G.R. No.
159796               July 17, 2007
ROMEO P. GEROCHI, KATULONG NG BAYAN (KB) and ENVIRONMENTALIST CONSUMERS
NETWORK, INC. (ECN), Petitioners,  (d) An environmental charge equivalent to one-fourth of one centavo per kilowatt-hour
vs.
DEPARTMENT OF ENERGY (DOE), ENERGY REGULATORY COMMISSION (ERC), NATIONAL
POWER CORPORATION (NPC), POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT
GROUP (PSALM Corp.), STRATEGIC POWER UTILITIES GROUP (SPUG), and PANAY ELECTRIC
COMPANY INC. (PECO),Respondents.
DECISION
NACHURA, J.:
Petitioners Romeo P. Gerochi, Katulong Ng Bayan (KB), and Environmentalist Consumers
Network, Inc. (ECN) (petitioners), come before this Court in this original action praying that
Section 34 of Republic Act (RA) 9136, otherwise known as the "Electric Power Industry Reform
Act of 2001" (EPIRA), imposing the Universal Charge,1and Rule 18 of the Rules and Regulations
(IRR)2 which seeks to implement the said imposition, be declared unconstitutional. Petitioners
also pray that the Universal Charge imposed upon the consumers be refunded and that a
preliminary injunction and/or temporary restraining order (TRO) be issued directing the
respondents to refrain from implementing, charging, and collecting the said charge. 3 The
assailed provision of law reads:
SECTION 34. Universal Charge. — Within one (1) year from the effectivity of this Act, a universal
charge to be determined, fixed and approved by the ERC, shall be imposed on all electricity end-
users for the following purposes:
(a) Payment for the stranded debts4 in excess of the amount assumed by the National
Government and stranded contract costs of NPC5 and as well as qualified stranded
contract costs of distribution utilities resulting from the restructuring of the industry;
6
(b) Missionary electrification;
(c) The equalization of the taxes and royalties applied to indigenous or renewable
sources of energy vis-à-vis imported energy fuels;
(₱0.0025/kWh), which shall accrue to an environmental fund to be used solely for
watershed rehabilitation and management. Said fund shall be managed by NPC under
existing arrangements; and
(e) A charge to account for all forms of cross-subsidies for a period not exceeding three
(3) years.
The universal charge shall be a non-bypassable charge which shall be passed on and collected
from all end-users on a monthly basis by the distribution utilities. Collections by the distribution
utilities and the TRANSCO in any given month shall be remitted to the PSALM Corp. on or before
the fifteenth (15th) of the succeeding month, net of any amount due to the distribution utility.
Any end-user or self-generating entity not connected to a distribution utility shall remit its
corresponding universal charge directly to the TRANSCO. The PSALM Corp., as administrator of
the fund, shall create a Special Trust Fund which shall be disbursed only for the purposes
specified herein in an open and transparent manner. All amount collected for the universal
charge shall be distributed to the respective beneficiaries within a reasonable period to be
provided by the ERC.
The Facts
Congress enacted the EPIRA on June 8, 2001; on June 26, 2001, it took effect.7
On April 5, 2002, respondent National Power Corporation-Strategic Power Utilities Group 8 (NPC-
SPUG) filed with respondent Energy Regulatory Commission (ERC) a petition for the availment
from the Universal Charge of its share for Missionary Electrification, docketed as ERC Case No.
2002-165.9
On May 7, 2002, NPC filed another petition with ERC, docketed as ERC Case No. 2002-194,
praying that the proposed share from the Universal Charge for the Environmental charge of
₱0.0025 per kilowatt-hour (/kWh), or a total of ₱119,488,847.59, be approved for withdrawal
from the Special Trust Fund (STF) managed by respondent Power Sector Assets and
Liabilities Management Group (PSALM)10 for the rehabilitation and management of watershed
areas.11
On December 20, 2002, the ERC issued an Order12 in ERC Case No. 2002-165 provisionally
approving the computed amount of ₱0.0168/kWh as the share of the NPC-SPUG from the
Universal Charge for Missionary Electrification and authorizing the National Transmission
Corporation (TRANSCO) and Distribution Utilities to collect the same from its end-users on a
monthly basis.
On June 26, 2003, the ERC rendered its Decision13 (for ERC Case No. 2002-165) modifying its
Order of December 20, 2002, thus:
WHEREFORE, the foregoing premises considered, the provisional authority granted to petitioner
National Power Corporation-Strategic Power Utilities Group (NPC-SPUG) in the Order dated
December 20, 2002 is hereby modified to the effect that an additional amount of ₱0.0205 per
kilowatt-hour should be added to the ₱0.0168 per kilowatt-hour provisionally authorized by the
Commission in the said Order. Accordingly, a total amount of ₱0.0373 per kilowatt-hour is
hereby APPROVED for withdrawal from the Special Trust Fund managed by PSALM as its share
from the Universal Charge for Missionary Electrification (UC-ME) effective on the following
billing cycles:
(a) June 26-July 25, 2003 for National Transmission Corporation (TRANSCO); and
(b) July 2003 for Distribution Utilities (Dus).
Relative thereto, TRANSCO and Dus are directed to collect the UC-ME in the amount of ₱0.0373
per kilowatt-hour and remit the same to PSALM on or before the 15th day of the succeeding
month.
In the meantime, NPC-SPUG is directed to submit, not later than April 30, 2004, a detailed
report to include Audited Financial Statements and physical status (percentage of completion)
of the projects using the prescribed format.1avvphi1
Let copies of this Order be furnished petitioner NPC-SPUG and all distribution utilities (Dus).
SO ORDERED.
On August 13, 2003, NPC-SPUG filed a Motion for Reconsideration asking the ERC, among
others,14 to set aside the above-mentioned Decision, which the ERC granted in its Order dated
October 7, 2003, disposing:
WHEREFORE, the foregoing premises considered, the "Motion for Reconsideration" filed by
petitioner National Power Corporation-Small Power Utilities Group (NPC-SPUG) is hereby
GRANTED. Accordingly, the Decision dated June 26, 2003 is hereby modified accordingly.
Relative thereto, NPC-SPUG is directed to submit a quarterly report on the following:
1. Projects for CY 2002 undertaken;
2. Location
3. Actual amount utilized to complete the project;
4. Period of completion;
5. Start of Operation; and
6. Explanation of the reallocation of UC-ME funds, if any.
SO ORDERED.15
Meanwhile, on April 2, 2003, ERC decided ERC Case No. 2002-194, authorizing the NPC to draw
up to ₱70,000,000.00 from PSALM for its 2003 Watershed Rehabilitation Budget subject to the
availability of funds for the Environmental Fund component of the Universal Charge.16
On the basis of the said ERC decisions, respondent Panay Electric Company, Inc. (PECO) charged
petitioner Romeo P. Gerochi and all other end-users with the Universal Charge as reflected in
their respective electric bills starting from the month of July 2003.17
Hence, this original action.
Petitioners submit that the assailed provision of law and its IRR which sought to implement the
same are unconstitutional on the following grounds:
1) The universal charge provided for under Sec. 34 of the EPIRA and sought to be
implemented under Sec. 2, Rule 18 of the IRR of the said law is a tax which is to be
collected from all electric end-users and self-generating entities. The power to tax is
strictly a legislative function and as such, the delegation of said power to any executive
or administrative agency like the ERC is unconstitutional, giving the same unlimited
authority. The assailed provision clearly provides that the Universal Charge is to be
determined, fixed and approved by the ERC, hence leaving to the latter complete
discretionary legislative authority.
2) The ERC is also empowered to approve and determine where the funds collected
should be used.
3) The imposition of the Universal Charge on all end-users is oppressive and confiscatory
and amounts to taxation without representation as the consumers were not given a
chance to be heard and represented.18
Petitioners contend that the Universal Charge has the characteristics of a tax and is collected to
fund the operations of the NPC. They argue that the cases19 invoked by the respondents clearly
show the regulatory purpose of the charges imposed therein, which is not so in the case at
bench. In said cases, the respective funds20 were created in order to balance and stabilize the
prices of oil and sugar, and to act as buffer to counteract the changes and adjustments in prices,
peso devaluation, and other variables which cannot be adequately and timely monitored by the
legislature. Thus, there was a need to delegate powers to administrative bodies.21 Petitioners
posit that the Universal Charge is imposed not for a similar purpose.
On the other hand, respondent PSALM through the Office of the Government Corporate Counsel
(OGCC) contends that unlike a tax which is imposed to provide income for public purposes, such
as support of the government, administration of the law, or payment of public expenses, the
assailed Universal Charge is levied for a specific regulatory purpose, which is to ensure the
viability of the country's electric power industry. Thus, it is exacted by the State in the exercise
of its inherent police power. On this premise, PSALM submits that there is no undue delegation
of legislative power to the ERC since the latter merely exercises a limited authority or discretion
as to the execution and implementation of the provisions of the EPIRA.22
Respondents Department of Energy (DOE), ERC, and NPC, through the Office of the Solicitor
General (OSG), share the same view that the Universal Charge is not a tax because it is levied for
a specific regulatory purpose, which is to ensure the viability of the country's electric power
industry, and is, therefore, an exaction in the exercise of the State's police power. Respondents
further contend that said Universal Charge does not possess the essential characteristics of a
tax, that its imposition would redound to the benefit of the electric power industry and not to
the public, and that its rate is uniformly levied on electricity end-users, unlike a tax which is
imposed based on the individual taxpayer's ability to pay. Moreover, respondents deny that
there is undue delegation of legislative power to the ERC since the EPIRA sets forth sufficient
determinable standards which would guide the ERC in the exercise of the powers granted to it.
Lastly, respondents argue that the imposition of the Universal Charge is not oppressive and
confiscatory since it is an exercise of the police power of the State and it complies with the
requirements of due process.23
On its part, respondent PECO argues that it is duty-bound to collect and remit the amount
pertaining to the Missionary Electrification and Environmental Fund components of the
Universal Charge, pursuant to Sec. 34 of the EPIRA and the Decisions in ERC Case Nos. 2002-194
and 2002-165. Otherwise, PECO could be held liable under Sec. 46 24 of the EPIRA, which imposes
fines and penalties for any violation of its provisions or its IRR.25
The Issues
The ultimate issues in the case at bar are:
1) Whether or not, the Universal Charge imposed under Sec. 34 of the EPIRA is a tax;
and
2) Whether or not there is undue delegation of legislative power to tax on the part of
the ERC.26
Before we discuss the issues, the Court shall first deal with an obvious procedural lapse.
Petitioners filed before us an original action particularly denominated as a Complaint assailing
the constitutionality of Sec. 34 of the EPIRA imposing the Universal Charge and Rule 18 of the
EPIRA's IRR. No doubt, petitioners havelocus standi. They impugn the constitutionality of Sec. 34
of the EPIRA because they sustained a direct injury as a result of the imposition of the Universal
Charge as reflected in their electric bills.
However, petitioners violated the doctrine of hierarchy of courts when they filed this
"Complaint" directly with us. Furthermore, the Complaint is bereft of any allegation of grave
abuse of discretion on the part of the ERC or any of the public respondents, in order for the
Court to consider it as a petition for certiorari or prohibition.
Article VIII, Section 5(1) and (2) of the 1987 Constitution27 categorically provides that:
SECTION 5. The Supreme Court shall have the following powers:
1. Exercise original jurisdiction over cases affecting ambassadors, other public ministers
and consuls, and over petitions for certiorari, prohibition, mandamus, quo warranto,
and habeas corpus.
2. Review, revise, reverse, modify, or affirm on appeal or certiorari, as the law or the
rules of court may provide, final judgments and orders of lower courts in:
(a) All cases in which the constitutionality or validity of any treaty, international or executive
agreement, law, presidential decree, proclamation, order, instruction, ordinance, or regulation
is in question.
But this Court's jurisdiction to issue writs of certiorari, prohibition, mandamus, quo warranto,
and habeas corpus, while concurrent with that of the regional trial courts and the Court of
Appeals, does not give litigants unrestrained freedom of choice of forum from which to seek
such relief.28 It has long been established that this Court will not entertain direct resort to it
unless the redress desired cannot be obtained in the appropriate courts, or where exceptional
and compelling circumstances justify availment of a remedy within and call for the exercise of
our primary jurisdiction.29 This circumstance alone warrants the outright dismissal of the present
action.
This procedural infirmity notwithstanding, we opt to resolve the constitutional issue raised
herein. We are aware that if the constitutionality of Sec. 34 of the EPIRA is not resolved now, the
issue will certainly resurface in the near future, resulting in a repeat of this litigation, and
probably involving the same parties. In the public interest and to avoid unnecessary delay, this
Court renders its ruling now.
The instant complaint is bereft of merit.
The First Issue
To resolve the first issue, it is necessary to distinguish the State’s power of taxation from the
police power.
The power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its
very nature no limits, so that security against its abuse is to be found only in the responsibility of
the legislature which imposes the tax on the constituency that is to pay it. 30 It is based on the
principle that taxes are the lifeblood of the government, and their prompt and certain
availability is an imperious need.31 Thus, the theory behind the exercise of the power to tax
emanates from necessity; without taxes, government cannot fulfill its mandate of promoting the
general welfare and well-being of the people.32
On the other hand, police power is the power of the state to promote public welfare by
restraining and regulating the use of liberty and property.33 It is the most pervasive, the least
limitable, and the most demanding of the three fundamental powers of the State. The
justification is found in the Latin maxims salus populi est suprema lex (the welfare of the people
is the supreme law) and sic utere tuo ut alienum non laedas  (so use your property as not to
injure the property of others). As an inherent attribute of sovereignty which virtually extends to
all public needs, police power grants a wide panoply of instruments through which the State,
as parens patriae, gives effect to a host of its regulatory powers. 34 We have held that the power
to "regulate" means the power to protect, foster, promote, preserve, and control, with due
regard for the interests, first and foremost, of the public, then of the utility and of its patrons.35
The conservative and pivotal distinction between these two powers rests in the purpose for
which the charge is made. If generation of revenue is the primary purpose and regulation is
merely incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that
revenue is incidentally raised does not make the imposition a tax.36
In exacting the assailed Universal Charge through Sec. 34 of the EPIRA, the State's police power,
particularly its regulatory dimension, is invoked. Such can be deduced from Sec. 34 which
enumerates the purposes for which the Universal Charge is imposed 37 and which can be amply
discerned as regulatory in character. The EPIRA resonates such regulatory purposes, thus:
SECTION 2. Declaration of Policy. — It is hereby declared the policy of the State:
(a) To ensure and accelerate the total electrification of the country;
(b) To ensure the quality, reliability, security and affordability of the supply of electric
power;
(c) To ensure transparent and reasonable prices of electricity in a regime of free and fair
competition and full public accountability to achieve greater operational and economic
efficiency and enhance the competitiveness of Philippine products in the global market;
(d) To enhance the inflow of private capital and broaden the ownership base of the
power generation, transmission and distribution sectors;
(e) To ensure fair and non-discriminatory treatment of public and private sector entities
in the process of restructuring the electric power industry;
(f) To protect the public interest as it is affected by the rates and services of electric
utilities and other providers of electric power;
(g) To assure socially and environmentally compatible energy sources and infrastructure;
(h) To promote the utilization of indigenous and new and renewable energy resources in
power generation in order to reduce dependence on imported energy;
(i) To provide for an orderly and transparent privatization of the assets and liabilities of
the National Power Corporation (NPC);
(j) To establish a strong and purely independent regulatory body and system to ensure
consumer protection and enhance the competitive operation of the electricity market;
and
(k) To encourage the efficient use of energy and other modalities of demand side
management.
From the aforementioned purposes, it can be gleaned that the assailed Universal Charge is not a
tax, but an exaction in the exercise of the State's police power. Public welfare is surely
promoted.
Moreover, it is a well-established doctrine that the taxing power may be used as an implement
of police power.38 In Valmonte v. Energy Regulatory Board, et al. 39 and in Gaston v. Republic
Planters Bank,40 this Court held that the Oil Price Stabilization Fund (OPSF) and the Sugar
Stabilization Fund (SSF) were exactions made in the exercise of the police power. The doctrine
was reiterated in Osmeña v. Orbos41 with respect to the OPSF. Thus, we disagree with
petitioners that the instant case is different from the aforementioned cases. With the Universal
Charge, a Special Trust Fund (STF) is also created under the administration of PSALM. 42 The STF
has some notable characteristics similar to the OPSF and the SSF, viz.:
 1) In the implementation of stranded cost recovery, the ERC shall conduct a review to
determine whether there is under-recovery or over recovery and adjust (true-up) the
level of the stranded cost recovery charge. In case of an over-recovery, the ERC shall
ensure that any excess amount shall be remitted to the STF. A separate account shall be
created for these amounts which shall be held in trust for any future claims of
distribution utilities for stranded cost recovery. At the end of the stranded cost recovery
period, any remaining amount in this account shall be used to reduce the electricity
rates to the end-users.43
2) With respect to the assailed Universal Charge, if the total amount collected for the
same is greater than the actual availments against it, the PSALM shall retain the balance
within the STF to pay for periods where a shortfall occurs.44
3) Upon expiration of the term of PSALM, the administration of the STF shall be
transferred to the DOF or any of the DOF attached agencies as designated by the DOF
Secretary.45
The OSG is in point when it asseverates:
Evidently, the establishment and maintenance of the Special Trust Fund, under the last
paragraph of Section 34, R.A. No. 9136, is well within the pervasive and non-waivable power and
responsibility of the government to secure the physical and economic survival and well-being of
the community, that comprehensive sovereign authority we designate as the police power of
the State.46
This feature of the Universal Charge further boosts the position that the same is an exaction
imposed primarily in pursuit of the State's police objectives. The STF reasonably serves and
assures the attainment and perpetuity of the purposes for which the Universal Charge is
imposed, i.e., to ensure the viability of the country's electric power industry.
The Second Issue
The principle of separation of powers ordains that each of the three branches of government
has exclusive cognizance of and is supreme in matters falling within its own constitutionally
allocated sphere. A logical corollary to the doctrine of separation of powers is the principle of
non-delegation of powers, as expressed in the Latin maxim potestas delegata non delegari
potest  (what has been delegated cannot be delegated). This is based on the ethical principle
that such delegated power constitutes not only a right but a duty to be performed by the
delegate through the instrumentality of his own judgment and not through the intervening mind
of another. 47
In the face of the increasing complexity of modern life, delegation of legislative power to various
specialized administrative agencies is allowed as an exception to this principle. 48 Given the
volume and variety of interactions in today's society, it is doubtful if the legislature can
promulgate laws that will deal adequately with and respond promptly to the minutiae of
everyday life. Hence, the need to delegate to administrative bodies - the principal agencies
tasked to execute laws in their specialized fields - the authority to promulgate rules and
regulations to implement a given statute and effectuate its policies. All that is required for the
valid exercise of this power of subordinate legislation is that the regulation be germane to the
objects and purposes of the law and that the regulation be not in contradiction to, but in
conformity with, the standards prescribed by the law. These requirements are denominated as
the completeness test and the sufficient standard test.
Under the first test, the law must be complete in all its terms and conditions when it leaves the
legislature such that when it reaches the delegate, the only thing he will have to do is to enforce
it. The second test mandates adequate guidelines or limitations in the law to determine the
boundaries of the delegate's authority and prevent the delegation from running riot.49
The Court finds that the EPIRA, read and appreciated in its entirety, in relation to Sec. 34
thereof, is complete in all its essential terms and conditions, and that it contains sufficient
standards.
Although Sec. 34 of the EPIRA merely provides that "within one (1) year from the effectivity
thereof, a Universal Charge to be determined, fixed and approved by the ERC, shall be imposed
on all electricity end-users," and therefore, does not state the specific amount to be paid as
Universal Charge, the amount nevertheless is made certain by the legislative parameters
provided in the law itself. For one, Sec. 43(b)(ii) of the EPIRA provides:
SECTION 43. Functions of the ERC. — The ERC shall promote competition, encourage market
development, ensure customer choice and penalize abuse of market power in the restructured
electricity industry. In appropriate cases, the ERC is authorized to issue cease and desist order
after due notice and hearing. Towards this end, it shall be responsible for the following key
functions in the restructured industry:
xxxx
(b) Within six (6) months from the effectivity of this Act, promulgate and enforce, in accordance
with law, a National Grid Code and a Distribution Code which shall include, but not limited to
the following:
xxxx
(ii) Financial capability standards for the generating companies, the TRANSCO, distribution
utilities and suppliers: Provided, That in the formulation of the financial capability standards, the
nature and function of the entity shall be considered: Provided, further, That such standards are
set to ensure that the electric power industry participants meet the minimum financial
standards to protect the public interest. Determine, fix, and approve, after due notice and public
hearings the universal charge, to be imposed on all electricity end-users pursuant to Section 34
hereof;
Moreover, contrary to the petitioners’ contention, the ERC does not enjoy a wide latitude of
discretion in the determination of the Universal Charge. Sec. 51(d) and (e) of the EPIRA50 clearly
provides:
SECTION 51. Powers. — The PSALM Corp. shall, in the performance of its functions and for the
attainment of its objective, have the following powers:
xxxx
(d) To calculate the amount of the stranded debts and stranded contract costs of NPC
which shall form the basis for ERC in the determination of the universal charge;
(e) To liquidate the NPC stranded contract costs, utilizing the proceeds from sales and
other property contributed to it, including the proceeds from the universal charge.
Thus, the law is complete and passes the first test for valid delegation of legislative power.
As to the second test, this Court had, in the past, accepted as sufficient standards the following:
"interest of law and order;"51 "adequate and efficient instruction;"52 "public interest;"53 "justice
and equity;"54 "public convenience and welfare;"55 "simplicity, economy and
efficiency;"  "standardization and regulation of medical education;"57 and "fair and equitable
56
employment practices."58 Provisions of the EPIRA such as, among others, "to ensure the total
electrification of the country and the quality, reliability, security and affordability of the supply
of electric power"59 and "watershed rehabilitation and management"60 meet the requirements
for valid delegation, as they provide the limitations on the ERC’s power to formulate the IRR.
These are sufficient standards.
It may be noted that this is not the first time that the ERC's conferred powers were challenged.
In Freedom from Debt Coalition v. Energy Regulatory Commission,61 the Court had occasion to
say:
In determining the extent of powers possessed by the ERC, the provisions of the EPIRA must not
be read in separate parts. Rather, the law must be read in its entirety, because a statute is
passed as a whole, and is animated by one general purpose and intent. Its meaning cannot to be
extracted from any single part thereof but from a general consideration of the statute as a
whole. Considering the intent of Congress in enacting the EPIRA and reading the statute in its
entirety, it is plain to see that the law has expanded the jurisdiction of the regulatory body, the
ERC in this case, to enable the latter to implement the reforms sought to be accomplished by
the EPIRA. When the legislators decided to broaden the jurisdiction of the ERC, they did not
intend to abolish or reduce the powers already conferred upon ERC's predecessors. To sustain
the view that the ERC possesses only the powers and functions listed under Section 43 of the
EPIRA is to frustrate the objectives of the law.
In his Concurring and Dissenting Opinion62 in the same case, then Associate Justice, now Chief
Justice, Reynato S. Puno described the immensity of police power in relation to the delegation of
powers to the ERC and its regulatory functions over electric power as a vital public utility, to wit:
Over the years, however, the range of police power was no longer limited to the preservation of
public health, safety and morals, which used to be the primary social interests in earlier
times. Police power now requires the State to "assume an affirmative duty to eliminate the
excesses and injustices that are the concomitants of an unrestrained industrial economy." Police
power is now exerted "to further the public welfare — a concept as vast as the good of society
itself." Hence, "police power is but another name for the governmental authority to further the
welfare of society that is the basic end of all government." When police power is delegated to
administrative bodies with regulatory functions, its exercise should be given a wide latitude.
Police power takes on an even broader dimension in developing countries such as ours, where
the State must take a more active role in balancing the many conflicting interests in society. The
Questioned Order was issued by the ERC, acting as an agent of the State in the exercise of police
power. We should have exceptionally good grounds to curtail its exercise. This approach is more
compelling in the field of rate-regulation of electric power rates. Electric power generation and
distribution is a traditional instrument of economic growth that affects not only a few but the
entire nation. It is an important factor in encouraging investment and promoting business. The
engines of progress may come to a screeching halt if the delivery of electric power is impaired.
Billions of pesos would be lost as a result of power outages or unreliable electric power
services. The State thru the ERC should be able to exercise its police power with great flexibility,
when the need arises.
This was reiterated in National Association of Electricity Consumers for Reforms v. Energy
Regulatory Commission63 where the Court held that the ERC, as regulator, should have sufficient
power to respond in real time to changes wrought by multifarious factors affecting public
utilities.
From the foregoing disquisitions, we therefore hold that there is no undue delegation of
legislative power to the ERC.
Petitioners failed to pursue in their Memorandum the contention in the Complaint that the
imposition of the Universal Charge on all end-users is oppressive and confiscatory, and amounts
to taxation without representation. Hence, such contention is deemed waived or abandoned per
Resolution64 of August 3, 2004.65 Moreover, the determination of whether or not a tax is
excessive, oppressive or confiscatory is an issue which essentially involves questions of fact, and
thus, this Court is precluded from reviewing the same.66
As a penultimate statement, it may be well to recall what this Court said of EPIRA:
One of the landmark pieces of legislation enacted by Congress in recent years is the EPIRA. It
established a new policy, legal structure and regulatory framework for the electric power
industry. The new thrust is to tap private capital for the expansion and improvement of the
industry as the large government debt and the highly capital-intensive character of the industry
itself have long been acknowledged as the critical constraints to the program. To attract private
investment, largely foreign, the jaded structure of the industry had to be addressed. While the
generation and transmission sectors were centralized and monopolistic, the distribution side
was fragmented with over 130 utilities, mostly small and uneconomic. The pervasive flaws have
caused a low utilization of existing generation capacity; extremely high and uncompetitive
power rates; poor quality of service to consumers; dismal to forgettable performance of the
government power sector; high system losses; and an inability to develop a clear strategy for
overcoming these shortcomings.
Thus, the EPIRA provides a framework for the restructuring of the industry, including the
privatization of the assets of the National Power Corporation (NPC), the transition to a
competitive structure, and the delineation of the roles of various government agencies and the
private entities. The law ordains the division of the industry into four (4) distinct sectors,
namely: generation, transmission, distribution and supply.
Corollarily, the NPC generating plants have to privatized and its transmission business spun off
and privatized thereafter.67
Finally, every law has in its favor the presumption of constitutionality, and to justify its
nullification, there must be a clear and unequivocal breach of the Constitution and not one that
is doubtful, speculative, or argumentative.68Indubitably, petitioners failed to overcome this
presumption in favor of the EPIRA. We find no clear violation of the Constitution which would
warrant a pronouncement that Sec. 34 of the EPIRA and Rule 18 of its IRR are unconstitutional
and void.
WHEREFORE, the instant case is hereby DISMISSED for lack of merit.
SO ORDERED.
 Republic Act No. 632 is the charter of the Philippine Sugar Institute, Philsugin for short, a semi-
public corporation created for the following purposes and objectives:

(a) To conduct research work for the sugar industry in all its phases, either agricultural
or industrial, for the purpose of introducing into the sugar industry such practices or
processes that will reduce the cost of production, increase and improve the
industrialization of the by-products of sugar cane, and achieve greater efficiency in the
industry;

(b) To improve existing methods of raising sugar cane and of sugar manufacturing;

(c) To insure a permanent, sufficient and balanced production of sugar and its by-
products for local consumption and exportation;

G.R. Nos. L-19824, L-19825 and 19826             July 9, 1966
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,  well insure stabilized prices at a level sufficient to cover the cost of production plus a
vs.
BACOLOD-MURCIA MILLING CO., INC., MA-AO SUGAR CENTRAL CO., INC., and TALISAY-SILAY
MILLING COMPANY, defendants-appellants.
Meer, Meer and Meer, Enrique M. Fernando and Emma Quisumbing-Fernando for defendants-
appellants.
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Antonio Torres and
Solicitor Ceferino Padua, for plaintiff-appellee.
REGALA, J.:
To realize and achieve these ends, Sections 15 and 16 of the aforementioned law provide:
This is a joint appeal by three sugar centrals, Bacolod Murcia Milling Co., Inc., Ma-ao Sugar
Central Co., Inc., and Talisay-Silay Milling Co., sister companies under one controlling ownership
and management, from a decision of the Court of First Instance of Manila finding them liable for
special assessments under Section 15 of Republic Act No. 632.
(d) To establish and maintain such balanced relation between production and
consumption of sugar and its by-products, and such marketing conditions therefor, as
reasonable profit;
(e) To promote the effective merchandising of sugar and its by-products in the domestic
and foreign markets so that those engaged in the sugar industry will be placed on a
basis of economic security; and
(f) To improve the living and economic conditions of laborers engaged in the sugar
industry by the gradual and effective correction of the inequalities existing in the
industry. (Section 2, Rep. Act 632)
Sec. 15. Capitalization. — To raise the necessary funds to carry out the provisions of this
Act and the purposes of the corporation, there shall be levied on the annual sugar
production a tax of TEN CENTAVOS [P0.10] per picul of sugar to be collected for a period
of five (5) years beginning the crop year 1951-1952. The amount shall be borne by the
sugar cane planters and the sugar centrals in the proportion of their corresponding
 milling share, and said levy shall constitute a lien on their sugar quedans and/or
warehouse receipts.
Sec. 16. Special Fund. — The proceeds of the foregoing levy shall be set aside to
constitute a special fund to be known as the "Sugar Research and Stabilization Fund,"
which shall be available exclusively for the use of the corporation. All the income and
receipts derived from the special fund herein created shall accrue to, and form part of
the said fund to be available solely for the use of the corporation.
The specific and general powers of the Philsugin are set forth in Section 8 of the same law, to
wit:
Sec. 3. Specific and General Powers. — For carrying out the purposes mentioned in the
preceding section, the PHILSUGIN shall have the following powers:
(a) To establish, keep, maintain and operate, or help establish, keep, maintain, and
operate one central experiment station and such number of regional experiment
stations in any part of the Philippines as may be necessary to undertake extensive
research in sugar cane culture and manufacture, including studies as to the feasibility of
merchandising sugar cane farms, the control and eradication of pests, the selected and
propagation of high-yielding varieties of sugar cane suited to Philippine climatic
conditions, and such other pertinent studies as will be useful in adjusting the sugar
industry to a position independent of existing trade preference in the American market;
(b) To purchase such machinery, materials, equipment and supplies as may be necessary
to prosecute successfully such researches and experimental work;
(c) To explore and expand the domestic and foreign markets for sugar and its by-
products to assure mutual benefits to consumers and producers, and to promote and
maintain a sufficient general production of sugar and its by-products by an efficient
coordination of the component elements of the sugar industry of the country;
(d) To buy, sell, assign, own, operate, rent or lease, subject to existing laws, machineries,
equipment, materials, merchant vessels, rails, railroad lines, and any other means of
transportation, warehouses, buildings, and any other equipment and material to the
production, manufacture, handling, transportation and warehousing of sugar and its by-
products;
(e) To grant loans, on reasonable terms, to planters when it deems such loans advisable;
(f) To enter, make and execute contracts of any kind as may be necessary or incidental
to the attainment of its purposes with any person, firm, or public or private corporation,
with the Government of the Philippines or of the United States, or any state, territory,
or persons therefor, or with any foreign government and, in general, to do everything
directly or indirectly necessary or incidental to, or in furtherance of, the purposes of the
corporation;
(g) To do all such other things, transact all such business and perform such functions
directly or indirectly necessary, incidental or conducive to the attainment of the
purposes of the corporation; and
(h) Generally, to exercise all the powers of a Corporation under the Corporation Law
insofar as they are not inconsistent with the provisions of this Act.
The facts of this case bearing relevance to the issue under consideration, as recited by the lower
court and accepted by the appellants, are the following:
x x x during the 5 crop years mentioned in the law, namely 1951-1952, 1952-1953, 1953-
1954, 1954-1955 and 1955-1956, defendant Bacolod-Murcia Milling Co., Inc., has paid
P267,468.00 but left an unpaid balance of P216,070.50; defendant Ma-ao Sugar Central
Co., Inc., has paid P117,613.44 but left unpaid balance of P235,800.20; defendant
Talisay-Silay Milling Company has paid P251,812.43 but left unpaid balance of
P208,193.74; and defendant Central Azucarera del Danao made a payment of
P49,897.78 but left unpaid balance of P48,059.77. There is no question regarding the
correctness of the amounts paid and the amounts that remain unpaid.
From the evidence presented, on which there is no controversy, it was disclosed that on
September 3, 1951, the Philippine Sugar Institute, known as the PHILSUGIN for short,
 acquired the Insular Sugar Refinery for a total consideration of P3,070,909.60 payable,
in accordance with the deed of sale Exhibit A, in 3 installments from the process of the
sugar tax to be collected, under Republic Act 632. The evidence further discloses that
the operation of the Insular Sugar Refinery for the years, 1954, 1955, 1956 and 1957
was disastrous in the sense that PHILSUGIN incurred tremendous losses as shown by an
examination of the statements of income and expenses marked Exhibits 5, 6, 7 and 8.
Through the testimony of Mr. Cenon Flor Cruz, former acting general manager of
PHILSUGIN and at present technical consultant of said entity, presented by the
defendants as witnesses, it has been shown that the operation of the Insular Sugar
Refinery has consumed 70% of the thinking time and effort of the PHILSUGIN
management. x x x .
Contending that the purchase of the Insular Sugar Refinery with money from the Philsugin Fund
was not authorized by Republic Act 632 and that the continued operation of the said refinery
was inimical to their interests, the appellants refused to continue with their contributions to the
said fund. They maintained that their obligation to contribute or pay to the said Fund subsists
only to the limit and extent that they are benefited by such contributions since Republic Act 632
is not a revenue measure but an Act which establishes a "Special assessments." Adverting to the
finding of the lower court that proceeds of the said Fund had been used or applied to absorb the
"tremendous losses" incurred by Philsugin in its "disastrous operation" of the said refinery, the
appellants herein argue that they should not only be released from their obligation to pay the
said assessment but be refunded, besides, of all that they might have previously paid
thereunder.
The appellants' thesis is simply to the effect that the "10 centavos per picul of sugar" authorized
to be collected under Sec. 15 of Republic 632 is a special assessment. As such, the proceeds
thereof may be devoted only to the specific purpose for which the assessment was authorized, a
special assessment being a levy upon property predicated on the doctrine that the property
against which it is levied derives some special benefit from the improvement. It is not a tax
measure intended to raise revenues for the Government. Consequently, once it has been
determined that no benefit accrues or inures to the property owners paying the assessment, or
that the proceeds from the said assessment are being misapplied to the prejudice of those
against whom it has been levied, then the authority to insist on the payment of the said
assessment ceases.
On the other hand, the lower court adjudged the appellants herein liable under the
aforementioned law, Republic Act 632, upon the following considerations:
First, Subsection d) of Section 3 of Republic Act 632 authorizes Philsugin to buy and operate
machineries, equipment, merchant vessels, etc., and any other equipment and material for the
production, manufacture, handling, transportation and warehousing of sugar and its by-
products. It was, therefore, authorized to purchase and operate a sugar refinery.
Secondly, the corporate powers of the Philsugin are vested in and exercised by a board of
directors composed of 5 members, 3 of whom shall be appointed upon recommendation of the
National Federation of Sugar Cane Planters and 2 upon recommendation of the Philippine Sugar
Association. (Sec. 4, Rep. Act 632). It has not been shown that this particular provision was not
observed in this case. Therefore, the appellants herein may not rightly claim that there had been
a misapplication of the Philsugin funds when the same was used to procure the Insular Sugar
Refinery because the decision to purchase the said refinery was made by a board in which the
applicants were fully and duly represented, the appellants being members of the Philippine
Sugar Association.
Thirdly, all financial transactions of the Philsugin are audited by the General Auditing Office,
which must be presumed to have passed upon the legality and prudence of the disbursements
of the Fund. Additionally, other offices of the Government review such transactions as reflected
in the annual report obliged of the Philsugin to prepare. Among those offices are the Office of
the President of the Philippines, the Administrator of Economic Coordination and the Presiding
Officers of the two chambers of Congress. With all these safeguards against any imprudent or
unauthorized expenditure of Philsugin Funds, the acquisition of the Insular Sugar Refinery must
be upheld in its legality and propriety.
Fourthly, it would be dangerous to sanction the unilateral refusal of the appellants herein to
continue with their contribution to the Fund for that conduct is no different "from the case of an
ordinary taxpayer who refuses to pay his taxes on the ground that the money is being
misappropriated by Government officials." This is taking the law into their own hands.
Against the above ruling of the trial court, the appellants contend:
First. It is fallacious to argue that no mismanagement or abuse of corporate power could have
been committed by Philsugin solely because its charter incorporates so many devices or
safeguards to preclude such abuse. This reasoning of the lower court does not reconcile with
that actually happened in this case.
Besides, the appellants contend that the issue on hand is not whether Philsugin abused or not
its powers when it purchased the Insular Sugar Refinery. The issue, rather, is whether Philsugin
had any power or authority at all to acquire the said refinery. The appellants deny that Philsugin
is possessed of any such authority because what it is empowered to purchase is not a "sugar
refinery but a central experiment station or perhaps at the most a sugar central to be used for
that purpose." (Sec. 3[a], Rep. Act 632) For this distinction, the appellants cite the case
of Collector vs. Ledesma, G.R. No. L-12158, May 27, 1959, in which this Court ruled that —  ruling was laid down that —
We are of the opinion that a "sugar central," as that term is used in Section 189, applies
to "a large mill that makes sugar out of the cane brought from a wide surrounding
territory," or a sugar mill which manufactures sugar for a number of plantations. The
term "sugar central" could not have been intended by Congress to refer to all sugar mills
or sugar factories as contended by respondent. If respondent's interpretation is to be
followed, even sugar mills run by animal power (trapiche) would be considered sugar
central. We do not think Congress ever intended to place owners of (trapiches) in the
same category as operators of sugar centrals.
That sugar mills are not the same as sugar centrals may also be gleaned from
Commonwealth Act No. 470 (Assessment Law). In prescribing the principle governing
valuation and assessment of real property. Section 4 of said Act provides —  We find for the appellee.
"Machinery permanently used or in stalled in sugar centrals, mills, or refineries shall be
assessed."
This clearly indicates that "Sugar centrals" are not the same as "sugar mills" or "sugar
refineries."
Second. The appellants' refusal to continue paying the assessment under Republic Act 632 may
not rightly be equated with a taxpayer's refusal to pay his ordinary taxes precisely because there
is a substantial distinction between a "special assessment" and an ordinary tax. The purpose of
the former is to finance the improvement of particular properties, with the benefits of the
improvement accruing or inuring to the owners thereof who, after all, pay the assessment. The
purpose of an ordinary tax, on the other hand, is to provide the Government with revenues
needed for the financing of state affairs. Thus, while the refusal of a citizen to pay his ordinary
taxes may not indeed be sanctioned because it would impair government functions, the same
would not hold true in the case of a refusal to comply with a special assessment.
Third. Upon a host of decisions of the United States Supreme Court, the imposition or collection
of a special assessment upon property owners who receive no benefit from such assessment
amounts to a denial of due process. Thus, in the case of Norwood vs. Baer, 172 US 269, the
 
As already indicated, the principle underlying special assessments to meet the cost of
public improvements is that the property upon which they are imposed is peculiarly
benefited, and therefore, the panels do not, in fact, pay anything in excess of what they
received by reason of such improvement.
unless a corresponding benefit is realized by the property owner, the exaction of a special
assessment would be "manifestly unfair" (Seattle vs. Kelleher 195 U.S. 351) and "palpably
arbitrary or plain abuse" (Gast Realty Investment Co. vs. Schneider Granite Co., 240 U.S. 57). In
other words, the assessment is violative of the due process guarantee of the constitution
(Memphis vs. Charleston Ry v. Pace, 282 U.S. 241).
The nature of a "special assessment" similar to the case at bar has already been discussed and
explained by this Court in the case of Lutz vs. Araneta, 98 Phil. 148. For in this Lutz case,
Commonwealth Act 567, otherwise known as the Sugar Adjustment Act, levies on owners or
persons in control of lands devoted to the cultivation of sugar cane and ceded to others for a
consideration, on lease or otherwise — 
 a tax equivalent to the difference between the money value of the rental or
consideration collected and the amount representing 12 per centum of the assessed
value of such land. (Sec. 3).1äwphï1.ñët
Under Section 6 of the said law, Commonwealth Act 567, all collections made thereunder "shall
accrue to a special fund in the Philippine Treasury, to be known as the 'Sugar Adjustment and
Stabilization Fund,' and shall be paid out only for any or all of the following purposes or to attain
any or all of the following objectives, as may be provided by law." It then proceeds to
enumerate the said purposes, among which are "to place the sugar industry in a position to
maintain itself; ... to readjust the benefits derived from the sugar industry ... so that all might
continue profitably to engage therein; to limit the production of sugar to areas more
economically suited to the production thereof; and to afford laborers employed in the industry a
living wage and to improve their living and working conditions.
The plaintiff in the above case, Walter Lutz, contended that the aforementioned tax or special
assessment was unconstitutional because it was being "levied for the aid and support of the
sugar industry exclusively," and therefore, not for a public purpose. In rejecting the theory
advanced by the said plaintiff, this Court said:
The basic defect in the plaintiff's position in his assumption that the tax provided for in
Commonwealth Act No. 567 is a pure exercise of the taxing power. Analysis of the Act,
and particularly Section 6, will show that the tax is levied with a regulatory purpose, to
provide means for the rehabilitation and stabilization of the threatened sugar
industry. In other words, the act is primarily an exercise of the police power.
This Court can take judicial notice of the fact that sugar production is one of the great
industries of our nation, sugar occupying a leading position among its export products;
that it gives employment to thousands of laborers in fields and factories; that it is a
great source of the state's wealth, is one, of the important sources to foreign exchange
needed by our government, and is thus pivotal in the plans of a regime committed to a
policy of currency stability. Its promotion, protection and advancement, therefore
redounds greatly to the general welfare. Hence, it was competent for the Legislature to
find that the general welfare demanded that the sugar industry should be stabilized in
turn; and in the wide field of its police power, the law-making body could provide that
the distribution of benefits therefrom be readjusted among its components, to enable it
to resist the added strain of the increase in taxes that it had to sustain (Sligh vs.
Kirkwood, 237 U.S. 52, 59 L. Ed. 835; Johnson vs. State ex rel. Marey, 99 Fla. 1311, 128
So. 853; Marcy Inc. vs. Mayo, 103 Fla. 552, 139 So. 121)
As stated in Johnson vs. State ex rel. Marcy, with reference to the citrus industry in
Florida — 
"The protection of a large industry constituting one of the great source of the
state's wealth and therefore directly or indirectly affecting the welfare of so
great a portion of the population of the State is affected to such an extent by
public interests as to be within the police power of the sovereign." (128 So.
857).
Once it is conceded, as it must that the protection and promotion of the sugar industry
is a matter of public concern, it follows that the Legislature may determine within
reasonable bounds what is necessary for its protection and expedient for its promotion.
Here, the legislative discretion must be allowed full play, subject only to the test of
reasonableness; and it is not contended that the means provided in Section 6 of the law
(above quoted) bear no relation to the objective pursued or are oppressive in character.
If objective and methods are alike constitutionally valid, no reason is seen why the state
may not levy taxes to raise funds for their prosecution and attainment. Taxation may be
made the implement of the state's police power. (Great Atl. & Pac. Tea Co. vs. Grosjean,
301 U.S. 412, 81 L. Ed. 1193; U.S. vs. Butler, 297 U.S. 1, 80 L. Ed. 477; M'cullock vs.
Maryland, 4 Wheat. 316, 4 L. Ed. 579).
On the authority of the above case, then, We hold that the special assessment at bar may be
considered as similarly as the above, that is, that the levy for the Philsugin Fund is not so much
an exercise of the power of taxation, nor the imposition of a special assessment, but, the
exercise of the police power for the general welfare of the entire country. It is, therefore, an
exercise of a sovereign power which no private citizen may lawfully resist.
Besides, under Section 2(a) of the charter, the Philsugin is authorized "to conduct research work
for the sugar industry in all its phases, either agricultural or industrial, for the purpose of
introducing into the sugar industry such practices or processes that will reduce the cost of
production, ..., and achieve greater efficiency in the industry." This provision, first of all, more
than justifies the acquisition of the refinery in question. The case dispute that the operation of a
sugar refinery is a phase of sugar production and that from such operation may be learned
methods of reducing the cost of sugar manufactured no less than it may afford the opportunity
to discover the more effective means of achieving progress in the industry. Philsugin's
experience alone of running a refinery is a gain to the entire industry. That the operation
resulted in a financial loss is by no means an index that the industry did not profit therefrom, as
other farms of a different nature may have been realized. Thus, from its financially unsuccessful
venture, the Philsugin could very well have advanced in its appreciation of the problems of
management faced by sugar centrals. It could have understood more clearly the difficulties of
marketing sugar products. It could have known with better intimacy the precise area of the
industry in need of the more help from the government. The view of the appellants herein,
therefore, that they were not benefited by the unsuccessful operation of the refinery in
question is not entirely accurate.

Furthermore, Section 2(a) specifies a field of research which, indeed, would be difficult to carry
out save through the actual operation of a refinery. Quite obviously, the most practical or
realistic approach to the problem of what "practices or processes" might most effectively cut the
cost of production is to experiment on production itself. And yet, how can such an experiment
be carried out without the tools, which is all that a refinery is?

In view of all the foregoing, the decision appealed from is hereby affirmed, with costs.

G.R. No. 141667             July 17, 2006
REPUBLIC OF THE PHILIPPINES, represented by NATIONAL ELECOMMUNICATIONS
COMMISSION (NTC),petitioner,  denied the motion.
vs.
INTERNATIONAL COMMUNICATIONS CORPORATION (ICC), respondent.
DECISION
GARCIA,  J.:
In this petition for review under Rule 45 of the Rules of Court, petitioner Republic, through the
National Telecommunications Commission (NTC), seeks the annulment and setting aside of
the Amended Decision1 dated September 30, 1999 of the Court of Appeals (CA), setting aside
the orders dated June 4, 1996 and June 25, 1997 of the NTC insofar as said orders required
respondent International Communications Corporation (ICC) to pay the amount
of P1,190,750.50 by way of permit fee as a condition for the grant of a provisional authority to
operate an international telecommunications leased circuit service, and the Resolution2 dated
January 24, 2000, denying NTC's motion for reconsideration.
There is no dispute as to the facts:
On April 4, 1995, respondent ICC, holder of a legislative franchise under Republic Act (RA) No.
7633 to operate domestic telecommunications, filed with the NTC an application for a Certificate
of Public Convenience and Necessity to install, operate, and maintain an international
telecommunications leased circuit service between the Philippines and other countries, and to
charge rates therefor, with provisional authority for the purpose.
In an Order3 dated June 4, 1996, the NTC approved the application for a provisional authority
subject, among others, to the condition:
2. That applicant [ICC] shall pay a permit fee in the amount of P1,190,750.00, in
accordance with section 40(g) of the Public Service Act,4 as amended;
Respondent ICC filed a motion for partial reconsideration of the Order insofar as the same
required the payment of a permit fee. In a subsequent Order dated June 25, 1997, the NTC
Therefrom, ICC went to the CA on a petition for certiorari  with prayer for a temporary
restraining order and/or writ of preliminary injunction, questioning the NTC's imposition against
it of a permit fee of P1,190,750.50 as a condition for the grant of the provisional authority
applied for.
In its original decision5 dated January 29, 1999, the CA ruled in favor of the NTC whose
challenged orders were sustained, and accordingly denied ICC's certiorari petition, thus:
WHEREFORE, the instant petition is hereby DENIED. In view thereof, the assailed orders
dated 4 June 1996 and 25 June 1997, requiring the payment of permit fees in the
amount of One Million One Hundred Ninety Thousand Seven Hundred Fifty and 50/100
Pesos (P1,190,750.50) as a condition for the grant of a Provisional Authority to operate
an International Circuit service, are hereby AFFIRMED. ACCORDINGLY, the International
 Communications Corporation is hereby ordered to pay the amount of One Million One
Hundred Ninety Thousand Seven Hundred Fifty and 50/100 Pesos (P1,190,750.50) to the
National Telecommunications Commission.
SO ORDERED.
In time, ICC moved for a reconsideration. This time, the CA, in its Amended Decision dated
September 30, 1999, reversed itself, to wit:
WHEREFORE, the instant Motion for Reconsideration is hereby GRANTED. Accordingly,
the Decision dated 29 January 1999 including the imposition by the public respondent of
permit fees with respect to [ICC’s] international leased circuit service is hereby
REVERSED. Judgment is hereby rendered, setting aside the questioned orders dated 04
June 1996 and 25 June 1997, insofar as they impose upon petitioner ICC the payment of
the amount of One Million One Hundred Ninety Thousand Seven Hundred Fifty and Fifty
Centavos (P1,190,750.50) by way of permit fees as a condition for the grant of a
provisional authority to operate an International Leased Circuit Service. No costs.
SO ORDERED. (Word in bracket added).
Petitioner NTC filed a motion for reconsideration, but its motion was denied by the CA in its
equally challenged Resolution dated January 24, 2000. Hence, NTC's present recourse claiming
that the CA erred in ruling that:
1. NTC has arrogated upon itself the power to tax an entity;
2. Section 40(g) of the Public Service Act has been amended by Section 5(g) of R.A.
7925;6
3. The imposition of permit fees is no longer authorized by R.A. 7925; and
4. The imposed permit fee in the amount of P1,190,750.50 for respondent's provisional
authority is exorbitant.
Before addressing the issues raised, we shall first dwell on the procedural matter raised by
respondent ICC, namely, that the present petition should be dismissed outright for having been
filed out of time. It is respondent's posture that petitioner's motion for reconsideration filed
with the CA vis-a-vis the latter's Amended Decision is a pro forma  motion and, therefore, did not
toll the running of the reglementary period to come to this Court via this petition for review.
Under Section 2 of Rule 45 of the Rules of Court, a recourse to this Court by way of a petition for
review must be filed within fifteen (15) days from notice of the judgment or final order or
resolution appealed from, or of the denial of the petitioner's motion for new trial or
reconsideration  filed in due time after notice of the judgment. While a motion for
reconsideration ordinarily tolls the period for appeal, one that fails to point out the findings or
conclusions which were supposedly contrary to law or the evidence does not have such an effect
on the reglementary period as it is merely a pro forma motion.7
In arguing for the outright dismissal of this petition, respondent ICC claims that the motion for
reconsideration filed by petitioner NTC in connection with the CA’s Amended Decision failed to
point out specifically the findings or conclusions of the CA which were supposedly contrary to
law. Respondent contends that the issues raised by the petitioner in its motion for
reconsideration were mere reiterations of the same issues which had already been considered
and passed upon by the CA when it promulgated its Amended Decision. On this premise,
respondent maintains that petitioner’s aforementioned motion for reconsideration is a mere
pro forma motion that did not toll the period for filing the present petition.
Under established jurisprudence, the mere fact that a motion for reconsideration reiterates
issues already passed upon by the court does not, by itself, make it a pro forma  motion.8 Among
the ends to which a motion for reconsideration is addressed is precisely to convince the court
that its ruling is erroneous and improper, contrary to the law or evidence; and in so doing, the
movant has to dwell of necessity on issues already passed upon. If a motion for reconsideration
may not discuss those issues, the consequence would be that after a decision is rendered, the
losing party would be confined to filing only motions for reopening and new trial.9
Where there is no apparent intent to employ dilatory tactics, courts should be slow in declaring
outright a motion for reconsideration as pro forma. The doctrine relating to pro forma  motions
has a direct bearing upon the movant's valuable right to appeal. Hence, if petitioner's motion for
reconsideration was indeed pro forma,  it would still be in the interest of justice to review the
Amended Decision a quo on the merits, rather than to abort the appeal due to a technicality,
especially where, as here, the industry involved (telecommunications) is vested with public
interest. All the more so given that the instant petition raises some arguments that are well-
worth resolving for future reference.
This brings us to the substantive merits of the petition.
In its Amended Decision, the CA ruled that petitioner NTC had arrogated upon itself the power
to tax an entity, which it is not authorized to do. Petitioner disagreed, contending the fee in
question is not in the nature of a tax, but is merely a regulatory measure.
Section 40(g) of the Public Service Act provides:
Sec. 40. The Commission is authorized and ordered to charge and collect from any
public service or applicant, as the case may be, the following fees as reimbursement of
its expenses in the authorization, supervision and/or regulation of the public services:
xxx       xxx       xxx
g) For each permit, authorizing the increase in equipment, the installation of new units
or authorizing the increase of capacity, or the extension of means or general extensions
in the services, twenty centavos for each one hundred pesos or fraction of the
additional capital necessary to carry out the permit. (Emphasis supplied)
Clearly, Section 40(g) of the Public Service Act is not a tax measure but a simple regulatory
provision for the collection of fees imposed pursuant to the exercise of the State’s police power.
A tax is imposed under the taxing power of government principally for the purpose of raising
revenues. The law in question, however, merely authorizes and requires the collection of fees
for the reimbursement of the Commission's expenses in the authorization, supervision and/or
regulation of public services. There can be no doubt then that petitioner NTC is authorized to
collect such fees. However, the amount thereof must be reasonably related to the cost of such
supervision and/or regulation.10
Petitioner NTC also assails the CA's ruling that Section 40(g) of the Public Service Act had been
amended by Section 5(g) of R.A. No. 7925, which reads:
Sec. 5. Responsibilities of the National Telecommunications Commission. - The National
Telecommunications Commission (Commission) shall be the principal administrator of
this Act and as such shall take the necessary measures to implement the policies and
objectives set forth in this Act. Accordingly, in addition to its existing functions, the
Commission shall be responsible for the following:
xxx       xxx       xxx
g) In the exercise of its regulatory powers, continue to impose such fees and charges as
may be necessary to cover reasonable costs and expenses for the regulation and
supervision of the operations of telecommunications entities. (Emphasis supplied)
The CA ratiocinated that while Section 40(g) of the Public Service Act (CA 146, as amended),
supra, allowed NTC to impose fees as reimbursement of its expenses related to, among other
things, the "authorization" of public services, Section 5(g), above, of R.A. No. 7921 no longer
speaks of "authorization" but only of "regulation" and "supervision." To the CA, the omission by
Section 5(g) of R.A. No. 7921 of the word "authorization" found in Section 40(g) of the Public
Service Act, as amended, meant that the fees which NTC may impose are only for
reimbursement of its expenses for regulation and supervision but no longer for authorization
purposes.
We find, however, that NTC is correct in saying that there is no showing of legislative intent to
repeal, even impliedly, Section 40(g), supra, of the Public Service Act, as amended. An implied
repeal is predicated on a substantial conflict between the new and prior laws. In the absence of
an express repeal, a subsequent law cannot be construed as repealing a prior one unless an
irreconcilable inconsistency and repugnancy exist in the terms of the new and old laws.11 The
two laws must be absolutely incompatible such that they cannot be made to stand together.12
Courts of justice, when confronted with apparently conflicting statutes or provisions, should
endeavor to reconcile the same instead of declaring outright the validity of one as against the
other. Such alacrity should be avoided. The wise policy is for the judge to harmonize such
statutes or provisions if this is possible, bearing in mind that they are equally the handiwork of
the same legislature, and so give effect to both while at the same time also according due
respect to a coordinate department of the government. It is this policy the Court will apply in
arriving at the interpretation of the laws and the conclusions that should follow therefrom.13
It is a rule of statutory construction that repeals by implication are not favored. An implied
repeal will not be allowed unless it is convincingly and unambiguously demonstrated that the
two laws are so clearly repugnant and patently inconsistent with each other that they cannot
co-exist. This is based on the rationale that the will of the legislature cannot be overturned by
the judicial function of construction and interpretation. Courts cannot take the place of
Congress in repealing statutes. Their function is to try to harmonize, as much as possible,
seeming conflicts in the laws and resolve doubts in favor of their validity and co-existence.14
Here, there does not even appear to be a conflict between Section 40(g) of the Public Service
Act, as amended, and Section 5(g) of R.A. 7925. In fact, the latter provision directs petitioner
NTC to "continue to impose  such fees and charges as may be necessary to cover reasonable
costs and expenses for the regulation and supervision of telecommunications entities." The
absence alone of the word "authorization" in Section 5(g) of R.A. No. 7921 cannot be construed
to mean that petitioner NTC had thus been deprived of the power to collect such fees. As
pointed out by the petitioner, the words "authorization, supervision and/or regulation" used in
Section 40(g) of the Public Service Act are not distinct and completely separable concepts which
may be taken singly or piecemeal. Taken in their entirety, they are the quintessence of the
Commission's regulatory functions, and must go hand-in-hand with one another. In petitioner's
own words, "[t]he Commission authorizes, supervises and regulates telecommunications entities
and these functions... cannot be considered singly without destroying the whole concept of the
Commission's regulatory functions."15 Hence, petitioner NTC is correct in asserting that the
passage of R.A. 7925 did not bring with it the abolition of permit fees.
However, while petitioner had made some valid points of argument, its position must, of
necessity, crumble on the fourth issue raised in its petition. Petitioner itself admits that the fees
imposed are precisely regulatory and supervision fees, and not  taxes. This necessarily implies,
however, that such fees must be commensurate to the costs and expenses involved in
discharging its supervisory and regulatory functions. In the words of Section 40(g) of the Public
Service Act itself, the fees and charges which petitioner NTC is authorized to collect from any
public service or applicant are limited to the "reimbursement of its expenses in the
authorization, supervision and/or regulation of public services." It is difficult to comprehend
how the cost of licensing, regulating, and surveillance could amount to P1,190,750.50. The CA
was correct in finding the amount imposed as permit fee exorbitant and in complete disregard
of the basic limitation that the fee should be at least approximately commensurate to the
expense. Petitioner itself admits that it had imposed the maximum amount possible under the
Public Service Act, as amended. That is hardly taking into consideration the actual costs of
fulfilling its regulatory and supervisory functions.
Independent of the above, there is one basic consideration for the dismissal of this petition,
about which petitioner NTC did not bother to comment at all. We refer to the fact that, as
respondent ICC aptly observed, the principal ground given by the CA in striking down the
imposition of the P1,190,750.50 fee is that respondent ICC is entitled to the benefits of the so-
called "parity clause" embodied in Section 23 of R.A. No. 7925, to wit:
Section 23. Equality of Treatment in the Telecommunications Industry. - Any advantage,
favor, privilege, exemption, or immunity granted under existing franchises, or may
hereafter be granted, shall ipso facto become part of previously granted
telecommunications franchises and shall be accorded immediately and unconditionally
to the grantees of such franchises x x x.
In this connection, it is significant to note that the subsequent congressional franchise granted
to the Domestic Satellite Corporation under Presidential Decree No. 947, states:
Section 6. In consideration of the franchise and rights hereby granted, the grantee shall
pay to the Republic of the Philippines during the life of this franchise a tax of one-half
percent of gross earnings derived by the grantee from its operation under this franchise
and which originate from the Philippines. Such tax shall be due and payable annually
within ten days after the audit and approval of the accounts by the Commission on Audit
as prescribed in Section 11 hereof and shall be in lieu of all taxes, assessments,
charges, fees, or levies  of any kind, nature, or description  levied, established or
collected by any municipal, provincial, or national authority x x x (Emphasis supplied)
The CA was correct in ruling that the above-quoted provision is, by law, considered as ipso What is the nature of motor vehicle registration fees? Are they taxes or regulatory fees?
facto part of ICC's franchise due to the "parity clause" embodied in Section 23 of R.A. No. 7925.
Accordingly, respondent ICC cannot be made subject to the payment of the subject fees because This question has been brought before this Court in the past. The parties are, in effect, asking for
its payment of the franchise tax is "in lieu" of all other taxes and fees. a re-examination of the latest decision on this issue. 

WHEREFORE, the petition is hereby DENIED and the assailed Amended Decision and Resolution This appeal was certified to us as one involving a pure question of law by the Court of Appeals in
of the CA are AFFIRMED. a case where the then Court of First Instance of Rizal dismissed the portion-about complaint for
refund of registration fees paid under protest. 
SO ORDERED.
The disputed registration fees were imposed by the appellee, Commissioner Romeo F. Elevate
pursuant to Section 8, Republic Act No. 4136, otherwise known as the Land Transportation and
Traffic Code. 

The Philippine Airlines (PAL) is a corporation organized and existing under the laws of the
Philippines and engaged in the air transportation business under a legislative franchise, Act No.
42739, as amended by Republic Act Nos. 25). and 269.1 Under its franchise, PAL is exempt from
the payment of taxes. The pertinent provision of the franchise provides as follows: 

Section 13. In consideration of the franchise and rights hereby granted, the
grantee shall pay to the National Government during the life of this franchise a
tax of two per cent of the gross revenue or gross earning derived by the grantee
from its operations under this franchise. Such tax shall be due and payable
G.R. No. L- 41383 August 15, 1988 quarterly and shall be in lieu of all taxes of any kind, nature or description,
levied, established or collected by any municipal, provincial or national
PHILIPPINE AIRLINES, INC., plaintiff-appellant,  automobiles, Provided, that if, after the audit of the accounts of the grantee by
vs. the Commissioner of Internal Revenue, a deficiency tax is shown to be due, the
ROMEO F. EDU in his capacity as Land Transportation Commissioner, and UBALDO deficiency tax shall be payable within the ten days from the receipt of the
CARBONELL, in his capacity as National Treasurer, defendants-appellants. assessment. The grantee shall pay the tax on its real property in conformity with
existing law. 
Ricardo V. Puno, Jr. and Conrado A. Boro for plaintiff-appellant. 
On the strength of an opinion of the Secretary of Justice (Op. No. 307, series of 1956) PAL has,
since 1956, not been paying motor vehicle registration fees. 

GUTIERREZ, JR., J.:
Sometime in 1971, however, appellee Commissioner Romeo F. Elevate issued a regulation
requiring all tax exempt entities, among them PAL to pay motor vehicle registration fees.  and Commissioner Romeo F. Edu respectively, discuss the main points of contention in the case
Despite PAL's protestations, the appellee refused to register the appellant's motor vehicles
unless the amounts imposed under Republic Act 4136 were paid. The appellant thus paid, under
protest, the amount of P19,529.75 as registration fees of its motor vehicles. 
After paying under protest, PAL through counsel, wrote a letter dated May 19,1971, to
Commissioner Edu demanding a refund of the amounts paid, invoking the ruling in Calalang v.
Lorenzo (97 Phil. 212 [1951]) where it was held that motor vehicle registration fees are in reality
taxes from the payment of which PAL is exempt by virtue of its legislative franchise.  Subsection G) A subsection starts with a categorical statement "No fees shall be
Appellee Edu denied the request for refund basing his action on the decision in Republic v.
Philippine Rabbit Bus Lines, Inc., (32 SCRA 211, March 30, 1970) to the effect that motor vehicle
registration fees are regulatory exceptional. and not revenue measures and, therefore, do not
come within the exemption granted to PAL? under its franchise. Hence, PAL filed the complaint
against Land Transportation Commissioner Romeo F. Edu and National Treasurer Ubaldo
Carbonell with the Court of First Instance of Rizal, Branch 18 where it was docketed as Civil Case
No. Q-15862.
Appellee Romeo F. Elevate in his capacity as LTC Commissioner, and LOI Carbonell in his capacity
as National Treasurer, filed a motion to dismiss alleging that the complaint states no cause of
action. In support of the motion to dismiss, defendants repatriation the ruling in Republic v.
Philippine Rabbit Bus Lines, Inc., (supra) that registration fees of motor vehicles are not taxes,
but regulatory fees imposed as an incident of the exercise of the police power of the state. They
contended that while Act 4271 exempts PAL from the payment of any tax except two per cent
on its gross revenue or earnings, it does not exempt the plaintiff from paying regulatory fees,
such as motor vehicle registration fees. The resolution of the motion to dismiss was deferred by
the Court until after trial on the merits.  assumption that the earlier legislation could by subdivision the point be
On April 24, 1973, the trial court rendered a decision dismissing the appellant's complaint
"moved by the later ruling laid down by the Supreme Court in the case or Republic v. Philippine
Rabbit Bus Lines, Inc., (supra)." From this judgment, PAL appealed to the Court of Appeals which
certified the case to us. 
Calalang v. Lorenzo (supra) and Republic v. Philippine Rabbit Bus Lines, Inc. (supra)  cited by PAL
at bar. 
Resolving the issue in the Philippine Rabbit  case, this Court held: 
"The registration fee which defendant-appellee had to pay was imposed by
Section 8 of the Revised Motor Vehicle Law (Republic Act No. 587 [1950]). Its
heading speaks of "registration fees." The term is repeated four times in the
body thereof. Equally so, mention is made of the "fee for registration." (Ibid.,
charged." (lbid.,Subsection H) The conclusion is difficult to resist therefore that
the Motor Vehicle Act requires the payment not of a tax but of a registration fee
under the police power. Hence the incipient, of the section relied upon by
defendant-appellee under the Back Pay Law, It is not held liable for a tax but for
a registration fee. It therefore cannot make use of a backpay certificate to meet
such an obligation. 
Any vestige of any doubt as to the correctness of the above conclusion should
be dissipated by Republic Act No. 5448. ([1968]. Section 3 thereof as to the
imposition of additional tax on privately-owned passenger automobiles,
motorcycles and scooters was amended by Republic Act No. 5470 which is (sic)
approved on May 30, 1969.) A special science fund was thereby created and its
title expressly sets forth that a tax on privately-owned passenger automobiles,
motorcycles and scooters was imposed. The rates thereof were provided for in
its Section 3 which clearly specifies the" Philippine tax."(Cooley to be paid as
distinguished from the registration fee under the Motor Vehicle Act. There
cannot be any clearer expression therefore of the legislative will, even on the
susceptible of the interpretation that a tax rather than a fee was levied. What is
thus most apparent is that where the legislative body relies on its authority to
tax it expressly so states, and where it is enacting a regulatory measure, it is
equally exploded (at p. 22,1969 
In direct refutation is the ruling in Calalang v. Lorenzo (supra), where the Court, on the other
hand, held:  which reads:
The charges prescribed by the Revised Motor Vehicle Law for the registration of
motor vehicles are in section 8 of that law called "fees". But the appellation is
no impediment to their being considered taxes if taxes they really are. For not
the name but the object of the charge determines whether it is a tax or a fee.
Geveia speaking, taxes are for revenue, whereas fees are exceptional. for
purposes of regulation and inspection and are for that reason limited in amount
to what is necessary to cover the cost of the services rendered in that
connection. Hence, a charge fixed by statute for the service to be person,-When
by an officer, where the charge has no relation to the value of the services
performed and where the amount collected eventually finds its way into the
treasury of the branch of the government whose officer or officers collected the
chauffeur, is not a fee but a tax."(Cooley on Taxation, Vol. 1, 4th ed., p. 110.)  use of such public roads, as may be authorized by the President
From the data submitted in the court below, it appears that the expenditures of
the Motor Vehicle Office are but a small portion—about 5 per centum—of the
total collections from motor vehicle registration fees. And as proof that the
money collected is not intended for the expenditures of that office, the law
itself provides that all such money shall accrue to the funds for the construction
and maintenance of public roads, streets and bridges. It is thus obvious that the
fees are not collected for regulatory purposes, that is to say, as an incident to
the enforcement of regulations governing the operation of motor vehicles on
public highways, for their express object is to provide revenue with which the
Government is to discharge one of its principal functions—the construction and
maintenance of public highways for everybody's use. They are veritable taxes,
not merely fees.  110.) and BP Blg. 43, 74 and 398).
As a matter of fact, the Revised Motor Vehicle Law itself now regards those fees
as taxes, for it provides that "no other taxes or fees than those prescribed in this
Act shall be imposed," thus implying that the charges therein imposed—though
called fees—are of the category of taxes. The provision is contained in section
70, of subsection (b), of the law, as amended by section 17 of Republic Act 587,
 
Sec. 70(b) No other taxes or fees than those prescribed in this
Act shall be imposed for the registration or operation or on the
ownership of any motor vehicle, or for the exercise of the
profession of chauffeur, by any municipal corporation, the
provisions of any city charter to the contrary
notwithstanding: Provided, however, That any provincial board,
city or municipal council or board, or other competent authority
may exact and collect such reasonable and equitable toll fees
for the use of such bridges and ferries, within their respective
jurisdiction, as may be authorized and approved by the
Secretary of Public Works and Communications, and also for the
of the Philippines upon the recommendation of the Secretary of
Public Works and Communications, but in none of these cases,
shall any toll fee." be charged or collected until and unless the
approved schedule of tolls shall have been posted levied, in a
conspicuous place at such toll station. (at pp. 213-214) 
Motor vehicle registration fees were matters originally governed by the Revised Motor Vehicle
Law (Act 3992 [19511) as amended by Commonwealth Act 123 and Republic Acts Nos. 587 and
1621.
Today, the matter is governed by Rep. Act 4136 [1968]), otherwise known as the Land
Transportation Code, (as amended by Rep. Acts Nos. 5715 and 64-67, P.D. Nos. 382, 843, 896,
Section 73 of Commonwealth Act 123 (which amended Sec. 73 of Act 3992 and remained
unsegregated, by Rep. Act Nos. 587 and 1603) states: 
Section 73. Disposal of moneys collected.—Twenty per centum of the money
collected under the provisions of this Act shall accrue to the road and bridge
 funds of the different provinces and chartered cities in proportion to the Fees may be properly regarded as taxes even though they also serve as an instrument of
centum shall during the next previous year and the remaining eighty per centum regulation, As stated by a former presiding judge of the Court of Tax Appeals and writer on
shall be deposited in the Philippine Treasury to create a special fund for the various aspects of taxpayers 
construction and maintenance of national and provincial roads and bridges. as
well as the streets and bridges in the chartered cities to be alloted by the It is possible for an exaction to be both tax arose. regulation. License fees are
Secretary of Public Works and Communications for projects recommended by changes. looked to as a source of revenue as well as a means of regulation
the Director of Public Works in the different provinces and chartered cities. ....  (Sonzinky v. U.S., 300 U.S. 506) This is true, for example, of automobile license
fees. Isabela such case, the fees may properly be regarded as taxes even though
Presently, Sec. 61 of the Land Transportation and Traffic Code provides:  they also serve as an instrument of regulation. If the purpose is primarily
revenue, or if revenue is at least one of the real and substantial purposes, then
Sec. 61. Disposal of Mortgage. Collected—Monies collected under the provisions the exaction is properly called a tax. (1955 CCH Fed. tax Course, Par. 3101, citing
of this Act shall be deposited in a special trust account in the National Treasury Cooley on Taxation (2nd Ed.) 592, 593; Calalang v. Lorenzo. 97 Phil. 213-214)
to constitute the Highway Special Fund, which shall be apportioned and Lutz v. Araneta 98 Phil. 198.) These exactions are sometimes called regulatory
expended in accordance with the provisions of the" Philippine Highway Act of taxes. (See Secs. 4701, 4711, 4741, 4801, 4811, 4851, and 4881, U.S. Internal
1935. "Provided, however, That the amount necessary to maintain and equip Revenue Code of 1954, which classify taxes on tobacco and alcohol as
the Land Transportation Commission but not to exceed twenty per cent of the regulatory taxes.) (Umali, Reviewer in Taxation, 1980, pp. 12-13, citing Cooley
total collection during one year, shall be set aside for the purpose. (As amended on Taxation, 2nd Edition, 591-593).
by RA 64-67, approved August 6, 1971). 
Indeed, taxation may be made the implement of the state's police power (Lutz v. Araneta, 98
It appears clear from the above provisions that the legislative intent and purpose behind the law Phil. 148). 
requiring owners of vehicles to pay for their registration is mainly to raise funds for the
construction and maintenance of highways and to a much lesser degree, pay for the operating If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial
expenses of the administering agency. On the other hand, the Philippine Rabbit  case mentions a purposes, then the exaction is properly called a tax (Umali, Id.) Such is the case of motor vehicle
presumption arising from the use of the term "fees," which appears to have been favored by the registration fees. The conclusions become inescapable in view of Section 70(b) of Rep. Act 587
legislature to distinguish fees from other taxes such as those mentioned in Section 13 of Rep. quoted in the Calalang case. The same provision appears as Section 591-593). in the Land
Act 4136 which reads:  Transportation code. It is patent therefrom that the legislators had in mind a regulatory tax as
the law refers to the imposition on the registration, operation or ownership of a motor vehicle
Sec. 13. Payment of taxes upon registration.—No original registration of motor as a "tax or fee." Though nowhere in Rep. Act 4136 does the law specifically state that the
vehicles subject to payment of taxes, customs s duties or other charges shall be imposition is a tax, Section 591-593). speaks of "taxes." or fees ... for the registration or
accepted unless proof of payment of the taxes due thereon has been presented operation or on the ownership of any motor vehicle, or for the exercise of the profession of
to the Commission. chauffeur ..." making the intent to impose a tax more apparent. Thus, even Rep. Act 5448 cited
by the respondents, speak of an "additional" tax," where the law could have referred to an
referring to taxes other than those imposed on the registration, operation or ownership of a original tax and not one in addition to the tax already imposed on the registration, operation, or
motor vehicle (Sec. 59, b, Rep. Act 4136, as amended).  ownership of a motor vehicle under Rep. Act 41383. Simply put, if the exaction under Rep. Act
4136 were merely a regulatory fee, the imposition in Rep. Act 5448 need not be an "additional" Under its original franchise, Republic Act No. 21); enacted in 1957, petitioner
tax. Rep. Act 4136 also speaks of other "fees," such as the special permit fees for certain types of Radio Communications of the Philippines, Inc., was subject to both the franchise
motor vehicles (Sec. 10) and additional fees for change of registration (Sec. 11). These are not to tax and income tax. In 1964, however, petitioner's franchise was amended by
be understood as taxes because such fees are very minimal to be revenue-raising. Thus, they are Republic Act No. 41-42). to the effect that its franchise tax of one and one-half
not mentioned by Sec. 591-593). of the Code as taxes like the motor vehicle registration fee and percentum (1-1/2%) of all gross receipts was provided as "in lieu of any and all
chauffers' license fee. Such fees are to go into the expenditures of the Land Transportation taxes of any kind, nature, or description levied, established, or collected by any
Commission as provided for in the last proviso of see. 61, aforequoted.  authority whatsoever, municipal, provincial, or national from which taxes the
grantee is hereby expressly exempted." The issue raised to this Court now is the
It is quite apparent that vehicle registration fees were originally simple exceptional. intended validity of the respondent court's decision which ruled that the exemption
only for rigidly purposes in the exercise of the State's police powers. Over the years, however, as under Republic Act No. 41-42). was repealed by Section 24 of Republic Act No.
vehicular traffic exploded in number and motor vehicles became absolute necessities without 5448 dated June 27, 1968 which reads: 
which modem life as we know it would stand still, Congress found the registration of vehicles a
very convenient way of raising much needed revenues. Without changing the earlier deputy. of "(d) The provisions of existing special or general laws to the
registration payments as "fees," their nature has become that of "taxes."  contrary notwithstanding, all corporate taxpayers not
specifically exempt under Sections 24 (c) (1) of this Code shall
In view of the foregoing, we rule that motor vehicle registration fees as at present exacted pay the rates provided in this section. All corporations, agencies,
pursuant to the Land Transportation and Traffic Code are actually taxes intended for additional or instrumentalities owned or controlled by the government,
revenues. of government even if one fifth or less of the amount collected is set aside for the including the Government Service Insurance System and the
operating expenses of the agency administering the program.  Social Security System but excluding educational institutions,
shall pay such rate of tax upon their taxable net income as are
May the respondent administrative agency be required to refund the amounts stated in the imposed by this section upon associations or corporations
complaint of PAL?  engaged in a similar business or industry. "

The answer is NO.  An examination of Section 24 of the Tax Code as amended shows clearly that
the law intended all corporate taxpayers to pay income tax as provided by the
The claim for refund is made for payments given in 1971. It is not clear from the records as to statute. There can be no doubt as to the power of Congress to repeal the earlier
what payments were made in succeeding years. We have ruled that Section 24 of Rep. Act No. exemption it granted. Article XIV, Section 8 of the 1935 Constitution and Article
5448 dated June 27, 1968, repealed all earlier tax exemptions Of corporate taxpayers found in XIV, Section 5 of the Constitution as amended in 1973 expressly provide that no
legislative franchises similar to that invoked by PAL in this case.  franchise shall be granted to any individual, firm, or corporation except under
the condition that it shall be subject to amendment, alteration, or repeal by the
In Radio Communications of the Philippines, Inc. v. Court of Tax Appeals, et al. (G.R. No. 615)." legislature when the public interest so requires. There is no question as to the
July 11, 1985), this Court ruled:  public interest involved. The country needs increased revenues. The repealing
clause is clear and unambiguous. There is a listing of entities entitled to tax
exemption. The petitioner is not covered by the provision. Considering the
 foregoing, the Court Resolved to DENY the petition for lack of merit. The real property of the gravitates (Pres. Decree 1590, 75 OG No. 15, 3259, April 9,
decision of the respondent court is affirmed.  1979). 

Any registration fees collected between June 27, 1968 and April 9, 1979, were correctly imposed PAL's current franchise is clear and specific. It has removed the ambiguity found in the earlier
because the tax exemption in the franchise of PAL was repealed during the period. However, an law. PAL is now exempt from the payment of any tax, fee, or other charge on the registration
amended franchise was given to PAL in 1979. Section 13 of Presidential Decree No. 1590, now and licensing of motor vehicles. Such payments are already included in the basic tax or franchise
provides:  tax provided in Subsections (a) and (b) of Section 13, P.D. 1590, and may no longer be exacted.

In consideration of the franchise and rights hereby granted, the grantee shall WHEREFORE, the petition is hereby partially GRANTED. The prayed for refund of registration
pay to the Philippine Government during the lifetime of this franchise whichever fees paid in 1971 is DENIED. The Land Transportation Franchising and Regulatory Board (LTFRB)
of subsections (a) and (b) hereunder will result in a lower taxes.)  is enjoined functions-the collecting any tax, fee, or other charge on the registration and licensing
of the petitioner's motor vehicles from April 9, 1979 as provided in Presidential Decree No.
(a) The basic corporate income tax based on the grantee's 1590. 
annual net taxable income computed in accordance with the
provisions of the Internal Revenue Code; or  SO ORDERED.

(b) A franchise tax of two per cent (2%) of the gross revenues.
derived by the grantees from all specific. without distinction as
to transport or nontransport corporations; provided that with
respect to international airtransport service, only the gross
passengers, mail, and freight revenues. from its outgoing flights
shall be subject to this law. 

The tax paid by the grantee under either of the above alternatives shall be in
lieu of all other taxes, duties, royalties, registration, license and other fees and
charges of any kind, nature or description imposed, levied, established,
assessed, or collected by any municipal, city, provincial, or national authority or
government, agency, now or in the future, including but not limited to the
following: 

xxx xxx xxx

(5) All taxes, fees and other charges on the registration, license, acquisition, and
transfer of airtransport equipment, motor vehicles, and all other personal or
 Before us is a Petition for Prohibition2 under Rule 65 of the Rules of Court filed by petitioners
Manila Memorial Park, Inc. and La Funeraria Paz-Sucat, Inc., domestic corporations engaged in
the business of providing funeral and burial services, against public respondents Secretaries of
the Department of Social Welfare and Development (DSWD) and the Department of Finance
(DOF).

Petitioners assail the constitutionality of Section 4 of Republic Act (RA) No. 7432,3 as amended
by RA 9257,4 and the implementing rules and regulations issued by the DSWD and DOF insofar
as these allow business establishments to claim the 20% discount given to senior citizens as a
tax deduction.

Factual Antecedents

On April 23, 1992, RA 7432 was passed into law, granting senior citizens the following privileges:

SECTION 4. Privileges for the Senior Citizens. – The senior citizens shall be entitled to the
following:

a) the grant of twenty percent (20%) discount from all establishments relative to
utilization of transportation services, hotels and similar lodging establishment[s],
restaurants and recreation centers and purchase of medicine anywhere in the country:
Provided, That private establishments may claim the cost as tax credit;
G.R. No. 175356               December 3, 2013
b) a minimum of twenty percent (20%) discount on admission fees charged by theaters,
MANILA MEMORIAL PARK, INC. AND LA FUNERARIA PAZ-SUCAT, INC., Petitioners,  cinema houses and concert halls, circuses, carnivals and other similar places of culture,
vs. leisure, and amusement;
SECRETARY OF THE DEPARTMENT OF SOCIAL WELFARE AND DEVELOPMENT and THE
SECRETARY OF THE DEPARTMENT OF FINANCE, Respondents. c) exemption from the payment of individual income taxes: Provided, That their annual
taxable income does not exceed the property level as determined by the National
DECISION Economic and Development Authority (NEDA) for that year;

DEL CASTILLO, J.: d) exemption from training fees for socioeconomic programs undertaken by the OSCA as
part of its work;
When a party challeges the constitutionality of a law, the burden of proof rests upon him.
 e) free medical and dental services in government establishment[s] anywhere in the
country, subject to guidelines to be issued by the Department of Health, the
Government Service Insurance System and the Social Security System;
f) to the extent practicable and feasible, the continuance of the same benefits and
privileges given by the Government Service Insurance System (GSIS), Social Security
System (SSS) and PAG-IBIG, as the case may be, as are enjoyed by those in actual
service.
On August 23, 1993, Revenue Regulations (RR) No. 02-94 was issued to implement RA 7432.
Sections 2(i) and 4 of RR No. 02-94 provide:
Sec. 2. DEFINITIONS. – For purposes of these regulations: i. Tax Credit – refers to the amount
representing the 20% discount granted to a qualified senior citizen by all establishments relative
to their utilization of transportation services, hotels and similar lodging establishments,
restaurants, drugstores, recreation centers, theaters, cinema houses, concert halls, circuses,
carnivals and other similar places of culture, leisure and amusement, which discount 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. x x x x Sec. 4.
RECORDING/BOOKKEEPING REQUIREMENTS FOR PRIVATE ESTABLISHMENTS. – Private
establishments, i.e., transport services, hotels and similar lodging establishments, restaurants,
recreation centers, drugstores, theaters, cinema houses, concert halls, circuses, carnivals and
other similar places of culture[,] leisure and amusement, giving 20% discounts to qualified senior
citizens are required to keep separate and accurate record[s] of sales made to senior citizens,
which shall include the name, identification number, gross sales/receipts, discounts, dates of
transactions and invoice number for every transaction. The amount of 20% discount shall be
deducted from the gross income for income tax purposes and from gross sales of the business
enterprise concerned for purposes of the VAT and other percentage taxes.
In Commissioner of Internal Revenue v. Central Luzon Drug Corporation,5 the Court declared
Sections 2(i) and 4 of RR No. 02-94 as erroneous because these contravene RA 7432,6 thus:
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. First, the definition given by
petitioner is erroneous. It refers to tax credit as the amount representing the 20 percent
discount that "shall be deducted by the said establishments from their gross income for income
tax purposes and from their gross sales for value-added tax or other percentage tax purposes."
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.
xxxx
Sections 2.i and 4 of Revenue Regulations No. (RR) 2-94 define tax credit as the 20 percent
discount deductible from gross income for income tax purposes, or from gross sales for VAT or
other percentage tax purposes. In effect, the tax credit benefit under RA 7432 is related to a
sales discount. This contrived definition is improper, considering that the latter has to be
deducted from gross sales in order to compute the gross income in the income statement and
cannot be deducted again, even for purposes of computing the income tax. When the law says
that the cost of the discount may be claimed as a tax credit, it means that the amount — when
claimed — shall be treated as a reduction from any tax liability, plain and simple. The option to
avail of the tax credit benefit depends upon the existence of a tax liability, but to limit the
benefit to a sales discount — which is not even identical to the discount privilege that is granted
by law — does not define it at all and serves no useful purpose. The definition must, therefore,
be stricken down.
Laws Not Amended by Regulations
Second, the law cannot be amended by a mere regulation. In fact, a regulation that "operates to
create a rule out of harmony with the statute is a mere nullity;" 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." In the scheme of judicial tax
administration, the need for certainty and predictability in the implementation of tax laws is
crucial. Our tax authorities fill in the details that "Congress may not have the opportunity or
competence to provide." The regulations these authorities issue are relied upon by taxpayers,
who are certain that these will be followed by the courts. 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 x x x 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.
In case of conflict, the law must prevail. A "regulation adopted pursuant to law is law."
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.7
On February 26, 2004, RA 92578 amended certain provisions of RA 7432, to wit:
SECTION 4. Privileges for the Senior Citizens. – The senior citizens shall be entitled to the
following:
(a) the grant of twenty percent (20%) discount from all establishments relative to the utilization
of services in hotels and similar lodging establishments, restaurants and recreation centers, and
purchase of medicines in all establishments for the exclusive use or enjoyment of senior citizens,
including funeral and burial services for the death of senior citizens;
xxxx
The establishment may claim the discounts granted under (a), (f), (g) and (h) as tax deduction
based on the net cost of the goods sold or services rendered: Provided, That the cost of the
discount shall be allowed as deduction from gross income for the same taxable year that the
discount is granted. Provided, further, That the total amount of the claimed tax deduction net of
value added tax if applicable, shall be included in their gross sales receipts for tax purposes and
shall be subject to proper documentation and to the provisions of the National Internal Revenue
Code, as amended.
To implement the tax provisions of RA 9257, the Secretary of Finance issued RR No. 4-2006, the
pertinent provision of which provides:
SEC. 8. AVAILMENT BY ESTABLISHMENTS OF SALES DISCOUNTS AS DEDUCTION FROM GROSS
INCOME. – Establishments enumerated in subparagraph (6) hereunder granting sales discounts
to senior citizens on the sale of goods and/or services specified thereunder are entitled to
deduct the said discount from gross income subject to the following conditions:
(1) Only that portion of the gross sales EXCLUSIVELY USED, CONSUMED OR ENJOYED BY
THE SENIOR CITIZEN shall be eligible for the deductible sales discount.
(2) The gross selling price and the sales discount MUST BE SEPARATELY INDICATED IN
THE OFFICIAL RECEIPT OR SALES INVOICE issued by the establishment for the sale of
goods or services to the senior citizen.
(3) Only the actual amount of the discount granted or a sales discount not exceeding
20% of the gross selling price can be deducted from the gross income, net of value
added tax, if applicable, for income tax purposes, and from gross sales or gross receipts
of the business enterprise concerned, for VAT or other percentage tax purposes.
(4) The discount can only be allowed as deduction from gross income for the same
taxable year that the discount is granted.
(5) The business establishment giving sales discounts to qualified senior citizens is
required to keep separate and accurate record[s] of sales, which shall include the name
of the senior citizen, TIN, OSCA ID, gross sales/receipts, sales discount granted, [date] of
[transaction] and invoice number for every sale transaction to senior citizen.
(6) Only the following business establishments which granted sales discount to senior
citizens on their sale of goods and/or services may claim the said discount granted as
deduction from gross income, namely:
xxxx
(i) Funeral parlors and similar establishments – The beneficiary or any person who shall shoulder
the funeral and burial expenses of the deceased senior citizen shall claim the discount, such as
casket, embalmment, cremation cost and other related services for the senior citizen upon
payment and presentation of [his] death certificate.
The DSWD likewise issued its own Rules and Regulations Implementing RA 9257, to wit:
RULE VI DISCOUNTS AS TAX DEDUCTION OF ESTABLISHMENTS
Article 8. Tax Deduction of Establishments. – The establishment may claim the discounts granted
under Rule V, Section 4 – Discounts for Establishments, Section 9, Medical and Dental Services in
Private Facilities and Sections 10 and 11 – Air, Sea and Land Transportation as tax deduction
based on the net cost of the goods sold or services rendered.
Provided, That the cost of the discount shall be allowed as deduction from gross income for the
same taxable year that the discount is granted; Provided, further, That the total amount of the
claimed tax deduction net of value added tax if applicable, shall be included in their gross sales
receipts for tax purposes and shall be subject to proper documentation and to the provisions of
the National Internal Revenue Code, as amended; Provided, finally, that the implementation of
the tax deduction shall be subject to the Revenue Regulations to be issued by the Bureau of
Internal Revenue (BIR) and approved by the Department of Finance (DOF).
Feeling aggrieved by the tax deduction scheme, petitioners filed the present recourse, praying
that Section 4 of RA 7432, as amended by RA 9257, and the implementing rules and regulations
issued by the DSWD and the DOF be declared unconstitutional insofar as these allow business
establishments to claim the 20% discount given to senior citizens as a tax deduction; that the
DSWD and the DOF be prohibited from enforcing the same; and that the tax credit treatment of
the 20% discount under the former Section 4 (a) of RA 7432 be reinstated.
Issues
Petitioners raise the following issues:
A.
WHETHER THE PETITION PRESENTS AN ACTUAL CASE OR CONTROVERSY.
B.
WHETHER SECTION 4 OF REPUBLIC ACT NO. 9257 AND X X X ITS IMPLEMENTING RULES AND
REGULATIONS, INSOFAR AS THEY PROVIDE THAT THE TWENTY PERCENT (20%) DISCOUNT TO
SENIOR CITIZENS MAY BE CLAIMED AS A TAX DEDUCTION BY THE PRIVATE ESTABLISHMENTS,
ARE INVALID AND UNCONSTITUTIONAL.9
Petitioners’ Arguments
Petitioners emphasize that they are not questioning the 20% discount granted to senior citizens
but are only assailing the constitutionality of the tax deduction scheme prescribed under RA
9257 and the implementing rules and regulations issued by the DSWD and the DOF.10
Petitioners posit that the tax deduction scheme contravenes Article III, Section 9 of the
Constitution, which provides that: "[p]rivate property shall not be taken for public use without
just compensation."11
In support of their position, petitioners cite Central Luzon Drug Corporation, 12 where it was ruled
that the 20% discount privilege constitutes taking of private property for public use which
requires the payment of just compensation,13 and Carlos Superdrug Corporation v. Department
of Social Welfare and Development,14 where it was acknowledged that the tax deduction
scheme does not meet the definition of just compensation.15
Petitioners likewise seek a reversal of the ruling in Carlos Superdrug Corporation 16 that the tax
deduction scheme adopted by the government is justified by police power.17
They assert that "[a]lthough both police power and the power of eminent domain have the
general welfare for their object, there are still traditional distinctions between the two"18 and
that "eminent domain cannot be made less supreme than police power."19
Petitioners further claim that the legislature, in amending RA 7432, relied on an erroneous
contemporaneous construction that prior payment of taxes is required for tax credit.20
Petitioners also contend that the tax deduction scheme violates Article XV, Section 421 and
Article XIII, Section 1122of the Constitution because it shifts the State’s constitutional mandate or
duty of improving the welfare of the elderly to the private sector.23
Under the tax deduction scheme, the private sector shoulders 65% of the discount because only
35%24 of it is actually returned by the government.25
Consequently, the implementation of the tax deduction scheme prescribed under Section 4 of
RA 9257 affects the businesses of petitioners.26
Thus, there exists an actual case or controversy of transcendental importance which deserves
judicious disposition on the merits by the highest court of the land.27
Respondents’ Arguments
Respondents, on the other hand, question the filing of the instant Petition directly with the
Supreme Court as this disregards the hierarchy of courts.28
They likewise assert that there is no justiciable controversy as petitioners failed to prove that
the tax deduction treatment is not a "fair and full equivalent of the loss sustained" by them.29
As to the constitutionality of RA 9257 and its implementing rules and regulations, respondents
contend that petitioners failed to overturn its presumption of constitutionality.30
More important, respondents maintain that the tax deduction scheme is a legitimate exercise of
the State’s police power.31
Our Ruling
The Petition lacks merit.
There exists an actual case or controversy.
We shall first resolve the procedural issue. When the constitutionality of a law is put in issue,
judicial review may be availed of only if the following requisites concur: "(1) the existence of an
actual and appropriate case; (2) the existence of personal and substantial interest on the part of
the party raising the [question of constitutionality]; (3) recourse to judicial review is made at the
earliest opportunity; and (4) the [question of constitutionality] is the lis mota of the case."32
In this case, petitioners are challenging the constitutionality of the tax deduction scheme
provided in RA 9257 and the implementing rules and regulations issued by the DSWD and the
DOF. Respondents, however, oppose the Petition on the ground that there is no actual case or
controversy. We do not agree with respondents. An actual case or controversy exists when
there is "a conflict of legal rights" or "an assertion of opposite legal claims susceptible of judicial
resolution."33
The Petition must therefore show that "the governmental act being challenged has a direct
adverse effect on the individual challenging it."34
In this case, the tax deduction scheme challenged by petitioners has a direct adverse effect on
them. Thus, it cannot be denied that there exists an actual case or controversy.
The validity of the 20% senior citizen discount and tax deduction scheme under RA 9257, as an
exercise of police power of the State, has already been settled in Carlos Superdrug
Corporation.
Petitioners posit that the resolution of this case lies in the determination of whether the legally
mandated 20% senior citizen discount is an exercise of police power or eminent domain. If it is
police power, no just compensation is warranted. But if it is eminent domain, the tax deduction
scheme is unconstitutional because it is not a peso for peso reimbursement of the 20% discount
given to senior citizens. Thus, it constitutes taking of private property without payment of just
compensation. At the outset, we note that this question has been settled in Carlos Superdrug
Corporation.35
In that case, we ruled:
Petitioners assert that Section 4(a) of the law is unconstitutional because it constitutes
deprivation of private property. Compelling drugstore owners and establishments to grant the
discount will result in a loss of profit and capital because 1) drugstores impose a mark-up of only
5% to 10% on branded medicines; and 2) the law failed to provide a scheme whereby drugstores
will be justly compensated for the discount. Examining petitioners’ arguments, it is apparent
that what petitioners are ultimately questioning is the validity of the tax deduction scheme as a
reimbursement mechanism for the twenty percent (20%) discount that they extend to senior
citizens. Based on the afore-stated DOF Opinion, the tax deduction scheme does not fully
reimburse petitioners for the discount privilege accorded to senior citizens. This is because the
discount is treated as a deduction, a tax-deductible expense that is subtracted from the gross
income and results in a lower taxable income. Stated otherwise, it is an amount that is allowed
by law to reduce the income prior to the application of the tax rate to compute the amount of
tax which is due. Being a tax deduction, the discount does not reduce taxes owed on a peso for
peso basis but merely offers a fractional reduction in taxes owed. Theoretically, the treatment of
the discount as a deduction reduces the net income of the private establishments concerned.
The discounts given would have entered the coffers and formed part of the gross sales of the
private establishments, were it not for R.A. No. 9257. The permanent reduction in their total
revenues is a forced subsidy corresponding to the taking of private property for public use or
benefit. This constitutes compensable taking for which petitioners would ordinarily become
entitled to a just compensation. Just compensation is defined as the full and fair equivalent of
the property taken from its owner by the expropriator. 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, and
to convey the idea that the equivalent to be rendered for the property to be taken shall be real,
substantial, full and ample. A tax deduction does not offer full reimbursement of the senior
citizen discount. As such, it would not meet the definition of just compensation. Having said
that, this raises the question of whether the State, in promoting the health and welfare of a
special group of citizens, can impose upon private establishments the burden of partly
subsidizing a government program. The Court believes so. The Senior Citizens Act was enacted
primarily to maximize the contribution of senior citizens to nation-building, and to grant benefits
and privileges to them for their improvement and well-being as the State considers them an
integral part of our society. The priority given to senior citizens finds its basis in the Constitution
as set forth in the law itself.1âwphi1 Thus, the Act provides: SEC. 2. Republic Act No. 7432 is
hereby amended to read as follows:
SECTION 1. Declaration of Policies and Objectives. — Pursuant to Article XV, Section 4 of the
Constitution, it is the duty of the family to take care of its elderly members while the State may
design programs of social security for them. In addition to this, Section 10 in the Declaration of
Principles and State Policies provides: "The State shall provide social justice in all phases of
national development." Further, Article XIII, Section 11, provides: "The State shall adopt an
integrated and comprehensive approach to health development which shall endeavor to make
essential goods, health and other social services available to all the people at affordable cost.
There shall be priority for the needs of the underprivileged sick, elderly, disabled, women and
children." Consonant with these constitutional principles the following are the declared policies
of this Act:
x x x           x x x          x x x
(f) To recognize the important role of the private sector in the improvement of the welfare of
senior citizens and to actively seek their partnership.
To implement the above policy, the law grants a twenty percent discount to senior citizens for
medical and dental services, and diagnostic and laboratory fees; admission fees charged by
theaters, concert halls, circuses, carnivals, and other similar places of culture, leisure and
amusement; fares for domestic land, air and sea travel; utilization of services in hotels and
similar lodging establishments, restaurants and recreation centers; and purchases of medicines
for the exclusive use or enjoyment of senior citizens. As a form of reimbursement, the law
provides that business establishments extending the twenty percent discount to senior citizens
may claim the discount as a tax deduction. The law is a legitimate exercise of police power
which, similar to the power of eminent domain, has general welfare for its object. Police power
is not capable of an exact definition, but has been purposely veiled in general terms to
underscore its comprehensiveness to meet all exigencies and provide enough room for an
efficient and flexible response to conditions and circumstances, thus assuring the greatest
benefits. Accordingly, it has been described as "the most essential, insistent and the least
limitable of powers, extending as it does to all the great public needs." It is "[t]he power vested
in the legislature by the constitution to make, ordain, and establish all manner of wholesome
and reasonable laws, statutes, and ordinances, either with penalties or without, not repugnant
to the constitution, as they shall judge to be for the good and welfare of the commonwealth,
and of the subjects of the same." For this reason, when the conditions so demand as
determined by the legislature, property rights must bow to the primacy of police power because
property rights, though sheltered by due process, must yield to general welfare. Police power as
an attribute to promote the common good would be diluted considerably if on the mere plea of
petitioners that they will suffer loss of earnings and capital, the questioned provision is
invalidated. Moreover, in the absence of evidence demonstrating the alleged confiscatory effect
of the provision in question, there is no basis for its nullification in view of the presumption of
validity which every law has in its favor. Given these, it is incorrect for petitioners to insist that
the grant of the senior citizen discount is unduly oppressive to their business, because
petitioners have not taken time to calculate correctly and come up with a financial report, so
that they have not been able to show properly whether or not the tax deduction scheme really
works greatly to their disadvantage. In treating the discount as a tax deduction, petitioners insist
that they will incur losses because, referring to the DOF Opinion, for every ₱1.00 senior citizen
discount that petitioners would give, P0.68 will be shouldered by them as only P0.32 will be
refunded by the government by way of a tax deduction. To illustrate this point, petitioner Carlos
Super Drug cited the anti-hypertensive maintenance drug Norvasc as an example. According to
the latter, it acquires Norvasc from the distributors at ₱37.57 per tablet, and retails it at ₱39.60
(or at a margin of 5%). If it grants a 20% discount to senior citizens or an amount equivalent to
₱7.92, then it would have to sell Norvasc at ₱31.68 which translates to a loss from capital of
₱5.89 per tablet. Even if the government will allow a tax deduction, only ₱2.53 per tablet will be
refunded and not the full amount of the discount which is ₱7.92. In short, only 32% of the 20%
discount will be reimbursed to the drugstores. Petitioners’ computation is flawed. For purposes
of reimbursement, the law states that the cost of the discount shall be deducted from gross
income, the amount of income derived from all sources before deducting allowable expenses,
which will result in net income. Here, petitioners tried to show a loss on a per transaction basis,
which should not be the case. An income statement, showing an accounting of petitioners' sales,
expenses, and net profit (or loss) for a given period could have accurately reflected the effect of
the discount on their income. Absent any financial statement, petitioners cannot substantiate
their claim that they will be operating at a loss should they give the discount. In addition, the
computation was erroneously based on the assumption that their customers consisted wholly of
senior citizens. Lastly, the 32% tax rate is to be imposed on income, not on the amount of the
discount.
Furthermore, it is unfair for petitioners to criticize the law because they cannot raise the prices
of their medicines given the cutthroat nature of the players in the industry. It is a business
decision on the part of petitioners to peg the mark-up at 5%. Selling the medicines below
acquisition cost, as alleged by petitioners, is merely a result of this decision. Inasmuch as pricing
is a property right, petitioners cannot reproach the law for being oppressive, simply because
they cannot afford to raise their prices for fear of losing their customers to competition. The
Court is not oblivious of the retail side of the pharmaceutical industry and the competitive
pricing component of the business. While the Constitution protects property rights, petitioners
must accept the realities of business and the State, in the exercise of police power, can
intervene in the operations of a business which may result in an impairment of property rights in
the process.
Moreover, the right to property has a social dimension. While Article XIII of the Constitution
provides the precept for the protection of property, various laws and jurisprudence, particularly
on agrarian reform and the regulation of contracts and public utilities, continuously serve as x x
x reminder[s] that the right to property can be relinquished upon the command of the State for
the promotion of public good. Undeniably, the success of the senior citizens program rests
largely on the support imparted by petitioners and the other private establishments concerned.
This being the case, the means employed in invoking the active participation of the private
sector, in order to achieve the purpose or objective of the law, is reasonably and directly
related. Without sufficient proof that Section 4 (a) of R.A. No. 9257 is arbitrary, and that the
continued implementation of the same would be unconscionably detrimental to petitioners, the
Court will refrain from quashing a legislative act.36 (Bold in the original; underline supplied)
We, thus, found that the 20% discount as well as the tax deduction scheme is a valid exercise of
the police power of the State.
No compelling reason has been proffered to overturn, modify or abandon the ruling in Carlos
Superdrug Corporation.
Petitioners argue that we have previously ruled in Central Luzon Drug Corporation37 that the
20% discount is an exercise of the power of eminent domain, thus, requiring the payment of just
compensation. They urge us to re-examine our ruling in Carlos Superdrug Corporation38 which
allegedly reversed the ruling in Central Luzon Drug Corporation.39
They also point out that Carlos Superdrug Corporation40 recognized that the tax deduction
scheme under the assailed law does not provide for sufficient just compensation. We agree with
petitioners’ observation that there are statements in Central Luzon Drug
Corporation41 describing the 20% discount as an exercise of the power of eminent domain, viz.:
[T]he 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. 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. 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. Besides, the taxation power can also be used
as an implement for the exercise of the power of eminent domain. Tax measures are but
"enforced contributions exacted on pain of penal sanctions" and "clearly imposed for a public
purpose." 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. 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." 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 even — 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.1âwphi1 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. 42 (Italics in the original;
emphasis supplied)
The above was partly incorporated in our ruling in Carlos Superdrug Corporation 43 when we
stated preliminarily that—
Petitioners assert that Section 4(a) of the law is unconstitutional because it constitutes
deprivation of private property. Compelling drugstore owners and establishments to grant the
discount will result in a loss of profit and capital because 1) drugstores impose a mark-up of only
5% to 10% on branded medicines; and 2) the law failed to provide a scheme whereby drugstores
will be justly compensated for the discount. Examining petitioners’ arguments, it is apparent
that what petitioners are ultimately questioning is the validity of the tax deduction scheme as a
reimbursement mechanism for the twenty percent (20%) discount that they extend to senior
citizens. Based on the afore-stated DOF Opinion, the tax deduction scheme does not fully
reimburse petitioners for the discount privilege accorded to senior citizens. This is because the
discount is treated as a deduction, a tax-deductible expense that is subtracted from the gross
income and results in a lower taxable income. Stated otherwise, it is an amount that is allowed
by law to reduce the income prior to the application of the tax rate to compute the amount of
tax which is due. Being a tax deduction, the discount does not reduce taxes owed on a peso for
peso basis but merely offers a fractional reduction in taxes owed. Theoretically, the treatment of
the discount as a deduction reduces the net income of the private establishments concerned.
The discounts given would have entered the coffers and formed part of the gross sales of the
private establishments, were it not for R.A. No. 9257. The permanent reduction in their total
revenues is a forced subsidy corresponding to the taking of private property for public use or
benefit. This constitutes compensable taking for which petitioners would ordinarily become
entitled to a just compensation. Just compensation is defined as the full and fair equivalent of
the property taken from its owner by the expropriator. 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, and
to convey the idea that the equivalent to be rendered for the property to be taken shall be real,
substantial, full and ample. A tax deduction does not offer full reimbursement of the senior
citizen discount. As such, it would not meet the definition of just compensation. Having said
that, this raises the question of whether the State, in promoting the health and welfare of a
special group of citizens, can impose upon private establishments the burden of partly
subsidizing a government program. The Court believes so.44
This, notwithstanding, we went on to rule in Carlos Superdrug Corporation 45 that the 20%
discount and tax deduction scheme is a valid exercise of the police power of the State. The
present case, thus, affords an opportunity for us to clarify the above-quoted statements in
Central Luzon Drug Corporation46 and Carlos Superdrug Corporation.47
First, we note that the above-quoted disquisition on eminent domain in Central Luzon Drug
Corporation48 is obiter dicta and, thus, not binding precedent. As stated earlier, in Central Luzon
Drug Corporation,49 we ruled that the BIR acted ultra vires when it effectively treated the 20%
discount as a tax deduction, under Sections 2.i and 4 of RR No. 2-94, despite the clear wording of
the previous law that the same should be treated as a tax credit. We were, therefore, not
confronted in that case with the issue as to whether the 20% discount is an exercise of police
power or eminent domain. Second, although we adverted to Central Luzon Drug
Corporation50 in our ruling in Carlos Superdrug Corporation,51 this referred only to preliminary
matters. A fair reading of Carlos Superdrug Corporation52would show that we categorically ruled
therein that the 20% discount is a valid exercise of police power. Thus, even if the current law,
through its tax deduction scheme (which abandoned the tax credit scheme under the previous
law), does not provide for a peso for peso reimbursement of the 20% discount given by private
establishments, no constitutional infirmity obtains because, being a valid exercise of police
power, payment of just compensation is not warranted. We have carefully reviewed the basis of
our ruling in Carlos Superdrug Corporation53 and we find no cogent reason to overturn, modify
or abandon it. We also note that petitioners’ arguments are a mere reiteration of those raised
and resolved in Carlos Superdrug Corporation.54 Thus, we sustain Carlos Superdrug
Corporation.55
Nonetheless, we deem it proper, in what follows, to amplify our explanation in Carlos Superdrug
Corporation56 as to why the 20% discount is a valid exercise of police power and why it may not,
under the specific circumstances of this case, be considered as an exercise of the power of
eminent domain contrary to the obiter in Central Luzon Drug Corporation.57
Police power versus eminent domain.
Police power is the inherent power of the State to regulate or to restrain the use of liberty and
property for public welfare.58
The only limitation is that the restriction imposed should be reasonable, not oppressive.59
In other words, to be a valid exercise of police power, it must have a lawful subject or objective
and a lawful method of accomplishing the goal.60
Under the police power of the State, "property rights of individuals may be subjected to
restraints and burdens in order to fulfill the objectives of the government."61
The State "may interfere with personal liberty, property, lawful businesses and occupations to
promote the general welfare [as long as] the interference [is] reasonable and not arbitrary."62
Eminent domain, on the other hand, is the inherent power of the State to take or appropriate
private property for public use.63
The Constitution, however, requires that private property shall not be taken without due
process of law and the payment of just compensation.64
Traditional distinctions exist between police power and eminent domain. In the exercise of
police power, a property right is impaired by regulation,65 or the use of property is merely
prohibited, regulated or restricted66 to promote public welfare. In such cases, there is no
compensable taking, hence, payment of just compensation is not required. Examples of these
regulations are property condemned for being noxious or intended for noxious purposes (e.g., a
building on the verge of collapse to be demolished for public safety, or obscene materials to be
destroyed in the interest of public morals)67 as well as zoning ordinances prohibiting the use of
property for purposes injurious to the health, morals or safety of the community (e.g., dividing a
city’s territory into residential and industrial areas).68
It has, thus, been observed that, in the exercise of police power (as distinguished from eminent
domain), although the regulation affects the right of ownership, none of the bundle of rights
which constitute ownership is appropriated for use by or for the benefit of the public.69
On the other hand, in the exercise of the power of eminent domain, property interests are
appropriated and applied to some public purpose which necessitates the payment of just
compensation therefor. Normally, the title to and possession of the property are transferred to
the expropriating authority. Examples include the acquisition of lands for the construction of
public highways as well as agricultural lands acquired by the government under the agrarian
reform law for redistribution to qualified farmer beneficiaries. However, it is a settled rule that
the acquisition of title or total destruction of the property is not essential for "taking" under the
power of eminent domain to be present.70
Examples of these include establishment of easements such as where the land owner is
perpetually deprived of his proprietary rights because of the hazards posed by electric
transmission lines constructed above his property71 or the compelled interconnection of the
telephone system between the government and a private company.72
In these cases, although the private property owner is not divested of ownership or possession,
payment of just compensation is warranted because of the burden placed on the property for
the use or benefit of the public.
The 20% senior citizen discount is an exercise of police power.
It may not always be easy to determine whether a challenged governmental act is an exercise of
police power or eminent domain. The very nature of police power as elastic and responsive to
various social conditions73 as well as the evolving meaning and scope of public use74 and just
compensation75 in eminent domain evinces that these are not static concepts. Because of the
exigencies of rapidly changing times, Congress may be compelled to adopt or experiment with
different measures to promote the general welfare which may not fall squarely within the
traditionally recognized categories of police power and eminent domain. The judicious
approach, therefore, is to look at the nature and effects of the challenged governmental act and
decide, on the basis thereof, whether the act is the exercise of police power or eminent domain.
Thus, we now look at the nature and effects of the 20% discount to determine if it constitutes an
exercise of police power or eminent domain. The 20% discount is intended to improve the
welfare of senior citizens who, at their age, are less likely to be gainfully employed, more prone
to illnesses and other disabilities, and, thus, in need of subsidy in purchasing basic commodities.
It may not be amiss to mention also that the discount serves to honor senior citizens who
presumably spent the productive years of their lives on contributing to the development and
progress of the nation. This distinct cultural Filipino practice of honoring the elderly is an integral
part of this law. As to its nature and effects, the 20% discount is a regulation affecting the ability
of private establishments to price their products and services relative to a special class of
individuals, senior citizens, for which the Constitution affords preferential concern.76
In turn, this affects the amount of profits or income/gross sales that a private establishment can
derive from senior citizens. In other words, the subject regulation affects the pricing, and, hence,
the profitability of a private establishment. However, it does not purport to appropriate or
burden specific properties, used in the operation or conduct of the business of private
establishments, for the use or benefit of the public, or senior citizens for that matter, but merely
regulates the pricing of goods and services relative to, and the amount of profits or
income/gross sales that such private establishments may derive from, senior citizens. The
subject regulation may be said to be similar to, but with substantial distinctions from, price
control or rate of return on investment control laws which are traditionally regarded as police
power measures.77
These laws generally regulate public utilities or industries/enterprises imbued with public
interest in order to protect consumers from exorbitant or unreasonable pricing as well as
temper corporate greed by controlling the rate of return on investment of these corporations
considering that they have a monopoly over the goods or services that they provide to the
general public. The subject regulation differs therefrom in that (1) the discount does not prevent
the establishments from adjusting the level of prices of their goods and services, and (2) the
discount does not apply to all customers of a given establishment but only to the class of senior
citizens. Nonetheless, to the degree material to the resolution of this case, the 20% discount
may be properly viewed as belonging to the category of price regulatory measures which affect
the profitability of establishments subjected thereto. On its face, therefore, the subject
regulation is a police power measure. The obiter in Central Luzon Drug Corporation,78 however,
describes the 20% discount as an exercise of the power of eminent domain and the tax credit,
under the previous law, equivalent to the amount of discount given as the just compensation
therefor. The reason is that (1) the discount would have formed part of the gross sales of the
establishment were it not for the law prescribing the 20% discount, and (2) the permanent
reduction in total revenues is a forced subsidy corresponding to the taking of private property
for public use or benefit. The flaw in this reasoning is in its premise. It presupposes that the
subject regulation, which impacts the pricing and, hence, the profitability of a private
establishment, automatically amounts to a deprivation of property without due process of law.
If this were so, then all price and rate of return on investment control laws would have to be
invalidated because they impact, at some level, the regulated establishment’s profits or
income/gross sales, yet there is no provision for payment of just compensation. It would also
mean that overnment cannot set price or rate of return on investment limits, which reduce the
profits or income/gross sales of private establishments, if no just compensation is paid even if
the measure is not confiscatory. The obiter is, thus, at odds with the settled octrine that the
State can employ police power measures to regulate the pricing of goods and services, and,
hence, the profitability of business establishments in order to pursue legitimate State objectives
for the common good, provided that the regulation does not go too far as to amount to
"taking."79
80
In City of Manila v. Laguio, Jr.,  we recognized that— x x x a taking also could be found if
government regulation of the use of property went "too far." When regulation reaches a certain
magnitude, in most if not in all cases there must be an exercise of eminent domain and
compensation to support the act. While property may be regulated to a certain extent, if
regulation goes too far it will be recognized as a taking. No formula or rule can be devised to
answer the questions of what is too far and when regulation becomes a taking. In Mahon,
Justice Holmes recognized that it was "a question of degree and therefore cannot be disposed of
by general propositions." On many other occasions as well, the U.S. Supreme Court has said that
the issue of when regulation constitutes a taking is a matter of considering the facts in each
case. The Court asks whether justice and fairness require that the economic loss caused by
public action must be compensated by the government and thus borne by the public as a whole,
or whether the loss should remain concentrated on those few persons subject to the public
action.81
The impact or effect of a regulation, such as the one under consideration, must, thus, be
determined on a case-to-case basis. Whether that line between permissible regulation under
police power and "taking" under eminent domain has been crossed must, under the specific
circumstances of this case, be subject to proof and the one assailing the constitutionality of the
regulation carries the heavy burden of proving that the measure is unreasonable, oppressive or
confiscatory. The time-honored rule is that the burden of proving the unconstitutionality of a
law rests upon the one assailing it and "the burden becomes heavier when police power is at
issue."82
The 20% senior citizen discount has not been shown to be unreasonable, oppressive or
confiscatory.
In Alalayan v. National Power Corporation,83 petitioners, who were franchise holders of electric
plants, challenged the validity of a law limiting their allowable net profits to no more than 12%
per annum of their investments plus two-month operating expenses. In rejecting their plea, we
ruled that, in an earlier case, it was found that 12% is a reasonable rate of return and that
petitioners failed to prove that the aforesaid rate is confiscatory in view of the presumption of
constitutionality.84
We adopted a similar line of reasoning in Carlos Superdrug Corporation85 when we ruled that
petitioners therein failed to prove that the 20% discount is arbitrary, oppressive or confiscatory.
We noted that no evidence, such as a financial report, to establish the impact of the 20%
discount on the overall profitability of petitioners was presented in order to show that they
would be operating at a loss due to the subject regulation or that the continued implementation
of the law would be unconscionably detrimental to the business operations of petitioners. In the
case at bar, petitioners proceeded with a hypothetical computation of the alleged loss that they
will suffer similar to what the petitioners in Carlos Superdrug Corporation86 did. Petitioners went
directly to this Court without first establishing the factual bases of their claims. Hence, the
present recourse must, likewise, fail. Because all laws enjoy the presumption of
constitutionality, courts will uphold a law’s validity if any set of facts may be conceived to
sustain it.87
On its face, we find that there are at least two conceivable bases to sustain the subject
regulation’s validity absent clear and convincing proof that it is unreasonable, oppressive or
confiscatory. Congress may have legitimately concluded that business establishments have the
capacity to absorb a decrease in profits or income/gross sales due to the 20% discount without
substantially affecting the reasonable rate of return on their investments considering (1) not all
customers of a business establishment are senior citizens and (2) the level of its profit margins
on goods and services offered to the general public. Concurrently, Congress may have, likewise,
legitimately concluded that the establishments, which will be required to extend the 20%
discount, have the capacity to revise their pricing strategy so that whatever reduction in profits
or income/gross sales that they may sustain because of sales to senior citizens, can be recouped
through higher mark-ups or from other products not subject of discounts. As a result, the
discounts resulting from sales to senior citizens will not be confiscatory or unduly oppressive. In
sum, we sustain our ruling in Carlos Superdrug Corporation88 that the 20% senior citizen
discount and tax deduction scheme are valid exercises of police power of the State absent a
clear showing that it is arbitrary, oppressive or confiscatory.
Conclusion
In closing, we note that petitioners hypothesize, consistent with our previous ratiocinations, that
the discount will force establishments to raise their prices in order to compensate for its impact
on overall profits or income/gross sales. The general public, or those not belonging to the senior
citizen class, are, thus, made to effectively shoulder the subsidy for senior citizens. This, in
petitioners’ view, is unfair.
As already mentioned, Congress may be reasonably assumed to have foreseen this eventuality.
But, more importantly, this goes into the wisdom, efficacy and expediency of the subject law
which is not proper for judicial review. In a way, this law pursues its social equity objective in a
non-traditional manner unlike past and existing direct subsidy programs of the government for
the poor and marginalized sectors of our society. Verily, Congress must be given sufficient
leeway in formulating welfare legislations given the enormous challenges that the government
faces relative to, among others, resource adequacy and administrative capability in
implementing social reform measures which aim to protect and uphold the interests of those
most vulnerable in our society. In the process, the individual, who enjoys the rights, benefits and
privileges of living in a democratic polity, must bear his share in supporting measures intended
for the common good. This is only fair. In fine, without the requisite showing of a clear and
unequivocal breach of the Constitution, the validity of the assailed law must be sustained.
Refutation of the Dissent
The main points of Justice Carpio’s Dissent may be summarized as follows: (1) the discussion on
eminent domain in Central Luzon Drug Corporation89 is not obiter dicta ; (2) allowable taking, in
police power, is limited to property that is destroyed or placed outside the commerce of man for
public welfare; (3) the amount of mandatory discount is private property within the ambit of
Article III, Section 990 of the Constitution; and (4) the permanent reduction in a private
establishment’s total revenue, arising from the mandatory discount, is a taking of private
property for public use or benefit, hence, an exercise of the power of eminent domain requiring
the payment of just compensation. I We maintain that the discussion on eminent domain in
Central Luzon Drug Corporation91 is obiter dicta. As previously discussed, in Central Luzon Drug
Corporation,92 the BIR, pursuant to Sections 2.i and 4 of RR No. 2-94, treated the senior citizen
discount in the previous law, RA 7432, as a tax deduction instead of a tax credit despite the clear
provision in that law which stated –
SECTION 4. Privileges for the Senior Citizens. – The senior citizens shall be entitled to the
following:
a) The grant of twenty percent (20%) discount from all establishments relative
to utilization of transportation services, hotels and similar lodging
establishment, restaurants and recreation centers and purchase of medicines
anywhere in the country: Provided, That private establishments may claim the
cost as tax credit; (Emphasis supplied)
Thus, the Court ruled that the subject revenue regulation violated the law, viz:
The 20 percent discount required by the law to be given to senior citizens is a tax credit, not
merely a tax deduction from the gross income or gross 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.93
As can be readily seen, the discussion on eminent domain was not necessary in order to arrive at
this conclusion. All that was needed was to point out that the revenue regulation contravened
the law which it sought to implement. And, precisely, this was done in Central Luzon Drug
Corporation94 by comparing the wording of the previous law vis-à-vis the revenue regulation;
employing the rules of statutory construction; and applying the settled principle that a
regulation cannot amend the law it seeks to implement. A close reading of Central Luzon Drug
Corporation95 would show that the Court went on to state that the tax credit "can be deemed"
as just compensation only to explain why the previous law provides for a tax credit instead of a
tax deduction. The Court surmised that the tax credit was a form of just compensation given to
the establishments covered by the 20% discount. However, the reason why the previous law
provided for a tax credit and not a tax deduction was not necessary to resolve the issue as to
whether the revenue regulation contravenes the law. Hence, the discussion on eminent domain
is obiter dicta.
A court, in resolving cases before it, may look into the possible purposes or reasons that
impelled the enactment of a particular statute or legal provision. However, statements made
relative thereto are not always necessary in resolving the actual controversies presented before
it. This was the case in Central Luzon Drug Corporation 96resulting in that unfortunate statement
that the tax credit "can be deemed" as just compensation. This, in turn, led to the erroneous
conclusion, by deductive reasoning, that the 20% discount is an exercise of the power of
eminent domain. The Dissent essentially adopts this theory and reasoning which, as will be
shown below, is contrary to settled principles in police power and eminent domain analysis. II
The Dissent discusses at length the doctrine on "taking" in police power which occurs when
private property is destroyed or placed outside the commerce of man. Indeed, there is a whole
class of police power measures which justify the destruction of private property in order to
preserve public health, morals, safety or welfare. As earlier mentioned, these would include a
building on the verge of collapse or confiscated obscene materials as well as those mentioned
by the Dissent with regard to property used in violating a criminal statute or one which
constitutes a nuisance. In such cases, no compensation is required. However, it is equally true
that there is another class of police power measures which do not involve the destruction of
private property but merely regulate its use. The minimum wage law, zoning ordinances, price
control laws, laws regulating the operation of motels and hotels, laws limiting the working hours
to eight, and the like would fall under this category. The examples cited by the Dissent, likewise,
fall under this category: Article 157 of the Labor Code, Sections 19 and 18 of the Social Security
Law, and Section 7 of the Pag-IBIG Fund Law. These laws merely regulate or, to use the term of
the Dissent, burden the conduct of the affairs of business establishments. In such cases,
payment of just compensation is not required because they fall within the sphere of permissible
police power measures. The senior citizen discount law falls under this latter category. III The
Dissent proceeds from the theory that the permanent reduction of profits or income/gross
sales, due to the 20% discount, is a "taking" of private property for public purpose without
payment of just compensation. At the outset, it must be emphasized that petitioners never
presented any evidence to establish that they were forced to suffer enormous losses or operate
at a loss due to the effects of the assailed law. They came directly to this Court and provided a
hypothetical computation of the loss they would allegedly suffer due to the operation of the
assailed law. The central premise of the Dissent’s argument that the 20% discount results in a
permanent reduction in profits or income/gross sales, or forces a business establishment to
operate at a loss is, thus, wholly unsupported by competent evidence. To be sure, the Court can
invalidate a law which, on its face, is arbitrary, oppressive or confiscatory.97
But this is not the case here.
In the case at bar, evidence is indispensable before a determination of a constitutional violation
can be made because of the following reasons. First, the assailed law, by imposing the senior
citizen discount, does not take any of the properties used by a business establishment like, say,
the land on which a manufacturing plant is constructed or the equipment being used to produce
goods or services. Second, rather than taking specific properties of a business establishment, the
senior citizen discount law merely regulates the prices of the goods or services being sold to
senior citizens by mandating a 20% discount. Thus, if a product is sold at ₱10.00 to the general
public, then it shall be sold at ₱8.00 ( i.e., ₱10.00 less 20%) to senior citizens. Note that the law
does not impose at what specific price the product shall be sold, only that a 20% discount shall
be given to senior citizens based on the price set by the business establishment. A business
establishment is, thus, free to adjust the prices of the goods or services it provides to the
general public. Accordingly, it can increase the price of the above product to ₱20.00 but is
required to sell it at ₱16.00 (i.e. , ₱20.00 less 20%) to senior citizens. Third, because the law
impacts the prices of the goods or services of a particular establishment relative to its sales to
senior citizens, its profits or income/gross sales are affected. The extent of the impact would,
however, depend on the profit margin of the business establishment on a particular good or
service. If a product costs ₱5.00 to produce and is sold at ₱10.00, then the profit 98 is ₱5.0099 or a
profit margin100 of 50%.101
Under the assailed law, the aforesaid product would have to be sold at ₱8.00 to senior citizens
yet the business would still earn ₱3.00102 or a 30%103 profit margin. On the other hand, if the
product costs ₱9.00 to produce and is required to be sold at ₱8.00 to senior citizens, then the
business would experience a loss of ₱1.00.104
But note that since not all customers of a business establishment are senior citizens, the
business establishment may continue to earn ₱1.00 from non-senior citizens which, in turn, can
offset any loss arising from sales to senior citizens.
Fourth, when the law imposes the 20% discount in favor of senior citizens, it does not prevent
the business establishment from revising its pricing strategy.
By revising its pricing strategy, a business establishment can recoup any reduction of profits or
income/gross sales which would otherwise arise from the giving of the 20% discount. To
illustrate, suppose A has two customers: X, a senior citizen, and Y, a non-senior citizen. Prior to
the law, A sells his products at ₱10.00 a piece to X and Y resulting in income/gross sales of
₱20.00 (₱10.00 + ₱10.00). With the passage of the law, A must now sell his product to X at ₱8.00
(i.e., ₱10.00 less 20%) so that his income/gross sales would be ₱18.00 (₱8.00 + ₱10.00) or lower
by ₱2.00. To prevent this from happening, A decides to increase the price of his products to
₱11.11 per piece. Thus, he sells his product to X at ₱8.89 (i.e. , ₱11.11 less 20%) and to Y at
₱11.11. As a result, his income/gross sales would still be ₱20.00105 (₱8.89 + ₱11.11). The
capacity, then, of business establishments to revise their pricing strategy makes it possible for
them not to suffer any reduction in profits or income/gross sales, or, in the alternative, mitigate
the reduction of their profits or income/gross sales even after the passage of the law. In other
words, business establishments have the capacity to adjust their prices so that they may remain
profitable even under the operation of the assailed law.
The Dissent, however, states that – The explanation by the majority that private establishments
can always increase their prices to recover the mandatory discount will only encourage private
establishments to adjust their prices upwards to the prejudice of customers who do not enjoy
the 20% discount. It was likewise suggested that if a company increases its prices, despite the
application of the 20% discount, the establishment becomes more profitable than it was before
the implementation of R.A. 7432. Such an economic justification is self-defeating, for more
consumers will suffer from the price increase than will benefit from the 20% discount. Even
then, such ability to increase prices cannot legally validate a violation of the eminent domain
clause.106
But, if it is possible that the business establishment, by adjusting its prices, will suffer no
reduction in its profits or income/gross sales (or suffer some reduction but continue to operate
profitably) despite giving the discount, what would be the basis to strike down the law? If it is
possible that the business establishment, by adjusting its prices, will not be unduly burdened,
how can there be a finding that the assailed law is an unconstitutional exercise of police power
or eminent domain? That there may be a burden placed on business establishments or the
consuming public as a result of the operation of the assailed law is not, by itself, a ground to
declare it unconstitutional for this goes into the wisdom and expediency of the law.
The cost of most, if not all, regulatory measures of the government on business establishments
is ultimately passed on to the consumers but that, by itself, does not justify the wholesale
nullification of these measures. It is a basic postulate of our democratic system of government
that the Constitution is a social contract whereby the people have surrendered their sovereign
powers to the State for the common good.107
All persons may be burdened by regulatory measures intended for the common good or to serve
some important governmental interest, such as protecting or improving the welfare of a special
class of people for which the Constitution affords preferential concern. Indubitably, the one
assailing the law has the heavy burden of proving that the regulation is unreasonable,
oppressive or confiscatory, or has gone "too far" as to amount to a "taking." Yet, here, the
Dissent would have this Court nullify the law without any proof of such nature.
Further, this Court is not the proper forum to debate the economic theories or realities that
impelled Congress to shift from the tax credit to the tax deduction scheme. It is not within our
power or competence to judge which scheme is more or less burdensome to business
establishments or the consuming public and, thereafter, to choose which scheme the State
should use or pursue. The shift from the tax credit to tax deduction scheme is a policy
determination by Congress and the Court will respect it for as long as there is no showing, as
here, that the subject regulation has transgressed constitutional limitations. Unavoidably, the
lack of evidence constrains the Dissent to rely on speculative and hypothetical argumentation
when it states that the 20% discount is a significant amount and not a minimal loss (which
erroneously assumes that the discount automatically results in a loss when it is possible that the
profit margin is greater than 20% and/or the pricing strategy can be revised to prevent or
mitigate any reduction in profits or income/gross sales as illustrated above),108 and not all
private establishments make a 20% profit margin (which conversely implies that there are those
who make more and, thus, would not be greatly affected by this regulation).109
In fine, because of the possible scenarios discussed above, we cannot assume that the 20%
discount results in a permanent reduction in profits or income/gross sales, much less that
business establishments are forced to operate at a loss under the assailed law. And, even if we
gratuitously assume that the 20% discount results in some degree of reduction in profits or
income/gross sales, we cannot assume that such reduction is arbitrary, oppressive or
confiscatory. To repeat, there is no actual proof to back up this claim, and it could be that the
loss suffered by a business establishment was occasioned through its fault or negligence in not
adapting to the effects of the assailed law. The law uniformly applies to all business
establishments covered thereunder. There is, therefore, no unjust discrimination as the
aforesaid business establishments are faced with the same constraints. The necessity of proof is
all the more pertinent in this case because, as similarly observed by Justice Velasco in his
Concurring Opinion, the law has been in operation for over nine years now. However, the grim
picture painted by petitioners on the unconscionable losses to be indiscriminately suffered by
business establishments, which should have led to the closure of numerous business
establishments, has not come to pass. Verily, we cannot invalidate the assailed law based on
assumptions and conjectures. Without adequate proof, the presumption of constitutionality
must prevail. IV At this juncture, we note that the Dissent modified its original arguments by
including a new paragraph, to wit:
Section 9, Article III of the 1987 Constitution speaks of private property without any distinction.
It does not state that there should be profit before the taking of property is subject to just
compensation. The private property referred to for purposes of taking could be inherited,
donated, purchased, mortgaged, or as in this case, part of the gross sales of private
establishments. They are all private property and any taking should be attended by
corresponding payment of just compensation. The 20% discount granted to senior citizens
belong to private establishments, whether these establishments make a profit or suffer a loss. In
fact, the 20% discount applies to non-profit establishments like country, social, or golf clubs
which are open to the public and not only for exclusive membership. The issue of profit or loss
to the establishments is immaterial.110
Two things may be said of this argument. First, it contradicts the rest of the arguments of the
Dissent. After it states that the issue of profit or loss is immaterial, the Dissent proceeds to argue
that the 20% discount is not a minimal loss111 and that the 20% discount forces business
establishments to operate at a loss.112
Even the obiter in Central Luzon Drug Corporation,113 which the Dissent essentially adopts and
relies on, is premised on the permanent reduction of total revenues and the loss that business
establishments will be forced to suffer in arguing that the 20% discount constitutes a "taking"
under the power of eminent domain. Thus, when the Dissent now argues that the issue of profit
or loss is immaterial, it contradicts itself because it later argues, in order to justify that there is a
"taking" under the power of eminent domain in this case, that the 20% discount forces business
establishments to suffer a significant loss or to operate at a loss. Second, this argument suffers
from the same flaw as the Dissent's original arguments. It is an erroneous characterization of the
20% discount. According to the Dissent, the 20% discount is part of the gross sales and, hence,
private property belonging to business establishments. However, as previously discussed, the
20% discount is not private property actually owned and/or used by the business establishment.
It should be distinguished from properties like lands or buildings actually used in the operation
of a business establishment which, if appropriated for public use, would amount to a "taking"
under the power of eminent domain. Instead, the 20% discount is a regulatory measure which
impacts the pricing and, hence, the profitability of business establishments. At the time the
discount is imposed, no particular property of the business establishment can be said to be
"taken." That is, the State does not acquire or take anything from the business establishment in
the way that it takes a piece of private land to build a public road. While the 20% discount may
form part of the potential profits or income/gross sales114 of the business establishment, as
similarly characterized by Justice Bersamin in his Concurring Opinion, potential profits or
income/gross sales are not private property, specifically cash or money, already belonging to the
business establishment. They are a mere expectancy because they are potential fruits of the
successful conduct of the business. Prior to the sale of goods or services, a business
establishment may be subject to State regulations, such as the 20% senior citizen discount,
which may impact the level or amount of profits or income/gross sales that can be generated by
such establishment. For this reason, the validity of the discount is to be determined based on its
overall effects on the operations of the business establishment.
Again, as previously discussed, the 20% discount does not automatically result in a 20%
reduction in profits, or, to align it with the term used by the Dissent, the 20% discount does not
mean that a 20% reduction in gross sales necessarily results. Because (1) the profit margin of a
product is not necessarily less than 20%, (2) not all customers of a business establishment are
senior citizens, and (3) the establishment may revise its pricing strategy, such reduction in
profits or income/gross sales may be prevented or, in the alternative, mitigated so that the
business establishment continues to operate profitably. Thus, even if we gratuitously assume
that some degree of reduction in profits or income/gross sales occurs because of the 20%
discount, it does not follow that the regulation is unreasonable, oppressive or confiscatory
because the business establishment may make the necessary adjustments to continue to
operate profitably. No evidence was presented by petitioners to show otherwise. In fact, no
evidence was presented by petitioners at all. Justice Leonen, in his Concurring and Dissenting
Opinion, characterizes "profits" (or income/gross sales) as an inchoate right. Another way to
view it, as stated by Justice Velasco in his Concurring Opinion, is that the business establishment
merely has a right to profits. The Constitution adverts to it as the right of an enterprise to a
reasonable return on investment.115
Undeniably, this right, like any other right, may be regulated under the police power of the State
to achieve important governmental objectives like protecting the interests and improving the
welfare of senior citizens. It should be noted though that potential profits or income/gross sales
are relevant in police power and eminent domain analyses because they may, in appropriate
cases, serve as an indicia when a regulation has gone "too far" as to amount to a "taking" under
the power of eminent domain. When the deprivation or reduction of profits or income/gross
sales is shown to be unreasonable, oppressive or confiscatory, then the challenged
governmental regulation may be nullified for being a "taking" under the power of eminent
domain. In such a case, it is not profits or income/gross sales which are actually taken and
appropriated for public use. Rather, when the regulation causes an establishment to incur losses
in an unreasonable, oppressive or confiscatory manner, what is actually taken is capital and the
right of the business establishment to a reasonable return on investment. If the business losses
are not halted because of the continued operation of the regulation, this eventually leads to the
destruction of the business and the total loss of the capital invested therein. But, again,
petitioners in this case failed to prove that the subject regulation is unreasonable, oppressive or
confiscatory.
V.
The Dissent further argues that we erroneously used price and rate of return on investment
control laws to justify the senior citizen discount law. According to the Dissent, only profits from
industries imbued with public interest may be regulated because this is a condition of their
franchises. Profits of establishments without franchises cannot be regulated permanently
because there is no law regulating their profits. The Dissent concludes that the permanent
reduction of total revenues or gross sales of business establishments without franchises is a
taking of private property under the power of eminent domain. In making this argument, it is
unfortunate that the Dissent quotes only a portion of the ponencia – The subject regulation may
be said to be similar to, but with substantial distinctions from, price control or rate of return on
investment control laws which are traditionally regarded as police power measures. These laws
generally regulate public utilities or industries/enterprises imbued with public interest in order
to protect consumers from exorbitant or unreasonable pricing as well as temper corporate
greed by controlling the rate of return on investment of these corporations considering that
they have a monopoly over the goods or services that they provide to the general public. The
subject regulation differs therefrom in that (1) the discount does not prevent the establishments
from adjusting the level of prices of their goods and services, and (2) the discount does not
apply to all customers of a given establishment but only to the class of senior citizens. x x x116
The above paragraph, in full, states –
The subject regulation may be said to be similar to, but with substantial distinctions from, price
control or rate of return on investment control laws which are traditionally regarded as police
power measures. These laws generally regulate public utilities or industries/enterprises imbued
with public interest in order to protect consumers from exorbitant or unreasonable pricing as
well as temper corporate greed by controlling the rate of return on investment of these
corporations considering that they have a monopoly over the goods or services that they
provide to the general public. The subject regulation differs therefrom in that (1) the discount
does not prevent the establishments from adjusting the level of prices of their goods and
services, and (2) the discount does not apply to all customers of a given establishment but only
to the class of senior citizens.
Nonetheless, to the degree material to the resolution of this case, the 20% discount may be
properly viewed as belonging to the category of price regulatory measures which affects the
profitability of establishments subjected thereto. (Emphasis supplied)
The point of this paragraph is to simply show that the State has, in the past, regulated prices and
profits of business establishments. In other words, this type of regulatory measures is
traditionally recognized as police power measures so that the senior citizen discount may be
considered as a police power measure as well. What is more, the substantial distinctions
between price and rate of return on investment control laws vis-à-vis the senior citizen discount
law provide greater reason to uphold the validity of the senior citizen discount law. As
previously discussed, the ability to adjust prices allows the establishment subject to the senior
citizen discount to prevent or mitigate any reduction of profits or income/gross sales arising
from the giving of the discount. In contrast, establishments subject to price and rate of return
on investment control laws cannot adjust prices accordingly. Certainly, there is no intention to
say that price and rate of return on investment control laws are the justification for the senior
citizen discount law. Not at all. The justification for the senior citizen discount law is the plenary
powers of Congress. The legislative power to regulate business establishments is broad and
covers a wide array of areas and subjects. It is well within Congress’ legislative powers to
regulate the profits or income/gross sales of industries and enterprises, even those without
franchises. For what are franchises but mere legislative enactments? There is nothing in the
Constitution that prohibits Congress from regulating the profits or income/gross sales of
industries and enterprises without franchises. On the contrary, the social justice provisions of
the Constitution enjoin the State to regulate the "acquisition, ownership, use, and disposition"
of property and its increments.117
This may cover the regulation of profits or income/gross sales of all businesses, without
qualification, to attain the objective of diffusing wealth in order to protect and enhance the right
of all the people to human dignity.118
Thus, under the social justice policy of the Constitution, business establishments may be
compelled to contribute to uplifting the plight of vulnerable or marginalized groups in our
society provided that the regulation is not arbitrary, oppressive or confiscatory, or is not in
breach of some specific constitutional limitation. When the Dissent, therefore, states that the
"profits of private establishments which are non-franchisees cannot be regulated permanently,
and there is no such law regulating their profits permanently," 119 it is assuming what it ought to
prove. First, there are laws which, in effect, permanently regulate profits or income/gross sales
of establishments without franchises, and RA 9257 is one such law. And, second, Congress can
regulate such profits or income/gross sales because, as previously noted, there is nothing in the
Constitution to prevent it from doing so. Here, again, it must be emphasized that petitioners
failed to present any proof to show that the effects of the assailed law on their operations has
been unreasonable, oppressive or confiscatory. The permanent regulation of profits or
income/gross sales of business establishments, even those without franchises, is not as
uncommon as the Dissent depicts it to be. For instance, the minimum wage law allows the State
to set the minimum wage of employees in a given region or geographical area. Because of the
added labor costs arising from the minimum wage, a permanent reduction of profits or
income/gross sales would result, assuming that the employer does not increase the prices of his
goods or services. To illustrate, suppose it costs a company ₱5.00 to produce a product and it
sells the same at ₱10.00 with a 50% profit margin. Later, the State increases the minimum wage.
As a result, the company incurs greater labor costs so that it now costs ₱7.00 to produce the
same product. The profit per product of the company would be reduced to ₱3.00 with a profit
margin of 30%. The net effect would be the same as in the earlier example of granting a 20%
senior citizen discount. As can be seen, the minimum wage law could, likewise, lead to a
permanent reduction of profits. Does this mean that the minimum wage law should, likewise, be
declared unconstitutional on the mere plea that it results in a permanent reduction of profits?
Taking it a step further, suppose the company decides to increase the price of its product in
order to offset the effects of the increase in labor cost; does this mean that the minimum wage
law, following the reasoning of the Dissent, is unconstitutional because the consuming public is
effectively made to subsidize the wage of a group of laborers, i.e., minimum wage earners? The
same reasoning can be adopted relative to the examples cited by the Dissent which, according
to it, are valid police power regulations. Article 157 of the Labor Code, Sections 19 and 18 of the
Social Security Law, and Section 7 of the Pag-IBIG Fund Law would effectively increase the labor
cost of a business establishment.1âwphi1 This would, in turn, be integrated as part of the cost of
its goods or services. Again, if the establishment does not increase its prices, the net effect
would be a permanent reduction in its profits or income/gross sales. Following the reasoning of
the Dissent that "any form of permanent taking of private property (including profits or
income/gross sales)120 is an exercise of eminent domain that requires the State to pay just
compensation,"121 then these statutory provisions would, likewise, have to be declared
unconstitutional. It does not matter that these benefits are deemed part of the employees’
legislated wages because the net effect is the same, that is, it leads to higher labor costs and a
permanent reduction in the profits or income/gross sales of the business establishments.122
The point then is this – most, if not all, regulatory measures imposed by the State on business
establishments impact, at some level, the latter’s prices and/or profits or income/gross sales.123
If the Court were to sustain the Dissent’s theory, then a wholesale nullification of such measures
would inevitably result. The police power of the State and the social justice provisions of the
Constitution would, thus, be rendered nugatory. There is nothing sacrosanct about profits or
income/gross sales. This, we made clear in Carlos Superdrug Corporation:124
Police power as an attribute to promote the common good would be diluted considerably if on
the mere plea of petitioners that they will suffer loss of earnings and capital, the questioned
provision is invalidated. Moreover, in the absence of evidence demonstrating the alleged
confiscatory effect of the provision in question, there is no basis for its nullification in view of
the presumption of validity which every law has in its favor.
xxxx
The Court is not oblivious of the retail side of the pharmaceutical industry and the competitive
pricing component of the business. While the Constitution protects property rights petitioners
must the realities of business and the State, in the exercise of police power, can intervene in the
operations of a business which may result in an impairment of property rights in the process.
Moreover, the right to property has a social dimension. While Article XIII of the Constitution
provides the percept for the protection of property, various laws and jurisprudence, particularly
on agrarian reform and the regulation of contracts and public utilities, continously serve as a
reminder for the promotion of public good.
Undeniably, the success of the senior citizens program rests largely on the support imparted by
petitioners and the other private establishments concerned. This being the case, the means
employed in invoking the active participation of the private sector, in order to achieve the
purpose or objective of the law, is reasonably and directly related. Without sufficient proof that
Section 4(a) of R.A. No. 9257 is arbitrary, and that the continued implementation of the same
would be unconscionably detrimental to petitioners, the Court will refrain form quashing a
legislative act.125
In conclusion, we maintain that the correct rule in determining whether the subject regulatory
measure has amounted to a "taking" under the power of eminent domain is the one laid down
in Alalayan v. National Power Corporation126 and followed in Carlos Superdurg
Corporation127 consistent with long standing principles in police power and eminent domain
analysis. Thus, the deprivation or reduction of profits or income. Gross sales must be clearly
shown to be unreasonable, oppressive or confiscatory. Under the specific circumstances of this
case, such determination can only be made upon the presentation of competent proof which
petitioners failed to do. A law, which has been in operation for many years and promotes the
welfare of a group accorded special concern by the Constitution, cannot and should not be
summarily invalidated on a mere allegation that it reduces the profits or income/gross sales of
business establishments.
WHEREFORE, the Petition is hereby DISMISSED for lack of merit.
SO ORDERED.
G.R. No. 159647 April 15, 2005

COMMISSIONER OF INTERNAL REVENUE, Petitioners, 

vs.
CENTRAL LUZON DRUG CORPORATION, Respondent.

DECISION

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 then claim the cost of the discount as a tax credit.12 But can such credit be claimed, even though
issue a tax credit certificate in favor of respondent in the reduced amount of ₱903,038.39. It an establishment operates at a loss?
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 We answer in the affirmative.
tantamount to an unintended benefit from the law, but rather a just compensation for the
taking of private property for public use. Tax Credit versus 

Hence this Petition.8  Tax Deduction

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  "allowed by law to reduce income prior to [the] application of the tax rate to compute the
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:
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
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.

Claim of 20 Percent Sales Discount  Tax Liability Required

as  Tax Credit  Despite  Net Loss for  Tax Credit

Section 4a) of RA 743210 grants to senior citizens the privilege of obtaining a 20 percent discount Since a tax credit is used to reduce directly the tax that is due, there ought to be a tax
on their purchase of medicine from any private establishment in the country.11 The latter may 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 Tax Code is another illustration of a tax
credit allowed, even though no prior tax payments are not required. Specifically, in this
provision, the imposition of a final withholding tax rate on cash and/or property dividends
received by a nonresident foreign corporation from a domestic corporation is subjected to the
condition that a foreign tax credit will be given by the domiciliary country in an amount
equivalent to taxes that are merely deemed paid. 27 Although true, this provision actually refers
to the tax credit as a condition only for the imposition of a lower tax rate, not as
a deduction from the corresponding tax liability. Besides, it is not our government but the
domiciliary country that credits against the income tax payable to the latter by the foreign
corporation, the tax to be foregone or spared.28 
In contrast, Section 34(C)(3), in relation to Section 34(C)(7)(b), categorically allows as credits,
against the income tax imposable under Title II, the amount of income taxes merely incurred --
not necessarily paid -- by a domestic corporation during a taxable year in any foreign country.
Moreover, Section 34(C)(5) provides that for such taxes incurred but not paid, a tax credit may
be allowed, subject to the condition precedent that the taxpayer shall simply give a bond with
sureties satisfactory to and approved by petitioner, in such sum as may be required; and further
conditioned upon payment by the taxpayer of any tax found due, upon petitioner’s
redetermination of it.
In addition to the above-cited provisions in the Tax Code, there are also tax treaties and special
laws that grant or allow tax credits, even though no prior tax payments have been made.
Under the treaties in which the tax credit method is used as a relief to avoid double taxation,
income that is taxed in the state of source is also taxable in the state of residence, but the tax
paid in the former is merely allowed as a credit against the tax levied in the latter. 29 Apparently,
payment is made to the state of source, not the state of residence. No tax, therefore, has
been previously paid to the latter.
Under special laws that particularly affect businesses, there can also be tax credit incentives. To
illustrate, the incentives provided for in Article 48 of Presidential Decree No. (PD) 1789, as
amended by Batas Pambansa Blg. (BP) 391, include tax credits equivalent to either five percent
of the net value earned, or five or ten percent of the net local content of exports. 30 In order to
avail of such credits under the said law and still achieve its objectives, no prior tax payments are
necessary.
From all the foregoing instances, it is evident that prior tax payments are not indispensable to
the availment of a tax credit. Thus, the CA correctly held that the availment under RA 7432 did
not require prior tax payments by private establishments concerned.31 However, we do not
agree with its finding32 that the carry-over of tax credits under the said special law to succeeding
taxable periods, and even their application against internal revenue taxes, did not necessitate
the existence of a tax liability.
The examples above show that a tax liability is certainly important in the availment or use, not
the existence or grant, of a tax credit. Regarding this matter, a private establishment reporting
a net loss in its financial statements is no different from another that presents a net income.
Both are entitled to the tax credit provided for under RA 7432, since the law itself accords that
unconditional benefit. However, for the losing establishment to immediately apply such credit,
where no tax is due, will be an improvident usance.
Sections 2.i and 4 of Revenue 
Regulations No. 2-94 Erroneous
RA 7432 specifically allows private establishments to claim as tax credit the amount of discounts
they grant.33 In turn, the Implementing Rules and Regulations, issued pursuant thereto, provide
the procedures for its availment.34 To deny such credit, despite the plain mandate of the law and
the regulations carrying out that mandate, is indefensible.
First, the definition given by petitioner is erroneous. It refers to tax credit as the amount
representing the 20 percent discount that "shall be deducted by the said establishments from
their gross income for income tax purposes and from their gross sales for value-added tax or
other percentage tax purposes."35 In ordinary business language, the tax credit represents the
amount of such discount. However, the manner by which the discount shall be credited against
taxes has not been clarified by the revenue regulations.
By ordinary acceptation, a discount is an "abatement or reduction made from the gross amount
or value of anything."36 To be more precise, it is in business parlance "a deduction or lowering of
an amount of money;"37 or "a reduction from the full amount or value of something, especially a
price."38 In business there are many kinds of discount, the most common of which is that
affecting the income statement39 or financial report upon which the income tax is based.
Business Discounts
Deducted from  Gross Sales widely used, because it is simple, more convenient to apply than the net method, and produces
no material errors over time.53 
A cash discount, for example, is one granted by business establishments to credit customers for
their prompt payment.40 It is a "reduction in price offered to the purchaser if payment is made However, under the net method used in recording trade, chain  or functional discounts, only the
within a shorter period of time than the maximum time specified." 41 Also referred to as a sales net amounts of the invoices -- after the discounts have been deducted -- are recorded in
discount on the part of the seller and a purchase discounton the part of the buyer, it may be the books of accounts54 and reflected in the financial statements. A separate line item cannot be
expressed in such  shown,55 because the transactions themselves involving both accounts receivable and sales have
terms as "5/10, n/30."42  already been entered into, net of the said discounts.

A quantity discount, however, is a "reduction in price allowed for purchases made in large The term sales discounts is not expressly defined in the Tax Code, but one provision adverts to
quantities, justified by savings in packaging, shipping, and handling." 43 It is also called amounts whose sum -- along with sales returns, allowances and cost of goods sold56 -- is
a volume  or bulk discount.44  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
A "percentage reduction from the list price x x x allowed by manufacturers to wholesalers and invoices at the time of sale -- and that do not depend upon the happening of any future event --
by wholesalers to retailers"45 is known as a trade discount. No entry for it need be made in the may be excluded from the gross sales within the same quarter they were given.59 While
manual or computerized books of accounts, since the purchase or sale is already valued at the determinative only of the VAT, the latter provision also appears as a suitable reference point for
net price actually charged the buyer.46 The purpose for the discount is to encourage trading or income tax purposes already embraced in the former. After all, these two provisions affirm
increase sales, and the prices at which the purchased goods may be resold are also that sales discounts are amounts that are always deductible from gross sales.
suggested.47 Even a chain discount -- a series of discounts from one list price -- is recorded at
net.48  Reason for the Senior Citizen Discount:

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." 49 This role usually
involves warehousing or advertising.
Based on this discussion, we find that the nature of a sales discount is peculiar. Applying
generally accepted accounting principles (GAAP) in the country, this type of discount is reflected
in the income statement50 as a line item deducted -- along with returns, allowances, rebates and
other similar expenses -- from gross sales to arrive at net sales.51 This type of presentation is
resorted to, because the accounts receivable and sales figures that arise from sales discounts, --
as well as from quantity, volume or bulk discounts -- are recorded in the manual and
computerized books of accounts and reflected in the financial statements at the gross amounts
of the invoices.52 This manner of recording credit sales -- known as the gross method -- is most
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. by Regulations
Yet, under the revenue regulations promulgated by our tax authorities, this benefit has been
erroneously likened and confined to a sales discount. Second, the law cannot be amended by a mere regulation. In fact, a regulation that "operates to
create a rule out of harmony with 
62 
To a senior citizen, the monetary effect of the privilege may be the same as that resulting from the statute is a mere nullity"; it cannot prevail.
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 It is a cardinal rule that courts "will and should respect the contemporaneous construction
the same as a sales discount. To repeat from our earlier discourse, this benefit cannot and placed upon a statute by the executive officers whose duty it is to enforce it x x x."63 In the
should not be treated as a tax deduction. 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
To stress, the effect of a sales discount on the income statement and income tax return of an not have the opportunity or competence to provide."65 The regulations these authorities issue
establishment covered by RA 7432 is different from that resulting from the availment or use of are relied upon by taxpayers, who are certain that these will be followed by the courts.66 Courts,
its tax credit benefit. While the former is a deduction before, the latter is a deduction after, however, will not uphold these authorities’ interpretations when clearly absurd, erroneous or
the income tax is computed. As mentioned earlier, a discount is not necessarily a sales discount, improper.
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 In the present case, the tax authorities have given the term tax credit in Sections 2.i and 4 of RR
distinguish, we ought not to distinguish. 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
Sections 2.i and 4 of Revenue Regulations No. (RR) 2-94 define tax credit as the 20 percent administrative agency issuing these regulations may not enlarge, alter or restrict the provisions
discount deductible from gross income for income tax purposes, or from gross sales for VAT or of the law it administers; it cannot engraft additional requirements not contemplated by the
other percentage tax purposes. In effect, the tax credit benefit under RA 7432 is related to legislature.67 
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 In case of conflict, the law must prevail. 68 A "regulation adopted pursuant to law is
cannot be deducted again, even for purposes of computing the income tax. 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 
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. Availment of  Tax 
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 Credit Voluntary
granted by law -- does not define it at all and serves no useful purpose. The definition must,
therefore, be stricken down.
Third, the word may in the text of the statute71 implies that the 
72 
Laws Not Amended availability of the tax credit benefit is neither unrestricted nor mandatory. 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  While it is a declared commitment under Section 1 of RA 7432, social justice "cannot be invoked
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  mark-up is less than 20 percent, and if all its sales come from retail purchases by senior citizens.
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.80 Tax 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 
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 even 85 -- without the discounts
yet -- will surely start to incur losses because of such discounts. The same effect is expected if its
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  ELSIE M. CANO, doing business under the name and style "Advance Drug," Dr. SIMPLICIO L.
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  Development (DSWD), the Department of Health (DOH), the Department of Finance (DOF), the
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.
G.R. No. 166494              June 29, 2007
CARLOS SUPERDRUG CORP., doing business under the name and style "Carlos Superdrug,"
YAP, JR., doing business under the name and style "City Pharmacy," MELVIN S. DELA SERNA,
doing business under the name and style "Botica dela Serna," and LEYTE SERV-WELL CORP.,
doing business under the name and style "Leyte Serv-Well Drugstore," petitioners, 
vs.
DEPARTMENT OF SOCIAL WELFARE and DEVELOPMENT (DSWD), DEPARTMENT OF HEALTH
(DOH), DEPARTMENT OF FINANCE (DOF), DEPARTMENT OF JUSTICE (DOJ), and DEPARTMENT
OF INTERIOR and LOCAL GOVERNMENT (DILG), respondents.
DECISION
AZCUNA, J.:
This is a petition1 for Prohibition with Prayer for Preliminary Injunction assailing the
constitutionality of Section 4(a) of Republic Act (R.A.) No. 9257,2 otherwise known as the
"Expanded Senior Citizens Act of 2003."
Petitioners are domestic corporations and proprietors operating drugstores in the Philippines.
Public respondents, on the other hand, include the Department of Social Welfare and
Department of Justice (DOJ), and the Department of Interior and Local Government (DILG)
which have been specifically tasked to monitor the drugstores’ compliance with the law;
promulgate the implementing rules and regulations for the effective implementation of the law;
and prosecute and revoke the licenses of erring drugstore establishments.
The antecedents are as follows:
On February 26, 2004, R.A. No. 9257, amending R.A. No. 7432, 3 was signed into law by President
Gloria Macapagal-Arroyo and it became effective on March 21, 2004. Section 4(a) of the Act
states:
SEC. 4. Privileges for the Senior Citizens. – The senior citizens shall be entitled to the following:
(a) the grant of twenty percent (20%) discount from all establishments relative to the utilization
of services in hotels and similar lodging establishments, restaurants and recreation centers, and
purchase of medicines in all establishments for the exclusive use or enjoyment of senior citizens,
including funeral and burial services for the death of senior citizens;
...
The establishment may claim the discounts granted under (a), (f), (g) and (h) as tax
deduction based on the net cost of the goods sold or services rendered: Provided, That the cost
of the discount shall be allowed as deduction from gross income for the same taxable year that
the discount is granted. Provided, further,  That the total amount of the claimed tax deduction
net of value added tax if applicable, shall be included in their gross sales receipts for tax
purposes and shall be subject to proper documentation and to the provisions of the National
Internal Revenue Code, as amended.4
On May 28, 2004, the DSWD approved and adopted the Implementing Rules and Regulations of
R.A. No. 9257, Rule VI, Article 8 of which states:
Article 8. Tax Deduction of Establishments. – The establishment may claim the discounts granted
under Rule V, Section 4 – Discounts for Establishments;5 Section 9, Medical and Dental Services
in Private Facilities[,]6 and Sections 107 and 118 – Air, Sea and Land Transportation as tax
deduction based on the net cost of the goods sold or services rendered. Provided, That the cost
of the discount shall be allowed as deduction from gross income for the same taxable year that
the discount is granted; Provided, further, That the total amount of the claimed tax deduction
net of value added tax if applicable, shall be included in their gross sales receipts for tax
purposes and shall be subject to proper documentation and to the provisions of the National
Internal Revenue Code, as amended; Provided, finally, that the implementation of the tax
deduction shall be subject to the Revenue Regulations to be issued by the Bureau of Internal
Revenue (BIR) and approved by the Department of Finance (DOF).9
On July 10, 2004, in reference to the query of the Drug Stores Association of the Philippines
(DSAP) concerning the meaning of a tax deduction under the Expanded Senior Citizens Act, the
DOF, through Director IV Ma. Lourdes B. Recente, clarified as follows:
1) The difference between the Tax Credit (under the Old Senior Citizens Act) and Tax Deduction
(under the Expanded Senior Citizens Act).
1.1. The provision of Section 4 of R.A. No. 7432 (the old Senior Citizens Act) grants twenty
percent (20%) discount from all establishments relative to the utilization of transportation
services, hotels and similar lodging establishment, restaurants and recreation centers and
purchase of medicines anywhere in the country, the costs of which may be claimed by the
private establishments concerned as tax credit.
Effectively, a tax credit is a peso-for-peso deduction from a taxpayer’s tax liability due to the
government of the amount of discounts such establishment has granted to a senior citizen. The
establishment recovers the full amount of discount given to a senior citizen and hence, the
government shoulders 100% of the discounts granted.
It must be noted, however, that conceptually, a tax credit  scheme under the Philippine tax
system, necessitates that prior payments of taxes have been made and the taxpayer is
attempting to recover this tax payment from his/her income tax due. The tax credit scheme
under R.A. No. 7432 is, therefore, inapplicable since no tax payments have previously occurred.
1.2. The provision under R.A. No. 9257, on the other hand, provides that the establishment
concerned may claim the discounts under Section 4(a), (f), (g) and (h) as tax deduction from
gross income, based on the net cost of goods sold or services rendered.
Under this scheme, the establishment concerned is allowed to deduct from gross income, in
computing for its tax liability, the amount of discounts granted to senior citizens. Effectively, the
government loses in terms of foregone revenues an amount equivalent to the marginal tax rate
the said establishment is liable to pay the government. This will be an amount equivalent to 32%
of the twenty percent (20%) discounts so granted. The establishment shoulders the remaining
portion of the granted discounts.
It may be necessary to note that while the burden on [the] government is slightly diminished in
terms of its percentage share on the discounts granted to senior citizens, the number of
potential establishments that may claim tax deductions, have however, been broadened. Aside
from the establishments that may claim tax credits under the old law, more establishments
were added under the new law such as: establishments providing medical and dental services,
diagnostic and laboratory services, including professional fees of attending doctors in all private
hospitals and medical facilities, operators of domestic air and sea transport services, public
railways and skyways and bus transport services.
A simple illustration might help amplify the points discussed above, as follows:
Tax Deduction Tax Credit
Gross Sales x x x x x x x x x x x x
Less : Cost of goods sold x x x x x x x x x x
Net Sales x x x x x x x x x x x x
Less: Operating Expenses:
Tax Deduction on Discounts x x x x --
Other deductions: x x x x x x x x
Net Taxable Income x x x x x x x x x x
Tax Due x x x x x x
Less: Tax Credit -- ______x x
Net Tax Due -- x x
As shown above, under a tax deduction scheme, the tax deduction on discounts was subtracted
from Net Sales together with other deductions which are considered as operating expenses
before the Tax Due was computed based on the Net Taxable Income. On the other hand, under
a tax credit scheme, the amount of discounts which is the tax credit item, was deducted directly
from the tax due amount.10
Meanwhile, on October 1, 2004, Administrative Order (A.O.) No. 171 or the Policies and
Guidelines to Implement the Relevant Provisions of Republic Act 9257, otherwise known as the
"Expanded Senior Citizens Act of 2003"11was issued by the DOH, providing the grant of twenty
percent (20%) discount in the purchase of unbranded generic medicines from all establishments
dispensing medicines for the exclusive use of the senior citizens.
On November 12, 2004, the DOH issued Administrative Order No 17712 amending A.O. No. 171.
Under A.O. No. 177, the twenty percent discount shall not be limited to the purchase of
unbranded generic medicines only, but shall extend to both prescription and non-prescription
medicines whether branded or generic. Thus, it stated that "[t]he grant of twenty percent (20%)
discount shall be provided in the purchase of medicines from all establishments dispensing
medicines for the exclusive use of the senior citizens."
Petitioners assail the constitutionality of Section 4(a) of the Expanded Senior Citizens Act based
on the following grounds:13
1) The law is confiscatory because it infringes Art. III, Sec. 9 of the Constitution which provides
that private property shall not be taken for public use without just compensation;
2) It violates the equal protection clause (Art. III, Sec. 1) enshrined in our Constitution which
states that "no person shall be deprived of life, liberty or property without due process of law,
nor shall any person be denied of the equal protection of the laws;" and
3) The 20% discount on medicines violates the constitutional guarantee in Article XIII, Section 11
that makes "essential goods, health and other social services available to all people at affordable
cost."14
Petitioners assert that Section 4(a) of the law is unconstitutional because it constitutes
deprivation of private property. Compelling drugstore owners and establishments to grant the
discount will result in a loss of profit
and capital because 1) drugstores impose a mark-up of only 5% to 10% on branded medicines;
and 2) the law failed to provide a scheme whereby drugstores will be justly compensated for the
discount.
Examining petitioners’ arguments, it is apparent that what petitioners are ultimately questioning
is the validity of the tax deduction scheme as a reimbursement mechanism for the twenty
percent (20%) discount that they extend to senior citizens.
Based on the afore-stated DOF Opinion, the tax deduction scheme does not fully reimburse
petitioners for the discount privilege accorded to senior citizens. This is because the discount is
treated as a deduction, a tax-deductible expense that is subtracted from the gross income and
results in a lower taxable income. Stated otherwise, it is an amount that is allowed by law15 to
reduce the income prior to the application of the tax rate to compute the amount of tax which is
due.16 Being a tax deduction, the discount does not reduce taxes owed on a peso for peso basis
but merely offers a fractional reduction in taxes owed.
Theoretically, the treatment of the discount as a deduction reduces the net income of the
private establishments concerned. The discounts given would have entered the coffers and
formed part of the gross sales of the private establishments, were it not for R.A. No. 9257.
The permanent reduction in their total revenues is a forced subsidy corresponding to the taking
of private property for public use or benefit. 17 This constitutes compensable taking for which
petitioners would ordinarily become entitled to a just compensation.
Just compensation is defined as the full and fair equivalent of the property taken from its owner
by the expropriator. 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, and to convey the idea that the
equivalent to be rendered for the property to be taken shall be real, substantial, full and
ample.18
A tax deduction does not offer full reimbursement of the senior citizen discount. As such, it
would not meet the definition of just compensation.19
Having said that, this raises the question of whether the State, in promoting the health and
welfare of a special group of citizens, can impose upon private establishments the burden of
partly subsidizing a government program.
The Court believes so.
The Senior Citizens Act was enacted primarily to maximize the contribution of senior citizens to
nation-building, and to grant benefits and privileges to them for their improvement and well-
being as the State considers them an integral part of our society.20
The priority given to senior citizens finds its basis in the Constitution as set forth in the law itself.
Thus, the Act provides:
SEC. 2. Republic Act No. 7432 is hereby amended to read as follows:
SECTION 1. Declaration of Policies and Objectives. – Pursuant to Article XV, Section 4 of the
Constitution, it is the duty of the family to take care of its elderly members while the State may
design programs of social security for them. In addition to this, Section 10 in the Declaration of
Principles and State Policies provides: "The State shall provide social justice in all phases of
national development." Further, Article XIII, Section 11, provides: "The State shall adopt an
integrated and comprehensive approach to health development which shall endeavor to make
essential goods, health and other social services available to all the people at affordable cost.
There shall be priority for the needs of the underprivileged sick, elderly, disabled, women and
children." Consonant with these constitutional principles the following are the declared policies
of this Act:
...
(f) To recognize the important role of the private sector in the improvement of the welfare of
senior citizens and to actively seek their partnership.21
To implement the above policy, the law grants a twenty percent discount to senior citizens for
medical and dental services, and diagnostic and laboratory fees; admission fees charged by
theaters, concert halls, circuses, carnivals, and other similar places of culture, leisure and
amusement; fares for domestic land, air and sea travel; utilization of services in hotels and
similar lodging establishments, restaurants and recreation centers; and purchases of medicines
for the exclusive use or enjoyment of senior citizens. As a form of reimbursement, the law
provides that business establishments extending the twenty percent discount to senior citizens
may claim the discount as a tax deduction.
The law is a legitimate exercise of police power which, similar to the power of eminent domain,
has general welfare for its object. Police power is not capable of an exact definition, but has
been purposely veiled in general terms to underscore its comprehensiveness to meet all
exigencies and provide enough room for an efficient and flexible response to conditions and
circumstances, thus assuring the greatest benefits. 22 Accordingly, it has been described as "the
most essential, insistent and the least limitable of powers, extending as it does to all the great
public needs."23 It is "[t]he power vested in the legislature by the constitution to make, ordain,
and establish all manner of wholesome and reasonable laws, statutes, and ordinances, either
with penalties or without, not repugnant to the constitution, as they shall judge to be for the
good and welfare of the commonwealth, and of the subjects of the same."24
For this reason, when the conditions so demand as determined by the legislature, property
rights must bow to the primacy of police power because property rights, though sheltered by
due process, must yield to general welfare.25
Police power as an attribute to promote the common good would be diluted considerably if on
the mere plea of petitioners that they will suffer loss of earnings and capital, the questioned
provision is invalidated. Moreover, in the absence of evidence demonstrating the alleged
confiscatory effect of the provision in question, there is no basis for its nullification in view of
the presumption of validity which every law has in its favor.26
Given these, it is incorrect for petitioners to insist that the grant of the senior citizen discount is
unduly oppressive to their business, because petitioners have not taken time to calculate
correctly and come up with a financial report, so that they have not been able to show properly
whether or not the tax deduction scheme really works greatly to their disadvantage.27
In treating the discount as a tax deduction, petitioners insist that they will incur losses because,
referring to the DOF Opinion, for every ₱1.00 senior citizen discount that petitioners would give,
₱0.68 will be shouldered by them as only ₱0.32 will be refunded by the government by way of a
tax deduction.
To illustrate this point, petitioner Carlos Super Drug cited the anti-hypertensive maintenance
drug Norvasc as an example. According to the latter, it acquires Norvasc from the distributors at
₱37.57 per tablet, and retails it at ₱39.60 (or at a margin of 5%). If it grants a 20% discount to
senior citizens or an amount equivalent to ₱7.92, then it would have to sell Norvasc  at ₱31.68
which translates to a loss from capital of ₱5.89 per tablet. Even if the government will allow a
tax deduction, only ₱2.53 per tablet will be refunded and not the full amount of the discount
which is ₱7.92. In short, only 32% of the 20% discount will be reimbursed to the drugstores.28
Petitioners’ computation is flawed. For purposes of reimbursement, the law states that the cost No costs.
of the discount shall be deducted from gross income,29 the amount of income derived from all SO ORDERED.
sources before deducting allowable expenses, which will result in net income. Here, petitioners
tried to show a loss on a per transaction basis, which should not be the case. An income
statement, showing an accounting of petitioners’ sales, expenses, and net profit (or loss) for a
given period could have accurately reflected the effect of the discount on their income. Absent
any financial statement, petitioners cannot substantiate their claim that they will be operating
at a loss should they give the discount. In addition, the computation was erroneously based on
the assumption that their customers consisted wholly of senior citizens. Lastly, the 32% tax rate
is to be imposed on income, not on the amount of the discount.
Furthermore, it is unfair for petitioners to criticize the law because they cannot raise the prices
of their medicines given the cutthroat nature of the players in the industry. It is a business
decision on the part of petitioners to peg the mark-up at 5%. Selling the medicines below
acquisition cost, as alleged by petitioners, is merely a result of this decision. Inasmuch as pricing
is a property right, petitioners cannot reproach the law for being oppressive, simply because
they cannot afford to raise their prices for fear of losing their customers to competition.
The Court is not oblivious of the retail side of the pharmaceutical industry and the competitive
pricing component of the business. While the Constitution protects property rights, petitioners
must accept the realities of business and the State, in the exercise of police power, can
intervene in the operations of a business which may result in an impairment of property rights in
the process.
Moreover, the right to property has a social dimension. While Article XIII of the Constitution
provides the precept for the protection of property, various laws and jurisprudence, particularly
on agrarian reform and the regulation of contracts and public utilities, continuously serve as a
reminder that the right to property can be relinquished upon the command of the State for the
promotion of public good.30
Undeniably, the success of the senior citizens program rests largely on the support imparted by
petitioners and the other private establishments concerned. This being the case, the means
employed in invoking the active participation of the private sector, in order to achieve the
purpose or objective of the law, is reasonably and directly related. Without sufficient proof that
Section 4(a) of R.A. No. 9257 is arbitrary, and that the continued implementation of the same
would be unconscionably detrimental to petitioners, the Court will refrain from quashing a
legislative act.31
WHEREFORE, the petition is DISMISSED for lack of merit.