Cases Nos. 99-93668 to 99-
93673,11 were initially raffled to different
branches, but were soon consolidated in Branch
34.12 After the presiding judge of Branch 34
voluntarily inhibited himself, the consolidated
cases were transferred to Branch 23,13 but were
again re-raffled to Branch 19 upon the
designation of Branch 23 as a special drugs
court.14
The parties agreed on and jointly submitted the
following issues for the consideration and
resolution of the RTC, namely:
(a) Whether or not the collection of taxes under
Section 21 of Ordinance No. 7794, as amended,
constitutes double taxation.
(b) Whether or not the failure of the petitioners
to avail of the statutorily provided remedy for
their tax protest on the ground of
unconstitutionality, illegality and oppressiveness
under Section 187 of the Local Government Code
renders the present action dismissible for non-
exhaustion of administrative remedy.15
Decision of the RTC
On April 26, 2002, the RTC rendered its decision,
holding thusly:
The Court perceives of no instance of the
constitutionally proscribed double taxation, in
the strict, narrow or obnoxious sense, imposed
upon the petitioners under Section 15 and 17, on
the one hand, and under Section 21, on the
other, of the questioned Ordinance. The tax
imposed under Section 15 and 17, as against that
imposed under Section 21, are levied against
different tax objects or subject matter. The tax
under Section 15 is imposed upon wholesalers,
distributors or dealers, while that under Section
17 is imposedupon retailers. In short, taxes
imposed under Section 15 and 17 is a tax on the
business of wholesalers, distributors, dealers
and retailers. On the other hand, the tax
imposed upon herein petitioners under Section
21 is not a tax against the business of the
petitioners (as wholesalers, distributors, dealers
or retailers)but is rather a tax against consumers
or end-users of the articles sold by petitioners.
This is plain from a reading of the modifying
paragraph of Section 21 which says:
"The tax shall be payable by the person paying
for the services rendered and shall be paid to the
person rendering the services who is required to
collect and pay the tax within twenty (20) days
after the end of each quarter." (Underscoring
supplied)
In effect, the petitioners only act as the
collection or withholding agent of the City while
the ones actually paying the tax are the
consumers or end-users of the articles being sold
by petitioners. The taxes imposed under Sec. 21
represent additional amounts added by the
business establishment to the basic prices of its
goods and services which are paid by the end-
users to the businesses. It is actually not taxes on
the business of petitioners but on the
consumers. Hence, there is no double taxation in
the narrow, strict or obnoxious sense,involved in
the imposition of taxes by the City of Manila
under Sections 15, 17 and 21 of the questioned
Ordinance. This in effect resolves infavor of the
constitutionality of the assailed sections of
Ordinance No. 7807 of the City of Manila.
Petitioners, likewise, pray the Court to direct
respondents to cease and desist from
implementing Section 21 of the questioned
Ordinance. That the Court cannot do, without
doing away with the mandatory provisions of
Section 187 of the Local Government Code which
distinctly commands that an appeal questioning
the constitutionality or legality of a tax ordinance
shall not have the effectof suspending the
effectivity of the ordinance and the accrual and
payment of the tax, fee or charge levied therein.
This is so because an ordinance carries with it the
presumption of validity.
xxx
With the foregoing findings, petitioners’ prayer
for the refund of the amounts paid by them
under protest must, likewise, fail.
Wherefore, the petitions are dismissed. Without
pronouncement as to costs.
SO ORDERED.16
The petitioners appealed to the CA. 17
Ruling of the CA
On June 18, 2007, the CA deniedthe petitioners’
appeal, ruling as follows:
The six (6) cases were consolidated on a common
question of fact and law, that is, whether the act
ofthe City Treasurer of Manila of assessing and
collecting business taxes under Section 21of
Ordinance 7807, on top of other business taxes
alsoassessed and collected under the previous
sections of the same ordinance is a violation of
the provisions of Section 143 of the Local
Government Code.
Clearly, the disposition of the present appeal in
these consolidated cases does not necessitate
the calibration of the whole evidence as there is
no question or doubt as to the truth or the
falsehood of the facts obtaining herein, as both
parties agree thereon. The present case involves
a question of law that would not lend itself to an
examination or evaluation by this Court of the
probative value of the evidence presented.
Thus the Court is constrained todismiss the
instant petition for lack of jurisdiction under
Section 2,Rule 50 of the 1997 Rules on Civil
Procedure which states:
"Sec. 2. Dismissal of improper appeal to the
Court of Appeals. – An appeal under Rule 41
taken from the Regional Trial Court to the Court
of Appeals raising only questions of law shall be
dismissed, issues purely of law not being
reviewable by said court. similarly, an appeal by
notice of appeal instead of by petition for review
from the appellate judgment of a Regional Trial
Court shall be dismissed.
An appeal erroneously taken tothe Court of
Appeals shall not be transferred to the
appropriate court but shall be dismissed
outright.
WHEREFORE, the foregoing considered, the
appeal is DISMISSED.
SO ORDERED.18
The petitioners moved for reconsideration, but
the CA denied their motion through the
resolution promulgated on November 14,
2007.19
Issues
The petitioners now appeal, raising the following
grounds, to wit:
A.
THE COURT OF APPEALS, IN DISMISSING THE
APPEAL OF THE PETITIONERS AND DENYING
THEIR MOTION FOR RECONSIDERATION, ERRED
INRULING THAT THE ISSUE INVOLVED IS A
PURELY LEGAL QUESTION.
B.
THE COURT OF APPEALS ERRED IN NOT
REVERSING THE DECISION OF BRANCH 19 OF THE
REGIONAL TRIAL COURT OF MANILA DATED 26
APRIL 2002 DENYING PETITIONERS’ PRAYER FOR
REFUND OF THE AMOUNTS PAID BY THEM
UNDER PROTEST AND DISMISSING THE PETITION
FOR CERTIORARI FILED BY THE PETITIONERS.
C.
THE COURT OF APPEALS ERRED IN NOT RULING
THAT THE ACT OF THE CITY TREASURER OF
MANILA IN IMPOSING, ASSESSING AND
COLLECTING THE ADDITIONAL BUSINESS TAX
UNDER SECTION 21 OFORDINANCE NO. 7794, AS
AMENDED BY ORDINANCE NO. 7807, ALSO
KNOWN AS THE REVENUE CODE OF THE CITY
OFMANILA, IS CONSTITUTIVE OF DOUBLE
TAXATION AND VIOLATIVE OF THE LOCAL
GOVERNMENT CODE OF 1991.20
The main issues for resolution are, therefore, (1)
whether or not the CA properly denied due
course to the appeal for raising pure questions of
law; and (2) whether or not the petitioners were
entitled to the tax credit or tax refund for the
taxes paid under Section 21, supra.
Ruling
The appeal is meritorious.
1.
The CA did not err in dismissing the appeal;
but the rules should be liberally applied
for the sake of justice and equity
The Rules of Courtprovides three modes of
appeal from the decisions and final orders of the
RTC, namely: (1) ordinary appeal or appeal by
writ of error under Rule 41, where the
decisionsand final orders were rendered in civil
or criminal actions by the RTC in the exercise of
original jurisdiction; (2) petition for review under
Rule 42, where the decisions and final orders
were rendered by the RTC in the exerciseof
appellate jurisdiction; and (3) petition for review
on certiorarito the Supreme Court under Rule
45.21 The first mode of appeal is taken to the CA
on questions of fact, or mixed questions of fact
and law. The second mode of appeal is brought
to the CA on questions of fact, of law, or mixed
questions of fact and law.22 The third mode of
appeal is elevated to the Supreme Court only on
questions of law.23
The distinction between a question oflaw and a
question of fact is well established. On the one
hand, a question of law ariseswhen there is
doubt as to what the law is on a certain state of
facts; on the other, there is a question of fact
when the doubt arises asto the truth or falsity of
the alleged facts.24 According to Leoncio v. De
Vera:25
x x x For a question to beone of law, the same
must not involve an examination of the
probative value ofthe evidence presented by the
litigants or any of them. The resolution of the
issue must restsolely on what the law provides
on the given set of circumstances. Once it is clear
that the issue invites a review of the evidence
presented, the question posed is one of fact.
Thus, the test of whether a question isone of law
or offact is not the appellation given to such
question by the party raising the same; rather, it
is whether the appellate court can determine the
issue raised without reviewing or evaluating the
evidence, in which case, it is a question oflaw;
otherwise it is a question of fact.26
The nature of the issues to be raised on appeal
can be gleaned from the appellant’s notice of
appeal filed in the trial court, and from the
appellant’s brief submitted to the appellate
court.27 In this case, the petitioners filed a notice
of appeal in which they contended that the April
26, 2002 decision and the order of July 17, 2002
issued by the RTC denying their consolidated
motion for reconsideration were contrary to the
facts and law obtaining in the consolidated
cases.28 In their consolidated memorandum filed
in the CA, they essentially assailed the RTC’s
ruling that the taxes imposed on and collected
from the petitioners under Section 21 of the
Revenue Code of Manila constituted double
taxation in the strict, narrow or obnoxious sense.
Considered together, therefore, the notice of
appeal and consolidated memorandum
evidently did notraise issues that required the
reevaluation of evidence or the relevance of
surrounding circumstances.
The CA rightly concluded that the petitioners
thereby raised only a question of law. The
dismissal of their appeal was proper, strictly
speaking, because Section 2, Rule 50 of the Rules
of Court provides that an appeal from the RTC to
the CA raising only questions of law shall be
dismissed;
and that an appeal erroneously taken to the CA
shall be outrightly dismissed.29
2.
Collection of taxes pursuant to Section 21 of the
Revenue Code of Manila constituted double
taxation
The foregoing notwithstanding, the Court, given
the circumstances obtaining herein and in light
of jurisprudence promulgated subsequent to the
filing of the petition, deems it fitting and proper
to adopt a liberal approach in order to render a
justand speedy disposition of the substantive
issue at hand. Hence, we resolve, bearing inmind
the following pronouncement in Go v. Chaves:30
Our rules of procedure are designed to facilitate
the orderly disposition of cases and permit the
prompt disposition of unmeritorious cases which
clog the court dockets and do little more than
waste the courts’ time. These technical and
procedural rules, however, are intended to
ensure, rather than suppress, substantial justice.
A deviation from their rigid enforcement may
thus be allowed, as petitioners should be given
the fullest opportunity to establish the merits of
their case, rather than lose their property on
mere technicalities. We held in Ong Lim Sing, Jr.
v. FEB Leasing and Finance Corporation that:
Courts have the prerogative to relax procedural
rules of even the most mandatory character,
mindful of the duty to reconcile both the need to
speedily put an end to litigation and the parties'
right to due process.In numerous cases, this
Court has allowed liberal construction of the
rules when to do so would serve the demands of
substantial justice and equity.
The petitioners point out that although Section
21 of the Revenue Code of Manila was not itself
unconstitutional or invalid, its enforcement
against the petitioners constituted double
taxation because the local business taxes under
Section 15 and Section 17 of the Revenue Code
of Manila were already being paid by
them.31 They contend that the proviso in Section
21 exempted all registered businesses in the City
of Manila from paying the tax imposed under
Section 21;32 and that the exemption was more
in accord with Section 143 of the Local
Government Code,33 the law that vested in the
municipal and city governments the power to
impose business taxes.
The respondents counter, however, that double
taxation did not occur from the imposition and
collection of the tax pursuant to Section 21 of the
Revenue Code of Manila;34 that the taxes
imposed pursuant to Section 21 were in the
concept of indirect taxes upon the consumers of
the goods and services sold by a business
establishment;35 and that the petitioners did not
exhaust their administrative remedies by first
appealing to the Secretary of Justice to challenge
the constitutionalityor legality of the tax
ordinance.36
In resolving the issue of double taxation
involving Section 21 of the Revenue Code of
Manila, the Court is mindful of the ruling in City
of Manila v. Coca-Cola Bottlers Philippines,
Inc.,37 which has been reiterated in Swedish
Match Philippines, Inc. v. The Treasurer of the
City of Manila.38 In the latter, the Court has held:
x x x [T]he issue of double taxation is not novel,
as it has already been settled by this Court in The
City of Manila v. Coca-Cola Bottlers Philippines,
Inc.,in this wise:
Petitioners obstinately ignore the exempting
proviso in Section 21 of Tax Ordinance No. 7794,
to their own detriment.1âwphi1 Said exempting
proviso was precisely included in said section so
as to avoid double taxation.
Double taxation means taxingthe same property
twice when it should be taxed only once; that is,
"taxing the same person twice by the same
jurisdictionfor the same thing." It is obnoxious
when the taxpayer is taxed twice, when it should
be but once. Otherwise described as "direct
duplicate taxation," the two taxes must be
imposed on the same subject matter, for the
same purpose, by the same taxing authority,
within the same jurisdiction, during the same
taxing period; and the taxes must be of the same
kind or character.
Using the aforementioned test, the Court finds
that there is indeed double taxation if
respondent is subjected to the taxes under both
Sections 14 and 21 of Tax Ordinance No. 7794,
since these are being imposed: (1) on the same
subject matter – the privilege of doing business
in the City of Manila; (2) for the same purpose –
to make persons conducting business within the
City of Manila contribute tocity revenues; (3) by
the same taxing authority – petitioner Cityof
Manila; (4) within the same taxing jurisdiction –
within the territorial jurisdiction of the City of
Manila; (5) for the same taxing periods – per
calendar year; and (6) of the same kind or
character – a local business tax imposed on gross
sales or receipts of the business.
The distinction petitioners attempt to make
between the taxes under Sections 14 and 21 of
Tax Ordinance No. 7794 is specious. The Court
revisits Section 143 of the LGC, the very source
of the power of municipalities and cities to
impose a local business tax, and to which any
local business tax imposed by petitioner City of
Manila must conform. It is apparent from a
perusal thereof that when a municipality or city
has already imposed a business tax on
manufacturers, etc.of liquors, distilled spirits,
wines, and any other article of commerce,
pursuant to Section 143(a) of the LGC, said
municipality or city may no longer subject the
same manufacturers, etc.to a business tax under
Section 143(h) of the same Code. Section 143(h)
may be imposed only on businesses that are
subject to excise tax, VAT, or percentagetax
under the NIRC, and that are "not otherwise
specified in preceding paragraphs." In the same
way, businesses such as respondent’s, already
subject to a local business tax under Section 14
of Tax Ordinance No. 7794 [which is based on
Section 143(a) of the LGC], can no longer be
made liable for local business tax under Section
21 of the same Tax Ordinance [which is based on
Section 143(h) of the LGC].
Based on the foregoing reasons, petitioner
should not have been subjected to taxes under
Section 21 of the ManilaRevenue Code for the
fourth quarter of 2001, considering thatit had
already been paying local business tax under
Section 14 of the same ordinance.
xxxx
Accordingly, respondent’s assessment under
both Sections 14 and 21 had no basis. Petitioner
is indeed liable to pay business taxes to the City
of Manila; nevertheless, considering that the
former has already paid these taxes under
Section 14 of the Manila Revenue Code, it is
exempt from the same payments under Section
21 of the same code. Hence, payments made
under Section 21 must be refunded in favor of
petitioner.
It is undisputed thatpetitioner paid business
taxes based on Sections 14 and 21 for the fourth
quarter of 2001 in the total amount of
₱470,932.21. Therefore, it is entitled to a refund
of ₱164,552.04 corresponding to the payment
under Section 21 of the Manila Revenue Code.
On the basis of the rulings in Coca-Cola Bottlers
Philippines, Inc. and Swedish Match Philippines,
Inc., the Court now holds that all the elements of
double taxation concurred upon the Cityof
Manila’s assessment on and collection from the
petitioners of taxes for the first quarter of 1999
pursuant to Section 21 of the Revenue Code of
Manila.
Firstly, because Section 21 of the Revenue Code
of Manila imposed the tax on a person who sold
goods and services in the course of trade or
business based on a certain percentage ofhis
gross sales or receipts in the preceding calendar
year, while Section 15 and Section 17 likewise
imposed the tax on a person who sold goods and
services in the course of trade or business but
only identified such person with particularity,
namely, the wholesaler, distributor or dealer
(Section 15), and the retailer (Section 17), all the
taxes – being imposed on the privilege of doing
business in the City of Manila in order to make
the taxpayers contributeto the city’s revenues –
were imposed on the same subject matter and
for the same purpose.
Secondly, the taxes were imposed by the same
taxing authority (the City of Manila) and within
the same jurisdiction in the same taxing period
(i.e., per calendar year).
Thirdly, the taxes were all in the nature of local
business taxes.
We note that although Coca-Cola Bottlers
Philippines, Inc. and Swedish Match Philippines,
Inc. involved Section 21 vis-à-vis Section 14 (Tax
on Manufacturers, Assemblers and Other
Processors)39 of the Revenue Code of Manila, the
legal principlesenunciated therein should
similarly apply because Section 15 (Tax on
Wholesalers, Distributors, or Dealers)and
Section 17 (Tax on Retailers) of the Revenue
Code of Manila imposed the same nature of tax
as that imposed under Section 14, i.e., local
business tax, albeit on a different subject matter
or group of taxpayers.
In fine, the imposition of the tax under Section
21 of the Revenue Code of Manila constituted
double taxation, and the taxes collected
pursuant thereto must be refunded.
WHEREFORE, the Court GRANTS the petition for
review on certiorari; REVERSES and SETS ASIDE
the resolutions promulgated on June 18, 2007
and November 14, 2007 in CA-G.R. SP No. 72191;
and DIRECTS the City of Manila to refund the
payments made by the petitioners of the taxes
assessed and collected for the first quarter of
1999 pursuant to Section 21 of the Revenue
Code of Manila.
No pronouncement on costs of suit.
SO ORDERED.
DIGEST:
FACTS OF THE CASE:
 The CITY OF MANILA assessed and collected
taxes from the individual petitioners pursuant to
Section 15 (Tax on Wholesalers, Distributors, or
Dealers) and Section 17 (Tax on Retailers) of the
Revenue Code of Manila. At the same time, the
CITY OF MANILA imposed additional taxes upon
the petitioners pursuant to Section 21 of the
Revenue Code of Manila, as amended, as a
condition for the renewal of their respective
business licenses for the year 1999. SECTION 21
OF THE REVENUE CODE OF MANILA stated:
Section 21. Tax on Business Subject to the Excise,
Value-Added or Percentage Taxes under the
NIRC - On any of the following businesses and
articles of commerce subject to the excise,
VALUE-ADDED OR PERCENTAGE TAXES under
the National Internal Revenue Code, hereinafter
referred to as NIRC, as amended, a tax of FIFTY
PERCENT (50%) OF ONE PERCENT (1%) per
annum on the gross sales or receipts of the
preceding calendar year is hereby imposed: A)
On person who sells goods and services in the
course of trade or businesses; x x x PROVIDED,
that all registered businesses in the City of
Manila already paying the aforementioned tax
shall be exempted from payment thereof.
 To comply with the City of Manila’s assessment
of taxes under Section 21, the PETITIONERS paid
under protest the following amounts
 corresponding to the first quarter of 1999, to wit:
(a) Nursery Care Corporation ₱595,190.25; (b)
Shoemart Incorporated ₱3,283,520.14; (c) Star
Appliance Center ₱236,084.03; (d) H & B, Inc.
₱1,271,118.74; (e) Supplies Station, Inc.
₱239,501.25; (f) Hardware Work Shop, Inc.
₱609,953.24. By letter dated March 1, 1999, the
PETITIONERS formally requested the Office of
the City Treasurer for the tax credit or refund of
the local business taxes paid under protest.
However, then City Treasurer Anthony Acevedo
(Acevedo) denied the request.
 On April 8, 1999, the PETITIONERS, sought the
reconsideration of the denial of their request.
Still, the CITY TREASURER did not reconsider. In
the meanwhile, Liberty Toledo succeeded
Acevedo as the City Treasurer of Manila.
PETITIONERS filed their respective petitions for
certiorari in the Regional Trial Court (RTC) in
Manila.
 RTC held that it perceives NO INSTANCE OF THE
CONSTITUTIONALLY PROSCRIBED DOUBLE
TAXATION, in the strict, narrow or obnoxious
sense, imposed upon the petitioners under
Section 15 and 17, on the one hand, and under
Section 21, on the other, of the questioned
Ordinance. The tax imposed under Section 15
and 17, as against that imposed under Section
21, are levied against different tax objects or
subject matter. The tax under Section 15 is
imposed upon wholesalers, distributors or
dealers, while that under Section 17 is imposed
upon retailers. In short, taxes imposed under
Section 15 and 17 is a tax on the business of
wholesalers, distributors, dealers and retailers.
On the other hand, the tax imposed upon herein
petitioners under Section 21 is not a tax against
the business of the petitioners (as wholesalers,
distributors, dealers or retailers) but is rather a
tax against consumers or end-users of the
articles sold by petitioners. CA affirmed the
decision of the RTC.
ISSUE: Whether or not the collection of taxes
under Section 21 of Ordinance No. 7794, as
amended, constitutes double taxation. YES
RULING:
 There is DOUBLE TAXATION when the same
taxpayer is taxed twice when he should be taxed
only once for the same purpose by the same
taxing authority within the same jurisdiction
during the same taxing period, and the taxes are
of the same kind or character. DOUBLE
TAXATION is obnoxious.
 DOUBLE TAXATION means taxing the same
property twice when it should be taxed only
once; that is, "taxing the same person twice by
the same jurisdiction for the same thing." It is
obnoxious when the taxpayer is taxed twice,
when it should be but once. Otherwise described
as "DIRECT DUPLICATE TAXATION," the two
taxes must be imposed on the same subject
matter, for the same purpose, by the same taxing
authority, within the same jurisdiction, during
the same taxing period; and the taxes must be of
the same kind or character.
 Using the aforementioned test, the COURT finds
that there is INDEED DOUBLE TAXATION IF
RESPONDENT IS SUBJECTED TO THE TAXES
UNDER BOTH SECTIONS 14 AND 21 OF TAX
ORDINANCE NO. 7794, since these are being
imposed: (1) on the same subject matter – the
privilege of doing business in the City of Manila;
(2) for the same purpose – to make persons
conducting business within the City of Manila
contribute to city revenues; (3) by the same
taxing authority – petitioner City of Manila; (4)
within the same taxing jurisdiction – within the
territorial jurisdiction of the City of Manila; (5)
for the same taxing periods – per calendar year;
and (6) of the same kind or character – a local
business tax imposed on gross sales or receipts
of the business.
 Based on the foregoing reasons, PETITIONER  DOUBLE TAXATION means taxing the same
should not have been subjected to taxes under property twice when it should be taxed only
Section 21 of the Manila Revenue Code for the once; that is, "taxing the same person twice by
fourth quarter of 2001, considering that it had the same jurisdiction for the same thing." It is
already been paying local business tax under obnoxious when the taxpayer is taxed twice,
Section 14 of the same ordinance. when it should be but once. Otherwise described
as "DIRECT DUPLICATE TAXATION," the two
 Accordingly, respondent’s assessment under
taxes must be imposed on the same subject
both Sections 14 and 21 had no basis.
matter, for the same purpose, by the same taxing
PETITIONER is indeed liable to pay business
authority, within the same jurisdiction, during
taxes to the City of Manila; nevertheless,
the same taxing period; and the taxes must be of
considering that the FORMER has already paid
the same kind or character.
these taxes under Section 14 of the Manila
Revenue Code, it is exempt from the same
payments under Section 21 of the same code.
REQUISITES OF DOUBLE TAXATION:
Hence, payments made under Section 21 must
be refunded in favor of petitioner. It is
undisputed that PETITIONER paid business taxes
based on Sections 14 and 21 for the fourth Using the aforementioned test, the COURT finds
that there is INDEED DOUBLE TAXATION IF
quarter of 2001 in the total amount of
RESPONDENT IS SUBJECTED TO THE TAXES
₱470,932.21. Therefore, it is ENTITLED TO A
UNDER BOTH SECTIONS 14 AND 21 OF TAX
REFUND OF ₱164,552.04 corresponding to the
payment under Section 21 of the Manila ORDINANCE NO. 7794, since these are being
Revenue Code. imposed:

(1) On the same subject matter – the privilege of

 In fine, the IMPOSITION OF THE TAX UNDER
SECTION 21 OF THE REVENUE CODE OF MANILA
constituted double taxation, and the taxes
collected pursuant thereto must be refunded.
doing business in the City of Manila;
(2) For the same purpose – to make persons
conducting business within the City of Manila
contribute to city revenues;

(3) By the same taxing authority – petitioner City

IMPORTANT PRINCIPLE: WHEN IS THERE
of Manila;
DOUBLE TAXATION; REQUISITES OF DOUBLE
TAXATION (4) Within the same taxing jurisdiction – within
the territorial jurisdiction of the City of Manila;
WHEN IS THERE DOUBLE TAXATION?
(5) For the same taxing periods – per calendar
 There is DOUBLE TAXATION when the same
year; and
taxpayer is taxed twice when he should be taxed
only once for the same purpose by the same (6) Of the same kind or character – a local
taxing authority within the same jurisdiction business tax imposed on gross sales or receipts
during the same taxing period, and the taxes are of the business.
of the same kind or character. DOUBLE
TAXATION is obnoxious.
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.)
Courts; Contempt; Separation of Powers; If it
were true that former Finance Secretary Purisima
felt that the media misconstrued his actions, then
he should have immediately rectified it and not
waited until the Supreme Court required him to
explain before he denied having made such
statements which impressed upon the public’s
mind that the issuance of the TRO was the
product of the machinations on the Court by the
executive branch.—At the time the reports came
out, Purisima did not controvert the truth or
falsity of the statements attributed to him. It was
only after the Court issued the show-cause order
that Purisima saw it fit to deny having uttered
these statements. By then, it was already
impressed upon the public’s mind that the
issuance of the TRO was the product of
machinations on the Court by the executive
branch. If it were true that Purisima felt that the
media misconstrued his actions, then he should
have immediately rectified it. He should not have
waited until the Court required him to explain
before he denied having made such statements.
And even then, his denials were made as a result
of the Court’s show-cause order and not by any
voluntary act on his part that will show utter
regret for having been “misquoted.” Purisima
should know that these press releases placed the
Court into dis-honor, disrespect, and public
contempt, diminished public confidence,
promoted distrust in the Court, and assailed the
integrity of its Members. The Court already took
a beating before Purisima made any disclaimer.
The damage has been done, so to speak.
Abakada Guro Party List vs. Ermita, 469 SCRA 1,
G.R. No. 168056, G.R. No. 168207, G.R. No.
168461, G.R. No. 168463, G.R. No. 168730
September 1, 2005
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.
Facts:
ABAKADA GURO Party List, et al., filed a petition
for prohibition o questioning the
constitutionality of Sections 4, 5 and 6 of R.A. No.
9337, amending Sections 106, 107 and 108,
respectively, of the National Internal Revenue
Code (NIRC).
Section 4 imposes a 10% VAT on sale of goods
and properties;
Section 5 imposes a 10% VAT on importation of
goods; and
Section 6 imposes a 10% VAT on sale of services
and use or lease of properties;
These provisions contain a provision which
authorizing the President, upon
recommendation of the Secretary of Finance, to
raise the VAT rate to 12%, effective January 1,
2006, after specified conditions have been
satisfied.
Issues:
Whether or not there is a violation of Article VI,
Section 24 of the Constitution.
Whether or not there is undue delegation of
legislative power in violation of Article VI Sec
28(2) of the Constitution.
Whether or not there is a violation of the due
process and equal protection of the Constitution.
Ruling:
No, the revenue bill exclusively originated in the
House of Representatives, the Senate was acting
within its constitutional power to introduce
amendments to the House bill when it included
provisions in Senate Bill No. 1950 amending
corporate income taxes, percentage, and excise
and franchise taxes.
No, 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 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.
In this case, it is not a delegation of legislative
power but a delegation of ascertainment of facts
upon which enforcement and administration of
the increased rate under the law is contingent.

No, the power of the State to make reasonable

and natural classifications for the purposes of
taxation has long been established. Whether it
relates to the subject of taxation, the kind of
property, the rates to be levied, or the amounts
to be raised, the methods of assessment,
valuation and collection, the State’s power is
entitled to presumption of validity. As a rule, the
judiciary will not interfere with such power
absent a clear showing of unreasonableness,
discrimination, or arbitrariness.