G.R. No.
L-24756            October 31, defendant-appellant liable for the fees
1968
CITY OF BAGUIO, plaintiff-appellee,
vs.
FORTUNATO DE LEON, defendant-
appellant.
The City Attorney for plaintiff-appellee.
Fortunato de Leon for and in his own
behalf as defendant-appellant.
FERNANDO, J.:
In this appeal, a lower court decision
upholding the validity of an ordinance 1 of
the City of Baguio imposing a license fee
on any person, firm, entity or corporation
doing business in the City of Baguio is
assailed by defendant-appellant Fortunato
de Leon. He was held liable as a real
estate dealer with a property therein
worth more than P10,000, but not in
excess of P50,000, and therefore
obligated to pay under such ordinance the
P50 annual fee. That is the principal
question. In addition, there has been a
firm and unyielding insistence by
defendant-appellant of the lack of
jurisdiction of the City Court of Baguio,
where the suit originated, a complaint
having been filed against him by the City
Attorney of Baguio for his failure to pay
the amount of P300 as license fee
covering the period from the first quarter
of 1958 to the fourth quarter of 1962,
allegedly, inspite of repeated demands.
Nor was defendant-appellant agreeable to
such a suit being instituted by the City
Treasurer without the consent of the
Mayor, which for him was indispensable.
The lower court was of a different mind.
In its decision of December 19, 1964, it
declared the above ordinance as
amended, valid and subsisting, and held
impose a license fee for the purpose of
therein prescribed as a real estate dealer.
Hence, this appeal. Assume the validity of
such ordinance, and there would be no
question about the liability of defendant-
appellant for the above license fee, it
being shown in the partial stipulation of
facts, that he was "engaged in the rental
of his property in Baguio" deriving income
therefrom during the period covered by
the first quarter of 1958 to the fourth
quarter of 1962.
The source of authority for the challenged
ordinance is supplied by Republic Act No.
329, amending the city charter of
Baguio2 empowering it to fix the license
fee and regulate "businesses, trades and
occupations as may be established or
practiced in the City."
Unless it can be shown then that such a
grant of authority is not broad enough to
justify the enactment of the ordinance
now assailed, the decision appealed from
must be affirmed. The task confronting
defendant-appellant, therefore, was far
from easy. Why he failed is
understandable, considering that even a
cursory reading of the above amendment
readily discloses that the enactment of the
ordinance in question finds support in the
power thus conferred.
Nor is the question raised by him as to the
validity thereof novel in character.
In Medina v. City of Baguio,3 the effect of
the amendatory section insofar as it would
expand the previous power vested by the
city charter was clarified in these terms:
"Appellants apparently have in mind
section 2553, paragraph (c) of the
Revised Administrative Code, which
empowers the City of Baguio merely to
rating the business that may be
established in the city. The power as thus
conferred is indeed limited, as it does not
include the power to levy a tax. But on
July 15, 1948, Republic Act No. 329 was
enacted amending the charter of said city
and adding to its power to license the
power to tax and to regulate. And it is
precisely having in view this amendment
that Ordinance No. 99 was approved in
order to increase the revenues of the city.
In our opinion, the amendment above
adverted to empowers the city council not
only to impose a license fee but also to
levy a tax for purposes of revenue, more
so when in amending section 2553 (b),
the phrase 'as provided by law' has been
removed by section 2 of Republic Act No.
329. The city council of Baguio, therefore,
has now the power to tax, to license and
to regulate provided that the subjects
affected be one of those included in the
charter. In this sense, the ordinance
under consideration cannot be
considered ultra vires whether its purpose
be to levy a tax or impose a license fee.
The terminology used is of no
consequence."
It would be an undue and unwarranted
emasculation of the above power thus
granted if defendant-appellant were to be
sustained in his contention that no such
statutory authority for the enactment of
the challenged ordinance could be
discerned from the language used in the
amendatory act. That is about all that
needs to be said in upholding the lower
court, considering that the City of Baguio
was not devoid of authority in enacting
this particular ordinance. As mentioned at
the outset, however, defendant-appellant
likewise alleged procedural missteps and
asserted that the challenged ordinance
suffered from certain constitutional
infirmities. To such points raised by him,
we shall now turn.
1. Defendant-appellant makes much of
the alleged lack of jurisdiction of the City
Court of Baguio in the suit for the
collection of the real estate dealer's fee
from him in the amount of P300. He
contended before the lower court, and it is
his contention now, that while the amount
of P300 sought was within the jurisdiction
of the City Court of Baguio where this
action originated, since the principal issue
was the legality and constitutionality of
the challenged ordinance, it is not such
City Court but the Court of First Instance
that has original jurisdiction.
There is here a misapprehension of the
Judiciary Act. The City Court has
jurisdiction. Only recently, on September
7, 1968 to be exact, we rejected a
contention similar in character
in Nemenzo v. Sabillano.4 The plaintiff in
that case filed a claim for the payment of
his salary before the Justice of the Peace
Court of Pagadian, Zamboanga del Sur.
The question of jurisdiction was raised;
the defendant Mayor asserted that what
was in issue was the enforcement of the
decision of the Commission of Civil
Service; the Justice of the Peace Court
was thus without jurisdiction to try the
case. The above plea was curtly dismissed
by Us, as what was involved was "an
ordinary money claim" and therefore
"within the original jurisdiction of the
Justice of the Peace Court where it was
filed, considering the amount involved."
Such is likewise the situation here.
Moreover, in City of Manila v. Bugsuk
Lumber Co.,5 a suit to collect from a
defendant this license fee corresponding
to the years 1951 and 1952 was filed with
the Municipal Court of Manila, in view of
the amount involved. The thought that the
municipal court lacked jurisdiction
apparently was not even in the minds of
the parties and did not receive any
consideration by this Court.
Evidently, the fear is entertained by
defendant-appellant that whenever a
constitutional question is raised, it is the
Court of First Instance that should have
original jurisdiction on the matter. It does
not admit of doubt, however, that what
confers jurisdiction is the amount set forth
in the complaint. Here, the sum sought to
be recovered was clearly within the
jurisdiction of the City Court of Baguio.
Nor could it be plausibly maintained that
the validity of such ordinance being open
to question as a defense against its
enforcement from one adversely affected,
the matter should be elevated to the
Court of First Instance. For the City Court
could rely on the presumption of the
validity of such ordinance,6 and the mere
fact, however, that in the answer to such
a complaint a constitutional question was
raised did not suffice to oust the City
Court of its jurisdiction. The suit remains
one for collection, the lack of validity
being only a defense to such an attempt
at recovery. Since the City Court is
possessed of judicial power and it is
likewise axiomatic that the judicial power
embraces the ascertainment of facts and
the application of the law, the Constitution
as the highest law superseding any
statute or ordinance in conflict therewith,
it cannot be said that a City Court is bereft
of competence to proceed on the matter.
In the exercise of such delicate power,
however, the admonition of Cooley on
inferior tribunals is well worth
remembering. Thus: "It must be evident
to any one that the power to declare a
legislative enactment void is one which
the judge, conscious of the fallibility of the
human judgment, will shrink from
exercising in any case where he can
conscientiously and with due regard to
duty and official oath decline the
responsibility."7 While it remains
undoubted that such a power to pass on
the validity of an ordinance alleged to
infringe certain constitutional rights of a
litigant exists, still it should be exercised
with due care and circumspection,
considering not only the presumption of
validity but also the relatively modest rank
of a city court in the judicial hierarchy.
2. To repeat the challenged ordinance
cannot be considered ultra vires as there
is more than ample statutory authority for
the enactment thereof. Nonetheless, its
validity on constitutional grounds is
challenged because of the allegation that
it imposed double taxation, which is
repugnant to the due process clause, and
that it violated the requirement of
uniformity. We do not view the matter
thus.
As to why double taxation is not violative
of due process, Justice Holmes made clear
in this language: "The objection to the
taxation as double may be laid down on
one side. ... The 14th Amendment [the
due process clause] no more forbids
double taxation than it does doubling the
amount of a tax, short of confiscation or
proceedings unconstitutional on other
grounds."8With that decision rendered at a
time when American sovereignty in the
Philippines was recognized, it possesses
more than just a persuasive effect. To
some, it delivered the coup de grace to
the bogey of double taxation as a
constitutional bar to the exercise of the
taxing power. It would seem though that
in the United States, as with us, its ghost
as noted by an eminent critic, still stalks
the juridical state. In a 1947 decision,
however,9 we quoted with approval this
excerpt from a leading American
decision:10 "Where, as here, Congress has
clearly expressed its intention, the statute
must be sustained even though double
taxation results."
At any rate, it has been expressly affirmed
by us that such an "argument against
double taxation may not be invoked where
one tax is imposed by the state and the
other is imposed by the city ..., it being
widely recognized that there is nothing
inherently obnoxious in the requirement
that license fees or taxes be exacted with
respect to the same occupation, calling or
activity by both the state and the political
subdivisions thereof."11
The above would clearly indicate how
lacking in merit is this argument based on
double taxation.
Now, as to the claim that there was a
violation of the rule of uniformity
established by the constitution. According
to the challenged ordinance, a real estate
dealer who leases property worth P50,000
or above must pay an annual fee of P100.
If the property is worth P10,000 but not
over P50,000, then he pays P50 and P24 if
the value is less than P10,000. On its
face, therefore, the above ordinance
cannot be assailed as violative of the
constitutional requirement of uniformity.
In Philippine Trust Company v.
12
Yatco,  Justice Laurel, speaking for the
Court, stated: "A tax is considered
uniform when it operates with the same
force and effect in every place where the
subject may be found."
There was no occasion in that case to
consider the possible effect on such a
constitutional requirement where there is
a classification. The opportunity came
in Eastern Theatrical Co. v.
Alfonso.13 Thus: "Equality and uniformity
in taxation means that all taxable articles
or kinds of property of the same class
shall be taxed at the same rate. The
taxing power has the authority to make
reasonable and natural classifications for
purposes of taxation; ..." About two years
later, Justice Tuason, speaking for this
Court in Manila Race Horses Trainers
Assn. v. De la Fuente 14 incorporated the
above excerpt in his opinion and
continued: "Taking everything into
account, the differentiation against which
the plaintiffs complain conforms to the
practical dictates of justice and equity and
is not discriminatory within the meaning
of the Constitution."
To satisfy this requirement then, all that is
needed as held in another case decided
two years later, 15 is that the statute or
ordinance in question "applies equally to
all persons, firms and corporations placed
in similar situation." This Court is on
record as accepting the view in a leading
American case16 that "inequalities which
result from a singling out of one particular
class for taxation or exemption infringe no
constitutional limitation."17
It is thus apparent from the above that in
much the same way that the plea of
double taxation is unavailing, the
allegation that there was a violation of the
principle of uniformity is inherently lacking
in persuasiveness. There is no need to
pass upon the other allegations to assail
the validity of the above ordinance, it
being maintained that the license fees
therein imposed "is excessive,
unreasonable and oppressive" and that
there is a failure to observe the mandate
of equal protection. A reading of the
ordinance will readily disclose their
inherent lack of plausibility.
3. That would dispose of all the errors
assigned, except the last two, which
would predicate a grievance on the
complaint having been started by the City
Treasurer rather than the City Mayor of
Baguio. These alleged errors, as was the
case with the others assigned, lack merit.
In much the same way that an act of a
department head of the national
government, performed within the limits
of his authority, is presumptively the act
of the President unless reprobated or
disapproved,18 similarly the act of the City
Treasurer, whose position is roughly
analogous, may be assumed to carry the
seal of approval of the City Mayor unless
repudiated or set aside. This should be the
case considering that such city official is
called upon to see to it that revenues due
the City are collected. When
administrative steps are futile and
unavailing, given the stubbornness and
obduracy of a taxpayer, convinced in good
faith that no tax was due, judicial remedy
may be resorted to by him. It would be a
reflection on the state of the law if such
fidelity to duty would be met by
condemnation rather than commendation.
So, much for the analytical approach. The
conclusion thus reached has a
reinforcement that comes to it from the
functional and pragmatic test. If a city
treasurer has to await the nod from the
city mayor before a municipal ordinance is
enforced, then opportunity exists for
favoritism and undue discrimination to
come into play. Whatever valid reason
may exist as to why one taxpayer is to be
accorded a treatment denied another, the
suspicion is unavoidable that such a
manifestation of official favor could have
been induced by unnamed but not
unknown consideration. It would not be
going too far to assert that even
defendant-appellant would find no
satisfaction in such a sad state of affairs.
The more desirable legal doctrine
therefore, on the assumption that a choice
exists, is one that would do away with
such temptation on the part of both
taxpayer and public official alike.
WHEREFORE, the lower court decision of
December 19, 1964, is hereby affirmed.
Costs against defendant-appellant.
G.R. No. L-1104             May 31, 1949
EASTERN THEATRICAL CO., INC., ET
AL., plaintiffs-appellants,
vs.
VICTOR, ALFONSO as City Treasurer
of Manila, THE MUNICIPAL BOARD OF
THE CITY OF MANILA, and JUAN
NOLASCO, as Mayor of the City of
Manila, defendants-appellees.
Francisco Zulueta and Poblador Jr. for
appellants.
City Fiscal Jose P. Bengzon and Assistant
City Fiscal Julio Villamor for appellees.
Assistant Solicitor General Carmelino G.
Alvendia, Solicitor Guillermo E.Torres and
Manuel D. Baldeo as amicus curiae.
PERFECTO, J.:
Twelve corporation engaged in motion
picture business have initiated these
proceeding through a complaint dated
May 5, 1946, to impugn the validity of
Ordinance No. 2958 of the City of Manila
which was enacted by the municipalBoard
of said city on April 25 1946 approved by
the Mayor on April 27, 1946 and took
effect on May 1, 1946 said ordinance
reading as follows:
AN ORDINANCE IMPOSING A FEE ON THE
PRICE OF EVERY ADMISSION TICKET
SOLD BY CINEMATOGRAPHS, THEATERS
VAUDEVILLE COMPANIES THEATRICAL
SHOWS AND BOXING EXHIBITION AND
PROVIDING FOR OTHER PURPOSES.
SEC. 1. In addition to the fees paid by
cinematographers, theaters, vaudeville
companies, theatrical shows and boxing
exhibitions, as provided for in sections
633 and 778 of Ordinance No. 1600,
known as the Revised Ordinance of the
City of Manila, as amended, there shall be
collected from the place of amusement
which are specifically mentioned above performances or exhibition has taken
the following fees on the price of every place.
admission ticket sold by such enterprises: SEC. 3. The fees herein prescribed shall
a. For every ticket sold the price of notwhich
be paid where the admission fees or
is from
P0.25 to P0.99 charge are collection for and in behalf of
any charitable education or religion
b. For every ticket sold the price of which is from
institution or association.
P1 to P1.99
All place of amusement which are operate
c. For every ticket sold the price of by which
U.S. is Army
from and Navy with fund
P2 to P2.99 belonging to the U.S. Government are
d. for every ticket sold the price of hereby
which is from P3
exempted from fees herein
to P4.99 imposed.
SEC. 4.
e. or every ticket sold the price of which Any person
is from P5 violation any of the
to P5.99 provision of this ordinance shall upon
conviction thereof be punished by a fine of
f. For every ticket sold the price of which is from P0
not more than P200 or by imprisonment
to P14.99
for not more than six months or by both
g. For ticket sold thee price of which is from
such fineP15and
or imprisonment in the
more discretion of the court. If the violation is
SEC. 2 It shall be the duty of every committed by the club firm or corporation
proprietor lessee, promoter, or operatorof the manager the managing director or
such cinematographs, theater, vaudeville person charged with the management of
companies, theatrical show and boxing the business of such club firm or
exhibition to provide himself with tickets corporation shall be criminally responsible
which shall be serially numbered, therefor.
indication therein the name of amusement SEC. 5. This Ordinance shall take effect on
place and the fee charge for admission. the May 1, 1946.
Before such ticket are sold he same shall Plaintiffs, operator of theaters in Manila
be presented to the office of the city And distributor of local or imported films
Treasurer for registration. Tickets once allege that they are interested in the
issued and presented at the gate of provision of section 1,2 and 4 of said
entrance shall be cut by the gatekeeper ordinance which they impugn as null and
into halves, the first half to be returned to void upon the following grounds: (a) For
the customer and the other half to be violation the Constitution more particular
retained by the gate keeper. the provision regarding the uniformity and
It shall also be the duty of said proprietor equality of taxation and thee equal
lessee promoter or operator to deliver to protection of the laws; (b) because the
the Office of the City Treasurer the fees Municipal Board of Manila exceeded and
corresponding to the number of ticket old over-stepped the power granted it the
by him within two days after the Charter of the City of Manila; (c) because
it contravenes violates and is inconsistent
with, existing nationallegislation more
particularly revenue and tax laws and (d)
because it is unfair, unjust, arbitrary
capricious unreasonable oppressive and is
contrary to and violation our basic and
recognizes principles of taxation and
licensing laws.
Defendants allege as affirmative defenses
the following: (a) That the ordinance was
passed by the Municipal Board of Manila
by virtue of its express legislative power
to tax fix the license fee and regulate the
business of theaters, cinematographs and
further to fix the location of and to tax, fix
the license fee for and regulate the
business of theatrical performances public
exhibition circus and other performances
and places of amusement; (b) that the
graduated tax required by said ordinance
being applied to all cinematographs,
theaters, vaudeville companies
theatricalshow and boxing exhibitions
similarly situated and as a class without
distinction or exception the same does not
violate the prohibition against uniformity
and equality of taxation; (c) that the
graduated tax onadmission tickets to
theaters and other places of amusement
imposed by the National Internal Revenue
Code (Commonwealth Act No. 466) is
collected by and for the purposes of the
National Government, whereas, Ordinance
No.2958 imposes and requires the
collection of a similar tax by and for the
purposes of the Government of the City of
Manila, and there is no case of double
taxation, (d) that said ordinance having
been enacted under the express power of
the Municipal Board to tax for revenue as
distinguishedfrom its power to license for
purely police purposes, the fact that the
amount collected thereunder are higher
than what are needed for police regulation
and supervision does not render said
ordinance unfair unjust capricious
unreasonable and oppressive; (e) that
consideration the nature of the business of
the plaintiffs and the enormous volume of
business they handle the graduated tax
fixed by the ordinance is not
unreasonable.
Defendants allege also that since May 1,
1946, when the ordinance in question
took effect plaintiffs have been charging
the theater-going public increased prices
for admission to the cinematographs
owned and operated to the graduated tax
imposed by said ordinance and as a result
while refusing to pay said tax but at the
same time collecting an amount equal to
said tax plaintiffs have taken undue
advantage of said ordinance to realized
more profits.
On September 5, 1946, Judge Emilio Pena
of the court of first Instance of Manila
rendered a decision upholding the validity
of Ordinance No. 2958.
Plaintiffs appellants assign in the their
brief three errors committed by the trial
court. We will consider them separately.
Appellants contend that the lower court
erred in holding that under section 2444
(m) of the Revised administrative Code
the Municipal Board of the City ofManila
had the power to enact Ordinance No.
2958.
Section 2444 (m) of the Revised
Administrative code reads as follows:
To tax fix the license fee and regulate the
business of hotels restaurants
refreshment places, cafes, lodging houses,
boarding houses livery garages
warehouses, pawnshops theaters,
cinematographs; and further to fix the
location of and to tax fix the license fee
for and regulate the businessof lively
stables, the license fee for and regulate
the business of livery stable, boarding
stables, embalmers, public billiard table
public pool tables, bowling alleys, dance
halls, public dancing halls, cabarets,
circusand other similar parades, public
vehicles, race tracks, horse races,Junk
dealers, theatrical performances, public
exhibitions, circus andother performances
and places of amusements, match
factories, blacksmith shops, foundries,
steam boilers, lumber yards, shipyards,
thestorage and sale of gunpowder, tar,
pitch, resin, coal, oil, gasoline,benzene,
turpentine, 'hemp, cotton, nitroglycerin,
petroleum or any Ofthe products thereof
and of all other highly combustible or
explosivematerials and other
establishment likely to endanger the
public safety or give rise to conflagration
or explosion and subject to the provision
of ordinance issue by the (Philippines
Health Service) Bureau of Health in
accordance with law tanneries, renders
tallow chandlers bone factories and soap
factories.
Appellants line of argument runs as
follows:
By virtue of the specific power granted in
the above quoted provision of the Revised
Administration Code Ordinance No. 2958
was enacted.
On August 7, 1940 the National Assembly
enacted Commonwealth Act No. 466,
known as the National Internal Revenue
Code section 18, 260 and 261 of which
read as follows:
SEC. 18. Sources of revenue. — The
following taxes fees and charges are
deemed to be national internal revenue
taxes:
(a) Income tax;
(b) Estate inheritance and gift taxes;
(c) Specific taxes on certain articles;
(d) Privilege taxes on business or
occupation;
(e) Documentary stamp taxes;
(f) Mining taxes;
(g) Miscellaneous taxes fees and charges,
namely, taxes on banks and insurance
companies franchise taxes on
amusements charges on forest product
fees for sealing weights and measures
firearms license fees radio registration
fees and water rentals.
SEC. 260. Amusement taxes. — There
shall be collected from the proprietor,
lessee, or operation of theater
cinematographs, concert halls, circuses,
boxing exhibition and other places of
amusement the following taxes:
(a) When the amount paid for admission
exceeds twenty-nine centavos, two
centavos on each admission;
(b) When the amount paid for admission
exceeds twenty-nine but does not exceed
thirty-nine centavos, three centavos on
each admission;
(c) When the amount paid for admission
exceeds thirty-nine centavos but does not
exceed forty-nine centavos four centavos
on each admission.
(d) When the amount paid for admission
exceeds forty-nine centavos but does not
exceed fifty-nine centavos five admission.
(e) When the amount paid for admission
exceeds fifty-nine centavos but does not
exceed sixty-nine centavos six centavos
on each admission.
(f) When the amount paid for admission
exceeds sixty-nine centavos but does not
exceed seventy nine centavos seven
centavos on each admission.
(g) When the amount paid for admission
exceeds seventy nine centavos but does
not exceed eighty-nine centavos eight
centavos on each admission;
(h) When the amount paid for admission
exceeds eighty-nine centavos but does not
exceed ninty-nine centavos, nine centavos
on each admission;
(i) When the amount paid for admission
exceeds ninety-nine centavos, ten
centavos on each admission.
In the case of theaters or cinematographs,
the taxes herein prescribed shall first be
decuted and withheld by the proprietros,
lessees, or operators of such theaters or
cinematogrphs and paid to the Collector of
Internal Revenue before the gross receipts
are divided between the proprietros,
lessees, or operators of the theaters of
cinematographs and the distributors of the
cinematographic films.
In the case of cockpits, race tracks, and
cabarets, there shall be collected from the
proprietor, lessee, or operator a tax
equivalent to ten per centum of the gross
receipts, irrespective of whether or not
any amount is charged or paid for
admission: Provided, however, That in the
case of race tracks, this tax is in addition
to the privilege tax prescribed in seciton
193. for the purpose of the amusement
tax, the term "gross receipts" embraces
all the receipts of the proprietor, lessee,
or operator of the amusement place,
excluding the receipts derived by him
from the sale of liquors, beverages, or
other articles subject to specific tax, or
from any business subject to tax under
this Code. (This section was amended by
section 8, Republic Act No. 39, effective
October 1, 1946. We are quoting the
original provision to show the status of the
law when the Ordinance was passed.)
SEC. 261. Exemption. — The tax herein
imposed shall not be paid where the
admission fee or charges are collected by
or for and in behalf of any religious,
charitable, scientific, or educational
institution or association, and where no
part of the net proceeds of such admission
fees or charges inures to the benefit of
any private stockholder or individual.
Ordinance No. 2958 does not specify the
kind of the tax sought to be imposed but
the seven schedules and other details of
said ordinance are, in every respect,
identical with the amusement tax provided
by section 260 of Commonwealth Act No.
466.
But, plaintiffs argue, that section 2444(m)
of the Revised Administrative Code
confers upon the City of Manila the power
to impose a tax on business but not on
amusement and, consequently, Ordinance
No. 2958 was enacted beyond the charter
powers of the City of Manila.
The whole argument of plaintiffs hinges,
therefore, on the assumption that the
power granted to the City of Manila by
section 2444(m) of the Revised
Administrative Code is limited to the
authority to impose a tax on business,
with exclusion of the power to impose a
tax amusement; but, the assumption is
based on an arbitrary labeling of the kind
of tax authorized by said section 2444(m).
The distinction made by plaintiffs as to the
power to tax on business and the power to
tax on amusement has no ground under
the provisions of section 2444(m) of the
Revised Administrative Code. The tax
therein authorized cannot be defined as
tax on business and cannot be restricted
within a smaller scope than what is
authorized by the words used, to the
extent of excluding what plaintiffs
describe as tax on amusement.
The very fact that section 2444 (m) of the
Revised Administrative Code includes
theaters, cinematographs, public billiard
tables, public pool tables, bowling alleys,
dance halls, public dancing halls, cabarets,
circuses and other similar places, race
tracks, horse races, theatrical
performances, public exhibition, circus
and other performances and places of
amusements, will show conclusively that
the power to tax amusement is expressly
included within the power granted by
section 2444(m) of the Revised
Administrative Code.
Plaintiffs-appellants contend that the
lower court erred in not holding that
section 2444 (m) of the Revised
Administrative Code was repealed or the
power therein contained was withdrawn
by the National Assembly by the
enactment of Commonwealth Act No. 466
known as the National Internal Revenue
Code.
In support of this contention, plaintiffs
aver that the Charter of the City of Manila,
containing section 2444(m) of the Revised
Administrative Code, was enacted on
December 8, 1929. On April 25, 1940, the
National Assembly enacted
Commonwealth Act No. 466, including
provisions on amusement tax, covering equality and uniformity of the tax
the whole field on taxation and provided imposition. Equality and uniformity of the
for more than what the ordinance in tax imposition. Equality and uniformity in
question has provided. As a result, there taxation means that all taxable articles or
are two taxing powers seeking to occupy kinds of property of the same class shall
exactly the same field of legislation, and be taxed at the same rate. The taxing
so the apparent conflict must be resolved power has the authority to make
with the conclusion that, with the reasonable and natural classifications for
enactment of Commonwealth Act No. 466, purposes of taxation; and the appellants
as later amended by Republic Act No. 39, cannot point out what places of
section 2444(m) of the Revised amusement taxed by the ordinance do not
Administrative Code has been impliedly constitute a class by themselves and
repealed and the power therein delegated which can be confused with those not
to the City of Manila withdrawn. included in the ordinance.
We see absolutely no force in plaintiffs' The judgment of the trial court is affirmed
contention. The conflict pointed out by with costs against appellants.
them is imaginary. Both provisions of law
may stand together and be enforced at
the same time without any incompatibility
among themselves.
Finally, plaintiffs contend that the trial
court erred in not holding that Ordinance
No. 2958 violated the principle of equality
and uniformity of taxation enjoined by the
Constitution (sec. 22, sub-sec. 1, Art. VI,
Constitution of the philippines).
To support this contention, appellantts
point out to the fact that the ordinance in
question does not tax "many more kinds
of amusements" than those therein
specified, such as "race tracks, cockpits,
cabarets, concert halls, circuses, and
other places of amusement." the
argument has absolutely no merit. The
fact that some places of amusement are
not taxed while others, such as
cinematographs, theaters, vaudeville
companies, theatrical shows, and boxing
exhibitions and other kinds of
amusements or places of amusement are
taxed, is no argument at all against the
G.R. No. 179579               February 1,
2012
COMMISSIONER OF CUSTOMS and the
DISTRICT COLLECTOR OF THE PORT
OF SUBIC, Petitioners,
vs.
HYPERMIX FEEDS
CORPORATION, Respondent.
DECISION
SERENO, J.:
Before us is a Petition for Review under
Rule 45,1 assailing the Decision2 and the
Resolution3 of the Court of Appeals (CA),
which nullified the Customs Memorandum
Order (CMO) No. 27-20034 on the tariff
classification of wheat issued by petitioner
Commissioner of Customs.
The antecedent facts are as follows:
On 7 November 2003, petitioner
Commissioner of Customs issued CMO 27-
2003. Under the Memorandum, for tariff
purposes, wheat was classified according
to the following: (1) importer or
consignee; (2) country of origin; and (3)
port of discharge.5 The regulation provided
an exclusive list of corporations, ports of
discharge, commodity descriptions and
countries of origin. Depending on these
factors, wheat would be classified either
as food grade or feed grade. The
corresponding tariff for food grade wheat
was 3%, for feed grade, 7%.
CMO 27-2003 further provided for the
proper procedure for protest or Valuation
and Classification Review Committee
(VCRC) cases. Under this procedure, the
release of the articles that were the
subject of protest required the importer to
post a cash bond to cover the tariff
differential.6
A month after the issuance of CMO 27-
2003, on 19 December 2003, respondent
filed a Petition for Declaratory Relief7 with
the Regional Trial Court (RTC) of Las Piñas
City. It anticipated the implementation of
the regulation on its imported and
perishable Chinese milling wheat in transit
from China.8 Respondent contended that
CMO 27-2003 was issued without
following the mandate of the Revised
Administrative Code on public
participation, prior notice, and publication
or registration with the University of the
Philippines Law Center.
Respondent also alleged that the
regulation summarily adjudged it to be a
feed grade supplier without the benefit of
prior assessment and examination; thus,
despite having imported food grade
wheat, it would be subjected to the 7%
tariff upon the arrival of the shipment,
forcing them to pay 133% more than was
proper.
Furthermore, respondent claimed that the
equal protection clause of the Constitution
was violated when the regulation treated
non-flour millers differently from flour
millers for no reason at all.
Lastly, respondent asserted that the
retroactive application of the regulation
was confiscatory in nature.
On 19 January 2004, the RTC issued a
Temporary Restraining Order (TRO)
effective for twenty (20) days from
notice.9
Petitioners thereafter filed a Motion to
Dismiss.10 They alleged that: (1) the RTC
did not have jurisdiction over the subject
matter of the case, because respondent
was asking for a judicial determination of
the classification of wheat; (2) an action
for declaratory relief was improper; (3)
CMO 27-2003 was an internal
administrative rule and not legislative in
nature; and (4) the claims of respondent
were speculative and premature, because
the Bureau of Customs (BOC) had yet to
examine respondent’s products. They
likewise opposed the application for a writ
of preliminary injunction on the ground
that they had not inflicted any injury
through the issuance of the regulation;
and that the action would be contrary to
the rule that administrative issuances are
assumed valid until declared otherwise.
On 28 February 2005, the parties agreed
that the matters raised in the application
for preliminary injunction and the Motion
to Dismiss would just be resolved together
in the main case. Thus, on 10 March
2005, the RTC rendered its
11 
Decision without having to resolve the
application for preliminary injunction and
the Motion to Dismiss.
The trial court ruled in favor of
respondent, to wit:
WHEREFORE, in view of the foregoing, the
Petition is GRANTED and the subject
Customs Memorandum Order 27-2003 is
declared INVALID and OF NO FORCE AND
EFFECT. Respondents Commissioner of
Customs, the District Collector of Subic or
anyone acting in their behalf are to
immediately cease and desist from
enforcing the said Customs Memorandum
Order 27-2003.
SO ORDERED.12
The RTC held that it had jurisdiction over
the subject matter, given that the issue
raised by respondent concerned the quasi-
legislative powers of petitioners. It
likewise stated that a petition for
declaratory relief was the proper remedy,
and that respondent was the proper party
to file it. The court considered that
respondent was a regular importer, and
that the latter would be subjected to the
application of the regulation in future
transactions.
With regard to the validity of the
regulation, the trial court found that
petitioners had not followed the basic
requirements of hearing and publication in
the issuance of CMO 27-2003. It likewise
held that petitioners had "substituted the
quasi-judicial determination of the
commodity by a quasi-legislative
predetermination."13 The lower court
pointed out that a classification based on
importers and ports of discharge were
violative of the due process rights of
respondent.
Dissatisfied with the Decision of the lower
court, petitioners appealed to the CA,
raising the same allegations in defense of
CMO 27-2003.14 The appellate court,
however, dismissed the appeal. It held
that, since the regulation affected
substantial rights of petitioners and other
importers, petitioners should have
observed the requirements of notice,
hearing and publication.
Hence, this Petition.
Petitioners raise the following issues for
the consideration of this Court:
I. THE COURT OF APPEALS DECIDED A
QUESTION OF SUBSTANCE WHICH IS NOT
IN ACCORD WITH THE LAW AND
PREVAILING JURISPRUDENCE.
II. THE COURT OF APPEALS GRAVELY
ERRED IN DECLARING THAT THE TRIAL
COURT HAS JURISDICTION OVER THE
CASE.
The Petition has no merit.
We shall first discuss the propriety of an
action for declaratory relief.
Rule 63, Section 1 provides:
Who may file petition. – Any person
interested under a deed, will, contract or
other written instrument, or whose rights
are affected by a statute, executive order
or regulation, ordinance, or any other
governmental regulation may, before
breach or violation thereof, bring an
action in the appropriate Regional Trial
Court to determine any question of
construction or validity arising, and for a
declaration of his rights or duties,
thereunder.
The requirements of an action for
declaratory relief are as follows: (1) there
must be a justiciable controversy; (2) the
controversy must be between persons
whose interests are adverse; (3) the party
seeking declaratory relief must have a
legal interest in the controversy; and (4)
the issue involved must be ripe for judicial
determination.15 We find that the Petition
filed by respondent before the lower court
meets these requirements.
First, the subject of the controversy is the
constitutionality of CMO 27-2003 issued
by petitioner Commissioner of Customs.
In Smart Communications v. NTC,16 we
held:
The determination of whether a specific
rule or set of rules issued by an
administrative agency contravenes the law
or the constitution is within the
jurisdiction of the regular courts. Indeed,
the Constitution vests the power of
judicial review or the power to declare a
law, treaty, international or executive
agreement, presidential decree, order,
instruction, ordinance, or regulation in the
courts, including the regional trial courts.
This is within the scope of judicial power,
which includes the authority of the courts
to determine in an appropriate action the
validity of the acts of the political
departments. Judicial power includes the
duty of the courts of justice to settle
actual controversies involving rights which
are legally demandable and enforceable,
and to determine whether or not there has
been a grave abuse of discretion
amounting to lack or excess of jurisdiction
on the part of any branch or
instrumentality of the Government.
(Emphasis supplied)
Meanwhile, in Misamis Oriental
Association of Coco Traders, Inc. v.
Department of Finance Secretary,17 we
said:
xxx [A] legislative rule is in the nature of
subordinate legislation, designed to
implement a primary legislation by
providing the details thereof. xxx
In addition such rule must be published.
On the other hand, interpretative rules are
designed to provide guidelines to the law
which the administrative agency is in
charge of enforcing.
Accordingly, in considering a legislative
rule a court is free to make three
inquiries: (i) whether the rule is within the
delegated authority of the administrative
agency; (ii) whether it is reasonable;
and (iii) whether it was issued pursuant to
proper procedure. But the court is not free
to substitute its judgment as to the
desirability or wisdom of the rule for the
legislative body, by its delegation of
administrative judgment, has committed
those questions to administrative
judgments and not to judicial judgments.
In the case of an interpretative rule, the
inquiry is not into the validity but into the
correctness or propriety of the rule. As a
matter of power a court, when confronted
with an interpretative rule, is free
to (i) give the force of law to the
rule; (ii) go to the opposite extreme and
substitute its judgment; or (iii) give some
intermediate degree of authoritative
weight to the interpretative rule.
(Emphasis supplied)
Second, the controversy is between two
parties that have adverse interests.
Petitioners are summarily imposing a tariff
rate that respondent is refusing to pay.
Third, it is clear that respondent has a
legal and substantive interest in the
implementation of CMO 27-2003.
Respondent has adequately shown that,
as a regular importer of wheat, on 14
August 2003, it has actually made
shipments of wheat from China to Subic.
The shipment was set to arrive in
December 2003. Upon its arrival, it would
be subjected to the conditions of CMO 27-
2003. The regulation calls for the
imposition of different tariff rates,
depending on the factors enumerated
therein. Thus, respondent alleged that it
would be made to pay the 7% tariff
applied to feed grade wheat, instead of
the 3% tariff on food grade wheat. In
addition, respondent would have to go
through the procedure under CMO 27-
2003, which would undoubtedly toll its
time and resources. The lower court
correctly pointed out as follows:
xxx As noted above, the fact that
petitioner is precisely into the business of
importing wheat, each and every
importation will be subjected to constant
disputes which will result into (sic) delays
in the delivery, setting aside of funds as
cash bond required in the CMO as well as
the resulting expenses thereof. It is easy
to see that business uncertainty will be a
constant occurrence for petitioner. That
the sums involved are not minimal is
shown by the discussions during the
hearings conducted as well as in the
pleadings filed. It may be that the
petitioner can later on get a refund but
such has been foreclosed because the
Collector of Customs and the
Commissioner of Customs are bound by
their own CMO. Petitioner cannot get its
refund with the said agency. We believe
and so find that Petitioner has presented
such a stake in the outcome of this
controversy as to vest it with standing to
file this petition.18 (Emphasis supplied)
Finally, the issue raised by respondent is
ripe for judicial determination, because
litigation is inevitable19 for the simple and
uncontroverted reason that respondent is
not included in the enumeration of flour
millers classified as food grade wheat
importers. Thus, as the trial court stated,
it would have to file a protest case each
time it imports food grade wheat and be
subjected to the 7% tariff.
It is therefore clear that a petition for
declaratory relief is the right remedy given
the circumstances of the case.
Considering that the questioned regulation
would affect the substantive rights of
respondent as explained above, it
therefore follows that petitioners should
have applied the pertinent provisions of
Book VII, Chapter 2 of the Revised
Administrative Code, to wit:
Section 3. Filing. – (1) Every agency shall
file with the University of the Philippines
Law Center three (3) certified copies of
every rule adopted by it. Rules in force on
the date of effectivity of this Code which
are not filed within three (3) months from
that date shall not thereafter be the bases
of any sanction against any party of
persons.
x x x           x x x          x x x
Section 9. Public Participation. - (1) If not
otherwise required by law, an agency
shall, as far as practicable, publish or
circulate notices of proposed rules and
afford interested parties the opportunity
to submit their views prior to the adoption
of any rule.
(2) In the fixing of rates, no rule or final
order shall be valid unless the proposed
rates shall have been published in a
newspaper of general circulation at least
two (2) weeks before the first hearing
thereon.
(3) In case of opposition, the rules on
contested cases shall be observed.
When an administrative rule is merely
interpretative in nature, its applicability
needs nothing further than its bare
issuance, for it gives no real consequence
more than what the law itself has already
prescribed. When, on the other hand, the
administrative rule goes beyond merely
providing for the means that can facilitate
or render least cumbersome the
implementation of the law but
substantially increases the burden of
those governed, it behooves the agency to
accord at least to those directly affected a
chance to be heard, and thereafter to be
duly informed, before that new issuance is
given the force and effect of law.20
Likewise, in Tañada v. Tuvera,21 we held:
The clear object of the above-quoted
provision is to give the general public
adequate notice of the various laws which
are to regulate their actions and conduct
as citizens. Without such notice and
publication, there would be no basis for
the application of the maxim "ignorantia
legis non excusat." It would be the height
of injustice to punish or otherwise burden
a citizen for the transgression of a law of
which he had no notice whatsoever, not
even a constructive one.
Perhaps at no time since the
establishment of the Philippine Republic
has the publication of laws taken so vital
significance that at this time when the
people have bestowed upon the President
a power heretofore enjoyed solely by the
legislature. While the people are kept
abreast by the mass media of the debates
and deliberations in the Batasan
Pambansa – and for the diligent ones,
ready access to the legislative records –
no such publicity accompanies the law-
making process of the President. Thus,
without publication, the people have no
means of knowing what presidential
decrees have actually been promulgated,
much less a definite way of informing
themselves of the specific contents and
texts of such decrees. (Emphasis
supplied)
Because petitioners failed to follow the
requirements enumerated by the Revised
Administrative Code, the assailed
regulation must be struck down.
Going now to the content of CMO 27-
3003, we likewise hold that it is
unconstitutional for being violative of the
equal protection clause of the
Constitution.
The equal protection clause means that no
person or class of persons shall be
deprived of the same protection of laws
enjoyed by other persons or other classes
in the same place in like circumstances.
Thus, the guarantee of the equal
protection of laws is not violated if there is
a reasonable classification. For a in the second, the state carries that
classification to be reasonable, it must be
shown that (1) it rests on substantial
distinctions; (2) it is germane to the
purpose of the law; (3) it is not limited to
existing conditions only; and (4) it applies
equally to all members of the same
class.22
Unfortunately, CMO 27-2003 does not
meet these requirements. We do not see
how the quality of wheat is affected by
who imports it, where it is discharged, or
which country it came from.
Thus, on the one hand, even if other
millers excluded from CMO 27-2003 have
imported food grade wheat, the product
would still be declared as feed grade
wheat, a classification subjecting them to
7% tariff. On the other hand, even if the
importers listed under CMO 27-2003 have
imported feed grade wheat, they would
only be made to pay 3% tariff, thus
depriving the state of the taxes due. The
regulation, therefore, does not become
disadvantageous to respondent only, but
even to the state.
It is also not clear how the regulation
intends to "monitor more closely wheat
importations and thus prevent their
misclassification." A careful study of CMO
27-2003 shows that it not only fails to
achieve this end, but results in the
opposite. The application of the regulation
forecloses the possibility that other
corporations that are excluded from the
list import food grade wheat; at the same
time, it creates an assumption that those
who meet the criteria do not import feed
grade wheat. In the first case, importers
are unnecessarily burdened to prove the
classification of their wheat imports; while
burden.
Petitioner Commissioner of Customs also
went beyond his powers when the
regulation limited the customs officer’s
duties mandated by Section 1403 of the
Tariff and Customs Law, as amended. The
law provides:
Section 1403. – Duties of Customs Officer
Tasked to Examine, Classify, and Appraise
Imported Articles. – The customs officer
tasked to examine, classify, and appraise
imported articles shall determine whether
the packages designated for examination
and their contents are in accordance with
the declaration in the entry, invoice and
other pertinent documents and shall make
return in such a manner as to indicate
whether the articles have been truly and
correctly declared in the entry as regard
their quantity, measurement, weight, and
tariff classification and not imported
contrary to law. He shall submit samples
to the laboratory for analysis when
feasible to do so and when such analysis
is necessary for the proper classification,
appraisal, and/or admission into the
Philippines of imported articles.
Likewise, the customs officer shall
determine the unit of quantity in which
they are usually bought and sold, and
appraise the imported articles in Finally, petitioner Commissioner of
accordance with Section 201 of this Code. Customs went beyond his powers of
Failure on the part of the customs officer delegated authority when the regulation
to comply with his duties shall subject him limited the powers of the customs officer
to the penalties prescribed under Section to examine and assess imported articles.
3604 of this Code.1âwphi1 WHEREFORE, in view of the foregoing, the
The provision mandates that the customs Petition is DENIED.
officer must first assess and determine the SO ORDERED.
classification of the imported article before
tariff may be imposed. Unfortunately,
CMO 23-2007 has already classified the
article even before the customs officer had
the chance to examine it. In effect,
petitioner Commissioner of Customs
diminished the powers granted by the
Tariff and Customs Code with regard to
wheat importation when it no longer
required the customs officer’s prior
examination and assessment of the proper
classification of the wheat.
It is well-settled that rules and
regulations, which are the product of a
delegated power to create new and
additional legal provisions that have the
effect of law, should be within the scope
of the statutory authority granted by the
legislature to the administrative agency. It
is required that the regulation be germane
to the objects and purposes of the law;
and that it be not in contradiction to, but
in conformity with, the standards
23
prescribed by law.
In summary, petitioners violated
respondent’s right to due process in the
issuance of CMO 27-2003 when they failed
to observe the requirements under the
Revised Administrative Code. Petitioners
likewise violated respondent’s right to
equal protection of laws when they
provided for an unreasonable classification
in the application of the regulation.
G.R. No. 115455 October 30, 1995 G.R. No. 115754 October 30, 1995 capacity as the Commissioner of
ARTURO M. TOLENTINO, petitioner, CHAMBER OF REAL ESTATE AND Internal Revenue, HON. TEOFISTO T.
vs. BUILDERS ASSOCIATIONS, INC., GUINGONA, JR., in his capacity as
THE SECRETARY OF FINANCE and THE (CREBA), petitioner, Executive Secretary, and HON.
COMMISSIONER OF INTERNAL vs. ROBERTO B. DE OCAMPO, in his
REVENUE, respondents. THE COMMISSIONER OF INTERNAL capacity as Secretary of
G.R. No. 115525 October 30, 1995 REVENUE, respondent. Finance, respondents.
JUAN T. DAVID, petitioner, G.R. No. 115781 October 30, 1995 G.R. No. 115931 October 30, 1995
vs. KILOSBAYAN, INC., JOVITO R. PHILIPPINE EDUCATIONAL
TEOFISTO T. GUINGONA, JR., as SALONGA, CIRILO A. RIGOS, ERME PUBLISHERS ASSOCIATION, INC. and
Executive Secretary; ROBERTO DE CAMBA, EMILIO C. CAPULONG, JR., ASSOCIATION OF PHILIPPINE BOOK
OCAMPO, as Secretary of Finance; JOSE T. APOLO, EPHRAIM TENDERO, SELLERS, petitioners,
LIWAYWAY VINZONS-CHATO, as FERNANDO SANTIAGO, JOSE ABCEDE, vs.
Commissioner of Internal Revenue; CHRISTINE TAN, FELIPE L. GOZON, HON. ROBERTO B. DE OCAMPO, as the
and their AUTHORIZED AGENTS OR RAFAEL G. FERNANDO, RAOUL V. Secretary of Finance; HON.
REPRESENTATIVES, respondents. VICTORINO, JOSE CUNANAN, LIWAYWAY V. CHATO, as the
G.R. No. 115543 October 30, 1995 QUINTIN S. DOROMAL, MOVEMENT OF Commissioner of Internal Revenue;
RAUL S. ROCO and the INTEGRATED ATTORNEYS FOR BROTHERHOOD, and HON. GUILLERMO PARAYNO, JR.,
BAR OF THE PHILIPPINES, petitioners, INTEGRITY AND NATIONALISM, INC. in his capacity as the Commissioner of
vs. ("MABINI"), FREEDOM FROM DEBT Customs, respondents.
THE SECRETARY OF THE DEPARTMENT COALITION, INC., and PHILIPPINE RESOLUTION
OF FINANCE; THE COMMISSIONERS BIBLE SOCIETY, INC. and WIGBERTO
OF THE BUREAU OF INTERNAL TAÑADA, petitioners, MENDOZA, J.:
REVENUE AND BUREAU OF vs. These are motions seeking reconsideration
CUSTOMS, respondents. THE EXECUTIVE SECRETARY, THE of our decision dismissing the petitions
G.R. No. 115544 October 30, 1995 SECRETARY OF FINANCE, THE filed in these cases for the declaration of
PHILIPPINE PRESS INSTITUTE, INC.; COMMISSIONER OF INTERNAL unconstitutionality of R.A. No. 7716,
EGP PUBLISHING CO., INC.; REVENUE and THE COMMISSIONER OF otherwise known as the Expanded Value-
KAMAHALAN PUBLISHING CUSTOMS, respondents. Added Tax Law. The motions, of which
CORPORATION; PHILIPPINE G.R. No. 115852 October 30, 1995 there are 10 in all, have been filed by the
JOURNALISTS, INC.; JOSE L. PAVIA; PHILIPPINE AIRLINES, several petitioners in these cases, with the
and OFELIA L. DIMALANTA, petitioners, INC., petitioner, exception of the Philippine Educational
vs. vs. Publishers Association, Inc. and the
HON. LIWAYWAY V. CHATO, in her THE SECRETARY OF FINANCE and Association of Philippine Booksellers,
capacity as Commissioner of Internal COMMISSIONER OF INTERNAL petitioners in G.R. No. 115931.
Revenue; HON. TEOFISTO T. REVENUE, respondents. The Solicitor General, representing the
GUINGONA, JR., in his capacity as G.R. No. 115873 October 30, 1995 respondents, filed a consolidated
Executive Secretary; and HON. COOPERATIVE UNION OF THE comment, to which the Philippine Airlines,
ROBERTO B. DE OCAMPO, in his PHILIPPINES, petitioner, Inc., petitioner in G.R. No. 115852, and
capacity as Secretary of vs. the Philippine Press Institute, Inc.,
Finance, respondents. HON. LIWAYWAY V. CHATO, in her petitioner in G.R. No. 115544, and Juan T.
David, petitioner in G.R. No. 115525, each
filed a reply. In turn the Solicitor General
filed on June 1, 1995 a rejoinder to the
PPI's reply.
On June 27, 1995 the matter was
submitted for resolution.
I. Power of the Senate to propose
amendments to revenue bills. Some of the
petitioners (Tolentino, Kilosbayan, Inc.,
Philippine Airlines (PAL), Roco, and
Chamber of Real Estate and Builders
Association (CREBA)) reiterate previous
claims made by them that R.A. No. 7716
did not "originate exclusively" in the
House of Representatives as required by
Art. VI, §24 of the Constitution. Although
they admit that H. No. 11197 was filed in
the House of Representatives where it
passed three readings and that afterward
it was sent to the Senate where after first
reading it was referred to the Senate
Ways and Means Committee, they
complain that the Senate did not pass it
on second and third readings. Instead
what the Senate did was to pass its own
version (S. No. 1630) which it approved
on May 24, 1994. Petitioner Tolentino
adds that what the Senate committee
should have done was to amend H. No.
11197 by striking out the text of the bill
and substituting it with the text of S. No.
1630. That way, it is said, "the bill
remains a House bill and the Senate
version just becomes the text (only the
text) of the House bill."
The contention has no merit.
The enactment of S. No. 1630 is not the
only instance in which the Senate
proposed an amendment to a House
revenue bill by enacting its own version of
a revenue bill. On at least two occasions
during the Eighth Congress, the Senate
passed its own version of revenue bills,
which, in consolidation with House bills
earlier passed, became the enrolled bills.
These were:
R.A. No. 7369 (AN ACT TO AMEND THE
OMNIBUS INVESTMENTS CODE OF 1987
BY EXTENDING FROM FIVE (5) YEARS TO
TEN YEARS THE PERIOD FOR TAX AND
DUTY EXEMPTION AND TAX CREDIT ON
CAPITAL EQUIPMENT) which was
approved by the President on April 10,
1992. This Act is actually a consolidation
of H. No. 34254, which was approved by
the House on January 29, 1992, and S.
No. 1920, which was approved by the
Senate on February 3, 1992.
R.A. No. 7549 (AN ACT GRANTING TAX
EXEMPTIONS TO WHOEVER SHALL GIVE
REWARD TO ANY FILIPINO ATHLETE
WINNING A MEDAL IN OLYMPIC GAMES)
which was approved by the President on
May 22, 1992. This Act is a consolidation
of H. No. 22232, which was approved by
the House of Representatives on August 2,
1989, and S. No. 807, which was
approved by the Senate on October 21,
1991.
On the other hand, the Ninth
Congress passed revenue laws which were
also the result of the consolidation of
House and Senate bills. These are the
following, with indications of the dates on
which the laws were approved by the
President and dates the separate bills of
the two chambers of Congress were
respectively passed:
1. R.A. NO. 7642
AN ACT INCREASING THE PENALTIES FOR
TAX EVASION, AMENDING FOR THIS
PURPOSE THE PERTINENT SECTIONS OF
THE NATIONAL INTERNAL REVENUE CODE
(December 28, 1992).
House Bill No. 2165, October 5, 1992
Senate Bill No. 32, December 7, 1992
2. R.A. NO. 7643
AN ACT TO EMPOWER THE
COMMISSIONER OF INTERNAL REVENUE
TO REQUIRE THE PAYMENT OF THE
VALUE-ADDED TAX EVERY MONTH AND
TO ALLOW LOCAL GOVERNMENT UNITS
TO SHARE IN VAT REVENUE, AMENDING
FOR THIS PURPOSE CERTAIN SECTIONS
OF THE NATIONAL INTERNAL REVENUE
CODE (December 28, 1992)
House Bill No. 1503, September 3, 1992
Senate Bill No. 968, December 7, 1992
3. R.A. NO. 7646
AN ACT AUTHORIZING THE
COMMISSIONER OF INTERNAL REVENUE
TO PRESCRIBE THE PLACE FOR PAYMENT
OF INTERNAL REVENUE TAXES BY LARGE
TAXPAYERS, AMENDING FOR THIS
PURPOSE CERTAIN PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS
AMENDED (February 24, 1993)
House Bill No. 1470, October 20, 1992
Senate Bill No. 35, November 19, 1992
4. R.A. NO. 7649
AN ACT REQUIRING THE GOVERNMENT
OR ANY OF ITS POLITICAL
SUBDIVISIONS, INSTRUMENTALITIES OR
AGENCIES INCLUDING GOVERNMENT-
OWNED OR CONTROLLED CORPORATIONS
(GOCCS) TO DEDUCT AND WITHHOLD
THE VALUE-ADDED TAX DUE AT THE RATE
OF THREE PERCENT (3%) ON GROSS
PAYMENT FOR THE PURCHASE OF GOODS
AND SIX PERCENT (6%) ON GROSS
RECEIPTS FOR SERVICES RENDERED BY
CONTRACTORS (April 6, 1993)
House Bill No. 5260, January 26, 1993
Senate Bill No. 1141, March 30, 1993 that, in the particular case of S. No. 1630, provisions giving them the power to
5. R.A. NO. 7656 petitioners Tolentino and Roco, as propose or concur with amendments.
AN ACT REQUIRING GOVERNMENT- members of the Senate, voted to approve Art. I, §7, cl. 1 of the U.S. Constitution
OWNED OR CONTROLLED CORPORATIONS it on second and third readings. reads:
TO DECLARE DIVIDENDS UNDER CERTAIN On the other hand, amendment by All Bills for raising Revenue shall originate
CONDITIONS TO THE NATIONAL substitution, in the manner urged by in the House of Representatives; but the
GOVERNMENT, AND FOR OTHER petitioner Tolentino, concerns a mere Senate may propose or concur with
PURPOSES (November 9, 1993) matter of form. Petitioner has not shown amendments as on other Bills.
House Bill No. 11024, November 3, 1993 what substantial difference it would make Art. VI, §24 of our Constitution reads:
Senate Bill No. 1168, November 3, 1993 if, as the Senate actually did in this case, All appropriation, revenue or tariff bills,
6. R.A. NO. 7660 a separate bill like S. No. 1630 is instead bills authorizing increase of the public
AN ACT RATIONALIZING FURTHER THE enacted as a substitute measure, "taking debt, bills of local application, and private
STRUCTURE AND ADMINISTRATION OF into Consideration . . . H.B. 11197." bills shall originate exclusively in the
THE DOCUMENTARY STAMP TAX, Indeed, so far as pertinent, the Rules of House of Representatives, but the Senate
AMENDING FOR THE PURPOSE CERTAIN the Senate only provide: may propose or concur with amendments.
PROVISIONS OF THE NATIONAL RULE XXIX The addition of the word "exclusively" in
INTERNAL REVENUE CODE, AS AMENDED, AMENDMENTS the Philippine Constitution and the
ALLOCATING FUNDS FOR SPECIFIC xxx xxx xxx decision to drop the phrase "as on other
PROGRAMS, AND FOR OTHER PURPOSES §68. Not more than one amendment to Bills" in the American version, according
(December 23, 1993) the original amendment shall be to petitioners, shows the intention of the
House Bill No. 7789, May 31, 1993 considered. framers of our Constitution to restrict the
Senate Bill No. 1330, November 18, 1993 No amendment by substitution shall be Senate's power to propose amendments
7. R.A. NO. 7717 entertained unless the text thereof is to revenue bills. Petitioner Tolentino
AN ACT IMPOSING A TAX ON THE SALE, submitted in writing. contends that the word "exclusively" was
BARTER OR EXCHANGE OF SHARES OF Any of said amendments may be inserted to modify "originate" and "the
STOCK LISTED AND TRADED THROUGH withdrawn before a vote is taken thereon. words 'as in any other bills' (sic) were
THE LOCAL STOCK EXCHANGE OR §69. No amendment which seeks the eliminated so as to show that these bills
THROUGH INITIAL PUBLIC OFFERING, inclusion of a legislative provision foreign were not to be like other bills but must be
AMENDING FOR THE PURPOSE THE to the subject matter of a bill (rider) shall treated as a special kind."
NATIONAL INTERNAL REVENUE CODE, AS be entertained. The history of this provision does not
AMENDED, BY INSERTING A NEW xxx xxx xxx support this contention. The
SECTION AND REPEALING CERTAIN §70-A. A bill or resolution shall not be supposed indicia of constitutional intent
SUBSECTIONS THEREOF (May 5, 1994) amended by substituting it with another are nothing but the relics of an
House Bill No. 9187, November 3, 1993 which covers a subject distinct from that unsuccessful attempt to limit the power of
Senate Bill No. 1127, March 23, 1994 proposed in the original bill or resolution. the Senate. It will be recalled that the
Thus, the enactment of S. No. 1630 is not (emphasis added). 1935 Constitution originally provided for a
the only instance in which the Senate, in Nor is there merit in petitioners' unicameral National Assembly. When it
the exercise of its power to propose contention that, with regard to revenue was decided in 1939 to change to a
amendments to bills required to originate bills, the Philippine Senate possesses less bicameral legislature, it became necessary
in the House, passed its own version of a power than the U.S. Senate because of to provide for the procedure for
House revenue measure. It is noteworthy textual differences between constitutional lawmaking by the Senate and the House
of Representatives. The work of proposing
amendments to the Constitution was done
by the National Assembly, acting as a
constituent assembly, some of whose
members, jealous of preserving the
Assembly's lawmaking powers, sought to
curtail the powers of the proposed Senate.
Accordingly they proposed the following
provision:
All bills appropriating public funds,
revenue or tariff bills, bills of local
application, and private bills shall
originate exclusively in the Assembly, but
the Senate may propose or concur with
amendments. In case of disapproval by
the Senate of any such bills, the Assembly
may repass the same by a two-thirds vote
of all its members, and thereupon, the bill
so repassed shall be deemed enacted and
may be submitted to the President for
corresponding action. In the event that
the Senate should fail to finally act on any
such bills, the Assembly may, after thirty
days from the opening of the next regular
session of the same legislative term,
reapprove the same with a vote of two-
thirds of all the members of the Assembly.
And upon such reapproval, the bill shall be
deemed enacted and may be submitted to
the President for corresponding action.
The special committee on the revision of
laws of the Second National Assembly
vetoed the proposal. It deleted everything
after the first sentence. As rewritten, the
proposal was approved by the National
Assembly and embodied in Resolution No.
38, as amended by Resolution No. 73. (J.
ARUEGO, KNOW YOUR CONSTITUTION
65-66 (1950)). The proposed amendment
was submitted to the people and ratified
by them in the elections held on June 18,
1940.
This is the history of Art. VI, §18 (2) of
the 1935 Constitution, from which Art. VI,
§24 of the present Constitution was
derived. It explains why the word
"exclusively" was added to the American
text from which the framers of the
Philippine Constitution borrowed and why
the phrase "as on other Bills" was not
copied. Considering the defeat of the
proposal, the power of the Senate to
propose amendments must be understood
to be full, plenary and complete "as on
other Bills." Thus, because revenue bills
are required to originate exclusively in the
House of Representatives, the Senate
cannot enact revenue measures of its own
without such bills. After a revenue bill is
passed and sent over to it by the House,
however, the Senate certainly can pass its
own version on the same subject matter.
This follows from the coequality of the two
chambers of Congress.
That this is also the understanding of book
authors of the scope of the Senate's
power to concur is clear from the following
commentaries:
The power of the Senate to propose or
concur with amendments is apparently
without restriction. It would seem that by
virtue of this power, the Senate can
practically re-write a bill required to come
from the House and leave only a trace of
the original bill. For example, a general
revenue bill passed by the lower house of
the United States Congress contained
provisions for the imposition of an
inheritance tax . This was changed by the
Senate into a corporation tax. The
amending authority of the Senate was
declared by the United States Supreme
Court to be sufficiently broad to enable it
to make the alteration. [Flint v. Stone
Tracy Company, 220 U.S. 107, 55 L. ed.
389].
(L. TAÑADA AND F. CARREON, POLITICAL
LAW OF THE PHILIPPINES 247 (1961))
The above-mentioned bills are supposed
to be initiated by the House of
Representatives because it is more
numerous in membership and therefore
also more representative of the people.
Moreover, its members are presumed to
be more familiar with the needs of the
country in regard to the enactment of the
legislation involved.
The Senate is, however, allowed much
leeway in the exercise of its power to
propose or concur with amendments to
the bills initiated by the House of
Representatives. Thus, in one case, a bill
introduced in the U.S. House of
Representatives was changed by the
Senate to make a proposed inheritance
tax a corporation tax. It is also accepted
practice for the Senate to introduce what
is known as an amendment by
substitution, which may entirely replace
the bill initiated in the House of
Representatives.
(I. CRUZ, PHILIPPINE POLITICAL LAW
144-145 (1993)).
In sum, while Art. VI, §24 provides that
all appropriation, revenue or tariff bills,
bills authorizing increase of the public
debt, bills of local application, and private
bills must "originate exclusively in the
House of Representatives," it also adds,
"but the Senate may propose or concur
with amendments." In the exercise of this
power, the Senate may propose an
entirely new bill as a substitute measure.
As petitioner Tolentino states in a high
school text, a committee to which a bill is
referred may do any of the following:
(1) to endorse the bill without changes;
(2) to make changes in the bill omitting or
adding sections or altering its language;
(3) to make and endorse an entirely new
bill as a substitute, in which case it will be
known as a committee bill; or (4) to make
no report at all.
(A. TOLENTINO, THE GOVERNMENT OF
THE PHILIPPINES 258 (1950))
To except from this procedure the
amendment of bills which are required to
originate in the House by prescribing that
the number of the House bill and its other
parts up to the enacting clause must be
preserved although the text of the Senate
amendment may be incorporated in place
of the original body of the bill is to insist
on a mere technicality. At any rate there
is no rule prescribing this form. S. No.
1630, as a substitute measure, is
therefore as much an amendment of H.
No. 11197 as any which the Senate could
have made.
II. S. No. 1630 a mere amendment of
H. No. 11197. Petitioners' basic error is
that they assume that S. No. 1630 is
an independent and distinct bill. Hence
their repeated references to its
certification that it was passed by the
Senate "in substitution of S.B. No. 1129,
taking into consideration P.S. Res. No.
734 and H.B. No. 11197," implying that
there is something substantially different
between the reference to S. No. 1129 and
the reference to H. No. 11197. From this
premise, they conclude that R.A. No. 7716
originated both in the House and in the
Senate and that it is the product of two
"half-baked bills because neither H. No.
11197 nor S. No. 1630 was passed by
both houses of Congress."
In point of fact, in several instances the
provisions of S. No. 1630, clearly appear
to be mere amendments of the
corresponding provisions of H. No. 11197.
The very tabular comparison of the
provisions of H. No. 11197 and S. No.
1630 attached as Supplement A to the
basic petition of petitioner Tolentino, while
showing differences between the two bills,
at the same time indicates that the
provisions of the Senate bill were precisely
intended to be amendments to the House
bill.
Without H. No. 11197, the Senate could
not have enacted S. No. 1630. Because
the Senate bill was a mere amendment of
the House bill, H. No. 11197 in its original
form did not have to pass the Senate on
second and three readings. It was enough
that after it was passed on first reading it
was referred to the Senate Committee on
Ways and Means. Neither was it required
that S. No. 1630 be passed by the House
of Representatives before the two bills
could be referred to the Conference
Committee.
There is legislative precedent for what was
done in the case of H. No. 11197 and S.
No. 1630. When the House bill and Senate
bill, which became R.A. No. 1405 (Act
prohibiting the disclosure of bank
deposits), were referred to a conference
committee, the question was raised
whether the two bills could be the subject
of such conference, considering that the
bill from one house had not been passed
by the other and vice versa. As
Congressman Duran put the question:
MR. DURAN. Therefore, I raise this
question of order as to procedure: If a
House bill is passed by the House but not
passed by the Senate, and a Senate bill of
a similar nature is passed in the Senate
but never passed in the House, can the
two bills be the subject of a conference,
and can a law be enacted from these two
bills? I understand that the Senate bill in
this particular instance does not refer to
investments in government securities,
whereas the bill in the House, which was
introduced by the Speaker, covers two
subject matters: not only investigation of
deposits in banks but also investigation of
investments in government securities.
Now, since the two bills differ in their
subject matter, I believe that no law can
be enacted.
Ruling on the point of order raised, the
chair (Speaker Jose B. Laurel, Jr.) said:
THE SPEAKER. The report of the
conference committee is in order. It is
precisely in cases like this where a
conference should be had. If the House
bill had been approved by the Senate,
there would have been no need of a
conference; but precisely because the
Senate passed another bill on the same
subject matter, the conference committee
had to be created, and we are now
considering the report of that committee.
(2 CONG. REC. NO. 13, July 27, 1955, pp.
3841-42 (emphasis added))
III. The President's certification. The
fallacy in thinking that H. No. 11197 and
S. No. 1630 are distinct and unrelated
measures also accounts for the
petitioners' (Kilosbayan's and PAL's)
contention that because the President
separately certified to the need for the
immediate enactment of these measures,
his certification was ineffectual and void.
The certification had to be made of the
version of the same revenue bill which at
the moment was being considered.
Otherwise, to follow petitioners' theory, it
would be necessary for the President to
certify as many bills as are presented in a
house of Congress even though the bills
are merely versions of the bill he has
already certified. It is enough that he
certifies the bill which, at the time he
makes the certification, is under
consideration. Since on March 22, 1994
the Senate was considering S. No. 1630, it
was that bill which had to be certified. For
that matter on June 1, 1993 the President
had earlier certified H. No. 9210 for
immediate enactment because it was the
one which at that time was being
considered by the House. This bill was
later substituted, together with other bills,
by H. No. 11197.
As to what Presidential certification can
accomplish, we have already explained in
the main decision that the phrase "except
when the President certifies to the
necessity of its immediate enactment,
etc." in Art. VI, §26 (2) qualifies not only
the requirement that "printed copies [of a
bill] in its final form [must be] distributed
to the members three days before its
passage" but also the requirement that
before a bill can become a law it must
have passed "three readings on separate
days." There is not only textual support
for such construction but historical basis
as well.
Art. VI, §21 (2) of the 1935 Constitution
originally provided:
(2) No bill shall be passed by either House
unless it shall have been printed and
copies thereof in its final form furnished
its Members at least three calendar days
prior to its passage, except when the
President shall have certified to the
necessity of its immediate enactment.
Upon the last reading of a bill, no
amendment thereof shall be allowed and
the question upon its passage shall be
taken immediately thereafter, and
the yeas and nays entered on the Journal.
When the 1973 Constitution was adopted,
it was provided in Art. VIII, §19 (2):
(2) No bill shall become a law unless it
has passed three readings on separate
days, and printed copies thereof in its final
form have been distributed to the
Members three days before its passage,
except when the Prime Minister certifies to
the necessity of its immediate enactment
to meet a public calamity or emergency.
Upon the last reading of a bill, no
amendment thereto shall be allowed, and
the vote thereon shall be taken
immediately thereafter, and
the yeas and nays entered in the Journal.
This provision of the 1973 document, with
slight modification, was adopted in Art. VI,
§26 (2) of the present Constitution, thus:
(2) No bill passed by either House shall
become a law unless it has passed three
readings on separate days, and printed
copies thereof in its final form have been
distributed to its Members three days
before its passage, except when the
President certifies to the necessity of its
immediate enactment to meet a public
calamity or emergency. Upon the last
reading of a bill, no amendment thereto
shall be allowed, and the vote thereon
shall be taken immediately thereafter, and
the yeas and nays entered in the Journal.
The exception is based on the prudential
consideration that if in all cases three
readings on separate days are required
and a bill has to be printed in final form
before it can be passed, the need for a
law may be rendered academic by the
occurrence of the very emergency or
public calamity which it is meant to
address.
Petitioners further contend that a
"growing budget deficit" is not an
emergency, especially in a country like the
Philippines where budget deficit is a
chronic condition. Even if this were the
case, an enormous budget deficit does not
make the need for R.A. No. 7716 any less
urgent or the situation calling for its
enactment any less an emergency.
Apparently, the members of the Senate
(including some of the petitioners in these
cases) believed that there was an urgent
need for consideration of S. No. 1630,
because they responded to the call of the
President by voting on the bill on second
and third readings on the same day. While
the judicial department is not bound by
the Senate's acceptance of the President's
certification, the respect due coequal
departments of the government in
matters committed to them by the
Constitution and the absence of a clear
showing of grave abuse of discretion
caution a stay of the judicial hand.
At any rate, we are satisfied that S. No.
1630 received thorough consideration in
the Senate where it was discussed for six
days. Only its distribution in advance in its
final printed form was actually dispensed
with by holding the voting on second and
third readings on the same day (March 24,
1994). Otherwise, sufficient time between
the submission of the bill on February 8,
1994 on second reading and its approval
on March 24, 1994 elapsed before it was
finally voted on by the Senate on third
reading.
The purpose for which three readings on
separate days is required is said to be
two-fold: (1) to inform the members of
Congress of what they must vote on and
(2) to give them notice that a measure is
progressing through the enacting process,
thus enabling them and others interested
in the measure to prepare their positions
with reference to it. (1 J. G.
SUTHERLAND, STATUTES AND
STATUTORY CONSTRUCTION §10.04, p.
282 (1972)). These purposes were
substantially achieved in the case of R.A.
No. 7716.
IV. Power of Conference Committee. It is
contended (principally by Kilosbayan, Inc.
and the Movement of Attorneys for
Brotherhood, Integrity and Nationalism,
Inc. (MABINI)) that in violation of the
constitutional policy of full public
disclosure and the people's right to know
(Art. II, §28 and Art. III, §7) the
Conference Committee met for two days
in executive session with only the
conferees present.
As pointed out in our main decision, even
in the United States it was customary to
hold such sessions with only the conferees
and their staffs in attendance and it was
only in 1975 when a new rule was
adopted requiring open sessions. Unlike
its American counterpart, the Philippine
Congress has not adopted a rule
prescribing open hearings for conference
committees.
It is nevertheless claimed that in the
United States, before the adoption of the
rule in 1975, at least staff members were
present. These were staff members of the
Senators and Congressmen, however,
who may be presumed to be their
confidential men, not stenographers as in
this case who on the last two days of the
conference were excluded. There is no
showing that the conferees themselves did
not take notes of their proceedings so as
to give petitioner Kilosbayan basis for
claiming that even in secret diplomatic
negotiations involving state interests,
conferees keep notes of their meetings.
Above all, the public's right to know was
fully served because the Conference
Committee in this case submitted a report
showing the changes made on the
differing versions of the House and the
Senate.
Petitioners cite the rules of both houses
which provide that conference committee
reports must contain "a detailed,
sufficiently explicit statement of the
changes in or other amendments." These
changes are shown in the bill attached to
the Conference Committee Report. The
members of both houses could thus
ascertain what changes had been made in
the original bills without the need of a
statement detailing the changes.
The same question now presented was
raised when the bill which became R.A.
No. 1400 (Land Reform Act of 1955) was
reported by the Conference Committee.
Congressman Bengzon raised a point of
order. He said:
MR. BENGZON. My point of order is that it
is out of order to consider the report of
the conference committee
regarding House Bill No. 2557 by reason
of the provision of Section 11, Article XII,
of the Rules of this House which provides
specifically that the conference report
must be accompanied by a detailed
statement of the effects of the
amendment on the bill of the House. This
conference committee report is not
accompanied by that detailed statement,
Mr. Speaker. Therefore it is out of order to
consider it.
Petitioner Tolentino, then the Majority
Floor Leader, answered:
MR. TOLENTINO. Mr. Speaker, I should
just like to say a few words in connection
with the point of order raised by the
gentleman from Pangasinan.
There is no question about the provision
of the Rule cited by the gentleman from
Pangasinan, but this provision applies to
those cases where only portions of the bill
have been amended. In this case before
us an entire bill is presented; therefore, it
can be easily seen from the reading of the
bill what the provisions are. Besides, this
procedure has been an established
practice.
After some interruption, he continued:
MR. TOLENTINO. As I was saying, Mr.
Speaker, we have to look into the reason
for the provisions of the Rules, and the
reason for the requirement in the
provision cited by the gentleman from
Pangasinan is when there are only certain
words or phrases inserted in or deleted
from the provisions of the bill included in
the conference report, and we cannot
understand what those words and phrases
mean and their relation to the bill. In that
case, it is necessary to make a detailed
statement on how those words and
phrases will affect the bill as a whole; but
when the entire bill itself is copied
verbatim in the conference report, that is
not necessary. So when the reason for the
Rule does not exist, the Rule does not
exist.
(2 CONG. REC. NO. 2, p. 4056. (emphasis
added))
Congressman Tolentino was sustained by
the chair. The record shows that when the
ruling was appealed, it was upheld by viva
voce and when a division of the House
was called, it was sustained by a vote of
48 to 5. (Id.,
p. 4058)
Nor is there any doubt about the power of
a conference committee to insert new
provisions as long as these are germane
to the subject of the conference. As this
Court held in Philippine Judges Association
v. Prado, 227 SCRA 703 (1993), in an
opinion written by then Justice Cruz, the
jurisdiction of the conference committee is
not limited to resolving differences
between the Senate and the House. It
may propose an entirely new provision.
What is important is that its report is
subsequently approved by the respective
houses of Congress. This Court ruled that
it would not entertain allegations that,
because new provisions had been added
by the conference committee, there was
thereby a violation of the constitutional
injunction that "upon the last reading of a
bill, no amendment thereto shall be
allowed."
Applying these principles, we
shall decline to look into the petitioners'
charges that an amendment was made
upon the last reading of the bill that
eventually became R.A. No. 7354 and
that copies thereof in its final form were
not distributed among the members of
each House. Both the enrolled bill and the
legislative journals certify that the
measure was duly enacted i.e., in
accordance with Article VI, Sec. 26 (2) of
the Constitution. We are bound by such
official assurances from a coordinate
department of the government, to which
we owe, at the very least, a becoming
courtesy.
(Id. at 710. (emphasis added))
It is interesting to note the following
description of conference committees in
the Philippines in a 1979 study:
Conference committees may be of two
types: free or instructed. These
committees may be given instructions by
their parent bodies or they may be left
without instructions. Normally the
conference committees are without
instructions, and this is why they are often
critically referred to as "the little
legislatures." Once bills have been sent to
them, the conferees have almost
unlimited authority to change the clauses
of the bills and in fact sometimes
introduce new measures that were not in
the original legislation. No minutes are
kept, and members' activities on
conference committees are difficult to
determine. One congressman known for
his idealism put it this way: "I killed a bill
on export incentives for my interest group
[copra] in the conference committee but I
could not have done so anywhere else."
The conference committee submits a
report to both houses, and usually it is
accepted. If the report is not accepted,
then the committee is discharged and new
members are appointed.
(R. Jackson, Committees in the Philippine
Congress, in COMMITTEES AND
LEGISLATURES: A COMPARATIVE
ANALYSIS 163 (J. D. LEES AND M. SHAW,
eds.)).
In citing this study, we pass no judgment
on the methods of conference
committees. We cite it only to say that
conference committees here are no
different from their counterparts in the
United States whose vast powers we
noted in Philippine Judges Association
v. Prado, supra. At all events, under Art.
VI, §16(3) each house has the power "to
determine the rules of its proceedings,"
including those of its committees. Any
meaningful change in the method and
procedures of Congress or its committees
must therefore be sought in that body
itself.
V. The titles of S. No. 1630 and
H. No. 11197. PAL maintains that R.A. No.
7716 violates Art. VI, §26 (1) of the
Constitution which provides that "Every
bill passed by Congress shall embrace
only one subject which shall be expressed
in the title thereof." PAL contends that the
amendment of its franchise by the
withdrawal of its exemption from the VAT
is not expressed in the title of the law.
Pursuant to §13 of P.D. No. 1590, PAL
pays a franchise tax of 2% on its gross
revenue "in lieu of all other taxes, duties,
royalties, registration, license and other
fees and charges of any kind, nature, or
description, imposed, levied, established,
assessed or collected by any municipal,
city, provincial or national authority or
government agency, now or in the future."
PAL was exempted from the payment of
the VAT along with other entities by §103
of the National Internal Revenue Code,
which provides as follows:
§103. Exempt transactions. — The
following shall be exempt from the value-
added tax:
xxx xxx xxx
(q) Transactions which are exempt under
special laws or international agreements
to which the Philippines is a signatory.
R.A. No. 7716 seeks to withdraw certain
exemptions, including that granted to PAL,
by amending §103, as follows:
§103. Exempt transactions. — The
following shall be exempt from the value-
added tax:
xxx xxx xxx
(q) Transactions which are exempt under
special laws, except those granted under
Presidential Decree Nos. 66, 529, 972,
1491, 1590. . . .
The amendment of §103 is expressed in
the title of R.A. No. 7716 which reads:
AN ACT RESTRUCTURING THE VALUE-
ADDED TAX (VAT) SYSTEM, WIDENING
ITS TAX BASE AND ENHANCING ITS
ADMINISTRATION, AND FOR THESE
PURPOSES AMENDING AND REPEALING
THE RELEVANT PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS
AMENDED, AND FOR OTHER PURPOSES.
By stating that R.A. No. 7716 seeks to
"[RESTRUCTURE] THE VALUE-ADDED TAX
(VAT) SYSTEM [BY] WIDENING ITS TAX
BASE AND ENHANCING ITS
ADMINISTRATION, AND FOR THESE
PURPOSES AMENDING AND REPEALING
THE RELEVANT PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS
AMENDED AND FOR OTHER PURPOSES,"
Congress thereby clearly expresses its
intention to amend any provision of the
NIRC which stands in the way of
accomplishing the purpose of the law.
PAL asserts that the amendment of its
franchise must be reflected in the title of
the law by specific reference to P.D. No.
1590. It is unnecessary to do this in order
to comply with the constitutional
requirement, since it is already stated in
the title that the law seeks to amend the
pertinent provisions of the NIRC, among
which is §103(q), in order to widen the
base of the VAT. Actually, it is the bill
which becomes a law that is required to
express in its title the subject of
legislation. The titles of H. No. 11197 and
S. No. 1630 in fact specifically referred to
§103 of the NIRC as among the provisions
sought to be amended. We are satisfied
that sufficient notice had been given of
the pendency of these bills in Congress
before they were enacted into what is now
R.A.
No. 7716.
In Philippine Judges Association
v. Prado, supra, a similar argument as
that now made by PAL was rejected. R.A.
No. 7354 is entitled AN ACT CREATING
THE PHILIPPINE POSTAL CORPORATION,
DEFINING ITS POWERS, FUNCTIONS AND
RESPONSIBILITIES, PROVIDING FOR
REGULATION OF THE INDUSTRY AND FOR
OTHER PURPOSES CONNECTED
THEREWITH. It contained a provision
repealing all franking privileges. It was
contended that the withdrawal of franking
privileges was not expressed in the title of
the law. In holding that there was
sufficient description of the subject of the
law in its title, including the repeal of
franking privileges, this Court held:
To require every end and means
necessary for the accomplishment of the
general objectives of the statute to be
expressed in its title would not only be
unreasonable but would actually render
legislation impossible. [Cooley,
Constitutional Limitations, 8th Ed., p. 297]
As has been correctly explained:
The details of a legislative act need not be
specifically stated in its title, but matter
germane to the subject as expressed in
the title, and adopted to the
accomplishment of the object in view,
may properly be included in the act. Thus,
it is proper to create in the same act the
machinery by which the act is to be
enforced, to prescribe the penalties for its
infraction, and to remove obstacles in the
way of its execution. If such matters are
properly connected with the subject as
expressed in the title, it is unnecessary
that they should also have special mention
in the title. (Southern Pac. Co. v. Bartine,
170 Fed. 725)
(227 SCRA at 707-708)
VI. Claims of press freedom and religious
liberty. We have held that, as a general
proposition, the press is not exempt from
the taxing power of the State and that
what the constitutional guarantee of free
press prohibits are laws which single out
the press or target a group belonging to
the press for special treatment or which in
any way discriminate against the press on
the basis of the content of the publication,
and R.A. No. 7716 is none of these.
Now it is contended by the PPI that by
removing the exemption of the press from
the VAT while maintaining those granted
to others, the law discriminates against
the press. At any rate, it is averred, "even
nondiscriminatory taxation of
constitutionally guaranteed freedom is
unconstitutional."
With respect to the first contention, it
would suffice to say that since the law
granted the press a privilege, the law
could take back the privilege anytime
without offense to the Constitution. The
reason is simple: by granting exemptions,
the State does not forever waive the
exercise of its sovereign prerogative.
Indeed, in withdrawing the exemption, the
law merely subjects the press to the same
tax burden to which other businesses
have long ago been subject. It is thus
different from the tax involved in the
cases invoked by the PPI. The license tax
in Grosjean v. American Press Co., 297
U.S. 233, 80 L. Ed. 660 (1936) was found
to be discriminatory because it was laid on
the gross advertising receipts only of
newspapers whose weekly circulation was
over 20,000, with the result that the tax
applied only to 13 out of 124 publishers in
Louisiana. These large papers were critical
of Senator Huey Long who controlled the
state legislature which enacted the license
tax. The censorial motivation for the law
was thus evident.
On the other hand, in Minneapolis Star &
Tribune Co. v. Minnesota Comm'r of
Revenue, 460 U.S. 575, 75 L. Ed. 2d 295
(1983), the tax was found to be
discriminatory because although it could
have been made liable for the sales tax
or, in lieu thereof, for the use tax on the
privilege of using, storing or consuming
tangible goods, the press was not.
Instead, the press was exempted from than for profit. The exempt transactions
both taxes. It was, however, later made are:
to pay a special use tax on the cost of (a) Goods for consumption or use which
paper and ink which made these items are in their original state (agricultural,
"the only items subject to the use tax that marine and forest products, cotton seeds
were component of goods to be sold at in their original state, fertilizers, seeds,
retail." The U.S. Supreme Court held that seedlings, fingerlings, fish, prawn
the differential treatment of the press livestock and poultry feeds) and goods or
"suggests that the goal of regulation is not services to enhance agriculture (milling of
related to suppression of expression, and palay, corn, sugar cane and raw sugar,
such goal is presumptively livestock, poultry feeds, fertilizer,
unconstitutional." It would therefore ingredients used for the manufacture of
appear that even a law that favors the feeds).
press is constitutionally suspect. (See the (b) Goods used for personal consumption
dissent of Rehnquist, J. in that case) or use (household and personal effects of
Nor is it true that only two exemptions citizens returning to the Philippines) or for
previously granted by E.O. No. 273 are professional use, like professional
withdrawn "absolutely and unqualifiedly" instruments and implements, by persons
by R.A. No. 7716. Other exemptions from coming to the Philippines to settle here.
the VAT, such as those previously granted (c) Goods subject to excise tax such as
to PAL, petroleum concessionaires, petroleum products or to be used for
enterprises registered with the Export manufacture of petroleum products
Processing Zone Authority, and many subject to excise tax and services subject
more are likewise totally withdrawn, in to percentage tax.
addition to exemptions which are partially (d) Educational services, medical, dental,
withdrawn, in an effort to broaden the hospital and veterinary services, and
base of the tax. services rendered under employer-
The PPI says that the discriminatory employee relationship.
treatment of the press is highlighted by (e) Works of art and similar creations sold
the fact that transactions, which are profit by the artist himself.
oriented, continue to enjoy exemption (f) Transactions exempted under special
under R.A. No. 7716. An enumeration of laws, or international agreements.
some of these transactions will suffice to (g) Export-sales by persons not VAT-
show that by and large this is not so and registered.
that the exemptions are granted for a (h) Goods or services with gross annual
purpose. As the Solicitor General says, sale or receipt not
such exemptions are granted, in some exceeding P500,000.00.
cases, to encourage agricultural (Respondents' Consolidated Comment on
production and, in other cases, for the the Motions for Reconsideration, pp. 58-
personal benefit of the end-user rather 60)
The PPI asserts that it does not really
matter that the law does not discriminate
against the press because "even
nondiscriminatory taxation on
constitutionally guaranteed freedom is
unconstitutional." PPI cites in support of
this assertion the following statement
in Murdock v. Pennsylvania, 319 U.S. 105,
87 L. Ed. 1292 (1943):
The fact that the ordinance is
"nondiscriminatory" is immaterial. The
protection afforded by the First
Amendment is not so restricted. A license
tax certainly does not acquire
constitutional validity because it classifies
the privileges protected by the First
Amendment along with the wares and
merchandise of hucksters and peddlers
and treats them all alike. Such equality in
treatment does not save the ordinance.
Freedom of press, freedom of speech,
freedom of religion are in preferred
position.
The Court was speaking in that case of
a license tax, which, unlike an ordinary
tax, is mainly for regulation. Its imposition
on the press is unconstitutional because it
lays a prior restraint on the exercise of its
right. Hence, although its application to
others, such those selling goods, is valid,
its application to the press or to religious
groups, such as the Jehovah's Witnesses,
in connection with the latter's sale of
religious books and pamphlets, is
unconstitutional. As the U.S. Supreme
Court put it, "it is one thing to impose a
tax on income or property of a preacher.
It is quite another thing to exact a tax on
him for delivering a sermon."
A similar ruling was made by this Court
in American Bible Society v. City of
Manila, 101 Phil. 386 (1957) which
invalidated a city ordinance requiring a
business license fee on those engaged in
the sale of general merchandise. It was
held that the tax could not be imposed on
the sale of bibles by the American Bible
Society without restraining the free
exercise of its right to propagate.
The VAT is, however, different. It is not a
license tax. It is not a tax on the exercise
of a privilege, much less a constitutional
right. It is imposed on the sale, barter,
lease or exchange of goods or properties
or the sale or exchange of services and
the lease of properties purely for revenue
purposes. To subject the press to its
payment is not to burden the exercise of
its right any more than to make the press
pay income tax or subject it to general
regulation is not to violate its freedom
under the Constitution.
Additionally, the Philippine Bible Society,
Inc. claims that although it sells bibles,
the proceeds derived from the sales are
used to subsidize the cost of printing
copies which are given free to those who
cannot afford to pay so that to tax the
sales would be to increase the price, while
reducing the volume of sale. Granting that
to be the case, the resulting burden on
the exercise of religious freedom is so
incidental as to make it difficult to
differentiate it from any other economic
imposition that might make the right to
disseminate religious doctrines costly.
Otherwise, to follow the petitioner's
argument, to increase the tax on the sale
of vestments would be to lay an
impermissible burden on the right of the
preacher to make a sermon.
On the other hand the registration fee of
P1,000.00 imposed by §107 of the NIRC,
as amended by §7 of R.A. No. 7716,
although fixed in amount, is really just to
pay for the expenses of registration and
enforcement of provisions such as those
relating to accounting in §108 of the
NIRC. That the PBS distributes free bibles
and therefore is not liable to pay the VAT
does not excuse it from the payment of
this fee because it also sells some copies.
At any rate whether the PBS is liable for
the VAT must be decided in concrete
cases, in the event it is assessed this tax
by the Commissioner of Internal Revenue.
VII. Alleged violations of the due process,
equal protection and contract clauses and
the rule on taxation. CREBA asserts that
R.A. No. 7716 (1) impairs the obligations
of contracts, (2) classifies transactions as
covered or exempt without reasonable
basis and (3) violates the rule that taxes
should be uniform and equitable and that
Congress shall "evolve a progressive
system of taxation."
With respect to the first contention, it is
claimed that the application of the tax to
existing contracts of the sale of real
property by installment or on deferred
payment basis would result in substantial
increases in the monthly amortizations to
be paid because of the 10% VAT. The
additional amount, it is pointed out, is
something that the buyer did not
anticipate at the time he entered into the
contract.
The short answer to this is the one given
by this Court in an early case: "Authorities
from numerous sources are cited by the
plaintiffs, but none of them show that a
lawful tax on a new subject, or an
increased tax on an old one, interferes
with a contract or impairs its obligation,
within the meaning of the Constitution.
Even though such taxation may affect
particular contracts, as it may increase
the debt of one person and lessen the
security of another, or may impose
additional burdens upon one class and
release the burdens of another, still the
tax must be paid unless prohibited by the
Constitution, nor can it be said that it
impairs the obligation of any existing
contract in its true legal sense." (La
Insular v. Machuca Go-Tauco and Nubla
Co-Siong, 39 Phil. 567, 574 (1919)).
Indeed not only existing laws but also
"the reservation of the essential attributes
of sovereignty, is . . . read into contracts
as a postulate of the legal order."
(Philippine-American Life Ins. Co. v.
Auditor General, 22 SCRA 135, 147
(1968)) Contracts must be understood as
having been made in reference to the
possible exercise of the rightful authority
of the government and no obligation of
contract can extend to the defeat of that
authority. (Norman v. Baltimore and Ohio
R.R., 79 L. Ed. 885 (1935)).
It is next pointed out that while §4 of R.A.
No. 7716 exempts such transactions as
the sale of agricultural products, food
items, petroleum, and medical and
veterinary services, it grants no
exemption on the sale of real property
which is equally essential. The sale of real
property for socialized and low-cost
housing is exempted from the tax, but
CREBA claims that real estate transactions
of "the less poor," i.e., the middle class,
who are equally homeless, should likewise
be exempted.
The sale of food items, petroleum, medical
and veterinary services, etc., which are
essential goods and services was already
exempt under §103, pars. (b) (d) (1) of
the NIRC before the enactment of R.A. No.
7716. Petitioner is in error in claiming that
R.A. No. 7716 granted exemption to these
transactions, while subjecting those of
petitioner to the payment of the VAT.
Moreover, there is a difference between
the "homeless poor" and the "homeless
less poor" in the example given by
petitioner, because the second group or
middle class can afford to rent houses in
the meantime that they cannot yet buy
their own homes. The two social classes
are thus differently situated in life. "It is
inherent in the power to tax that the State
be free to select the subjects of taxation,
and it has been repeatedly held that
'inequalities which result from a singling
out of one particular class for taxation, or
exemption infringe no constitutional
limitation.'" (Lutz v. Araneta, 98 Phil. 148,
153 (1955). Accord, City of Baguio v. De
Leon, 134 Phil. 912 (1968); Sison, Jr. v.
Ancheta, 130 SCRA 654, 663 (1984);
Kapatiran ng mga Naglilingkod sa
Pamahalaan ng Pilipinas, Inc. v. Tan, 163
SCRA 371 (1988)).
Finally, it is contended, for the reasons
already noted, that R.A. No. 7716 also
violates Art. VI, §28(1) which provides
that "The rule of taxation shall be uniform
and equitable. The Congress shall evolve a
progressive system of taxation."
Equality and uniformity of taxation means
that all taxable articles or kinds of
property of the same class be taxed at the
same rate. The taxing power has the
authority to make reasonable and natural
classifications for purposes of taxation. To
satisfy this requirement it is enough that
the statute or ordinance applies equally to
all persons, forms and corporations placed
in similar situation. (City of Baguio v. De
Leon, supra; Sison, Jr. v. Ancheta, supra)
Indeed, the VAT was already provided in
E.O. No. 273 long before R.A. No. 7716
was enacted. R.A. No. 7716 merely
expands the base of the tax. The validity
of the original VAT Law was questioned
in Kapatiran ng Naglilingkod sa
Pamahalaan ng Pilipinas, Inc. v. Tan, 163
SCRA 383 (1988) on grounds similar to
those made in these cases, namely, that
the law was "oppressive, discriminatory,
unjust and regressive in violation of Art.
VI, §28(1) of the Constitution." (At 382)
Rejecting the challenge to the law, this
Court held:
As the Court sees it, EO 273 satisfies all
the requirements of a valid tax. It is
uniform. . . .
The sales tax adopted in EO 273 is applied
similarly on all goods and services sold to
the public, which are not exempt, at the
constant rate of 0% or 10%.
The disputed sales tax is also equitable. It
is imposed only on sales of goods or
services by persons engaged in business
with an aggregate gross annual sales
exceeding P200,000.00. Small corner sari-
sari stores are consequently exempt from
its application. Likewise exempt from the
tax are sales of farm and marine products,
so that the costs of basic food and other
necessities, spared as they are from the
incidence of the VAT, are expected to be
relatively lower and within the reach of
the general public.
(At 382-383)
The CREBA claims that the VAT is amending §102 (b) of the NIRC), while (h) Goods or services with gross annual
regressive. A similar claim is made by the granting exemptions to other sale or receipt not
Cooperative Union of the Philippines, Inc. transactions. (R.A. No. 7716, §4, exceeding P500,000.00.
(CUP), while petitioner Juan T. David amending §103 of the NIRC). (Respondents' Consolidated Comment on
argues that the law contravenes the Thus, the following transactions involving the Motions for Reconsideration, pp. 58-
mandate of Congress to provide for a basic and essential goods and services are 60)
progressive system of taxation because exempted from the VAT: On the other hand, the transactions which
the law imposes a flat rate of 10% and (a) Goods for consumption or use which are subject to the VAT are those which
thus places the tax burden on all are in their original state (agricultural, involve goods and services which are used
taxpayers without regard to their ability to marine and forest products, cotton seeds or availed of mainly by higher income
pay. in their original state, fertilizers, seeds, groups. These include real properties held
The Constitution does not really prohibit seedlings, fingerlings, fish, prawn primarily for sale to customers or for lease
the imposition of indirect taxes which, like livestock and poultry feeds) and goods or in the ordinary course of trade or
the VAT, are regressive. What it simply services to enhance agriculture (milling of business, the right or privilege to use
provides is that Congress shall "evolve a palay, corn sugar cane and raw sugar, patent, copyright, and other similar
progressive system of taxation." The livestock, poultry feeds, fertilizer, property or right, the right or privilege to
constitutional provision has been ingredients used for the manufacture of use industrial, commercial or scientific
interpreted to mean simply that "direct feeds). equipment, motion picture films, tapes
taxes are . . . to be preferred [and] as (b) Goods used for personal consumption and discs, radio, television, satellite
much as possible, indirect taxes should be or use (household and personal effects of transmission and cable television time,
minimized." (E. FERNANDO, THE citizens returning to the Philippines) and hotels, restaurants and similar places,
CONSTITUTION OF THE PHILIPPINES 221 or professional use, like professional securities, lending investments, taxicabs,
(Second ed. (1977)). Indeed, the instruments and implements, by persons utility cars for rent, tourist buses, and
mandate to Congress is not to prescribe, coming to the Philippines to settle here. other common carriers, services of
but to evolve, a progressive tax system. (c) Goods subject to excise tax such as franchise grantees of telephone and
Otherwise, sales taxes, which perhaps are petroleum products or to be used for telegraph.
the oldest form of indirect taxes, would manufacture of petroleum products The problem with CREBA's petition is that
have been prohibited with the subject to excise tax and services subject it presents broad claims of constitutional
proclamation of Art. VIII, §17(1) of the to percentage tax. violations by tendering issues not at retail
1973 Constitution from which the present (d) Educational services, medical, dental, but at wholesale and in the abstract.
Art. VI, §28(1) was taken. Sales taxes are hospital and veterinary services, and There is no fully developed record which
also regressive. services rendered under employer- can impart to adjudication the impact of
Resort to indirect taxes should employee relationship. actuality. There is no factual foundation to
be minimized but not avoided entirely (e) Works of art and similar creations sold show in the concrete the application of the
because it is difficult, if not impossible, to by the artist himself. law to actual contracts and exemplify its
avoid them by imposing such taxes (f) Transactions exempted under special effect on property rights. For the fact is
according to the taxpayers' ability to pay. laws, or international agreements. that petitioner's members have not even
In the case of the VAT, the law minimizes (g) Export-sales by persons not VAT- been assessed the VAT. Petitioner's case
the regressive effects of this imposition by registered. is not made concrete by a series of
providing for zero rating of certain hypothetical questions asked which are no
transactions (R.A. No. 7716, §3,
different from those dealt with in advisory
opinions.
The difficulty confronting petitioner is thus
apparent. He alleges arbitrariness. A mere
allegation, as here, does not suffice. There
must be a factual foundation of such
unconstitutional taint. Considering that
petitioner here would condemn such a
provision as void on its face, he has not
made out a case. This is merely to adhere
to the authoritative doctrine that where
the due process and equal protection
clauses are invoked, considering that they
are not fixed rules but rather broad
standards, there is a need for proof of
such persuasive character as would lead
to such a conclusion. Absent such a
showing, the presumption of validity must
prevail.
(Sison, Jr. v. Ancheta, 130 SCRA at 661)
Adjudication of these broad claims must
await the development of a concrete case.
It may be that postponement of
adjudication would result in a multiplicity
of suits. This need not be the case,
however. Enforcement of the law may
give rise to such a case. A test case,
provided it is an actual case and not an
abstract or hypothetical one, may thus be
presented.
Nor is hardship to taxpayers alone an
adequate justification for adjudicating
abstract issues. Otherwise, adjudication
would be no different from the giving of
advisory opinion that does not really settle
legal issues.
We are told that it is our duty under Art.
VIII, §1, ¶2 to decide whenever a claim is
made that "there has been a grave abuse
of discretion amounting to lack or excess
of jurisdiction on the part of any branch or
instrumentality of the government." This
duty can only arise if an actual case or
controversy is before us. Under Art . VIII,
§5 our jurisdiction is defined in terms of
"cases" and all that Art. VIII, §1, ¶2 can
plausibly mean is that in the exercise of
that jurisdiction we have the judicial
power to determine questions of grave
abuse of discretion by any branch or
instrumentality of the government.
Put in another way, what is granted in Art.
VIII, §1, ¶2 is "judicial power," which is
"the power of a court to hear and decide
cases pending between parties who have
the right to sue and be sued in the courts
of law and equity" (Lamb v. Phipps, 22
Phil. 456, 559 (1912)), as distinguished
from legislative and executive power. This
power cannot be directly appropriated
until it is apportioned among several
courts either by the Constitution, as in the
case of Art. VIII, §5, or by statute, as in
the case of the Judiciary Act of 1948 (R.A.
No. 296) and the Judiciary Reorganization
Act of 1980 (B.P. Blg. 129). The power
thus apportioned constitutes the court's
"jurisdiction," defined as "the power
conferred by law upon a court or judge to
take cognizance of a case, to the
exclusion of all others." (United States v.
Arceo, 6 Phil. 29 (1906)) Without an
actual case coming within its jurisdiction,
this Court cannot inquire into any
allegation of grave abuse of discretion by
the other departments of the government.
VIII. Alleged violation of policy towards
cooperatives. On the other hand, the
Cooperative Union of the Philippines
(CUP), after briefly surveying the course
of legislation, argues that it was to adopt
a definite policy of granting tax exemption
to cooperatives that the present
Constitution embodies provisions on
cooperatives. To subject cooperatives to
the VAT would therefore be to infringe a
constitutional policy. Petitioner claims that
in 1973, P.D. No. 175 was promulgated
exempting cooperatives from the payment
of income taxes and sales taxes but in
1984, because of the crisis which
menaced the national economy, this
exemption was withdrawn by P.D. No.
1955; that in 1986, P.D. No. 2008 again
granted cooperatives exemption from
income and sales taxes until December
31, 1991, but, in the same year, E.O. No.
93 revoked the exemption; and that
finally in 1987 the framers of the
Constitution "repudiated the previous
actions of the government adverse to the
interests of the cooperatives, that is, the
repeated revocation of the tax exemption
to cooperatives and instead upheld the
policy of strengthening the
cooperatives by way of the grant of tax
exemptions," by providing the following in
Art. XII:
§1. The goals of the national economy are
a more equitable distribution of
opportunities, income, and wealth; a
sustained increase in the amount of goods
and services produced by the nation for
the benefit of the people; and an
expanding productivity as the key to
raising the quality of life for all, especially
the underprivileged.
The State shall promote industrialization
and full employment based on sound
agricultural development and agrarian
reform, through industries that make full
and efficient use of human and natural
resources, and which are competitive in
both domestic and foreign markets. had been one of vacillation, as far as the
However, the State shall protect Filipino grant of tax privileges was concerned, and
enterprises against unfair foreign that it was to put an end to this indecision
competition and trade practices. that the constitutional provisions cited
In the pursuit of these goals, all sectors of were adopted. Perhaps as a matter of
the economy and all regions of the policy cooperatives should be granted tax
country shall be given optimum exemptions, but that is left to the
opportunity to develop. Private discretion of Congress. If Congress does
enterprises, including corporations, not grant exemption and there is no
cooperatives, and similar collective discrimination to cooperatives, no
organizations, shall be encouraged to violation of any constitutional policy can
broaden the base of their ownership. be charged.
§15. The Congress shall create an agency Indeed, petitioner's theory amounts to
to promote the viability and growth of saying that under the Constitution
cooperatives as instruments for social cooperatives are exempt from taxation.
justice and economic development. Such theory is contrary to the Constitution
Petitioner's contention has no merit. In under which only the following are exempt
the first place, it is not true that P.D. No. from taxation: charitable institutions,
1955 singled out cooperatives by churches and parsonages, by reason of
withdrawing their exemption from income Art. VI, §28 (3), and non-stock, non-profit
and sales taxes under P.D. No. 175, §5. educational institutions by reason of Art.
What P.D. No. 1955, §1 did was to XIV, §4 (3).
withdraw the exemptions and preferential CUP's further ground for seeking the
treatments theretofore granted to private invalidation of R.A. No. 7716 is that it
business enterprises in general, in view of denies cooperatives the equal protection
the economic crisis which then beset the of the law because electric cooperatives
nation. It is true that after P.D. No. 2008, are exempted from the VAT. The
§2 had restored the tax exemptions of classification between electric and other
cooperatives in 1986, the exemption was cooperatives (farmers cooperatives,
again repealed by E.O. No. 93, §1, but producers cooperatives, marketing
then again cooperatives were not the only cooperatives, etc.) apparently rests on a
ones whose exemptions were congressional determination that there is
withdrawn. The withdrawal of tax greater need to provide cheaper electric
incentives applied to all, including power to as many people as possible,
government and private entities. In the especially those living in the rural areas,
second place, the Constitution does not than there is to provide them with other
really require that cooperatives be granted necessities in life. We cannot say that
tax exemptions in order to promote their such classification is unreasonable.
growth and viability. Hence, there is no We have carefully read the various
basis for petitioner's assertion that the arguments raised against the
government's policy toward cooperatives constitutional validity of R.A. No. 7716.
We have in fact taken the extraordinary
step of enjoining its enforcement pending
resolution of these cases. We have now
come to the conclusion that the law
suffers from none of the infirmities
attributed to it by petitioners and that its
enactment by the other branches of the
government does not constitute a grave
abuse of discretion. Any question as to its
necessity, desirability or expediency must
be addressed to Congress as the body
which is electorally responsible,
remembering that, as Justice Holmes has
said, "legislators are the ultimate
guardians of the liberties and welfare of
the people in quite as great a degree as
are the courts." (Missouri, Kansas & Texas
Ry. Co. v. May, 194 U.S. 267, 270, 48 L.
Ed. 971, 973 (1904)). It is not right, as
petitioner in G.R. No. 115543 does in
arguing that we should enforce the public
accountability of legislators, that those
who took part in passing the law in
question by voting for it in Congress
should later thrust to the courts the
burden of reviewing measures in the flush
of enactment. This Court does not sit as a
third branch of the legislature, much less
exercise a veto power over legislation.
WHEREFORE, the motions for
reconsideration are denied with finality
and the temporary restraining order
previously issued is hereby lifted.
SO ORDERED.
G.R. No. L-2947             January 11,
1951
MANILA RACE HORSE TRAINERS
ASSOCIATION, INC., and JUAN T.
SORDAN, plaintiffs-appellants,
vs.
MANUEL DE LA FUENTE, defendant-
appellee.
Soriano, Garde and Cervania for
appellants.
City Fiscal Eugenio Angeles and Assistant
Fiscal Arsenio Nañawa for appellee.
TUASON, J.:
This action was instituted for a declaratory
relief by the Manila Race Horses Trainers
Association, Inc., a non-stock corporation
duly organized and existing under and by
virtue of the laws of the Philippines, who
allege that they are owners of boarding
stables for race horses and that their
rights as such are affected by Ordinance
No. 3065 of the City of Manila approved
on July 1, 1947.1 They made the Mayor of
Manila defendant and prayed that said
ordinance be declared invalid as violative
of the Philippine Constitution.
The case was submitted on the pleadings,
and the decision was that the ordinance in
question "is constitutional and valid and
has been enacted in accordance with the
powers of the Municipal Board granted by
the Charter of the City of Manila."
On appeal, the plaintiffs as appellants
make three assignments of error, the first
two of which are discussed jointly in their
brief under two separate topics.
First, it is maintained that the ordinance
under consideration is a tax on race
horses as distinct from boarding stables.
It is argued that by section 2 the basis of
the license fees "is the number of race
horses kept or maintained in the boarding
stables to be paid by the maintainers at
the rate of P10.00 a year for each race
horse;" that "the fee is increased
correspondingly P10 for each additional
race horse maintained or fed in the
stable;" and that "by the same token, an
empty stable for race horse pays no
license fee at all."
The spirit, rather than the letter, of an
ordinance determines the construction
thereof, and the court looks less to its
words and more to the context, subject
matter, consequence and effect.
Accordingly, what is within the spirit is
within the ordinance although it is not
within the letter thereof, while that which
is in the letter, although not within the
spirit, is not within the ordinance. (62 C.
J. S., 845.) From the context of Ordinance
No. 3065, the intent to tax or license
stables and not horses is clearly manifest.
The tax is assessed not on the owners of
the horses but on the owners of the
stables, as counsel admit in their brief,
although there is nothing, of course, to
stop stable owners from shifting the tax to
the horse owners in the form of increased
rents or fees, which is generally the case.
It is also plain from the text of the whole
ordinance that the number of horses is
used in the assessment purely as a
method of fixing an equitable and practical
distribution of the burden imposed by the
measure. Far from being obnoxious, the
method is fair and just. It is but fair and
just that for a boarding stable where only
one horse is maintained proportionately
less amount should be exacted than for a
stable where more horses are kept and
from which greater income is derived.
We do not share plaintiff's opinion,
apropos the second proposition, that the
ordinance in question is discriminatory
and savors of class legislation. In taxing
only boarding stables for race horses, we
do not believe that the ordinance, makes
arbitrary classification. In the case
of Eastern Theatrical Co. Inc., vs. Alfonso,
46 Off. Gaz. Supp. to No. 11, p. 303,* it
was said there is equality and uniformity
in taxation if all articles or kinds of
property of the same class are taxed at
the same rate. Thus, it was held in that
case, that "the fact that some places of
amusement are not taxed while others,
such as cinematographs, theaters,
vaudeville companies, theatrical shows,
and boxing exhibitions and other kinds of
amusements or places of amusement are
taxed, is not argument at all against the
equality and uniformity of tax imposition."
Applying this criterion to the present case,
there would be discrimination if some
boarding stables of the same class used
for the same number of horses were not
taxed or were made to pay less or more
than others.
From the viewpoint of economics and
public policy the taxing of boarding stables
for race horses to the exclusion of
boarding stables for horses dedicated to
other purposes is not indefensible. The
owners of boarding stables for race horses
and, for that matter, the race horse
owners themselves, who in the scheme of
shifting may carry the taxation burden,
are a class by themselves and
appropriately taxed where owners of other
kinds of horses are taxed less or not at all,
considering that equity in taxation is
generally conceived in terms of ability to
pay in relation to the benefits received by invalid as against a class other than that
the taxpayer and by the public from the to which he belongs. (62 C. J. S.830,
business or property taxed. Race horses 831.) By analogy, where a municipal
are devoted to gambling if legalized, their ordinance is valid in some of its parts and
owners derive fat income and the public invalid as to others and the valid parts are
hardly any profit from horse racing, and separable from the invalid ones — in
this business demands relatively heavy which latter case the valid provisions
police supervision. Taking everything into stand as operative — the plaintiff may
account, the differentiation against which contest the validity of the provisions that
the plaintiffs complain conforms to the injure his interest but not those that do
practical dictates of justice and equity and not.
is not discrimatory within the meaning of We are of the opinion that the trial court
the Constitution. committed no error and the judgment is
One ground of attack in the court below affirmed with costs against the plaintiff-
on the constitutionality of the ordinance — appellants.
variance between the title and the subject
matter — apparently has been
abandoned. In its place a new question is
brought up on the appeal in the third and
last assignment of error. It is now
contended, for the first time, that "the
Municipal Board of Manila (is) without
power to enact ordinance taxing private
stables for race horses," and that the
lower court erred in not so declaring. This
assignment of error has reference to Class
B or the second sub-paragraph of section
1 of the ordinance.
Not having been raised in the pleading,
this question was properly ignored, not to
say that even it had been raised it would
not have been available as basis for a
declaration of nullity of the ordinance. The
clause of the ordinance taxing or licensing
boarding stables for race horses does not
prejudice the plaintiffs in any material
way, and it is well settled that a person
who is not adversely affected by a
licensing ordinance may not attack its
validity. Stated differently, he may not
complain that a licensing ordinance is
G.R. No. L-22814           August 28,
1968
PEPSI-COLA BOTTLING CO. OF THE
PHILIPPINES, INC., plaintiff-appellant,
vs.
CITY OF BUTUAN, MEMBERS OF THE
MUNICIPAL BOARD,
THE CITY MAYOR and THE CITY
TREASURER, all of the CITY OF
BUTUAN, defendants-appellees.
Sabido, Sabido and Associates for
plaintiff-appellant.
The City Attorney of Butuan City for
defendants-appellees.
CONCEPCION, C.J.:
Direct appeal to this Court, from a
decision of the Court of First Instance of
Agusan, dismissing plaintiff's complaint,
with costs.
Plaintiff, Pepsi-Cola Bottling Company of
the Philippines, is a domestic corporation
with offices and principal place of business
in Quezon City. The defendants are the
City of Butuan, its City Mayor, the
members of its municipal board and its
City Treasurer. Plaintiff — seeks to
recover the sums paid by it to the City of
Butuan — hereinafter referred to as the
City and collected by the latter, pursuant
to its Municipal Ordinance No. 110, as
amended by Municipal Ordinance No. 122,
both series of 1960, which plaintiff assails
as null and void, and to prevent the
enforcement thereof. Both parties
submitted the case for decision in the
lower court upon a stipulation to the
effect:
1. That plaintiff's warehouse in the City of
Butuan serves as a storage for its
products the "Pepsi-Cola" soft drinks for
sale to customers in the City of Butuan
and all the municipalities in the Province
of Agusan. These "Pepsi-Cola Cola" soft
drinks are bottled in Cebu City and
shipped to the Butuan City warehouse of
plaintiff for distribution and sale in the
City of Butuan and all municipalities of
Agusan. .
2. That on August 16, 1960, the City of
Butuan enacted Ordinance No. 110 which
was subsequently amended by Ordinance
No. 122 and effective November 28, 1960.
A copy of Ordinance No. 110, Series of
1960 and Ordinance No. 122 are
incorporated herein as Exhibits "A" and
"B", respectively.
3. That Ordinance No. 110 as amended,
imposes a tax on any person, association,
etc., of P0.10 per case of 24 bottles of
Pepsi-Cola and the plaintiff paid under
protest the amount of P4,926.63 from
August 16 to December 31, 1960 and the
amount of P9,250.40 from January 1 to
July 30, 1961.
4. That the plaintiff filed the foregoing
complaint for the recovery of the total
amount of P14,177.03 paid under protest
and those that if may later on pay until
the termination of this case on the ground
that Ordinance No. 110 as amended of the
City of Butuan is illegal, that the tax
imposed is excessive and that it is
unconstitutional.
5. That pursuant to Ordinance No. 110 as
amended, the City Treasurer of Butuan
City, has prepared a form to be
accomplished by the plaintiff for the
computation of the tax. A copy of the form
is enclosed herewith as Exhibit "C".
6. That the Profit and Loss Statement of
the plaintiff for the period from January 1,
1961 to July 30, 1961 of its warehouse in
Butuan City is incorporated herein as
Exhibits "D" to "D-1" to "D-5". In this
Profit and Loss Statement, the defendants
claim that the plaintiff is not entitled to a
depreciation of P3,052.63 but only
P1,202.55 in which case the profit of
plaintiff will be increased from P1,254.44
to P3,104.52. The plaintiff differs only on
the claim of depreciation which the
company claims to be P3,052.62. This is
in accordance with the findings of the
representative of the undersigned City
Attorney who verified the records of the
plaintiff.
7. That beginning November 21, 1960, the
price of Pepsi-Cola per case of 24 bottles
was increased to P1.92 which price is
uniform throughout the Philippines. Said
increase was made due to the increase in
the production cost of its manufacture.
8. That the parties reserve the right to
submit arguments on the constitutionality
and illegality of Ordinance No. 110, as
amended of the City of Butuan in their
respective memoranda.
x x x           x x x           x x x1äwphï1.ñët
Section 1 of said Ordinance No. 110, as
amended, states what products are
"liquors", within the purview thereof.
Section 2 provides for the payment by
"any agent and/or consignee" of any
dealer "engaged in selling liquors,
imported or local, in the City," of taxes at
specified rates. Section 3 prescribes a tax
of P0.10 per case of 24 bottles of the soft
drinks and carbonated beverages therein
named, and "all other soft drinks or
carbonated drinks." Section 3-A, defines
the meaning of the term "consignee or
agent" for purposes of the ordinance.
Section 4 provides that said taxes "shall
be paid at the end of every calendar
month." Pursuant to Section 5, the taxes
"shall be based and computed from the
cargo manifest or bill of lading or any
other record showing the number of cases
of soft drinks, liquors or all other soft
drinks or carbonated drinks received
within the month." Sections 6, 7 and 8
specify the surcharge to be added for
failure to pay the taxes within the period
prescribed and the penalties imposable for
"deliberate and willful refusal to pay the
tax mentioned in Sections 2 and 3" or for
failure "to furnish the office of the City
Treasurer a copy of the bill of lading or
cargo manifest or record of soft drinks,
liquors or carbonated drinks for sale in the
City." Section 9 makes the ordinance
applicable to soft drinks, liquors or
carbonated drinks "received outside" but
"sold within" the City. Section 10 of the
ordinance provides that the revenue
derived therefrom "shall be alloted as
follows: 40% for Roads and Bridges Fund;
40% for the General Fund and 20% for
the School Fund."
Plaintiff maintains that the disputed
ordinance is null and void because: (1) it
partakes of the nature of an import tax;
(2) it amounts to double taxation; (3) it is
excessive, oppressive and confiscatory;
(4) it is highly unjust and discriminatory;
and (5) section 2 of Republic Act No.
2264, upon the authority of which it was
enacted, is an unconstitutional delegation
of legislative powers.
The second and last objections are
manifestly devoid of merit. Indeed —
independently of whether or not the tax in
question, when considered in relation to
the sales tax prescribed by Acts of
Congress, amounts to double taxation, on
which we need not and do not express
any opinion - double taxation, in general,
is not forbidden by our fundamental law.
We have not adopted, as part thereof, the
injunction against double taxation found in
the Constitution of the United States and
of some States of the Union.1 Then, again,
the general principle against delegation of
legislative powers, in consequence of the
theory of separation of powers2 is subject
to one well-established exception,
namely: legislative powers may be
delegated to local governments — to
which said theory does not apply3 — in
respect of matters of local concern.
The third objection is, likewise, untenable.
The tax of "P0.10 per case of 24
bottles," of soft drinks or carbonated
drinks — in the production and sale of
which plaintiff is engaged — or less than
P0.0042 per bottle, is manifestly too small
to be excessive, oppressive, or
confiscatory.
The first and the fourth objections merit,
however, serious consideration. In this
connection, it is noteworthy that the tax
prescribed in section 3 of Ordinance No.
110, as originally approved, was imposed
upon dealers "engaged in selling" soft
drinks or carbonated drinks. Thus, it
would seem that the intent was then to
levy a tax upon the sale of said
merchandise. As amended by Ordinance
No. 122, the tax is, however, imposed
only upon "any agent and/or consignee of
any person, association, partnership,
company or corporation engaged in selling
... soft drinks or carbonated drinks." And,
pursuant to section 3-A, which was
inserted by said Ordinance No. 122:
... — Definition of the Term Consignee or
Agent. — For purposes of this Ordinance,
a consignee of agent shall mean any
person, association, partnership, company
or corporation who acts in the place of
another by authority from him or one
entrusted with the business of another or
to whom is consigned or shipped no less
than 1,000 cases of hard liquors or soft
drinks every month for resale, either retail
or wholesale.
As a consequence, merchants engaged in
the sale of soft drink or carbonated drinks,
are not subject to the tax, unless they are
agents and/or consignees of another
dealer, who, in the very nature of things,
must be one engaged in
business outside the City. Besides, the tax
would not be applicable to such agent
and/or consignee, if less than 1,000 cases
of soft drinks are consigned or shipped to
him every month. When we consider, also,
that the tax "shall be based and computed
from the cargo manifest or bill of lading ...
showing the number of cases" — not sold
— but "received" by the taxpayer, the
intention to limit the application of the
ordinance to soft drinks and carbonated
drinks brought into the City from outside
thereof becomes apparent. Viewed from
this angle, the tax partakes of the nature
of an import duty, which is beyond
defendant's authority to impose by
express provision of law.4
Even however, if the burden in question
were regarded as a tax on the sale of said
beverages, it would still be invalid, as
discriminatory, and hence, violative of the
uniformity required by the Constitution
and the law therefor, since only sales by
"agents or consignees" of outside dealers
would be subject to the tax. Sales by local plaintiff herein the amounts collected from
dealers, not acting for or on behalf of and paid under protest by the latter, with
other merchants, regardless of the interest thereon at the legal rate from the
volume of their sales, and even if the date of the promulgation of this decision,
same exceeded those made by said in addition to the costs, and defendants
agents or consignees of producers or herein are, accordingly, restrained and
merchants established outside the City of prohibited permanently from enforcing
Butuan, would be exempt from the said Ordinance, as amended. It is so
disputed tax. ordered.
It is true that the uniformity essential to
the valid exercise of the power of taxation
does not require identity or equality under
all circumstances, or negate the authority
to classify the objects of taxation.5 The
classification made in the exercise of this
authority, to be valid, must, however, be
reasonable6 and this requirement is not
deemed satisfied unless: (1) it is based
upon substantial distinctions which make
real differences; (2) these are germane to
the purpose of the legislation or
ordinance; (3) the classification applies,
not only to present conditions, but, also,
to future conditions substantially identical
to those of the present; and (4) the
classification applies equally all those who
belong to the same class.7
These conditions are not fully met by the
ordinance in question.8 Indeed, if its
purpose were merely to levy a burden
upon the sale of soft drinks or carbonated
beverages, there is no reason why sales
thereof by sealers other than agents or
consignees of producers or merchants
established outside the City of Butuan
should be exempt from the tax.
WHEREFORE, the decision appealed from
is hereby reversed, and another one shall
be entered annulling Ordinance No. 110,
as amended by Ordinance No. 122, and
sentencing the City of Butuan to refund to
[G.R. No. L-22421. March 18, 1967.]
IMUS ELECTRIC CO., INC., Petitioner,
v. HON. COURT OF TAX APPEAL and
THE COMMISSIONER OF INTERNAL
REVENUE, Respondents.
Vicente J. Francisco and V. F. Faustino
for Petitioner.
Solicitor General for Respondents.
SYLLABUS
1. TAXATION; TAX ON CORPORATE
FRANCHISES; RATES OF TAXES FIXED IN
MUNICIPAL FRANCHISES SUBJECT TO
ALTERATION BY CONGRESS. — The
authority under which franchises are
granted by municipal corporations
emanates from Act No. 667, pursuant to
which franchises granted thereunder shall
be "subject to the power of Congress to
alter, modify or repeal the same." To the
extent that Section 259 of the National
Internal Revenue Code is inconsistent with
the rates of taxes fixed in said municipal
franchises, it is obvious that, for all intents
and purposes, said legal provision alters
the pertinent provisions of said franchises.
In effecting such alteration, the legislative
department has merely exercised a power
expressly reserved thereto by said
franchises, and has acted, therefore, in
conformity therewith, not in violation of
their provisions.
2. ID.; DELAY IN PAYMENT OF TAXES;
WHEN SURCHARGE MAY NOT BE
IMPOSED. — Where the taxpayer’s delay
in the payment of taxes was in good faith
due to misunderstanding of revenue
regulations applicable, it should not be
made to pay a surcharge.
DECISION
BENGZON, J.P., J.:
On June 23, 1930, the Municipal Council
of Imus, Cavite, under authority of Act No.
667, granted the Imus Electric Co., Inc.
through Resolution No. 46, the franchise
to operate in that municipality an electric
plant, imposing upon said company the
franchise tax of one per cent of its gross
receipts for the first twenty (20) years and
two per cent thereof for the next fifteen
(15) years.
After the effectivity on October 1, 1946 of
Republic Act 39, which amended Sec. 259
of the Tax Code to read,
thus:jgc:chanrobles.com.ph
"SEC. 259. Tax on corporate franchises. —
There shall be collected in respect to all
existing and future franchises, upon the
gross earnings or receipts from the
business covered by the law granting the
franchise a tax of five per centum or such
taxes, charges, and percentages as are
specified in the special charters of the
corporations upon whom such franchises
are conferred, whichever is higher, unless
the provisions thereof preclude the
imposition of a higher tax. For the purpose
of facilitating the assessment of this tax,
reports shall be made by the respective
holders of the franchises in such form and
at such times as shall be required by the
regulations of the Department of Finance.
"The taxes, charges, and percentages on
corporate franchises shall be due and
payable as specified in the particular
franchise, or, in case no time limit is
specified therein, the provisions of section
one hundred eighty-three shall apply; and
if such taxes, charges, and percentages
remain unpaid for fifteen days from and
after the date on which they must be paid,
twenty-five per centum shall be added to
the amount of such taxes, charges, and
percentages, which increase shall form
part of the tax."cralaw virtua1aw library
Imus Electric Co., Inc., paid franchise tax
at the rate of 5% of its gross receipts,
until sometime in 1953 when it filed a
claim for refund of payments made at the
aforesaid rate of 5% for the period from
July 1, 1948 to December 31, 1951,
inclusive. Said claim for refund was
granted as to the period from April 1,
1950 to December 31, 1951. Nonetheless,
the Commissioner of Internal Revenue, on
February 24, 1961, assessed Imus Electric
Co., Inc., at the 5% rate pursuant to Sec.
259 of the Tax Code as amended by
Republic Act 39, demanding payment of
deficiency tax and surcharge of
P58,510.41 for the period from July 1,
1948 to September 30, 1960. Finding,
however, that the time to assess had
prescribed for the period before January
1, 1956, said Commissioner issued
another assessment on September 28,
1961, for January 1, 1956 to September
30, 1960, for a deficiency franchise tax, at
the 5% rate aforementioned, of
P24,752.26 plus 25% surcharge of
P6,188.07, or a total of P30,940.33.
Upon refusal of the Commissioner to
reconsider the assessment, Imus Electric
Co., Inc., on November 11, 1963,
petitioned the Court of Tax Appeals for the
review of the Commissioner’s ruling,
alleging that: (1) The franchise in its favor
is a private contract which would be
impaired by the application of Section 259
of the Tax Code as amended by Republic
Act 39 and this would be in violation of
the non- impairment clause of the
Constitution; and (2) Section 259 of the
Tax Code as amended is a general law
which has not repealed the franchise and
as such applies only to charter provisions
which do not specify the rate of franchise
tax to be paid.
The Court of Tax Appeals, citing the case
of Lealda Electric Co. v. Commissioner of
Internal Revenue, L-16428, April 30,
1963, affirmed on December 16, 1963,
the Commissioner of Internal Revenue’s
decision declaring petitioner subject to the
franchise tax of five per cent according to
Section 259 of the Internal Revenue Code
as amended by Republic Act 39 because
its franchise "contains an express
reservation that it is subject to
amendment or repeal and that the same
contains no provision that the tax therein
prescribed shall be in lieu of all other
taxes, municipal, provincial or
national."cralaw virtua1aw library
Said decision is brought before Us by the
petitioner for determination of whether or
not Section 259 of the Tax Code has
repealed the corresponding provision in
petitioner’s franchise and the applicability
of the Lealda and Hidalgo 1 cases.
While admitting the existence of the
express reservation for amendment or
repeal in its franchise, petitioner denies
that Section 259 of the Tax Code as
amended by Republic Act 39, is an
exercise of such reserved power to amend
and argues further that the absence of the
phrase "in lieu of all other taxes,
municipal, provincial or national" does not
justify the conclusion that the fixing of the
tax rates in the franchise was not
intended to exclude all other subsequent
impositions. For, such legislative intent is
allegedly gleaned from the fact that
specific rates of the franchise tax were
provided for. Petitioner wishes to take
exception to the application of the Lealda
case because unlike the present case
where the tax rates were specified, the
franchise in said case not only lacked the
phrase exempting it from other charges
but also did not state the specific rates to
be charged.
In the Lealda case, We held that as
amended by Republic Act 39, Section 259
of the Tax Code became the basic tax law
not only because it was entitled "Tax on
Corporate Franchises" but also because it
"fixed the rate of franchise tax to be paid
by holders of all existing and future
franchises." (Italics as quoted) We had
occasion to expound on this ruling in
Balanga Power Plant Co. v. Commissioner
of Internal Revenue, 2 a case similarly
situated with our present one, where the
franchises in favor of the petitioner were
issued by the Municipal Councils of
Balanga and Samal, also in pursuance to
Act No. 667 with also the same franchise
tax rates, i.e., 1% of the gross earnings of
the petitioner for the first 20 years and
2% for the remaining 15 years. In
upholding the applicability of Section 259
of the Tax Code, as amended, this Court
speaking through present Chief Justice
Roberto Concepcion,
held:jgc:chanrobles.com.ph
"At the outset, it should be noted that the
status of petitioner’s municipal franchises
as property and property right is
dependent upon or qualified by the nature
and limitations of the authority under
which said franchises were granted by the
municipal corporations concerned.
Admittedly, such authority, as regards the
franchises for Balanga and Samal,
emanated from Act No. 667, pursuant to
which franchises granted thereunder shall
be ’subject to the power of Congress to
alter, modify or repeal the same’. To the
extent that Section 259 of our National
Internal Revenue Code is inconsistent with
the rate of taxes fixed in said municipal
franchises — and the theory that said
Section 259 as applied to petitioner herein
is unconstitutional, necessarily implies
such inconsistency — it is obvious that, for
all intents and purposes, said legal
provision alters the pertinent provisions of
said franchises. In effecting such
alteration, our legislative department has
merely exercised, however, a power
expressly reserved thereto by said
franchises, and has acted, therefore, in
conformity therewith, not in violation of
the provisions thereof or to the detriment
of the rights thereby vested in petitioner
herein . . ."cralaw virtua1aw library

Neither can We, as the petitioner would

urge Us, apply the Hidalgo case, supra,
for the appeal in that case did not involve
the applicability of Section 259 of the Tax
Code as amended but rather the
application of the tax rates to be imposed
after the life of the franchise had been
extended for another (25) years.

As regards the imposition of 25%

surcharge, however, in Connell Bros. Co.
v. Collector of Internal Revenue, 3 this
Court ruled that the surcharge may be
dispensed with where the taxpayer’s delay
to pay the tax was in good faith due to
misunderstanding of revenue regulations
applicable. Petitioner herein was in such
good faith in its delay in payment of the
tax. It is clear that it should not be made
to pay the 25% surcharge.

Wherefore, the judgment appealed from is

affirmed with the modification that the
25% surcharge imposed on petitioner
should be, and is, eliminated, thereby
reducing the tax from a total of
P30,940.33 (with surcharge) to
P24,752.26. No costs. So ordered.
EN BANC
G.R. No. 143076. June 10, 2003]
PHILIPPINE RURAL ELECTRIC
COOPERATIVES ASSOCIATION, INC.
(PHILRECA); AGUSAN DEL NORTE
ELECTRIC COOPERATIVE, INC.
(ANECO); ILOILO I ELECTRIC
COOPERATIVE, INC. (ILECO I); and
ISABELA I ELECTRIC COOPERATIVE,
INC. (ISELCO I), Petitioners, v. THE
SECRETARY, DEPARTMENT OF INTERIOR
AND LOCAL GOVERNMENT, and THE
SECRETARY, DEPARTMENT OF
FINANCE, Respondents.
DECISION
PUNO, J.:
This is a petition for Prohibition under Rule
65 of the Rules of Court with prayer for
the issuance of a temporary restraining
order seeking to annul as unconstitutional
sections 193 and 234 of R.A. No. 7160
otherwise known as the Local Government
Code.
On May 23, 2000, a class suit was filed by
petitioners in their own behalf and in
behalf of other electric cooperatives
organized and existing under P.D. No. 269
who are members of petitioner Philippine
Rural Electric Cooperatives Association,
Inc. (PHILRECA). Petitioner PHILRECA is
an association of 119 electric cooperatives
throughout the country. Petitioners
Agusan del Norte Electric Cooperative,
Inc. (ANECO), Iloilo I Electric Cooperative,
Inc. (ILECO I) and Isabela I Electric
Cooperative, Inc. (ISELCO I) are non-
stock, non-profit electric cooperatives
organized and existing under P.D. No.
269, as amended, and registered with the
National Electrification Administration
(NEA).
Under P.D. No. 269, as amended, or the
National Electrification Administration
Decree, it is the declared policy of the
State to provide the total electrification of
the Philippines on an area coverage basis
the same being vital to the people and the
sound development of the
nation.1 Pursuant to this policy, P.D. No.
269 aims to promote, encourage and
assist all public service entities engaged in
supplying electric service, particularly
electric cooperatives by giving every
tenable support and assistance to the
electric cooperatives coming within the
purview of the law.2 Accordingly, Section
39 of P.D. No. 269 provides for the
following tax incentives to electric
cooperatives:
SECTION 39. Assistance to Cooperatives;
Exemption from Taxes, Imposts, Duties,
Fees; Assistance from the National Power
Corporation. Pursuant to the national
policy declared in Section 2, the Congress
hereby finds and declares that the
following assistance to cooperative is
necessary and appropriate:
(a) Provided that it operates in conformity
with the purposes and provisions of this
Decree, cooperatives (1) shall be
permanently exempt from paying
income taxes, and (2) for a period
ending on December 31 of the thirtieth full
calendar year after the date of a
cooperative's organization or conversion
hereunder, or until it shall become
completely free of indebtedness incurred
by borrowing, whichever event first
occurs, shall be exempt from the
payment (a) of all National
Government, local government and
municipal taxes and fees, including
franchise, filing, recordation, license
or permit fees or taxes and any fees,
charges, or costs involved in any
court or administrative proceeding in
which it may be a party, and (b) of all
duties or imposts on foreign goods
acquired for its operations, the period
of such exemption for a new cooperative
formed by consolidation, as provided for
in Section 29, to begin from as of the date
of the beginning of such period for the
constituent consolidating cooperative
which was most recently organized or
converted under this Decree: Provided,
That the Board of Administrators shall,
after consultation with the Bureau of
Internal Revenue, promulgate rules and
regulations for the proper implementation
of the tax exemptions provided for in this
Decree.
.[3cräläwvirtualibräry
From 1971 to 1978, in order to finance
the electrification projects envisioned by
P.D. No. 269, as amended, the Philippine
Government, acting through the National
Economic Council (now National Economic
Development Authority) and the NEA,
entered into six (6) loan agreements with
the government of the United States of
America through the United States Agency
for International Development (USAID)
with electric cooperatives, including
petitioners ANECO, ILECO I and ISELCO I,
as beneficiaries. The six (6) loan
agreements involved a total amount of
approximately US$86,000,000.00. These
loan agreements are existing until today.
The loan agreements contain similarly
worded provisions on the tax application
of the loan and any property or
commodity acquired through the proceeds
of the loan. Thus, Section 6.5 of A.I.D.
Loan No. 492-H-027 dated November 15,
1971 provides:
Section 6.5. Taxes and Duties. The
Borrower covenants and agrees that this
Loan Agreement and the Loan provided
for herein shall be free from, and the
Principal and interest shall be paid to
A.I.D. without deduction for and free
from, any taxation or fees imposed under
any laws or decrees in effect within the
Republic of the Philippines or any such
taxes or fees so imposed or payable shall
be reimbursed by the Borrower with funds
other than those provided under the Loan.
To the extent that (a) any contractor,
including any consulting firm, any
personnel of such contractor financed
hereunder, and any property or
transactions relating to such contracts and
(b) any commodity procurement
transactions financed hereunder, are not
exempt from identifiable taxes, tariffs,
duties and other levies imposed under
laws in effect in the country of the
Borrower, the Borrower and/or Beneficiary
shall pay or reimburse the same with
funds other than those provided under the
Loan.[4cräläwvirtualibräry
Petitioners contend that pursuant to the
provisions of P.D. No. 269, as amended,
and the above-mentioned provision in the
loan agreements, they are exempt from
payment of local taxes, including payment
of real property tax. With the passage of
the Local Government Code, however,
they allege that their tax exemptions have
been invalidly withdrawn. In particular,
petitioners assail Sections 193 and 234 of
the Local Government Code on the ground
that the said provisions discriminate
against them, in violation of the equal
protection clause. Further, they submit
that the said provisions are
unconstitutional because they impair the
obligation of contracts between the
Philippine Government and the United
States Government.
On July 25, 2000 we issued a Temporary
Restraining Order.[5cräläwvirtualibräry
We note that the instant action was filed
directly to this Court, in disregard of the
rule on hierarchy of courts. However, we
opt to take primary jurisdiction over the
present petition and decide the same on
its merits in view of the significant
constitutional issues raised by the parties
dealing with the tax treatment of
cooperatives under existing laws and in
the interest of speedy justice and prompt
disposition of the matter.
I provisions unduly discriminate against
There is No Violation of the Equal
Protection Clause
The pertinent parts of Sections 193 and
234 of the Local Government Code
provide:
Section 193. Withdrawal of Tax Exemption
Privileges.Unless otherwise provided in
this Code, tax exemptions or incentives
granted to, or presently enjoyed by all
persons, whether natural or juridical,
including government-owned and
controlled corporations, except local water
districts, cooperatives duly registered
under R.A. No. 6938, non-stock and
non-profit hospitals and educational
institutions, are hereby withdrawn upon
the effectivity of this Code.
. cooperatives, operate for service to their
Section 234. Exemptions from real
property tax.The following are exempted
from payment of the real property tax:
.
(d) All real property owned by duly
registered cooperatives as provided
for under R.A. No. 6938; and
.
Except as provided herein, any exemption
from payment of real property tax
previously granted to, or presently
enjoyed by, all persons whether natural or
juridical, including all government-owned
and controlled corporations are hereby
withdrawn upon effectivity of this Code.
[6cräläwvirtualibräry
Petitioners argue that the above
provisions of the Local Government Code
are unconstitutional for violating the equal
protection clause. Allegedly, said
petitioners who are duly registered
cooperatives under P.D. No. 269, as
amended, and not under R.A. No. 6938 or
the Cooperative Code of the Philippines.
They stress that cooperatives registered
under R.A. No. 6938 are singled out for
tax exemption privileges under the Local
Government Code. They maintain that
electric cooperatives registered with the
NEA under P.D. No. 269, as amended, and
electric cooperatives registered with the
Cooperative Development Authority (CDA)
under R.A. No. 6938 are similarly situated
for the following reasons: a) petitioners
are registered with the NEA which is a
government agency like the CDA; b)
petitioners, like CDA-registered
member-consumers; and c) prior to the
enactment of the Local Government Code,
petitioners, like CDA-registered
cooperatives, were already tax-
7
exempt.  Thus, petitioners contend that to
grant tax exemptions from local
government taxes, including real property
tax under Sections 193 and 234 of the
Local Government Code only to registered
cooperatives under R.A. No. 6938 is a
violation of the equal protection clause.
We are not persuaded. The equal
protection clause under the Constitution
means that no person or class of persons
shall be deprived of the same protection
of laws which is enjoyed by other persons
or other classes in the same place and in
like circumstances.8Thus, the guaranty of
the equal protection of the laws is not
violated by a law based on reasonable
classification. Classification, to be
reasonable, must (1) rest on substantial
distinctions; (2) be germane to the
purposes of the law; (3) not be limited to
existing conditions only; and (4) apply
equally to all members of the same
class.9cräläwvirtualibräry
We hold that there is reasonable
classification under the Local Government
Code to justify the different tax treatment
between electric cooperatives covered by
P.D. No. 269, as amended, and electric
cooperatives under R.A. No. 6938.
First, substantial distinctions exist
between cooperatives under P.D. No. 269,
as amended, and cooperatives under R.A.
No. 6938. These distinctions are manifest
in at least two material respects which go
into the nature of cooperatives envisioned
by R.A. No. 6938 and which
characteristics are not present in the type
of cooperative associations created under
P.D. No. 269, as amended.
a. Capital Contributions by Members
A cooperative under R.A. No. 6938 is
defined as:
[A] duly registered association of persons
with a common bond of interest, who
have voluntarily joined together to
achieve a lawful common or social
economic end, making equitable
contributions to the capital
required and accepting a fair share of the
risks and benefits of the undertaking in
accordance with universally accepted
cooperative principles.10cräläwvirtualibräry
The above definition provides for the
following elements of a cooperative: a)
association of persons; b) common bond
of interest; c) voluntary association; d)
lawful common social or economic end; e)
capital contributions; f) fair share of risks
and benefits; g) adherence to cooperative
values; and g) registration with the
appropriate government
authority.11cräläwvirtualibräry
The importance of capital contributions by
members of a cooperative under R.A. No.
6938 was emphasized during the Senate
deliberations as one of the key factors
which distinguished electric cooperatives
under P.D. No. 269, as amended, from
electric cooperatives under the
Cooperative Code. Thus:
Senator Osmea. Will this Code, Mr.
President, cover electric cooperatives as
they exist in the country today and are
administered by the National
Electrification Administration?
Senator Aquino. That cannot be
answered with a simple yes or no, Mr.
President. The answer will depend on what
provisions we will eventually come up
with. Electric cooperatives as they
exist today would not fall under the
term cooperative as used in this bill
because the concept of a cooperative
is that which adheres and practices
certain cooperative principles. .
.
Senator Aquino. To begin with, one of
the most important requirements, Mr.
President, is the principle where
members bind themselves to help
themselves. It is because of their
collectivity that they can have some
economic benefits. In this particular
case [cooperatives under P.D. No. 269],
the government is the one that funds
these so-called electric cooperatives.
.
Senator Aquino. That is why in Article III
we have the following definition:
A cooperative is an association of persons
with a common bond of interest who have
voluntarily joined together to achieve a
common social or economic end, making
equitable contributions to the capital
required.
In this particular case [cooperatives
under P.D. No. 269], Mr. President,
the members do not make substantial
contribution to the capital required. It
is the government that puts in the
capital, in most cases.
.
Senator Osmea. Under line 6, Mr.
President, making equitable contributions
to the capital required would exclude
electric cooperatives [under P.D. No.
269]. Because the membership does not
make equitable contributions.
Senator Aquino. Yes, Mr. President. This
is precisely what I mean, that electric
cooperatives [under P.D. No. 269] do not
qualify in the spirit of cooperatives. That is b. Extent of Government Control over
the reason why they should be eventually Cooperatives
assessed whether they intend to comply Another principle adhered to by the
with the cooperatives or not. Because, if Cooperative Code is the principle of
after giving them a second time, they do subsidiarity. Pursuant to this principle, the
not comply, then, they should not be government may only engage in
classified as cooperatives. development activities where cooperatives
Senator Osmea. Mr. President, the do not posses the capability nor the
measure of their qualifying as a resources to do so and only upon the
cooperative would be the requirement request of such cooperatives.15 Thus,
that a member of the electric Article 2 of the Cooperative Code
cooperative must contribute a pro provides:
rata share of the capital of the Art. 2. Declaration of Policy. It is the
cooperative in cash to be a declared policy of the State to foster the
cooperative.12cräläwvirtualibräry creation and growth of cooperatives as a
Nowhere in P.D. No. 269, as amended, practical vehicle for prompting self-
does it require cooperatives to make reliance and harnessing people power
equitable contributions to capital. towards the attainment of economic
Petitioners themselves admit that to development and social justice. The State
qualify as a member of an electric shall encourage the private sector to
cooperative under P.D. No. 269, only the undertake the actual formation and
payment of a P5.00 membership fee is organization to cooperatives and shall
required which is even refundable the create an atmosphere that is conducive to
moment the member is no longer the growth and development of these
interested in getting electric service from cooperatives.
the cooperative or will transfer to another Towards this end, the Government and all
place outside the area covered by the its branches, subdivisions,
cooperative.13 However, under the instrumentalities and agencies shall
Cooperative Code, the articles of ensure the provision of technical
cooperation of a cooperative applying for guidance, financial assistance and other
registration must be accompanied with the services to enable said cooperatives to
bonds of the accountable officers and a develop into viable and responsive
sworn statement of the treasurer elected economic enterprises and thereby bring
by the subscribers showing that at least about a strong cooperative movement
twenty-five per cent (25%) of the that is free from any conditions that might
authorized share capital has been infringe upon the autonomy or
subscribed and at least twenty-five per organizational integrity of cooperatives.
cent (25%) of the total subscription has Further, the State recognizes the
been paid and in no case shall the paid-up principle of subsidiarity under which
share capital be less than Two thousand the cooperative sector will initiate
pesos (P2,000.00).[14cräläwvirtualibräry and regulate within its own ranks the
promotion and organization, training
and research, audit and support
services relating to cooperatives with
government assistance where
necessary.[16cräläwvirtualibräry
Accordingly, under the charter of the CDA,
or the primary government agency tasked
to promote and regulate the institutional
development of cooperatives, it is the
declared policy of the State that:
[g]overnment assistance to
cooperatives shall be free from any
restriction and conditionality that may
in any manner infringe upon the
objectives and character of cooperatives
as provided in this Act. The State shall,
except as provided in this Act,
maintain the policy of noninterference
in the management and operation of
cooperatives.[17cräläwvirtualibräry
In contrast, P.D. No. 269, as amended by
P.D. No. 1645, is replete with provisions
which grant the NEA, upon the happening
of certain events, the power to control and
take over the management and operations
of cooperatives registered under it. Thus:
a) the NEA Administrator has the power
to designate, subject to the confirmation
of the Board of Administrators, an Acting
General Manager and/or Project
Supervisor for a cooperative where
vacancies in the said positions occur
and/or when the interest of the
cooperative or the program so requires,
and to prescribe the functions of the
said Acting General Manager and/or
Project Supervisor, which powers shall
not be nullified, altered or diminished
by any policy or resolution of the
Board of Directors of the cooperative
concerned;18
b) the NEA is given the power
of supervision and control over electric
cooperatives and pursuant to such
powers, NEA may issue orders, rules and
regulations motu propio or upon petition
of third parties to conduct referenda and
other similar actions in all
matters affecting electric cooperatives;19
c) No cooperative shall borrow money
from any source without the approval of
the Board of Administrators of the
NEA;20 and
d) The management of a cooperative shall
be vested in its Board, subject to the
supervision and control of NEA which
shall have the right to be represented and
to participate in all Board meetings and
deliberations and to approve all policies
and resolutions.21cräläwvirtualibräry
The extent of government control over
electric cooperatives covered by P.D. No.
269, as amended, is largely a function of
the role of the NEA as a primary source
of funds of these electric cooperatives. It
is crystal clear that NEA incurred loans
from various sources to finance the
development and operations of the
electric cooperatives. Consequently,
amendments to P.D. No. 269 were
primarily geared to expand the powers of
the NEA over the electric cooperatives to
ensure that loans granted to them would
be repaid to the government. In contrast,
cooperatives under R.A. No. 6938 are
envisioned to be self-sufficient and
independent organizations with
minimal government intervention or
regulation.
To be sure, the transitory provisions of
R.A. No. 6938 are indicative of the
recognition by Congress of the
fundamental distinctions between electric
cooperatives organized under P.D No.
269, as amended, and cooperatives under
the new Cooperative Code. Article 128 of
the Cooperative Code provides that all
cooperatives registered under previous
laws shall be deemed registered with the
CDA upon submission of certain
requirements within one year. However,
cooperatives created under P.D. No. 269,
as amended, are given three years within
which to qualify and register with the
CDA, after which, provisions of P.D. No.
1645 which expand the powers of the NEA
over electric cooperatives, would no
longer apply.22cräläwvirtualibräry
Second, the classification of tax-exempt
entities in the Local Government Code is
germane to the purpose of the law. The
Constitutional mandate that every local
government unit shall enjoy local
autonomy, does not mean that the
exercise of power by local governments is
beyond regulation by Congress. Thus,
while each government unit is granted the
power to create its own sources of
revenue, Congress, in light of its broad
power to tax, has the discretion to
determine the extent of the taxing
powers of local government units
consistent with the policy of local
autonomy.23cräläwvirtualibräry
Section 193 of the Local Government
Code is indicative of the legislative intent
to vest broad taxing powers upon local
government units and to limit exemptions
from local taxation to entities specifically
provided therein. Section 193 provides:
Section 193. Withdrawal of Tax Exemption
Privileges.Unless otherwise provided in
this Code, tax exemptions or incentives
granted to, or presently enjoyed by all
persons, whether natural or juridical,
including government-owned and
controlled corporations, except local water
districts, cooperatives duly registered
under R.A. No. 6938, non-stock and
non-profit hospitals and educational
institutions, are hereby withdrawn upon
the effectivity of this Code.
[24cräläwvirtualibräry
The above provision effectively withdraws
exemptions from local taxation enjoyed by
various entities and organizations upon
effectivity of the Local Government
Code except for a) local water
districts; b) cooperatives duly
registered under R.A. No. 6938; and
c) non-stock and non-profit hospitals
and educational institutions. Further,
with respect to real property taxes, the
Local Government Code again specifically
enumerates entities which are exempt
therefrom and withdraws exemptions
enjoyed by all other entities upon the
effectivity of the code. Thus, Section 234
provides:
SEC. 234. Exemptions from Real Property
Tax. The following are exempted from
payment of the real property tax:
(a) Real property owned by the Republic
of the Philippines or any of its political
subdivisions except when the beneficial
use thereof had been granted for
consideration or otherwise, to a taxable
person;
(b) Charitable institutions, churches,
parsonages or convents appurtenant
thereto, mosques, nonprofit or religious
cemeteries and all lands, buildings and
improvements actually, directly, and
exclusively used for religious, charitable or
educational purposes;
(c) All machineries and equipment that
are actually, directly and exclusively used
by local water districts and government-
owned or controlled corporations engaged
in the supply and distribution of water
and/or generation and transmission of
electric power;
(d) All real property owned by duly
registered cooperatives as provided
for under R.A. No. 6938; and
(e) Machinery and equipment used for
pollution control and environmental
protection.
Except as provided herein, any exemption
from payment of real property tax
previously granted to, or presently
enjoyed by, all persons, whether natural
or juridical, including all government-
owned or controlled corporations are
hereby withdrawn upon the effectivity of
this Code.[25cräläwvirtualibräry
In Mactan Cebu International Airport
Authority v. Marcos,[26this Court held
that the limited and restrictive nature of
the tax exemption privileges under the
Local Government Code is consistent with
the State policy to ensure autonomy of
local governments and the objective of the
Local Government Code to grant genuine
and meaningful autonomy to enable local
government units to attain their fullest
development as self-reliant communities
and make them effective partners in the
attainment of national goals. The obvious
intention of the law is to broaden the tax
base of local government units to assure
them of substantial sources of revenue.
While we understand petitioners
predicament brought about by the
withdrawal of their local tax exemption
privileges under the Local Government
Code, it is not the province of this Court to
go into the wisdom of legislative
enactments. Courts can only interpret
laws. The principle of separation of powers
prevents them from re-inventing the laws.
Finally, Sections 193 and 234 of the Local
Government Code permit reasonable
classification as these exemptions are not
limited to existing conditions and apply
equally to all members of the same class.
Exemptions from local taxation, including
real property tax, are granted to all
cooperatives covered by R.A. No. 6938
and such exemptions exist for as long as
the Local Government Code and the
provisions therein on local taxation remain
good law.
II
There is No Violation of the Non-
Impairment Clause
It is ingrained in jurisprudence that the
constitutional prohibition on the
impairment of the obligation of contracts
does not prohibit every change in existing
laws. To fall within the prohibition, the
change must not only impair the
obligation of the existing contract, but the
impairment must be substantial.27 What
constitutes substantial impairment was
explained by this Court in Clemons v.
Nolting:28cräläwvirtualibräry
A law which changes the terms of a legal
contract between parties, either in the
time or mode of performance, or imposes
new conditions, or dispenses with those
expressed, or authorizes for its
satisfaction something different from that
provided in its terms, is law which impairs
the obligation of a contract and is
therefore null and void.
Moreover, to constitute impairment, the
law must affect a change in the rights of
the parties with reference to each other
and not with respect to non-
29
parties. cräläwvirtualibräry
Petitioners insist that Sections 193 and
234 of the Local Government Code impair
the obligations imposed under the six (6)
loan agreements executed by the NEA as
borrower and USAID as lender. All six
agreements contain similarly worded
provisions on the tax treatment of the
proceeds of the loan and properties and
commodities acquired through the loan.
Thus:
Section 6.5. Taxes and Duties. The
Borrower covenants and agrees that this
Loan Agreement and the Loan provided
for herein shall be free from, and the
Principal and interest shall be paid to
A.I.D. without deduction for and free
from, any taxation or fees
imposed under any laws or decrees in
effect within the Republic of the
Philippines or any such taxes or fees so
imposed or payable shall be reimbursed
by the Borrower with funds other than
those provided under the Loan. To the
extent that (a) any contractor,
including any consulting firm, any
personnel of such contractor financed
hereunder, and any property or
transactions relating to such
contracts and (b) any commodity
procurement transactions financed
hereunder, are not exempt from
identifiable taxes, tariffs, duties and
other levies imposed under laws in
effect in the country of the Borrower,
the Borrower and/or Beneficiary shall
pay or reimburse the same with funds
other than those provided under the
Loan.[30cräläwvirtualibräry
Petitioners contend that the withdrawal by
the Local Government Code of the tax
exemptions of cooperatives under P.D.
No. 269, as amended, is an impairment of
the tax exemptions provided under the
loan agreements. Petitioners argue that as
beneficiaries of the loan proceeds,
pursuant to the above provision, [a]ll the
assets of petitioners, such as lands,
buildings, distribution lines acquired
through the proceeds of the Loan
Agreements are tax
exempt.31cräläwvirtualibräry
We hold otherwise.
A plain reading of the provision quoted
above readily shows that it does not grant
any tax exemption in favor of the
borrower or the beneficiary either on the
proceeds of the loan itself or the
properties acquired through the said loan.
It simply states that the loan proceeds
and the principal and interest of the loan,
upon repayment by the borrower, shall
be without deduction of any tax or fee
that may be payable under Philippine
law as such tax or fee will be
absorbed by the borrower with funds
other than the loan proceeds. Further,
the provision states that with respect to
any payment made by the borrower to (1)
any contractor or any personnel of such
contractor or any property transaction and
(2) any commodity transaction using the
proceeds of the loan, the tax to be paid,
if any, on such transactions shall be
absorbed by the borrower and/or
beneficiary through funds other than
the loan proceeds.
Beyond doubt, the import of the tax
provision in the loan agreements cited by
petitioners is twofold:(1) the borrower is
entitled to receive from and is obliged to
pay the lender the principal amount of the
loan and the interest thereon in full,
without any deduction of the tax
component thereof imposed under
applicable Philippine law and any tax
imposed shall be paid by the
borrower with funds other than the
loan proceeds and (2) with respect to
payments made to any contractor, its
personnel or any property or commodity
transaction entered into pursuant to the
loan agreement and with the use of the
proceeds thereof, taxes payable under the
said transactions shall be paid by the
borrower and/or beneficiary with the
use of funds other than the loan
proceeds. The quoted provision does not
purport to grant any tax exemption in
favor of any party to the contract,
including the beneficiaries thereof. The
provisions simply shift the tax burden, if
any, on the transactions under the loan
agreements to the borrower and/or
beneficiary of the loan. Thus, the
withdrawal by the Local Government Code
under Sections 193 and 234 of the tax
exemptions previously enjoyed by
petitioners does not impair the obligation
of the borrower, the lender or the
beneficiary under the loan agreements as
in fact, no tax exemption is granted
therein.
III
Conclusion
Petitioners lament the difficulties they face
in complying with the implementing rules
and regulations issued by the CDA for the
conversion of electric cooperatives under
P.D. No. 269, as amended, to
cooperatives under R.A. No. 6938. They
allege that because of the cumbersome
legal and technical requirements imposed
by the Omnibus Rules and Regulations on
the Registration of Electric Cooperatives
under R.A. No. 6938, petitioners cannot
register and convert as stock cooperatives
under the Cooperative
32
Code. cräläwvirtualibräry
The Court understands the plight of the
petitioners. Their remedy, however, is not
judicial. Striking down Sections 193 and
234 of the Local Government Code as
unconstitutional or declaring them
inapplicable to petitioners is not the
proper course of action for them to obtain
their previous tax exemptions. The
language of the law and the intention of
its framers are clear and unequivocal and
courts have no other duty except to
uphold the law. The task to re-examine
the rules and guidelines on the conversion
of electric cooperatives to cooperatives
under R.A. No. 6938 and provide every
assistance available to them should be
addressed by the proper authorities of
government. This is necessary to
encourage the growth and viability of
cooperatives as instruments of social
justice and economic development.
WHEREFORE, the instant petition is
DENIED and the temporary restraining
order heretofore issued is LIFTED.
SO ORDERED.