G.R. No.

168056 October 18, 2005

Agenda for Item No. 45
G.R. No. 168056 (ABAKADA Guro Party List Officer Samson S. Alcantara, et al. vs. The Hon. Executive Secretary Eduardo R.
Ermita); G.R. No. 168207 (Aquilino Q. Pimentel, Jr., et al. vs. Executive Secretary Eduardo R. Ermita, et al.); G.R. No. 168461
(Association of Pilipinas Shell Dealers, Inc., et al. vs. Cesar V. Purisima, et al.); G.R. No. 168463 (Francis Joseph G.
Escudero vs. Cesar V. Purisima, et al); and G.R. No. 168730 (Bataan Governor Enrique T. Garcia, Jr. vs. Hon. Eduardo R. Ermita, et
al.)
RESOLUTION
For resolution are the following motions for reconsideration of the Courts Decision dated September 1, 2005 upholding the constitutionality
of Republic Act No. 9337 or the VAT Reform Act1:
1) Motion for Reconsideration filed by petitioners in G.R. No. 168463, Escudero, et al., on the following grounds:
A. THE DELETION OF THE "NO PASS ON PROVISIONS" FOR THE SALE OF PETROLEUM PRODUCTS AND POWER GENERATION
SERVICES CONSTITUTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION ON THE PART OF
THE BICAMERAL CONFERENCE COMMITTEE.
B. REPUBLIC ACT NO. 9337 GROSSLY VIOLATES THE CONSTITUTIONAL IMPERATIVE ON EXCLUSIVE ORIGINATION OF REVENUE
BILLS UNDER 24, ARTICLE VI, 1987 PHILIPPINE CONSTITUTION.
C. REPUBLIC ACT NO. 9337S STAND-BY AUTHORITY TO THE EXECUTIVE TO INCREASE THE VAT RATE, ESPECIALLY ON ACCOUNT
OF THE EFFECTIVE RECOMMENDATORY POWER GRANTED TO THE SECRETARY OF FINANCE, CONSTITUTES UNDUE DELEGATION OF
LEGISLATIVE AUTHORITY.
2) Motion for Reconsideration of petitioner in G.R. No. 168730, Bataan Governor Enrique T. Garcia, Jr., with the argument that burdening the
consumers with significantly higher prices under a VAT regime vis--vis a 3% gross tax renders the law unconstitutional for being arbitrary,
oppressive and inequitable.
and
3) Motion for Reconsideration by petitioners Association of Pilipinas Shell Dealers, Inc. in G.R. No. 168461, on the grounds that:
I. This Honorable Court erred in upholding the constitutionality of Section 110(A)(2) and Section 110(B) of the NIRC, as amended by the EVAT
Law, imposing limitations on the amount of input VAT that may be claimed as a credit against output VAT, as well as Section 114(C) of the
NIRC, as amended by the EVAT Law, requiring the government or any of its instrumentalities to withhold a 5% final withholding VAT on their
gross payments on purchases of goods and services, and finding that the questioned provisions:
A. are not arbitrary, oppressive and consfiscatory as to amount to a deprivation of property without due process of law in violation of Article
III, Section 1 of the 1987 Philippine Constitution;
B. do not violate the equal protection clause prescribed under Article III, Section 1 of the 1987 Philippine Constitution; and
C. apply uniformly to all those belonging to the same class and do not violate Article VI, Section 28(1) of the 1987 Philippine Constitution.
II. This Honorable Court erred in upholding the constitutionality of Section 110(B) of the NIRC, as amended by the EVAT Law, imposing a
limitation on the amount of input VAT that may be claimed as a credit against output VAT notwithstanding the finding that the tax is not
progressive as exhorted by Article VI, Section 28(1) of the 1987 Philippine Constitution.
Respondents filed their Consolidated Comment. Petitioner Garcia filed his Reply.
Petitioners Escudero, et al., insist that the bicameral conference committee should not even have acted on the no pass-on provisions since
there is no disagreement between House Bill Nos. 3705 and 3555 on the one hand, and Senate Bill No. 1950 on the other, with regard to
the no pass-on provision for the sale of service for power generation because both the Senate and the House were in agreement that the VAT
burden for the sale of such service shall not be passed on to the end-consumer. As to the no pass-on provision for sale of petroleum products,
petitioners argue that the fact that the presence of such a no pass-on provision in the House version and the absence thereof in the Senate
Bill means there is no conflict because "a House provision cannot be in conflict with something that does not exist."

Such argument is flawed. Note that the rules of both houses of Congress provide that a conference committee shall settle the "differences"
in the respective bills of each house. Verily, the fact that a no pass-on provision is present in one version but absent in the other, and one
version intends two industries, i.e., power generation companies and petroleum sellers, to bear the burden of the tax, while the other version
intended only the industry of power generation, transmission and distribution to be saddled with such burden, clearly shows that there are
indeed differences between the bills coming from each house, which differences should be acted upon by the bicameral conference committee.
It is incorrect to conclude that there is no clash between two opposing forces with regard to the no pass-on provision for VAT on the sale of
petroleum products merely because such provision exists in the House version while it is absent in the Senate version. It is precisely the
absence of such provision in the Senate bill and the presence thereof in the House bills that causes the conflict. The absence of the provision
in the Senate bill shows the Senates disagreement to the intention of the House of Representatives make the sellers of petroleum bear the
burden of the VAT. Thus, there are indeed two opposing forces: on one side, the House of Representatives which wants petroleum dealers to
be saddled with the burden of paying VAT and on the other, the Senate which does not see it proper to make that particular industry bear
said burden. Clearly, such conflicts and differences between the no pass-on provisions in the Senate and House bills had to be acted upon by
the bicameral conference committee as mandated by the rules of both houses of Congress.
Moreover, the deletion of the no pass-on provision made the present VAT law more in consonance with the very nature of VAT which, as stated
in the Decision promulgated on September 1, 2005, is a tax on spending or consumption, thus, the burden thereof is ultimately borne by the
end-consumer.
Escudero, et al., then claim that there had been changes introduced in the Rules of the House of Representatives regarding the conduct of the
House panel in a bicameral conference committee, since the time of Tolentino vs. Secretary of Finance2 to act as safeguards against possible
abuse of authority by the House members of the bicameral conference committee. Even assuming that the rule requiring the House panel to
report back to the House if there are substantial differences in the House and Senate bills had indeed been introduced after Tolentino, the
Court stands by its ruling that the issue of whether or not the House panel in the bicameral conference committee complied with said internal
rule cannot be inquired into by the Court. To reiterate, "mere failure to conform to parliamentary usage will not invalidate the action (taken by
a deliberative body) when the requisite number of members have agreed to a particular measure." 3
Escudero, et. al., also contend that Republic Act No. 9337 grossly violates the constitutional imperative on exclusive origination of revenue
bills under Section 24 of Article VI of the Constitution when the Senate introduced amendments not connected with VAT.
The Court is not persuaded.
Article VI, Section 24 of the Constitution provides:
Sec. 24 All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills shall
originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments.
Section 24 speaks of origination of certain bills from the House of Representatives which has been interpreted in the Tolentino case as
follows:
To begin with, it is not the law but the revenue bill which is required by the Constitution to "originate exclusively" in the House of
Representatives. It is important to emphasize this, because a bill originating in the House may undergo such extensive changes in the Senate
that the result may be a rewriting of the whole At this point, what is important to note is that, as a result of the Senate action, a distinct
bill may be produced. To insist that a revenue statute and not only the bill which initiated the legislative process culminating in the
enactment of the law must substantially be the same as the House bill would be to deny the Senate's power not only to "concur with
amendments" but also to " propose amendments." It would be to violate the coequality of legislative power of the two houses of Congress and
in fact make the House superior to the Senate.
Given, then, the power of the Senate to propose amendments, the Senate can propose its own version even with respect to bills which are
required by the Constitution to originate in the House.
...
Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff, or tax bills, bills authorizing an increase of the
public debt, private bills and bills of local application must come from the House of Representatives on the theory that, elected as they are
from the districts, the members of the House can be expected to be more sensitive to the local needs and problems. On the other hand, the
senators, who are elected at large, are expected to approach the same problems from the national perspective. Both views are thereby made
to bear on the enactment of such laws.4
Clearly, after the House bills as approved on third reading are duly transmitted to the Senate, the Constitution states that the latter can
propose or concur with amendments. The Court finds that the subject provisions found in the Senate bill are within the purview of such
constitutional provision as declared in the Tolentino case.

The intent of the House of Representatives in initiating House Bill Nos. 3555 and 3705 was to solve the countrys serious financial problems.
It was stated in the respective explanatory notes that there is a need for the government to make significant expenditure savings and a
credible package of revenue measures. These measures include improvement of tax administration and control and leakages in revenues from
income taxes and value added tax. It is also stated that one opportunity that could be beneficial to the overall status of our economy is to
review existing tax rates, evaluating the relevance given our present conditions. Thus, with these purposes in mind and to accomplish these
purposes for which the house bills were filed, i.e., to raise revenues for the government, the Senate introduced amendments on income taxes,
which as admitted by Senator Ralph Recto, would yield about P10.5 billion a year.
Moreover, since the objective of these house bills is to raise revenues, the increase in corporate income taxes would be a great help and would
also soften the impact of VAT measure on the consumers by distributing the burden across all sectors instead of putting it entirely on the
shoulders of the consumers.
As to the other National Internal Revenue Code (NIRC) provisions found in Senate Bill No. 1950, i.e., percentage taxes, franchise taxes,
amusement and excise taxes, these provisions are needed so as to cushion the effects of VAT on consumers. As we said in our decision, certain
goods and services which were subject to percentage tax and excise tax would no longer be VAT exempt, thus, the consumer would be
burdened more as they would be paying the VAT in addition to these taxes. Thus, there is a need to amend these sections to soften the impact
of VAT. The Court finds no reason to reverse the earlier ruling that the Senate introduced amendments that are germane to the subject
matter and purposes of the house bills.
Petitioners Escudero, et al., also reiterate that R.A. No. 9337s stand- by authority to the Executive to increase the VAT rate, especially on
account of the recommendatory power granted to the Secretary of Finance, constitutes undue delegation of legislative power. They submit
that the recommendatory power given to the Secretary of Finance in regard to the occurrence of either of two events using the Gross
Domestic Product (GDP) as a benchmark necessarily and inherently required extended analysis and evaluation, as well as policy making.
There is no merit in this contention. The Court reiterates that in making his recommendation to the President on the existence of either of
the two conditions, the Secretary of Finance is not acting as the alter ego of the President or even her subordinate. He is acting as the agent
of the legislative department, to determine and declare the event upon which its expressed will is to take effect. The Secretary of Finance
becomes the means or tool by which legislative policy is determined and implemented, considering that he possesses all the facilities to gather
data and information and has a much broader perspective to properly evaluate them. His function is to gather and collate statistical data and
other pertinent information and verify if any of the two conditions laid out by Congress is present. Congress granted the Secretary of Finance
the authority to ascertain the existence of a fact, namely, whether by December 31, 2005, the value-added tax collection as a percentage of
GDP of the previous year exceeds two and four-fifth percent (2 4/5%) or the national government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1%). If either of these two instances has occurred, the Secretary of Finance, by legislative
mandate, must submit such information to the President. Then the 12% VAT rate must be imposed by the President effective January 1, 2006.
Congress does not abdicate its functions or unduly delegate power when it describes what job must be done, who must do it, and what is the
scope of his authority; in our complex economy that is frequently the only way in which the legislative process can go forward.There is no
undue delegation of legislative power but only of the discretion as to the execution of a law. This is constitutionally permissible. Congress did
not delegate the power to tax but the mere implementation of the law. The intent and will to increase the VAT rate to 12% came from
Congress and the task of the President is to simply execute the legislative policy. That Congress chose to use the GDP as a benchmark to
determine economic growth is not within the province of the Court to inquire into, its task being to interpret the law.
With regard to petitioner Garcias arguments, the Court also finds the same to be without merit. As stated in the assailed Decision, the Court
recognizes the burden that the consumers will be bearing with the passage of R.A. No. 9337. But as was also stated by the Court, it cannot
strike down the law as unconstitutional simply because of its yokes. The legislature has spoken and the only role that the Court plays in the
picture is to determine whether the law was passed with due regard to the mandates of the Constitution. Inasmuch as the Court finds that
there are no constitutional infirmities with its passage, the validity of the law must therefore be upheld.
Finally, petitioners Association of Pilipinas Shell Dealers, Inc. reiterated their arguments in the petition, citing this time, the dissertation of
Associate Justice Dante O. Tinga in his Dissenting Opinion.
The glitch in petitioners arguments is that it presents figures based on an event that is yet to happen. Their illustration of
the possible effects of the 70% limitation, while seemingly concrete, still remains theoretical. Theories have no place in this case as the Court
must only deal with an existing case or controversy that is appropriate or ripe for judicial determination, not one that is conjectural or
merely anticipatory.5 The Court will not intervene absent an actual and substantial controversy admitting of specific relief through a decree
conclusive in nature, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts. 6
The impact of the 70% limitation on the creditable input tax will ultimately depend on how one manages and operates its business. Market
forces, strategy and acumen will dictate their moves. With or without these VAT provisions, an entrepreneur who does not have the ken to
adapt to economic variables will surely perish in the competition. The arguments posed are within the realm of business, and the solution lies
also in business.
Petitioners also reiterate their argument that the input tax is a property or a property right. In the same breath, the Court reiterates its
finding that it is not a property or a property right, and a VAT-registered persons entitlement to the creditable input tax is a mere statutory
privilege.

Petitioners also contend that even if the right to credit the input VAT is merely a statutory privilege, it has already evolved into a vested
right that the State cannot remove.
As the Court stated in its Decision, the right to credit the input tax is a mere creation of law. Prior to the enactment of multi-stage sales
taxation, the sales taxes paid at every level of distribution are not recoverable from the taxes payable. With the advent of Executive Order
No. 273 imposing a 10% multi-stage tax on all sales, it was only then that the crediting of the input tax paid on purchase or importation of
goods and services by VAT-registered persons against the output tax was established. This continued with the Expanded VAT Law (R.A. No.
7716), and The Tax Reform Act of 1997 (R.A. No. 8424). The right to credit input tax as against the output tax is clearly a privilege created
by law, a privilege that also the law can limit. It should be stressed that a person has no vested right in statutory privileges. 7
The concept of "vested right" is a consequence of the constitutional guaranty of due process that expresses a present fixed interest which in
right reason and natural justice is protected against arbitrary state action; it includes not only legal or equitable title to the enforcement of a
demand but also exemptions from new obligations created after the right has become vested. Rights are considered vested when the right to
enjoyment is a present interest, absolute, unconditional, and perfect or fixed and irrefutable. 8 As adeptly stated by Associate Justice Minita
V. Chico-Nazario in her Concurring Opinion, which the Court adopts, petitioners right to the input VAT credits has not yet vested, thus
It should be remembered that prior to Rep. Act No. 9337, the petroleum dealers input VAT credits were inexistent they were unrecognized
and disallowed by law. The petroleum dealers had no such property called input VAT credits. It is only rational, therefore, that they cannot
acquire vested rights to the use of such input VAT credits when they were never entitled to such credits in the first place, at least, not until
Rep. Act No. 9337.
My view, at this point, when Rep. Act No. 9337 has not yet even been implemented, is that petroleum dealers right to use their input VAT as
credit against their output VAT unlimitedly has not vested, being a mere expectancy of a future benefit and being contingent on the
continuance of Section 110 of the National Internal Revenue Code of 1997, prior to its amendment by Rep. Act No. 9337.
The elucidation of Associate Justice Artemio V. Panganiban is likewise worthy of note, to wit:
Moreover, there is no vested right in generally accepted accounting principles. These refer to accounting concepts, measurement techniques,
and standards of presentation in a companys financial statements, and are not rooted in laws of nature, as are the laws of physical science, for
these are merely developed and continually modified by local and international regulatory accounting bodies. To state otherwise and recognize
such asset account as a vested right is to limit the taxing power of the State. Unlimited, plenary, comprehensive and supreme, this power
cannot be unduly restricted by mere creations of the State.
More importantly, the assailed provisions of R.A. No. 9337 already involve legislative policy and wisdom. So long as there is a public end for
which R.A. No. 9337 was passed, the means through which such end shall be accomplished is for the legislature to choose so long as it is within
constitutional bounds. As stated in Carmichael vs. Southern Coal & Coke Co.:
If the question were ours to decide, we could not say that the legislature, in adopting the present scheme rather than another, had no basis
for its choice, or was arbitrary or unreasonable in its action. But, as the state is free to distribute the burden of a tax without regard to the
particular purpose for which it is to be used, there is no warrant in the Constitution for setting the tax aside because a court thinks that it
could have distributed the burden more wisely. Those are functions reserved for the legislature. 9
WHEREFORE, the Motions for Reconsideration are hereby DENIED WITH FINALITY. The temporary restraining order issued by the Court
is LIFTED.
SO ORDERED.
(The Justices who filed their respective concurring and dissenting opinions maintain their respective positions. Justice Dante O. Tinga filed a
dissenting opinion to the present Resolution; while Justice Consuelo Ynares- Santiago joins him in his dissenting opinion.)
G.R. No. L-16619

June 29, 1963

COMPAIA GENERAL DE TABACOS DE FILIPINAS, plaintiff-appellee,

vs.
CITY OF MANILA, ET AL., defendants-appellants.

Ponce Enrile, Siguion Reyna, Montecillo and Belo for plaintiff-appellee.

City Fiscal Hermogenes Concepcion, Jr. and Assistant City Fiscal M. T. Reyes for defendants-appellants.
DIZON, J.:

Appeal from the decision of the Court of First Instance of Manila ordering the City Treasurer of Manila to refund the sum of P15,280.00 to
Compania General de Tabacos de Filipinas.
Appellee Compania General de Tabacos de Filipinas hereinafter referred to simply as Tabacalera filed this action in the Court of First
Instance of Manila to recover from appellants, City of Manila and its Treasurer, Marcelino Sarmiento also hereinafter referred to as the
City the sum of P15,280.00 allegedly overpaid by it as taxes on its wholesale and retail sales of liquor for the period from the third quarter
of 1954 to the second quarter of 1957, inclusive, under Ordinances Nos. 3634, 3301, and 3816.
Tabacalera, as a duly licensed first class wholesale and retail liquor dealer paid the City the fixed license feesprescribed by Ordinance No.
3358 for the years 1954 to 1957, inclusive, and, as a wholesale and retail dealer of general merchandise, it also paid the sales taxes required
by Ordinances Nos. 3634, 3301, and 3816.1wph1.t
In its sworn statements of wholesale, retail, and grocery sales of general merchandise from the third quarter of 1954 to the second quarter
of 1957, inclusive, Tabacalera included its liquor sales of the same period, and it is not denied that of the taxes it paid on all its sales of

general merchandise, the sum of P15,280.00 subject to the action represents the tax corresponding to the liquor sales aforesaid.
Tabacalera's action for refund is based on the theory that, in connection with its liquor sales, it should pay the license fees prescribed by
Ordinance No. 3358 but not the municipal sales taxes imposed by Ordinances Nos. 3634, 3301, and 3816; and since it already paid the license
fees aforesaid, the sales taxes paid by it amounting to the sum of P15,208.00 under the three ordinances mentioned heretofore is an
overpayment made by mistake, and therefore refundable.
The City, on the other hand, contends that, for the permit issued to it granting proper authority to "conduct or engage in the sale of alcoholic
beverages, or liquors" Tabacalera is subject to pay the license fees prescribed by Ordinance No. 3358, aside from the sales taxes imposed by
Ordinances Nos. 3634, 3301, and 3816; that, even assuming that Tabacalera is not subject to the payment of the sales taxes prescribed by
the said three ordinances as regards its liquor sales, it is not entitled to the refund demanded for the following reasons:.
(a) The said amount was paid by the plaintiff voluntarily and without protest;
(b) If at all the alleged overpayment was made by mistake, such mistake was one of law and arose from the plaintiff's neglect of
duty; .
(c) The said amount had been added by the plaintiff to the selling price of the liquor sold by it and passed to the consumers; and
(d) The said amount had been already expended by the defendant City for public improvements and essential services of the City
government, the benefits of which are enjoyed, and being enjoyed by the plaintiff.
It is admitted that as liquor dealer, Tabacalera paid annually the wholesale and retail liquor license fees under Ordinance No. 3358. In 1954,
City Ordinance No. 3634, amending City Ordinance No. 3420, and City Ordinance No. 3816, amending City Ordinance No. 3301 were passed. By
reason thereof, the City Treasurer issued the regulations marked Exhibit A, according to which, the term "general merchandise as used in said
ordinances, includes all articles referred to in Chapter 1, Sections 123 to 148 of the National Internal Revenue Code. Of these, Sections 133135 included liquor among the taxable articles. Pursuant to said regulations, Tabacalera included its sales of liquor in its sworn quarterly
declaration submitted to the City Treasurer beginning from the third quarter of 1954 to the second quarter of 1957, with a total value of
P722,501.09 and correspondingly paid a wholesaler's tax amounting to P13,688.00 and a retailer's tax amounting to P1,520.00, or a total of
P15,208.00 the amount sought to be recovered.
It appears that in the year 1954, the City, through its treasurer, addressed a letter to Messrs. Sycip, Gorres, Velayo and Co., an accounting
firm, expressing the view that liquor dealers paying the annual wholesale and retail fixed tax under City Ordinance No. 3358 are not subject to
the wholesale and retail dealers' taxes prescribed by City Ordinances Nos. 3634, 3301, and 3816. Upon learning of said opinion, appellee
stopped including its sales of liquor in its quarterly sworn declarations submitted in accordance with the aforesaid City Ordinances Nos. 3634,
3301, and 3816, and on December 3, 1957, it addressed a letter to the City Treasurer demanding refund of the alleged overpayment. As the
claim was disallowed, the present action was instituted.
The term "tax" applies generally speaking to all kinds of exactions which become public funds. The term is often loosely used to include
levies for revenue as well as levies for regulatory purposes. Thus license fees are commonly called taxes. Legally speaking, however, license

fee is a legal concept quite distinct from tax; the former is imposed in the exercise of police power for purposes of regulation, while the
latter is imposed under the taxing power for the purpose of raising revenues (MacQuillin, Municipal Corporations, Vol. 9, 3rd Edition, p. 26).
Ordinance No. 3358 is clearly one that prescribes municipal license fees for the privilege to engage in the business of selling liquor or alcoholic
beverages, having been enacted by the Municipal Board of Manila pursuant to its charter power to fix license fees on, and regulate, the sale of
intoxicating liquors, whether imported or locally manufactured. (Section 18 [p], Republic Act 409, as amended). The license fees imposed by it
are essentially for purposes of regulation, and are justified, considering that the sale of intoxicating liquor is, potentially at least, harmful to
public health and morals, and must be subject to supervision or regulation by the state and by cities and municipalities authorized to act in the
premises. (MacQuillin, supra, p. 445.)

On the other hand, it is clear that Ordinances Nos. 3634, 3301, and 3816 impose taxes on the sales of general merchandise, wholesale or
retail, and are revenue measures enacted by the Municipal Board of Manila by virtue of its power to tax dealers for the sale of such
merchandise. (Section 10 [o], Republic Act No. 409, as amended.).
Under Ordinance No. 3634 the word "merchandise" as employed therein clearly includes liquor. Aside from this, we have held in City of Manila
vs. Inter-Island Gas Service, Inc., G.R. No. L-8799, August 31, 1956, that the word "merchandise" refers to all subjects of commerce and
traffic; whatever is usually bought and sold in trade or market; goods or wares bought and sold for gain; commodities or goods to trade; and
commercial commodities in general.
That Tabacalera is being subjected to double taxation is more apparent than real. As already stated what is collected under Ordinance No.
3358 is a license fee for the privilege of engaging in the sale of liquor, a calling in which it is obvious not anyone or anybody may freely
engage, considering that the sale of liquor indiscriminately may endanger public health and morals. On the other hand, what the three
ordinances mentioned heretofore impose is a tax for revenue purposes based on the sales made of the same article or merchandise. It is
already settled in this connection that both a license fee and a tax may be imposed on the same business or occupation, or for selling the same
article, this not being in violation of the rule against double taxation (Bentley Gray Dry Goods Co. vs. City of Tampa, 137 Fla. 641, 188 So. 758;
MacQuillin, Municipal Corporations, Vol. 9, 3rd Edition, p. 83). This is precisely the case with the ordinances involved in the case at bar.
Appellee's contention that the City is repudiating its previous view expressed by its Treasurer in a letter addressed to Messrs. Sycip,
Gorres, Velayo & Co. in 1954 that a liquor dealer who pays the annual license fee under Ordinance No. 3358 is exempted from the
wholesalers and retailers taxes under the other three ordinances mentioned heretofore is of no consequence. The government is not bound by
the errors or mistakes committed by its officers, specially on matters of law.
Having arrived at the above conclusion, we deem it unnecessary to consider the other legal points raised by the City.
WHEREFORE, the decision appealed from is reversed, with the result that this case should be, as it is hereby dismissed, with costs.
G.R. No. 99886 March 31, 1993
JOHN H. OSMEA, petitioner,
vs.
OSCAR ORBOS, in his capacity as Executive Secretary; JESUS ESTANISLAO, in his capacity as Secretary of Finance; WENCESLAO
DELA PAZ, in his capacity as Head of the Office of Energy Affairs; REX V. TANTIONGCO, and the ENERGY REGULATORY
BOARD, respondents.

Nachura & Sarmiento for petitioner.

The Solicitor General for public respondents.
NARVASA, C.J.:
The petitioner seeks the corrective, 1 prohibitive and coercive remedies provided by Rule 65 of the Rules of Court, 2 upon the following
posited grounds, viz.: 3
1) the invalidity of the "TRUST ACCOUNT" in the books of account of the Ministry of Energy (now, the Office of Energy Affairs), created
pursuant to 8, paragraph 1, of P.D. No. 1956, as amended, "said creation of a trust fund being contrary to Section 29 (3), Article VI of the . .
Constitution; 4
2) the unconstitutionality of 8, paragraph 1 (c) of P.D. No. 1956, as amended by Executive Order No. 137, for "being an undue and invalid
delegation of legislative power . . to the Energy Regulatory Board;" 5
3) the illegality of the reimbursements to oil companies, paid out of the Oil Price Stabilization Fund,

because it contravenes 8, paragraph 2

(2) of
P. D. 1956, as amended; and
4) the consequent nullity of the Order dated December 10, 1990 and the necessity of a rollback of the pump prices and petroleum products to
the levels prevailing prior to the said Order.
It will be recalled that on October 10, 1984, President Ferdinand Marcos issued P.D. 1956 creating a Special Account in the General Fund,
designated as the Oil Price Stabilization Fund (OPSF). The OPSF was designed to reimburse oil companies for cost increases in crude oil and
imported petroleum products resulting from exchange rate adjustments and from increases in the world market prices of crude oil.

Subsequently, the OPSF was reclassified into a "trust liability account," in virtue of E.O. 1024,

and ordered released from the National

Treasury to the Ministry of Energy. The same Executive Order also authorized the investment of the fund in government securities, with the
earnings from such placements accruing to the fund.
President Corazon C. Aquino, amended P.D. 1956. She promulgated Executive Order No. 137 on February 27, 1987, expanding the grounds for
reimbursement to oil companies for possible cost underrecovery incurred as a result of the reduction of domestic prices of petroleum
products, the amount of the underrecovery being left for determination by the Ministry of Finance.
Now, the petition alleges that the status of the OPSF as of March 31, 1991 showed a "Terminal Fund Balance deficit" of some P12.877
billion; 8 that to abate the worsening deficit, "the Energy Regulatory Board . . issued an Order on December 10, 1990, approving the increase in
pump prices of petroleum products," and at the rate of recoupment, the OPSF deficit should have been fully covered in a span of six (6)
months, but this notwithstanding, the respondents Oscar Orbos, in his capacity as Executive Secretary; Jesus Estanislao, in his capacity as
Secretary of Finance; Wenceslao de la Paz, in his capacity as Head of the Office of Energy Affairs; Chairman Rex V. Tantiongco and the
Energy Regulatory Board "are poised to accept, process and pay claims not authorized under P.D. 1956."

The petition further avers that the creation of the trust fund violates
29(3), Article VI of the Constitution, reading as follows:
(3) All money collected on any tax levied for a special purpose shall be treated as a special fund and paid out for such
purposes only. If the purpose for which a special fund was created has been fulfilled or abandoned, the balance, if any,
shall be transferred to the general funds of the Government.
The petitioner argues that "the monies collected pursuant to . . P.D. 1956, as amended, must be treated as a 'SPECIAL FUND,' not as a 'trust
account' or a 'trust fund,' and that "if a special tax is collected for a specific purpose, the revenue generated therefrom shall 'be treated as
a special fund' to be used only for the purpose indicated, and not channeled to another government objective."

10

Petitioner further points out

that since "a 'special fund' consists of monies collected through the taxing power of a State, such amounts belong to the State, although the
use thereof is limited to the special purpose/objective for which it was created."

11

He also contends that the "delegation of legislative authority" to the ERB violates 28 (2). Article VI of the Constitution, viz.:
(2) The Congress may, by law, authorize the President to fix, within specified limits, and subject to such limitations and
restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or
imposts within the framework of the national development program of the Government;
and, inasmuch as the delegation relates to the exercise of the power of taxation, " the limits, limitations and restrictions must be

quantitative, that is, the law must not only specify how to tax, who (shall) be taxed (and) what the tax is for, but also impose a
specific limit on how much to tax ." 12
The petitioner does not suggest that a "trust account" is illegal per se, but maintains that the monies collected, which form part of the OPSF,
should be maintained in a special account of the general fund for the reason that the Constitution so provides, and because they are,
supposedly, taxes levied for a special purpose. He assumes that the Fund is formed from a tax undoubtedly because a portion thereof is taken
from collections of ad valoremtaxes and the increases thereon.
It thus appears that the challenge posed by the petitioner is premised primarily on the view that the powers granted to the ERB under P.D.
1956, as amended, partake of the nature of the taxation power of the State. The Solicitor General observes that the "argument rests on the
assumption that the OPSF is a form of revenue measure drawing from a special tax to be expended for a special purpose."

13

The petitioner's

perceptions are, in the Court's view, not quite correct.

To address this critical misgiving in the position of the petitioner on these issues, the Court recalls its holding in Valmonte v. Energy

Regulatory Board, et al. 14

The foregoing arguments suggest the presence of misconceptions about the nature and functions of the OPSF. The
OPSF is a "Trust Account" which was established "for the purpose of minimizing the frequent price changes brought
about by exchange rate adjustment and/or changes in world market prices of crude oil and imported petroleum
products."

15

Under P.D. No. 1956, as amended by Executive Order No. 137 dated 27 February 1987, this Trust Account

may be funded from any of the following sources:

a) Any increase in the tax collection from ad valorem tax or customs duty imposed on petroleum

products subject to tax under this Decree arising from exchange rate adjustment, as may be
determined by the Minister of Finance in consultation with the Board of Energy;

b) Any increase in the tax collection as a result of the lifting of tax exemptions of government

corporations, as may be determined by the Minister of Finance in consultation with the Board of
Energy:
c) Any additional amount to be imposed on petroleum products to augment the resources of the
Fund through an appropriate Order that may be issued by the Board of Energy requiring payment
of persons or companies engaged in the business of importing, manufacturing and/or marketing
petroleum products;
d) Any resulting peso cost differentials in case the actual peso costs paid by oil companies in the
importation of crude oil and petroleum products is less than the peso costs computed using the
reference foreign exchange rate as fixed by the Board of Energy.
xxx xxx xxx
The fact that the world market prices of oil, measured by the spot market in Rotterdam, vary from day to day is of
judicial notice. Freight rates for hauling crude oil and petroleum products from sources of supply to the Philippines may
also vary from time to time. The exchange rate of the peso vis-a-vis the U.S. dollar and other convertible foreign
currencies also changes from day to day. These fluctuations in world market prices and in tanker rates and foreign
exchange rates would in a completely free market translate into corresponding adjustments in domestic prices of oil and
petroleum products with sympathetic frequency. But domestic prices which vary from day to day or even only from week
to week would result in a chaotic market with unpredictable effects upon the country's economy in general. The OPSF

was established precisely to protect local consumers from the adverse consequences that such frequent oil price
adjustments may have upon the economy.Thus, the OPSF serves as a pocket, as it were, into which a portion of the
purchase price of oil and petroleum products paid by consumers as well as some tax revenues are inputted and from
which amounts are drawn from time to time to reimburse oil companies, when appropriate situations arise, for increases
in, as well as underrecovery of, costs of crude importation . The OPSF is thus a buffer mechanism through which the
domestic consumer prices of oil and petroleum products are stabilized, instead of fluctuating every so often, and oil
companies are allowed to recover those portions of their costs which they would not otherwise recover given the level of
domestic prices existing at any given time. To the extent that some tax revenues are also put into it, the OPSF is in
effect a device through which the domestic prices of petroleum products are subsidized in part . It appears to the Court
that the establishment and maintenance of the OPSF is well within that pervasive and non-waivable power and
responsibility of the government to secure the physical and economic survival and well-being of the community, that
comprehensive sovereign authority we designate as the police power of the State . The stabilization, and subsidy of
domestic prices of petroleum products and fuel oil clearly critical in importance considering, among other things, the
continuing high level of dependence of the country on imported crude oil are appropriately regarded as public
purposes.
Also of relevance is this Court's ruling in relation to the sugar stabilization fund the nature of which is not far different from the OPSF.
In Gaston v. Republic Planters Bank,

16

this Court upheld the legality of the sugar stabilization fees and explained their nature and

character, viz.:
The stabilization fees collected are in the nature of a tax, which is within the power of the State to impose for the
promotion of the sugar industry (Lutz v. Araneta, 98 Phil. 148). . . . The tax collected is not in a pure exercise of the

taxing power. It is levied with a regulatory purpose, to provide a means for the stabilization of the sugar industry. The
levy is primarily in the exercise of the police power of the State (Lutz v. Araneta, supra).
xxx xxx xxx
The stabilization fees in question are levied by the State upon sugar millers, planters and producers for a special
purpose that of "financing the growth and development of the sugar industry and all its components, stabilization of
the domestic market including the foreign market." The fact that the State has taken possession of moneys pursuant to
law is sufficient to constitute them state funds, even though they are held for a special purpose (Lawrence v. American
Surety Co. 263 Mich. 586, 249 ALR 535, cited in 42 Am Jur Sec. 2, p. 718). Having been levied for a special purpose, the
revenues collected are to be treated as a special fund, to be, in the language of the statute, "administered in trust" for
the purpose intended. Once the purpose has been fulfilled or abandoned, the balance if any, is to be transferred to the
general funds of the Government. That is the essence of the trust intended (SEE 1987 Constitution, Article VI, Sec.
29(3), lifted from the 1935 Constitution, Article VI, Sec. 23(1).

17

The character of the Stabilization Fund as a special kind of fund is emphasized by the fact that the funds are
deposited in the Philippine National Bank and not in the Philippine Treasury , moneys from which may be paid out only in
pursuance of an appropriation made by law (1987) Constitution, Article VI, Sec. 29 (3), lifted from the 1935
Constitution, Article VI, Sec. 23(1). (Emphasis supplied).

Hence, it seems clear that while the funds collected may be referred to as taxes, they are exacted in the exercise of the police power of the
State. Moreover, that the OPSF is a special fund is plain from the special treatment given it by E.O. 137. It is segregated from the general
fund; and while it is placed in what the law refers to as a "trust liability account," the fund nonetheless remains subject to the scrutiny and
review of the COA. The Court is satisfied that these measures comply with the constitutional description of a "special fund." Indeed, the
practice is not without precedent.
With regard to the alleged undue delegation of legislative power, the Court finds that the provision conferring the authority upon the ERB to
impose additional amounts on petroleum products provides a sufficient standard by which the authority must be exercised. In addition to the
general policy of the law to protect the local consumer by stabilizing and subsidizing domestic pump rates, 8(c) of P.D. 1956

18

expressly

authorizes the ERB to impose additional amounts to augment the resources of the Fund.
What petitioner would wish is the fixing of some definite, quantitative restriction, or "a specific limit on how much to tax."

19

The Court is

cited to this requirement by the petitioner on the premise that what is involved here is the power of taxation; but as already discussed, this is
not the case. What is here involved is not so much the power of taxation as police power. Although the provision authorizing the ERB to impose
additional amounts could be construed to refer to the power of taxation, it cannot be overlooked that the overriding consideration is to enable
the delegate to act with expediency in carrying out the objectives of the law which are embraced by the police power of the State.
The interplay and constant fluctuation of the various factors involved in the determination of the price of oil and petroleum products, and the
frequently shifting need to either augment or exhaust the Fund, do not conveniently permit the setting of fixed or rigid parameters in the law
as proposed by the petitioner. To do so would render the ERB unable to respond effectively so as to mitigate or avoid the undesirable
consequences of such fluidity. As such, the standard as it is expressed, suffices to guide the delegate in the exercise of the delegated power,
taking account of the circumstances under which it is to be exercised.
For a valid delegation of power, it is essential that the law delegating the power must be (1) complete in itself, that is it must set forth the
policy to be executed by the delegate and (2) it must fix a standard limits of which
are sufficiently determinate or determinable to which the delegate must conform.

20

. . . As pointed out in Edu v. Ericta: "To avoid the taint of unlawful delegation, there must be a standard, which implies at
the very least that the legislature itself determines matters of principle and lays down fundamental policy. Otherwise,
the charge of complete abdication may be hard to repel. A standard thus defines legislative policy, marks its limits, maps
out its boundaries and specifies the public agency to apply it. It indicates the circumstances under which the legislative
command is to be effected. It is the criterion by which the legislative purpose may be carried out. Thereafter, the
executive or administrative office designated may in pursuance of the above guidelines promulgate supplemental rules
and regulations. The standard may either be express or implied. If the former, the non-delegation objection is easily
met. The standard though does not have to be spelled out specifically. It could be implied from the policy and purpose of
the act considered as a whole.

21

It would seem that from the above-quoted ruling, the petition for prohibition should fail.
The standard, as the Court has already stated, may even be implied. In that light, there can be no ground upon which to sustain the petition,
inasmuch as the challenged law sets forth a determinable standard which guides the exercise of the power granted to the ERB. By the same
token, the proper exercise of the delegated power may be tested with ease. It seems obvious that what the law intended was to permit the
additional imposts for as long as there exists a need to protect the general public and the petroleum industry from the adverse consequences
of pump rate fluctuations. "Where the standards set up for the guidance of an administrative officer and the action taken are in fact
recorded in the orders of such officer, so that Congress, the courts and the public are assured that the orders in the judgment of such
officer conform to the legislative standard, there is no failure in the performance of the legislative functions."

22

This Court thus finds no serious impediment to sustaining the validity of the legislation; the express purpose for which the imposts are
permitted and the general objectives and purposes of the fund are readily discernible, and they constitute a sufficient standard upon which
the delegation of power may be justified.
In relation to the third question respecting the illegality of the reimbursements to oil companies, paid out of the Oil Price Stabilization
Fund, because allegedly in contravention of 8, paragraph 2 (2) of P.D. 1956, amended

23

the Court finds for the petitioner.

The petition assails the payment of certain items or accounts in favor of the petroleum companies ( i.e., inventory losses, financing charges,
fuel oil sales to the National Power Corporation, etc.) because not authorized by law. Petitioner contends that "these claims are not embraced
in the enumeration in 8 of P.D. 1956 . . since none of them was incurred 'as a result of the reduction of domestic prices of petroleum

products,'" 24 and since these items are reimbursements for which the OPSF should not have responded, the amount of the P12.877 billion
deficit "should be reduced by P5,277.2 million."

25

It is argued "that under the principle of ejusdem generis . . . the term 'other factors' (as

used in 8 of P.D. 1956) . . can only include such 'other factors' which necessarily result in the reduction of domestic prices of petroleum
products."

26

The Solicitor General, for his part, contends that "(t)o place said (term) within the restrictive confines of the rule of ejusdem generis would
reduce (E.O. 137) to a meaningless provision."
This Court, in Caltex Philippines, Inc. v. The Honorable Commissioner on Audit, et al.,

27

passed upon the application of ejusdem generis to

paragraph 2 of 8 of P.D. 1956, viz.:

The rule of ejusdem generis states that "[w]here words follow an enumeration of persons or things, by words of a
particular and specific meaning, such general words are not to be construed in their widest extent, but are held to be as
applying only to persons or things of the same kind or class as those specifically mentioned."

28

A reading of

subparagraphs (i) and (ii) easily discloses that they do not have a common characteristic. The first relates to price
reduction as directed by the Board of Energy while the second refers to reduction in internal ad valorem taxes.
Therefore, subparagraph (iii) cannot be limited by the enumeration in these subparagraphs. What should be considered
for purposes of determining the "other factors" in subparagraph (iii) is the first sentence of paragraph (2) of the
Section which explicitly allows the cost underrecovery only if such were incurred as a result of the reduction of

domestic prices of petroleum products.

The Court thus holds, that the reimbursement of financing charges is not authorized by paragraph 2 of 8 of P.D. 1956, for the reason that
they were not incurred as a result of the reduction of domestic prices of petroleum products. Under the same provision, however, the payment
of inventory losses is upheld as valid, being clearly a result of domestic price reduction, when oil companies incur a cost underrecovery for yet
unsold stocks of oil in inventory acquired at a higher price.
Reimbursement for cost underrecovery from the sales of oil to the National Power Corporation is equally permissible, not as coming within the
provisions of P.D. 1956, but in virtue of other laws and regulations as held in Caltex

29

and which have been pointed to by the Solicitor General.

At any rate, doubts about the propriety of such reimbursements have been dispelled by the enactment of R.A. 6952, establishing the
Petroleum Price Standby Fund, 2 of which specifically authorizes the reimbursement of "cost underrecovery incurred as a result of fuel oil
sales to the National Power Corporation."
Anent the overpayment refunds mentioned by the petitioner, no substantive discussion has been presented to show how this is prohibited by
P.D. 1956. Nor has the Solicitor General taken any effort to defend the propriety of this refund. In fine, neither of the parties, beyond the
mere mention of overpayment refunds, has at all bothered to discuss the arguments for or against the legality of the so-called overpayment
refunds. To be sure, the absence of any argument for or against the validity of the refund cannot result in its disallowance by the Court.
Unless the impropriety or illegality of the overpayment refund has been clearly and specifically shown, there can be no basis upon which to
nullify the same.
Finally, the Court finds no necessity to rule on the remaining issue, the same having been rendered moot and academic. As of date hereof, the
pump rates of gasoline have been reduced to levels below even those prayed for in the petition.
WHEREFORE, the petition is GRANTED insofar as it prays for the nullification of the reimbursement of financing charges, paid pursuant to
E.O. 137, and DISMISSED in all other respects.
SO ORDERED.

G.R. No. L- 41383 August 15, 1988

PHILIPPINE AIRLINES, INC., plaintiff-appellant,
vs.
ROMEO F. EDU in his capacity as Land Transportation Commissioner, and UBALDO CARBONELL, in his capacity as National
Treasurer, defendants-appellants.

Ricardo V. Puno, Jr. and Conrado A. Boro for plaintiff-appellant.

GUTIERREZ, JR., J.:

What is the nature of motor vehicle registration fees? Are they taxes or regulatory fees?
This question has been brought before this Court in the past. The parties are, in effect, asking for a re-examination of the latest decision on
this issue.
This appeal was certified to us as one involving a pure question of law by the Court of Appeals in a case where the then Court of First Instance
of Rizal dismissed the portion-about complaint for refund of registration fees paid under protest.
The disputed registration fees were imposed by the appellee, Commissioner Romeo F. Elevate pursuant to Section 8, Republic Act No. 4136,
otherwise known as the Land Transportation and Traffic Code.
The Philippine Airlines (PAL) is a corporation organized and existing under the laws of the Philippines and engaged in the air transportation
business under a legislative franchise, Act No. 42739, as amended by Republic Act Nos. 25). and 269.1 Under its franchise, PAL is exempt
from the payment of taxes. The pertinent provision of the franchise provides as follows:
Section 13. In consideration of the franchise and rights hereby granted, the grantee shall pay to the National
Government during the life of this franchise a tax of two per cent of the gross revenue or gross earning derived by the
grantee from its operations under this franchise. Such tax shall be due and payable quarterly and shall be in lieu of all
taxes of any kind, nature or description, levied, established or collected by any municipal, provincial or national
automobiles, Provided, that if, after the audit of the accounts of the grantee by the Commissioner of Internal Revenue,
a deficiency tax is shown to be due, the deficiency tax shall be payable within the ten days from the receipt of the
assessment. The grantee shall pay the tax on its real property in conformity with existing law.
On the strength of an opinion of the Secretary of Justice (Op. No. 307, series of 1956) PAL has, since 1956, not been paying motor vehicle
registration fees.
Sometime in 1971, however, appellee Commissioner Romeo F. Elevate issued a regulation requiring all tax exempt entities, among them PAL to
pay motor vehicle registration fees.
Despite PAL's protestations, the appellee refused to register the appellant's motor vehicles unless the amounts imposed under Republic Act
4136 were paid. The appellant thus paid, under protest, the amount of P19,529.75 as registration fees of its motor vehicles.
After paying under protest, PAL through counsel, wrote a letter dated May 19,1971, to Commissioner Edu demanding a refund of the amounts
paid, invoking the ruling in Calalang v. Lorenzo (97 Phil. 212 [1951]) where it was held that motor vehicle registration fees are in reality taxes
from the payment of which PAL is exempt by virtue of its legislative franchise.
Appellee Edu denied the request for refund basing his action on the decision in Republic v. Philippine Rabbit Bus Lines, Inc., (32 SCRA 211,
March 30, 1970) to the effect that motor vehicle registration fees are regulatory exceptional. and not revenue measures and, therefore, do
not come within the exemption granted to PAL? under its franchise. Hence, PAL filed the complaint against Land Transportation Commissioner
Romeo F. Edu and National Treasurer Ubaldo Carbonell with the Court of First Instance of Rizal, Branch 18 where it was docketed as Civil Case
No. Q-15862.
Appellee Romeo F. Elevate in his capacity as LTC Commissioner, and LOI Carbonell in his capacity as National Treasurer, filed a motion to
dismiss alleging that the complaint states no cause of action. In support of the motion to dismiss, defendants repatriation the ruling
in Republic v. Philippine Rabbit Bus Lines, Inc., (supra) that registration fees of motor vehicles are not taxes, but regulatory fees imposed as
an incident of the exercise of the police power of the state. They contended that while Act 4271 exempts PAL from the payment of any tax
except two per cent on its gross revenue or earnings, it does not exempt the plaintiff from paying regulatory fees, such as motor vehicle
registration fees. The resolution of the motion to dismiss was deferred by the Court until after trial on the merits.
On April 24, 1973, the trial court rendered a decision dismissing the appellant's complaint "moved by the later ruling laid down by the Supreme
Court in the case or Republic v. Philippine Rabbit Bus Lines, Inc., (supra)." From this judgment, PAL appealed to the Court of Appeals which
certified the case to us.

Calalang v. Lorenzo (supra) and Republic v. Philippine Rabbit Bus Lines, Inc. (supra) cited by PAL and Commissioner Romeo F. Edu respectively,
discuss the main points of contention in the case at bar.
Resolving the issue in the Philippine Rabbit case, this Court held:
"The registration fee which defendant-appellee had to pay was imposed by Section 8 of the Revised Motor Vehicle Law
(Republic Act No. 587 [1950]). Its heading speaks of "registration fees." The term is repeated four times in the body

thereof. Equally so, mention is made of the "fee for registration." ( Ibid., Subsection G) A subsection starts with a
categorical statement "No fees shall be charged." ( lbid., Subsection H) The conclusion is difficult to resist therefore
that the Motor Vehicle Act requires the payment not of a tax but of a registration fee under the police power. Hence
the incipient, of the section relied upon by defendant-appellee under the Back Pay Law, It is not held liable for a tax but
for a registration fee. It therefore cannot make use of a backpay certificate to meet such an obligation.
Any vestige of any doubt as to the correctness of the above conclusion should be dissipated by Republic Act No. 5448.
([1968]. Section 3 thereof as to the imposition of additional tax on privately-owned passenger automobiles, motorcycles
and scooters was amended by Republic Act No. 5470 which is (sic) approved on May 30, 1969.) A special science fund was
thereby created and its title expressly sets forth that a tax on privately-owned passenger automobiles, motorcycles and
scooters was imposed. The rates thereof were provided for in its Section 3 which clearly specifies the" Philippine
tax."(Cooley to be paid as distinguished from the registration fee under the Motor Vehicle Act. There cannot be any
clearer expression therefore of the legislative will, even on the assumption that the earlier legislation could by
subdivision the point be susceptible of the interpretation that a tax rather than a fee was levied. What is thus most
apparent is that where the legislative body relies on its authority to tax it expressly so states, and where it is enacting a
regulatory measure, it is equally exploded (at p. 22,1969
In direct refutation is the ruling in Calalang v. Lorenzo (supra), where the Court, on the other hand, held:
The charges prescribed by the Revised Motor Vehicle Law for the registration of motor vehicles are in section 8 of that
law called "fees". But the appellation is no impediment to their being considered taxes if taxes they really are. For not
the name but the object of the charge determines whether it is a tax or a fee. Geveia speaking, taxes are for revenue,
whereas fees are exceptional. for purposes of regulation and inspection and are for that reason limited in amount to
what is necessary to cover the cost of the services rendered in that connection. Hence, a charge fixed by statute for
the service to be person,-When by an officer, where the charge has no relation to the value of the services performed
and where the amount collected eventually finds its way into the treasury of the branch of the government whose
officer or officers collected the chauffeur, is not a fee but a tax."(Cooley on Taxation, Vol. 1, 4th ed., p. 110.)
From the data submitted in the court below, it appears that the expenditures of the Motor Vehicle Office are but a
small portionabout 5 per centumof the total collections from motor vehicle registration fees. And as proof that the
money collected is not intended for the expenditures of that office, the law itself provides that all such money shall
accrue to the funds for the construction and maintenance of public roads, streets and bridges. It is thus obvious that
the fees are not collected for regulatory purposes, that is to say, as an incident to the enforcement of regulations
governing the operation of motor vehicles on public highways, for their express object is to provide revenue with which
the Government is to discharge one of its principal functionsthe construction and maintenance of public highways for
everybody's use. They are veritable taxes, not merely fees.
As a matter of fact, the Revised Motor Vehicle Law itself now regards those fees as taxes, for it provides that "no
other taxes or fees than those prescribed in this Act shall be imposed," thus implying that the charges therein imposed
though called feesare of the category of taxes. The provision is contained in section 70, of subsection (b), of the
law, as amended by section 17 of Republic Act 587, which reads:
Sec. 70(b) No other taxes or fees than those prescribed in this Act shall be imposed for the
registration or operation or on the ownership of any motor vehicle, or for the exercise of the
profession of chauffeur, by any municipal corporation, the provisions of any city charter to the
contrary notwithstanding: Provided, however, That any provincial board, city or municipal council or
board, or other competent authority may exact and collect such reasonable and equitable toll fees
for the use of such bridges and ferries, within their respective jurisdiction, as may be authorized
and approved by the Secretary of Public Works and Communications, and also for the use of such
public roads, as may be authorized by the President of the Philippines upon the recommendation of
the Secretary of Public Works and Communications, but in none of these cases, shall any toll fee."
be charged or collected until and unless the approved schedule of tolls shall have been posted
levied, in a conspicuous place at such toll station. (at pp. 213-214)
Motor vehicle registration fees were matters originally governed by the Revised Motor Vehicle Law (Act 3992 [19511) as amended by
Commonwealth Act 123 and Republic Acts Nos. 587 and 1621.
Today, the matter is governed by Rep. Act 4136 [1968]), otherwise known as the Land Transportation Code, (as amended by Rep. Acts Nos.
5715 and 64-67, P.D. Nos. 382, 843, 896, 110.) and BP Blg. 43, 74 and 398).
Section 73 of Commonwealth Act 123 (which amended Sec. 73 of Act 3992 and remained unsegregated, by Rep. Act Nos. 587 and 1603)
states:

Section 73. Disposal of moneys collected.Twenty per centum of the money collected under the provisions of this Act
shall accrue to the road and bridge funds of the different provinces and chartered cities in proportion to the centum
shall during the next previous year and the remaining eighty per centum shall be deposited in the Philippine Treasury to
create a special fund for the construction and maintenance of national and provincial roads and bridges. as well as the
streets and bridges in the chartered cities to be alloted by the Secretary of Public Works and Communications for
projects recommended by the Director of Public Works in the different provinces and chartered cities. ....
Presently, Sec. 61 of the Land Transportation and Traffic Code provides:
Sec. 61. Disposal of Mortgage. CollectedMonies collected under the provisions of this Act shall be deposited in a
special trust account in the National Treasury to constitute the Highway Special Fund, which shall be apportioned and
expended in accordance with the provisions of the" Philippine Highway Act of 1935. "Provided, however, That the amount
necessary to maintain and equip the Land Transportation Commission but not to exceed twenty per cent of the total
collection during one year, shall be set aside for the purpose. (As amended by RA 64-67, approved August 6, 1971).
It appears clear from the above provisions that the legislative intent and purpose behind the law requiring owners of vehicles to pay for their
registration is mainly to raise funds for the construction and maintenance of highways and to a much lesser degree, pay for the operating
expenses of the administering agency. On the other hand, the Philippine Rabbit case mentions a presumption arising from the use of the term
"fees," which appears to have been favored by the legislature to distinguish fees from other taxes such as those mentioned in Section 13 of
Rep. Act 4136 which reads:
Sec. 13. Payment of taxes upon registration.No original registration of motor vehicles subject to payment of taxes,
customs s duties or other charges shall be accepted unless proof of payment of the taxes due thereon has been
presented to the Commission.
referring to taxes other than those imposed on the registration, operation or ownership of a motor vehicle (Sec. 59, b, Rep. Act 4136, as
amended).
Fees may be properly regarded as taxes even though they also serve as an instrument of regulation, As stated by a former presiding judge of
the Court of Tax Appeals and writer on various aspects of taxpayers
It is possible for an exaction to be both tax arose. regulation. License fees are changes. looked to as a source of revenue
as well as a means of regulation (Sonzinky v. U.S., 300 U.S. 506) This is true, for example, of automobile license fees.
Isabela such case, the fees may properly be regarded as taxes even though they also serve as an instrument of
regulation. If the purpose is primarily revenue, or if revenue is at least one of the real and substantial purposes, then
the exaction is properly called a tax. (1955 CCH Fed. tax Course, Par. 3101, citing Cooley on Taxation (2nd Ed.) 592, 593;
Calalang v. Lorenzo. 97 Phil. 213-214) Lutz v. Araneta 98 Phil. 198.) These exactions are sometimes called regulatory
taxes. (See Secs. 4701, 4711, 4741, 4801, 4811, 4851, and 4881, U.S. Internal Revenue Code of 1954, which classify
taxes on tobacco and alcohol as regulatory taxes.) (Umali, Reviewer in Taxation, 1980, pp. 12-13, citing Cooley on
Taxation, 2nd Edition, 591-593).
Indeed, taxation may be made the implement of the state's police power (Lutz v. Araneta, 98 Phil. 148).
If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called a
tax (Umali, Id.) Such is the case of motor vehicle registration fees. The conclusions become inescapable in view of Section 70(b) of Rep. Act
587 quoted in the Calalang case. The same provision appears as Section 591-593). in the Land Transportation code. It is patent therefrom that
the legislators had in mind a regulatory tax as the law refers to the imposition on the registration, operation or ownership of a motor vehicle
as a "tax or fee." Though nowhere in Rep. Act 4136 does the law specifically state that the imposition is a tax, Section 591-593). speaks of
"taxes." or fees ... for the registration or operation or on the ownership of any motor vehicle, or for the exercise of the profession of
chauffeur ..." making the intent to impose a tax more apparent. Thus, even Rep. Act 5448 cited by the respondents, speak of an "additional"
tax," where the law could have referred to an original tax and not one in addition to the tax already imposed on the registration, operation, or
ownership of a motor vehicle under Rep. Act 41383. Simply put, if the exaction under Rep. Act 4136 were merely a regulatory fee, the
imposition in Rep. Act 5448 need not be an "additional" tax. Rep. Act 4136 also speaks of other "fees," such as the special permit fees for
certain types of motor vehicles (Sec. 10) and additional fees for change of registration (Sec. 11). These are not to be understood as taxes
because such fees are very minimal to be revenue-raising. Thus, they are not mentioned by Sec. 591-593). of the Code as taxes like the motor
vehicle registration fee and chauffers' license fee. Such fees are to go into the expenditures of the Land Transportation Commission as
provided for in the last proviso of see. 61, aforequoted.
It is quite apparent that vehicle registration fees were originally simple exceptional. intended only for rigidly purposes in the exercise of the
State's police powers. Over the years, however, as vehicular traffic exploded in number and motor vehicles became absolute necessities
without which modem life as we know it would stand still, Congress found the registration of vehicles a very convenient way of raising much
needed revenues. Without changing the earlier deputy. of registration payments as "fees," their nature has become that of "taxes."

In view of the foregoing, we rule that motor vehicle registration fees as at present exacted pursuant to the Land Transportation and Traffic
Code are actually taxes intended for additional revenues. of government even if one fifth or less of the amount collected is set aside for the
operating expenses of the agency administering the program.
May the respondent administrative agency be required to refund the amounts stated in the complaint of PAL?
The answer is NO.
The claim for refund is made for payments given in 1971. It is not clear from the records as to what payments were made in succeeding years.
We have ruled that Section 24 of Rep. Act No. 5448 dated June 27, 1968, repealed all earlier tax exemptions Of corporate taxpayers found
in legislative franchises similar to that invoked by PAL in this case.
In Radio Communications of the Philippines, Inc. v. Court of Tax Appeals , et al. (G.R. No. 615)." July 11, 1985), this Court ruled:
Under its original franchise, Republic Act No. 21); enacted in 1957, petitioner Radio Communications of the Philippines,
Inc., was subject to both the franchise tax and income tax. In 1964, however, petitioner's franchise was amended by
Republic Act No. 41-42). to the effect that its franchise tax of one and one-half percentum (1-1/2%) of all gross
receipts was provided as "in lieu of any and all taxes of any kind, nature, or description levied, established, or collected
by any authority whatsoever, municipal, provincial, or national from which taxes the grantee is hereby expressly
exempted." The issue raised to this Court now is the validity of the respondent court's decision which ruled that the
exemption under Republic Act No. 41-42). was repealed by Section 24 of Republic Act No. 5448 dated June 27, 1968
which reads:
"(d) The provisions of existing special or general laws to the contrary notwithstanding, all
corporate taxpayers not specifically exempt under Sections 24 (c) (1) of this Code shall pay the
rates provided in this section. All corporations, agencies, or instrumentalities owned or controlled
by the government, including the Government Service Insurance System and the Social Security
System but excluding educational institutions, shall pay such rate of tax upon their taxable net
income as are imposed by this section upon associations or corporations engaged in a similar
business or industry. "
An examination of Section 24 of the Tax Code as amended shows clearly that the law intended all corporate taxpayers
to pay income tax as provided by the statute. There can be no doubt as to the power of Congress to repeal the earlier
exemption it granted. Article XIV, Section 8 of the 1935 Constitution and Article XIV, Section 5 of the Constitution as
amended in 1973 expressly provide that no franchise shall be granted to any individual, firm, or corporation except
under the condition that it shall be subject to amendment, alteration, or repeal by the legislature when the public
interest so requires. There is no question as to the public interest involved. The country needs increased revenues. The
repealing clause is clear and unambiguous. There is a listing of entities entitled to tax exemption. The petitioner is not
covered by the provision. Considering the foregoing, the Court Resolved to DENY the petition for lack of merit. The
decision of the respondent court is affirmed.
Any registration fees collected between June 27, 1968 and April 9, 1979, were correctly imposed because the tax exemption in the franchise
of PAL was repealed during the period. However, an amended franchise was given to PAL in 1979. Section 13 of Presidential Decree No. 1590,
now provides:
In consideration of the franchise and rights hereby granted, the grantee shall pay to the Philippine Government during
the lifetime of this franchise whichever of subsections (a) and (b) hereunder will result in a lower taxes.)
(a) The basic corporate income tax based on the grantee's annual net taxable income computed in
accordance with the provisions of the Internal Revenue Code; or
(b) A franchise tax of two per cent (2%) of the gross revenues. derived by the grantees from all
specific. without distinction as to transport or nontransport corporations; provided that with
respect to international airtransport service, only the gross passengers, mail, and freight
revenues. from its outgoing flights shall be subject to this law.
The tax paid by the grantee under either of the above alternatives shall be in lieu of all other taxes, duties, royalties,
registration, license and other fees and charges of any kind, nature or description imposed, levied, established,
assessed, or collected by any municipal, city, provincial, or national authority or government, agency, now or in the future,
including but not limited to the following:
xxx xxx xxx

(5) All taxes, fees and other charges on the registration, license, acquisition, and transfer of airtransport equipment,
motor vehicles, and all other personal or real property of the gravitates (Pres. Decree 1590, 75 OG No. 15, 3259, April
9, 1979).
PAL's current franchise is clear and specific. It has removed the ambiguity found in the earlier law. PAL is now exempt from the payment of
any tax, fee, or other charge on the registration and licensing of motor vehicles. Such payments are already included in the basic tax or
franchise tax provided in Subsections (a) and (b) of Section 13, P.D. 1590, and may no longer be exacted.
WHEREFORE, the petition is hereby partially GRANTED. The prayed for refund of registration fees paid in 1971 is DENIED. The Land
Transportation Franchising and Regulatory Board (LTFRB) is enjoined functions-the collecting any tax, fee, or other charge on the registration
and licensing of the petitioner's motor vehicles from April 9, 1979 as provided in Presidential Decree No. 1590.
SO ORDERED.

G.R. No. L-36081 April 24, 1989

PROGRESSIVE DEVELOPMENT CORPORATION, petitioner ,
vs.
QUEZON CITY, respondent.

Jalandoni, Herrera, Del Castillo & Associates for petitioner.

FELICIANO, J.:
On 24 December 1969, the City Council of respondent Quezon City adopted Ordinance No. 7997, Series of 1969, otherwise known as the
Market Code of Quezon City, Section 3 of which provided:
Sec. 3. Supervision Fee.- Privately owned and operated public markets shall submit monthly to the Treasurer's Office, a
certified list of stallholders showing the amount of stall fees or rentals paid daily by each stallholder, ... and shall pay

10% of the gross receipts from stall rentals to the City, ... , as supervision fee. Failure to submit said list and to pay the
corresponding amount within the period herein prescribed shall subject the operator to the penalties provided in this
Code ... includingrevocation of permit to operate. ... .1
The Market Code was thereafter amended by Ordinance No. 9236, Series of 1972, on 23 March 1972, which reads:
SECTION 1. There is hereby imposed a five percent (5 %) tax on gross receipts on rentals or lease of space in privately-

owned public markets in Quezon City.

xxx xxx xxx
SECTION 3. For the effective implementation of this Ordinance, owners of privately owned public markets shall
submit ... a monthly certified list of stallholders of lessees of space in their markets showing ... :
a. name of stallholder or lessee;
b. amount of rental;
c. period of lease, indicating therein whether the same is on a daily, monthly or yearly basis.
xxx xxx xxx

SECTION 4. ... In case of consistent failure to pay the percentage tax for the (3) consecutive months, the City shall

revoke the permit of the privately-owned market to operate and/or take any other appropriate action or remedy allowed
by law for the collection of the overdue percentage tax and surcharge.
xxx xxx xxx 2
On 15 July 1972, petitioner Progressive Development Corporation, owner and operator of a public market known as the "Farmers Market &
Shopping Center" filed a Petition for Prohibition with Preliminary Injunction against respondent before the then Court of First Instance of
Rizal on the ground that the supervision fee or license tax imposed by the above-mentioned ordinances is in reality a tax on income which
respondent may not impose, the same being expressly prohibited by Republic Act No. 2264, as amended.
In its Answer, respondent, through the City Fiscal, contended that it had authority to enact the questioned ordinances, maintaining that the
tax on gross receipts imposed therein is not a tax on income. The Solicitor General also filed an Answer arguing that petitioner, not having paid
the ten percent (10%) supervision fee prescribed by Ordinance No. 7997, had no personality to question, and was estopped from questioning,
its validity; that the tax on gross receipts was not a tax on income but one imposed for the enjoyment of the privilege to engage in a particular
trade or business which was within the power of respondent to impose.
In its Supplemental Petition of 23 September 1972, petitioner alleged having paid under protest the five percent (5%) tax under Ordinance
No. 9236 for the months of June to September 1972. Two (2) days later, on 25 September 1972, petitioner moved for judgment on the
pleadings, alleging that the material facts had been admitted by the parties.
On 21 October 1972, the lower court dismissed the petition, ruling 3 that the questioned imposition is not a tax on income, but rather a
privilege tax or license fee which local governments, like respondent, are empowered to impose and collect.
Having failed to obtain reconsideration of said decision, petitioner came to us on the present Petition for Review.
The only issue to be resolved here is whether the tax imposed by respondent on gross receipts of stall rentals is properly characterized as
partaking of the nature of an income tax or, alternatively, of a license fee.
We begin with the fact that Section 12, Article III of Republic Act No. 537, otherwise known as the Revised Charter of Quezon City,
authorizes the City Council:
xxx xxx xxx
(b) To provide for the levy and collection of taxes and other city revenues and apply the same to the payment of city
expenses in accordance with appropriations.
(c) To tax, fix the license fee, and regulate the business of the following:
... preparation and sale of meat, poultry, fish, game, butter, cheese, lard vegetables, bread and other provisions . 4
The scope of legislative authority conferred upon the Quezon City Council in respect of businesses like that of the petitioner, is
comprehensive: the grant of authority is not only" [to] regulate" and "fix the license fee," but also " to tax" 5
Moreover, Section 2 of Republic Act No. 2264, as amended, otherwise known as the Local Autonomy Act, provides that:
Any provision of law to the contrary notwithstanding, all chartered cities, municipalities and municipal districts shall

have authority to impose municipal license taxes or fees upon persons engaged in any occupation or business, or
exercising privileges in chartered cities, municipalities or municipal districts by requiring them to secure licenses at
rates fixed by the municipal board or city council of the city, the municipal council of the municipality, or the municipal
district council of the municipal district; to collect fees and charges for service rendered by the city, municipality or
municipal district; to regulate and impose reasonable fees for services rendered in connection with any business,
profession or occupation being conducted within the city, municipality or municipal district and otherwise to levy for
public purposes just and uniform taxes licenses or fees: ... 6
It is now settled that Republic Act No. 2264 confers upon local governments broad taxing authority extending to almost "everything,
excepting those which are mentioned therein," provided that the tax levied is "for public purposes, just and uniform," does not transgress any
constitutional provision and is not repugnant to a controlling statute. 7 Both the Local Autonomy Act and the Charter of respondent clearly
show that respondent is authorized to fix the license fee collectible from and regulate the business of petitioner as operator of a privatelyowned public market.

Petitioner, however, insist that the "supervision fee" collected from rentals, being a return from capital invested in the construction of the
Farmers Market, practically operates as a tax on income, one of those expressly excepted from respondent's taxing authority, and thus
beyond the latter's competence. Petitioner cites the same Section 2 of the Local Autonomy Act which goes on to state: 8
... Provided, however, That no city, municipality or municipal district may levy or impose any of the following:
xxx xxx xxx
(g) Taxes on income of any kind whatsoever;
The term "tax" frequently applies to all kinds of exactions of monies which become public funds. It is often loosely used to include levies for
revenue as well as levies for regulatory purposes such that license fees are frequently called taxes although license fee is a legal concept
distinguishable from tax: the former is imposed in the exercise of police power primarily for purposes of regulation, while the latter is
imposed under the taxing power primarily for purposes of raising revenues. 9 Thus, if the generating of revenue is the primary purpose and
regulation is merely incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that incidentally revenue is also
obtained does not make the imposition a tax. 10
To be considered a license fee, the imposition questioned must relate to an occupation or activity that so engages the public interest in health,
morals, safety and development as to require regulation for the protection and promotion of such public interest; the imposition must also bear
a reasonable relation to the probable expenses of regulation, taking into account not only the costs of direct regulation but also its incidental
consequences as well.11 When an activity, occupation or profession is of such a character that inspection or supervision by public officials is
reasonably necessary for the safeguarding and furtherance of public health, morals and safety, or the general welfare, the legislature may
provide that such inspection or supervision or other form of regulation shall be carried out at the expense of the persons engaged in such
occupation or performing such activity, and that no one shall engage in the occupation or carry out the activity until a fee or charge sufficient
to cover the cost of the inspection or supervision has been paid. 12Accordingly, a charge of a fixed sum which bears no relation at all to the
cost of inspection and regulation may be held to be a tax rather than an exercise of the police power. 13
In the case at bar, the "Farmers Market & Shopping Center" was built by virtue of Resolution No. 7350 passed on 30 January 1967 by
respondents's local legislative body authorizing petitioner to establish and operate a market with a permit to sell fresh meat, fish, poultry and
other foodstuffs. 14 The same resolution imposed upon petitioner, as a condition for continuous operation, the obligation to "abide by and
comply with the ordinances, rules and regulations prescribed for the establishment, operation and maintenance of markets in Quezon City." 15
The "Farmers' Market and Shopping Center" being a public market in the' sense of a market open to and inviting the patronage of the general
public, even though privately owned, petitioner's operation thereof required a license issued by the respondent City, the issuance of which,
applying the standards set forth above, was done principally in the exercise of the respondent's police power. 16 The operation of a privately
owned market is, as correctly noted by the Solicitor General, equivalent to or quite the same as the operation of a government-owned market;
both are established for the rendition of service to the general public, which warrants close supervision and control by the respondent
City, 17 for the protection of the health of the public by insuring, e.g., the maintenance of sanitary and hygienic conditions in the market,
compliance of all food stuffs sold therein with applicable food and drug and related standards, for the prevention of fraud and imposition upon
the buying public, and so forth.
We believe and so hold that the five percent (5%) tax imposed in Ordinance No. 9236 constitutes, not a tax on income, not a city income tax
(as distinguished from the national income tax imposed by the National Internal Revenue Code) within the meaning of Section 2 (g) of the
Local Autonomy Act, but rather a license tax or fee for the regulation of the business in which the petitioner is engaged. While it is true that
the amount imposed by the questioned ordinances may be considered in determining whether the exaction is really one for revenue or
prohibition, instead of one of regulation under the police power, 18 it nevertheless will be presumed to be reasonable. Local' governments are
allowed wide discretion in determining the rates of imposable license fees even in cases of purely police power measures, in the absence of
proof as to particular municipal conditions and the nature of the business being taxed as well as other detailed factors relevant to the issue of
arbitrariness or unreasonableness of the questioned rates. 19 Thus:
[A]n ordinance carries with it the presumption of validity. The question of reasonableness though is open to judicial
inquiry. Much should be left thus to the discretion of municipal authorities. Courts will go slow in writing off an ordinance
as unreasonable unless the amount is so excessive as to be prohibitory, arbitrary, unreasonable, oppressive, or
confiscatory. A rule which has gained acceptance is that factors relevant to such an inquiry are the municipal conditions
as a whole and the nature of the business made subject to imposition. 20
Petitioner has not shown that the rate of the gross receipts tax is so unreasonably large and excessive and so grossly disproportionate to the
costs of the regulatory service being performed by the respondent as to compel the Court to characterize the imposition as a revenue
measure exclusively. The lower court correctly held that the gross receipts from stall rentals have been used only as a basis for computing the
fees or taxes due respondent to cover the latter's administrative expenses, i.e., for regulation and supervision of the sale of foodstuffs to
the public. The use of the gross amount of stall rentals as basis for determining the collectible amount of license tax, does not by itself, upon
the one hand, convert or render the license tax into a prohibited city tax on income. Upon the other hand, it has not been suggested that such
basis has no reasonable relationship to the probable costs of regulation and supervision of the petitioner's kind of business. For, ordinarily,

the higher the amount of stall rentals, the higher the aggregate volume of foodstuffs and related items sold in petitioner's privately owned
market; and the higher the volume of goods sold in such private market, the greater the extent and frequency of inspection and supervision
that may be reasonably required in the interest of the buying public. Moreover, what we started with should be recalled here: the authority
conferred upon the respondent's City Council is not merely "to regulate" but also embraces the power "to tax" the petitioner's business.
Finally, petitioner argues that respondent is without power to impose a gross receipts tax for revenue purposes absent an express grant from
the national government. As a general rule, there must be a statutory grant for a local government unit to impose lawfully a gross receipts tax,
that unit not having the inherent power of taxation.21 The rule, however, finds no application in the instant case where what is involved is an
exercise of, principally, the regulatory power of the respondent City and where that regulatory power is expressly accompanied by the taxing
power.
ACCORDINGLY, the Decision of the then Court of First Instance of Rizal, Quezon City, Branch 18, is hereby AFFIRMED and the Court
Resolved to DENY the Petition for lack of merit.
SO ORDERED.
G.R. No. 115455 October 30, 1995
ARTURO M. TOLENTINO, petitioner,
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, respondents.
G.R. No. 115525 October 30, 1995
JUAN T. DAVID, petitioner,
vs.
TEOFISTO T. GUINGONA, JR., as Executive Secretary; ROBERTO DE OCAMPO, as Secretary of Finance; LIWAYWAY VINZONSCHATO, as Commissioner of Internal Revenue; and their AUTHORIZED AGENTS OR REPRESENTATIVES, respondents.
G.R. No. 115543 October 30, 1995
RAUL S. ROCO and the INTEGRATED BAR OF THE PHILIPPINES, petitioners,
vs.
THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE COMMISSIONERS OF THE BUREAU OF INTERNAL REVENUE AND
BUREAU OF CUSTOMS, respondents.
G.R. No. 115544 October 30, 1995
PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO., INC.; KAMAHALAN PUBLISHING CORPORATION; PHILIPPINE
JOURNALISTS, INC.; JOSE L. PAVIA; and OFELIA L. DIMALANTA, petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as Commissioner of Internal Revenue; HON. TEOFISTO T. GUINGONA, JR., in his
capacity as Executive Secretary; and HON. ROBERTO B. DE OCAMPO, in his capacity as Secretary of Finance, respondents.
G.R. No. 115754 October 30, 1995
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC., (CREBA), petitioner,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
G.R. No. 115781 October 30, 1995
KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS, ERME CAMBA, EMILIO C. CAPULONG, JR., JOSE T. APOLO,
EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE ABCEDE, CHRISTINE TAN, FELIPE L. GOZON, RAFAEL G. FERNANDO,
RAOUL V. VICTORINO, JOSE CUNANAN, QUINTIN S. DOROMAL, MOVEMENT OF ATTORNEYS FOR BROTHERHOOD,
INTEGRITY AND NATIONALISM, INC. ("MABINI"), FREEDOM FROM DEBT COALITION, INC., and PHILIPPINE BIBLE SOCIETY,
INC. and WIGBERTO TAADA,petitioners,
vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE, THE COMMISSIONER OF INTERNAL REVENUE and THE
COMMISSIONER OF CUSTOMS, respondents.
G.R. No. 115852 October 30, 1995

PHILIPPINE AIRLINES, INC., petitioner,

vs.
THE SECRETARY OF FINANCE and COMMISSIONER OF INTERNAL REVENUE, respondents.
G.R. No. 115873 October 30, 1995
COOPERATIVE UNION OF THE PHILIPPINES, petitioner,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as the Commissioner of Internal Revenue, HON. TEOFISTO T. GUINGONA, JR., in his
capacity as Executive Secretary, and HON. ROBERTO B. DE OCAMPO, in his capacity as Secretary of Finance, respondents.
G.R. No. 115931 October 30, 1995
PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC. and ASSOCIATION OF PHILIPPINE BOOK SELLERS, petitioners,
vs.
HON. ROBERTO B. DE OCAMPO, as the Secretary of Finance; HON. LIWAYWAY V. CHATO, as the Commissioner of Internal
Revenue; and HON. GUILLERMO PARAYNO, JR., in his capacity as the Commissioner of Customs, respondents.
RESOLUTION

MENDOZA, J.:
These are motions seeking reconsideration of our decision dismissing the petitions filed in these cases for the declaration of
unconstitutionality of R.A. No. 7716, otherwise known as the Expanded Value-Added Tax Law. The motions, of which there are 10 in all, have
been filed by the several petitioners in these cases, with the exception of the Philippine Educational Publishers Association, Inc. and the
Association of Philippine Booksellers, petitioners in G.R. No. 115931.
The Solicitor General, representing the respondents, filed a consolidated comment, to which the Philippine Airlines, Inc., petitioner in G.R. No.
115852, and the Philippine Press Institute, Inc., 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
5. R.A. NO. 7656
AN ACT REQUIRING GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS TO DECLARE DIVIDENDS UNDER
CERTAIN CONDITIONS TO THE NATIONAL GOVERNMENT, AND FOR OTHER PURPOSES (November 9, 1993)
House Bill No. 11024, November 3, 1993
Senate Bill No. 1168, November 3, 1993
6. R.A. NO. 7660
AN ACT RATIONALIZING FURTHER THE STRUCTURE AND ADMINISTRATION OF THE DOCUMENTARY STAMP
TAX, AMENDING FOR THE PURPOSE CERTAIN PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS
AMENDED, ALLOCATING FUNDS FOR SPECIFIC PROGRAMS, AND FOR OTHER PURPOSES (December 23, 1993)
House Bill No. 7789, May 31, 1993
Senate Bill No. 1330, November 18, 1993

7. R.A. NO. 7717

AN ACT IMPOSING A TAX ON THE SALE, BARTER OR EXCHANGE OF SHARES OF STOCK LISTED AND TRADED
THROUGH THE LOCAL STOCK EXCHANGE OR THROUGH INITIAL PUBLIC OFFERING, AMENDING FOR THE
PURPOSE THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, BY INSERTING A NEW SECTION AND
REPEALING CERTAIN SUBSECTIONS THEREOF (May 5, 1994)
House Bill No. 9187, November 3, 1993
Senate Bill No. 1127, March 23, 1994
Thus, the enactment of S. No. 1630 is not the only instance in which the Senate, in the exercise of its power to propose amendments to bills
required to originate in the House, passed its own version of a House revenue measure. It is noteworthy that, in the particular case of S. No.
1630, petitioners Tolentino and Roco, as members of the Senate, voted to approve it on second and third readings.
On the other hand, amendment by substitution, in the manner urged by petitioner Tolentino, concerns a mere matter of form. Petitioner has
not shown what substantial difference it would make if, as the Senate actually did in this case, a separate bill like S. No. 1630 is instead
enacted as a substitute measure, "taking into Consideration . . . H.B. 11197."
Indeed, so far as pertinent, the Rules of the Senate only provide:
RULE XXIX
AMENDMENTS
xxx xxx xxx
68. Not more than one amendment to the original amendment shall be considered.

No amendment by substitution shall be entertained unless the text thereof is submitted in writing .
Any of said amendments may be withdrawn before a vote is taken thereon.
69. No amendment which seeks the inclusion of a legislative provision foreign to the subject matter of a bill (rider)
shall be entertained.
xxx xxx xxx
70-A. A bill or resolution shall not be amended by substituting it with another which covers a subject distinct from
that proposed in the original bill or resolution. (emphasis added).
Nor is there merit in petitioners' contention that, with regard to revenue bills, the Philippine Senate possesses less power than the U.S.
Senate because of textual differences between constitutional provisions giving them the power to propose or concur with amendments.
Art. I, 7, cl. 1 of the U.S. Constitution reads:
All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with
amendments as on other Bills.
Art. VI, 24 of our Constitution reads:
All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and
private bills shall originate exclusively in the House of Representatives, but the Senate may propose or concur with
amendments.
The addition of the word "exclusively" in the Philippine Constitution and the decision to drop the phrase "as on other Bills" in the American
version, according to petitioners, shows the intention of the framers of our Constitution to restrict the Senate's power to propose
amendments to revenue bills. Petitioner Tolentino contends that the word "exclusively" was inserted to modify "originate" and "the words
'as in any other bills' (sic) were eliminated so as to show that these bills were not to be like other bills but must be treated as a special kind."

The history of this provision does not support this contention. The supposed indicia of constitutional intent are nothing but the relics of an
unsuccessful attempt to limit the power of the Senate. It will be recalled that the 1935 Constitution originally provided for a unicameral
National Assembly. When it was decided in 1939 to change to a bicameral legislature, it became necessary to provide for the procedure for
lawmaking by the Senate and the House of Representatives. The work of proposing amendments to the Constitution was done by the National
Assembly, acting as a constituent assembly, some of whose members, jealous of preserving the Assembly's lawmaking powers, sought to curtail
the powers of the proposed Senate. Accordingly they proposed the following provision:
All bills appropriating public funds, revenue or tariff bills, bills of local application, and private bills shall originate
exclusively in the Assembly, but the Senate may propose or concur with amendments. In case of disapproval by the
Senate of any such bills, the Assembly may repass the same by a two-thirds vote of all its members, and thereupon, the
bill so repassed shall be deemed enacted and may be submitted to the President for corresponding action. In the event
that the Senate should fail to finally act on any such bills, the Assembly may, after thirty days from the opening of the
next regular session of the same legislative term, reapprove the same with a vote of two-thirds of all the members of
the Assembly. And upon such reapproval, the bill shall be deemed enacted and may be submitted to the President for
corresponding action.
The special committee on the revision of laws of the Second National Assembly vetoed the proposal. It deleted everything after the first
sentence. As rewritten, the proposal was approved by the National Assembly and embodied in Resolution No. 38, as amended by Resolution No.
73. (J. ARUEGO, KNOW YOUR CONSTITUTION 65-66 (1950)). The proposed amendment was submitted to the people and ratified by them
in the elections held on June 18, 1940.
This is the history of Art. VI, 18 (2) of the 1935 Constitution, from which Art. VI, 24 of the present Constitution was derived. It explains
why the word "exclusively" was added to the American text from which the framers of the Philippine Constitution borrowed and why the
phrase "as on other Bills" was not copied. Considering the defeat of the proposal, the power of the Senate to propose amendments must be
understood to be full, plenary and complete "as on other Bills." Thus, because revenue bills are required to originate exclusively in the House of
Representatives, the Senate cannot enact revenue measures of its own without such bills. After a revenue bill is passed and sent over to it by
the House, however, the Senate certainly can pass its own version on the same subject matter. This follows from the coequality of the two
chambers of Congress.
That this is also the understanding of book authors of the scope of the Senate's power to concur is clear from the following commentaries:
The power of the Senate to propose or concur with amendments is apparently without restriction. It would seem that by
virtue of this power, the Senate can practically re-write a bill required to come from the House and leave only a trace of
the original bill. For example, a general revenue bill passed by the lower house of the United States Congress contained
provisions for the imposition of an inheritance tax . This was changed by the Senate into a corporation tax. The
amending authority of the Senate was declared by the United States Supreme Court to be sufficiently broad to enable
it to make the alteration. [Flint v. Stone Tracy Company, 220 U.S. 107, 55 L. ed. 389].
(L. TAADA 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 momentwas 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 yeasand 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 copiesthereof 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 both taxes. It was, however,
later made to pay a specialuse tax on the cost of paper and ink which made these items "the only items subject to the use tax that were
component of goods to be sold at retail." The U.S. Supreme Court held that the differential treatment of the press "suggests that the goal of
regulation is not related to suppression of expression, and such goal is presumptively unconstitutional." It would therefore appear that even a
law that favors the press is constitutionally suspect. (See the dissent of Rehnquist, J. in that case)
Nor is it true that only two exemptions previously granted by E.O. No. 273 are withdrawn "absolutely and unqualifiedly" by R.A. No. 7716.
Other exemptions from the VAT, such as those previously granted to PAL, petroleum concessionaires, enterprises registered with the Export
Processing Zone Authority, and many more are likewise totally withdrawn, in addition to exemptions which are partially withdrawn, in an effort
to broaden the base of the tax.
The PPI says that the discriminatory treatment of the press is highlighted by the fact that transactions, which are profit oriented, continue
to enjoy exemption under R.A. No. 7716. An enumeration of some of these transactions will suffice to show that by and large this is not so and
that the exemptions are granted for a purpose. As the Solicitor General says, such exemptions are granted, in some cases, to encourage
agricultural production and, in other cases, for the personal benefit of the end-user rather than for profit. The exempt transactions are:
(a) Goods for consumption or use which are in their original state (agricultural, marine and forest products, cotton seeds
in their original state, fertilizers, seeds, seedlings, fingerlings, fish, prawn livestock and poultry feeds) and goods or
services to enhance agriculture (milling of palay, corn, sugar cane and raw sugar, livestock, poultry feeds, fertilizer,
ingredients used for the manufacture of feeds).
(b) Goods used for personal consumption or use (household and personal effects of citizens returning to the Philippines)
or for professional use, like professional instruments and implements, by persons coming to the Philippines to settle
here.
(c) Goods subject to excise tax such as petroleum products or to be used for manufacture of petroleum products
subject to excise tax and services subject to percentage tax.
(d) Educational services, medical, dental, hospital and veterinary services, and services rendered under employeremployee relationship.

(e) Works of art and similar creations sold by the artist himself.
(f) Transactions exempted under special laws, or international agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.
(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-60)
The PPI asserts that it does not really matter that the law does not discriminate against the press because "even nondiscriminatory taxation
on constitutionally guaranteed freedom is unconstitutional." PPI cites in support of this assertion the following statement in Murdock

v. Pennsylvania, 319 U.S. 105, 87 L. Ed. 1292 (1943):

The fact that the ordinance is "nondiscriminatory" is immaterial. The protection afforded by the First Amendment is
not so restricted. A license tax certainly does not acquire constitutional validity because it classifies the privileges
protected by the First Amendment along with the wares and merchandise of hucksters and peddlers and treats them all
alike. Such equality in treatment does not save the ordinance. Freedom of press, freedom of speech, freedom of religion
are in preferred position.
The Court was speaking in that case of a license tax, which, unlike an ordinary tax, is mainly for regulation. Its imposition on the press is
unconstitutional because it lays a prior restraint on the exercise of its right. Hence, although its application to others, such those selling
goods, is valid, its application to the press or to religious groups, such as the Jehovah's Witnesses, in connection with the latter's sale of
religious books and pamphlets, is unconstitutional. As the U.S. Supreme Court put it, "it is one thing to impose a tax on income or property of a
preacher. It is quite another thing to exact a tax on him for delivering a sermon."
A similar ruling was made by this Court in American Bible Society v. City of Manila, 101 Phil. 386 (1957) which invalidated a city ordinance
requiring a business license fee on those engaged in the sale of general merchandise. It was held that the tax could not be imposed on the sale
of bibles by the American Bible Society without restraining the free exercise of its right to propagate.
The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege, much less a constitutional right. It is
imposed on the sale, barter, lease or exchange of goods or properties or the sale or exchange of services and the lease of properties purely
for revenue purposes. To subject the press to its payment is not to burden the exercise of its right any more than to make the press pay
income tax or subject it to general regulation is not to violate its freedom under the Constitution.
Additionally, the Philippine Bible Society, Inc. claims that although it sells bibles, the proceeds derived from the sales are used to subsidize
the cost of printing copies which are given free to those who cannot afford to pay so that to tax the sales would be to increase the price,
while reducing the volume of sale. Granting that to be the case, the resulting burden on the exercise of religious freedom is so incidental as to
make it difficult to differentiate it from any other economic imposition that might make the right to disseminate religious doctrines costly.
Otherwise, to follow the petitioner's argument, to increase the tax on the sale of vestments would be to lay an impermissible burden on the
right of the preacher to make a sermon.
On the other hand the registration fee of P1,000.00 imposed by 107 of the NIRC, as amended by 7 of R.A. No. 7716, although fixed in
amount, is really just to pay for the expenses of registration and enforcement of provisions such as those relating to accounting in 108 of the
NIRC. That the PBS distributes free bibles and therefore is not liable to pay the VAT does not excuse it from the payment of this fee
because it also sells some copies. At any rate whether the PBS is liable for the VAT must be decided in concrete cases, in the event it is
assessed this tax by the Commissioner of Internal Revenue.
VII. Alleged violations of the due process, equal protection and contract clauses and the rule on taxation . CREBA asserts that R.A. No. 7716
(1) impairs the obligations of contracts, (2) classifies transactions as covered or exempt without reasonable basis and (3) violates the rule that
taxes should be uniform and equitable and that Congress shall "evolve a progressive system of taxation."
With respect to the first contention, it is claimed that the application of the tax to existing contracts of the sale of real property by
installment or on deferred payment basis would result in substantial increases in the monthly amortizations to be paid because of the 10%
VAT. The additional amount, it is pointed out, is something that the buyer did not anticipate at the time he entered into the contract.
The short answer to this is the one given by this Court in an early case: "Authorities from numerous sources are cited by the plaintiffs, but
none of them show that a lawful tax on a new subject, or an increased tax on an old one, interferes with a contract or impairs its obligation,
within the meaning of the Constitution. Even though such taxation may affect particular contracts, as it may increase the debt of one person
and lessen the security of another, or may impose additional burdens upon one class and release the burdens of another, still the tax must be
paid unless prohibited by the Constitution, nor can it be said that it impairs the obligation of any existing contract in its true legal sense." (La
Insular v. Machuca Go-Tauco and Nubla Co-Siong, 39 Phil. 567, 574 (1919)). Indeed not only existing laws but also " the reservation of the

essential attributes of sovereignty, is . . . read into contracts as a postulate of the legal order." (Philippine-American Life Ins. Co. v. Auditor
General, 22 SCRA 135, 147 (1968)) Contracts must be understood as having been made in reference to the possible exercise of the rightful
authority of the government and no obligation of contract can extend to the defeat of that authority. (Norman v. Baltimore and Ohio R.R., 79
L. Ed. 885 (1935)).
It is next pointed out that while 4 of R.A. No. 7716 exempts such transactions as the sale of agricultural products, food items, petroleum,
and medical and veterinary services, it grants no exemption on the sale of real property which is equally essential. The sale of real property
for socialized and low-cost housing is exempted from the tax, but CREBA claims that real estate transactions of "the less poor," i.e., the
middle class, who are equally homeless, should likewise be exempted.
The sale of food items, petroleum, medical and veterinary services, etc., which are essential goods and services was already exempt under
103, pars. (b) (d) (1) of the NIRC before the enactment of R.A. No. 7716. Petitioner is in error in claiming that R.A. No. 7716 granted
exemption to these transactions, while subjecting those of petitioner to the payment of the VAT. Moreover, there is a difference between
the "homeless poor" and the "homeless less poor" in the example given by petitioner, because the second group or middle class can afford to
rent houses in the meantime that they cannot yet buy their own homes. The two social classes are thus differently situated in life. "It is
inherent in the power to tax that the State be free to select the subjects of taxation, and it has been repeatedly held that 'inequalities which
result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation.'" (Lutz v. Araneta, 98 Phil.
148, 153 (1955). Accord, City of Baguio v. De Leon, 134 Phil. 912 (1968); Sison, Jr. v. Ancheta, 130 SCRA 654, 663 (1984); Kapatiran ng mga
Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 371 (1988)).
Finally, it is contended, for the reasons already noted, that R.A. No. 7716 also violates Art. VI, 28(1) which provides that "The rule of
taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation."
Equality and uniformity of taxation means that all taxable articles or kinds of property of the same class be taxed at the same rate. The
taxing power has the authority to make reasonable and natural classifications for purposes of taxation. To satisfy this requirement it is
enough that the statute or ordinance applies equally to all persons, forms and corporations placed in similar situation. (City of Baguio v. De
Leon, supra; Sison, Jr. v. Ancheta, supra)
Indeed, the VAT was already provided in E.O. No. 273 long before R.A. No. 7716 was enacted. R.A. No. 7716 merely expands the base of the
tax. The validity of the original VAT Law was questioned in Kapatiran ng Naglilingkod sa Pamahalaan ng Pilipinas, Inc . v. Tan, 163 SCRA 383
(1988) on grounds similar to those made in these cases, namely, that the law was "oppressive, discriminatory, unjust and regressive in violation
of Art. VI, 28(1) of the Constitution." (At 382) Rejecting the challenge to the law, this Court held:
As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. . . .
The sales tax adopted in EO 273 is applied similarly on all goods and services sold to the public, which are not exempt, at
the constant rate of 0% or 10%.
The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons engaged in business
with an aggregate gross annual sales exceeding P200,000.00. Small corner sari-sari stores are consequently exempt from
its application. Likewise exempt from the tax are sales of farm and marine products, so that the costs of basic food and
other necessities, spared as they are from the incidence of the VAT, are expected to be relatively lower and within the
reach of the general public.
(At 382-383)
The CREBA claims that the VAT is regressive. A similar claim is made by the Cooperative Union of the Philippines, Inc. (CUP), while petitioner
Juan T. David argues that the law contravenes the mandate of Congress to provide for a progressive system of taxation because the law
imposes a flat rate of 10% and thus places the tax burden on all taxpayers without regard to their ability to pay.
The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive. What it simply provides is that
Congress shall "evolve a progressive system of taxation." The constitutional provision has been interpreted to mean simply that "direct taxes
are . . . to be preferred [and] as much as possible, indirect taxes should be minimized." (E. FERNANDO, THE CONSTITUTION OF THE
PHILIPPINES 221 (Second ed. (1977)). Indeed, the mandate to Congress is not to prescribe, but to evolve, a progressive tax system.
Otherwise, sales taxes, which perhaps are the oldest form of indirect taxes, would have been prohibited with the proclamation of Art. VIII,
17(1) of the 1973 Constitution from which the present Art. VI, 28(1) was taken. Sales taxes are also regressive.
Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to avoid them by imposing such
taxes according to the taxpayers' ability to pay. In the case of the VAT, the law minimizes the regressive effects of this imposition by
providing for zero rating of certain transactions (R.A. No. 7716, 3, amending 102 (b) of the NIRC), while granting exemptions to other
transactions. (R.A. No. 7716, 4, amending 103 of the NIRC).
Thus, the following transactions involving basic and essential goods and services are exempted from the VAT:

(a) Goods for consumption or use which are in their original state (agricultural, marine and forest products, cotton seeds
in their original state, fertilizers, seeds, seedlings, fingerlings, fish, prawn livestock and poultry feeds) and goods or
services to enhance agriculture (milling of palay, corn sugar cane and raw sugar, livestock, poultry feeds, fertilizer,
ingredients used for the manufacture of feeds).
(b) Goods used for personal consumption or use (household and personal effects of citizens returning to the Philippines)
and or professional use, like professional instruments and implements, by persons coming to the Philippines to settle
here.
(c) Goods subject to excise tax such as petroleum products or to be used for manufacture of petroleum products
subject to excise tax and services subject to percentage tax.
(d) Educational services, medical, dental, hospital and veterinary services, and services rendered under employeremployee relationship.
(e) Works of art and similar creations sold by the artist himself.
(f) Transactions exempted under special laws, or international agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.
(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-60)
On the other hand, the transactions which are subject to the VAT are those which involve goods and services which are used or availed of
mainly by higher income groups. These include real properties held primarily for sale to customers or for lease in the ordinary course of trade
or business, the right or privilege to use patent, copyright, and other similar property or right, the right or privilege to use industrial,
commercial or scientific equipment, motion picture films, tapes and discs, radio, television, satellite transmission and cable television time,
hotels, restaurants and similar places, securities, lending investments, taxicabs, utility cars for rent, tourist buses, and other common
carriers, services of franchise grantees of telephone and telegraph.
The problem with CREBA's petition is that it presents broad claims of constitutional violations by tendering issues not at retail but at
wholesale and in the abstract. There is no fully developed record which can impart to adjudication the impact of actuality. There is no factual
foundation to show in the concrete the application of the law to actual contracts and exemplify its effect on property rights. For the fact is
that petitioner's members have not even been assessed the VAT. Petitioner's case is not made concrete by a series of hypothetical questions
asked which are no different from those dealt with in advisory opinions.
The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation, as here, does not
suffice. There must be a factual foundation of such unconstitutional taint. Considering that petitioner here would
condemn such a provision as void on its face, he has not made out a case. This is merely to adhere to the authoritative
doctrine that where the due process and equal protection clauses are invoked, considering that they are not fixed rules
but rather broad standards, there is a need for proof of such persuasive character as would lead to such a conclusion.
Absent such a showing, the presumption of validity must prevail.
(Sison, Jr. v. Ancheta, 130 SCRA at 661)
Adjudication of these broad claims must await the development of a concrete case. It may be that postponement of adjudication would result
in a multiplicity of suits. This need not be the case, however. Enforcement of the law may give rise to such a case. A test case, provided it is an
actual case and not an abstract or hypothetical one, may thus be presented.
Nor is hardship to taxpayers alone an adequate justification for adjudicating abstract issues. Otherwise, adjudication would be no different
from the giving of advisory opinion that does not really settle legal issues.
We are told that it is our duty under Art. VIII, 1, 2 to decide whenever a claim is made that "there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the government." This duty can only arise if an
actual case or controversy is before us. Under Art . VIII, 5 our jurisdiction is defined in terms of "cases" and all that Art. VIII, 1, 2 can
plausibly mean is that in the exercise of that jurisdiction we have the judicial power to determine questions of grave abuse of discretion by
any branch or instrumentality of the government.
Put in another way, what is granted in Art. VIII, 1, 2 is "judicial power," which is "the power of a court to hear and decide cases pending
between parties who have the right to sue and be sued in the courts of law and equity" (Lamb v. Phipps, 22 Phil. 456, 559 (1912)), as

distinguished from legislative and executive power. This power cannot be directly appropriated until it is apportioned among several courts
either by the Constitution, as in the case of Art. VIII, 5, or by statute, as in the case of the Judiciary Act of 1948 (R.A. No. 296) and the
Judiciary Reorganization Act of 1980 (B.P. Blg. 129). The power thus apportioned constitutes the court's "jurisdiction," defined as "the power
conferred by law upon a court or judge to take cognizance of a case, to the exclusion of all others." (United States v. Arceo, 6 Phil. 29 (1906))
Without an actual case coming within its jurisdiction, this Court cannot inquire into any allegation of grave abuse of discretion by the other
departments of the government.
VIII. Alleged violation of policy towards cooperatives . On the other hand, the Cooperative Union of the Philippines (CUP), after briefly
surveying the course of legislation, argues that it was to adopt a definite policy of granting tax exemption to cooperatives that the present
Constitution embodies provisions on cooperatives. To subject cooperatives to the VAT would therefore be to infringe a constitutional policy.
Petitioner claims that in 1973, P.D. No. 175 was promulgated exempting cooperatives from the payment of income taxes and sales taxes but in
1984, because of the crisis which menaced the national economy, this exemption was withdrawn by P.D. No. 1955; that in 1986, P.D. No. 2008
again granted cooperatives exemption from income and sales taxes until December 31, 1991, but, in the same year, E.O. No. 93 revoked the
exemption; and that finally in 1987 the framers of the Constitution "repudiated the previous actions of the government adverse to the
interests of the cooperatives, that is, the repeated revocation of the tax exemption to cooperatives and instead upheld the policy of
strengthening the cooperatives by way of the grant of tax exemptions," by providing the following in Art. XII:
1. The goals of the national economy are a more equitable distribution of opportunities, income, and wealth; a sustained
increase in the amount of goods and services produced by the nation for the benefit of the people; and an expanding
productivity as the key to raising the quality of life for all, especially the underprivileged.
The State shall promote industrialization and full employment based on sound agricultural development and agrarian
reform, through industries that make full and efficient use of human and natural resources, and which are competitive in
both domestic and foreign markets. However, the State shall protect Filipino enterprises against unfair foreign
competition and trade practices.
In the pursuit of these goals, all sectors of the economy and all regions of the country shall be given optimum
opportunity to develop. Private enterprises, including corporations, cooperatives, and similar collective organizations,
shall be encouraged to broaden the base of their ownership.
15. The Congress shall create an agency to promote the viability and growth of cooperatives as instruments for social
justice and economic development.
Petitioner's contention has no merit. In the first place, it is not true that P.D. No. 1955 singled out cooperatives by withdrawing their
exemption from income and sales taxes under P.D. No. 175, 5. What P.D. No. 1955, 1 did was to withdraw the exemptions and preferential

treatments theretofore granted to private business enterprises in general, in view of the economic crisis which then beset the nation. It is
true that after P.D. No. 2008, 2 had restored the tax exemptions of cooperatives in 1986, the exemption was again repealed by E.O. No. 93,
1, but then again cooperatives were not the only ones whose exemptions were withdrawn. The withdrawal of tax incentives applied to all,

including government and private entities. In the second place, the Constitution does not really require that cooperatives be granted tax
exemptions in order to promote their growth and viability. Hence, there is no basis for petitioner's assertion that the government's policy
toward cooperatives had been one of vacillation, as far as the grant of tax privileges was concerned, and that it was to put an end to this
indecision that the constitutional provisions cited were adopted. Perhaps as a matter of policy cooperatives should be granted tax exemptions,
but that is left to the discretion of Congress. If Congress does not grant exemption and there is no discrimination to cooperatives, no violation
of any constitutional policy can be charged.
Indeed, petitioner's theory amounts to saying that under the Constitution cooperatives are exempt from taxation . Such theory is contrary to
the Constitution under which only the following are exempt from taxation: charitable institutions, churches and parsonages, by reason of Art.
VI, 28 (3), and non-stock, non-profit educational institutions by reason of Art. XIV, 4 (3).
CUP's further ground for seeking the invalidation of R.A. No. 7716 is that it denies cooperatives the equal protection of the law because
electric cooperatives are exempted from the VAT. The classification between electric and other cooperatives (farmers cooperatives,
producers cooperatives, marketing cooperatives, etc.) apparently rests on a congressional determination that there is greater need to provide
cheaper electric power to as many people as possible, especially those living in the rural areas, than there is to provide them with other
necessities in life. We cannot say that such classification is unreasonable.
We have carefully read the various arguments raised against the constitutional validity of R.A. No. 7716. We have in fact taken the
extraordinary step of enjoining its enforcement pending resolution of these cases. We have now come to the conclusion that the law suffers
from none of the infirmities attributed to it by petitioners and that its enactment by the other branches of the government does not
constitute a grave abuse of discretion. Any question as to its necessity, desirability or expediency must be addressed to Congress as the body
which is electorally responsible, remembering that, as Justice Holmes has said, "legislators are the ultimate guardians of the liberties and
welfare of the people in quite as great a degree as are the courts." (Missouri, Kansas & Texas Ry. Co. v. May, 194 U.S. 267, 270, 48 L. Ed. 971,
973 (1904)). It is not right, as petitioner in G.R. No. 115543 does in arguing that we should enforce the public accountability of legislators,
that those who took part in passing the law in question by voting for it in Congress should later thrust to the courts the burden of reviewing

measures in the flush of enactment. This Court does not sit as a third branch of the legislature, much less exercise a veto power over
legislation.
WHEREFORE, the motions for reconsideration are denied with finality and the temporary restraining order previously issued is hereby lifted.
SO ORDERED.

G.R. Nos. L-19824, L-19825 and 19826

July 9, 1966

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

vs.
BACOLOD-MURCIA MILLING CO., INC., MA-AO SUGAR CENTRAL CO., INC., and TALISAY-SILAY MILLING COMPANY,
defendants-appellants.

Meer,
Meer
and
Meer,
Enrique
M.
Fernando
and
Emma
Quisumbing-Fernando
for
defendants-appellants.
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Antonio Torres and Solicitor Ceferino Padua, for plaintiffappellee.
REGALA, J.:
This is a joint appeal by three sugar centrals, Bacolod Murcia Milling Co., Inc., Ma-ao Sugar Central Co., Inc., and Talisay-Silay Milling Co.,
sister companies under one controlling ownership and management, from a decision of the Court of First Instance of Manila finding them liable
for special assessments under Section 15 of Republic Act No. 632.
Republic Act No. 632 is the charter of the Philippine Sugar Institute, Philsugin for short, a semi-public corporation created for the following
purposes and objectives:
(a) To conduct research work for the sugar industry in all its phases, either agricultural or industrial, for the purpose of
introducing into the sugar industry such practices or processes that will reduce the cost of production, increase and improve the
industrialization of the by-products of sugar cane, and achieve greater efficiency in the industry;
(b) To improve existing methods of raising sugar cane and of sugar manufacturing;
(c) To insure a permanent, sufficient and balanced production of sugar and its by-products for local consumption and exportation;
(d) To establish and maintain such balanced relation between production and consumption of sugar and its by-products, and such
marketing conditions therefor, as well insure stabilized prices at a level sufficient to cover the cost of production plus a reasonable
profit;
(e) To promote the effective merchandising of sugar and its by-products in the domestic and foreign markets so that those
engaged in the sugar industry will be placed on a basis of economic security; and
(f) To improve the living and economic conditions of laborers engaged in the sugar industry by the gradual and effective correction
of the inequalities existing in the industry. (Section 2, Rep. Act 632)
To realize and achieve these ends, Sections 15 and 16 of the aforementioned law provide:
Sec. 15. Capitalization. To raise the necessary funds to carry out the provisions of this Act and the purposes of the corporation,
there shall be levied on the annual sugar production a tax of TEN CENTAVOS [P0.10] per picul of sugar to be collected for a period
of five (5) years beginning the crop year 1951-1952. The amount shall be borne by the sugar cane planters and the sugar centrals in
the proportion of their corresponding milling share, and said levy shall constitute a lien on their sugar quedans and/or warehouse
receipts.
Sec. 16. Special Fund. The proceeds of the foregoing levy shall be set aside to constitute a special fund to be known as the
"Sugar Research and Stabilization Fund," which shall be available exclusively for the use of the corporation. All the income and
receipts derived from the special fund herein created shall accrue to, and form part of the said fund to be available solely for the
use of the corporation.
The specific and general powers of the Philsugin are set forth in Section 8 of the same law, to wit:
Sec. 3. Specific and General Powers. For carrying out the purposes mentioned in the preceding section, the PHILSUGIN shall
have the following powers:

(a) To establish, keep, maintain and operate, or help establish, keep, maintain, and operate one central experiment station and such
number of regional experiment stations in any part of the Philippines as may be necessary to undertake extensive research in sugar
cane culture and manufacture, including studies as to the feasibility of merchandising sugar cane farms, the control and eradication
of pests, the selected and propagation of high-yielding varieties of sugar cane suited to Philippine climatic conditions, and such
other pertinent studies as will be useful in adjusting the sugar industry to a position independent of existing trade preference in
the American market;
(b) To purchase such machinery, materials, equipment and supplies as may be necessary to prosecute successfully such researches
and experimental work;
(c) To explore and expand the domestic and foreign markets for sugar and its by-products to assure mutual benefits to consumers
and producers, and to promote and maintain a sufficient general production of sugar and its by-products by an efficient
coordination of the component elements of the sugar industry of the country;
(d) To buy, sell, assign, own, operate, rent or lease, subject to existing laws, machineries, equipment, materials, merchant vessels,
rails, railroad lines, and any other means of transportation, warehouses, buildings, and any other equipment and material to the
production, manufacture, handling, transportation and warehousing of sugar and its by-products;
(e) To grant loans, on reasonable terms, to planters when it deems such loans advisable;
(f) To enter, make and execute contracts of any kind as may be necessary or incidental to the attainment of its purposes with any
person, firm, or public or private corporation, with the Government of the Philippines or of the United States, or any state,
territory, or persons therefor, or with any foreign government and, in general, to do everything directly or indirectly necessary or
incidental to, or in furtherance of, the purposes of the corporation;
(g) To do all such other things, transact all such business and perform such functions directly or indirectly necessary, incidental or
conducive to the attainment of the purposes of the corporation; and
(h) Generally, to exercise all the powers of a Corporation under the Corporation Law insofar as they are not inconsistent with the
provisions of this Act.
The facts of this case bearing relevance to the issue under consideration, as recited by the lower court and accepted by the appellants, are
the following:
x x x during the 5 crop years mentioned in the law, namely 1951-1952, 1952-1953, 1953-1954, 1954-1955 and 1955-1956, defendant
Bacolod-Murcia Milling Co., Inc., has paid P267,468.00 but left an unpaid balance of P216,070.50; defendant Ma-ao Sugar Central
Co., Inc., has paid P117,613.44 but left unpaid balance of P235,800.20; defendant Talisay-Silay Milling Company has paid
P251,812.43 but left unpaid balance of P208,193.74; and defendant Central Azucarera del Danao made a payment of P49,897.78 but
left unpaid balance of P48,059.77. There is no question regarding the correctness of the amounts paid and the amounts that remain
unpaid.
From the evidence presented, on which there is no controversy, it was disclosed that on September 3, 1951, the Philippine Sugar
Institute, known as the PHILSUGIN for short, acquired the Insular Sugar Refinery for a total consideration of P3,070,909.60
payable, in accordance with the deed of sale Exhibit A, in 3 installments from the process of the sugar tax to be collected, under
Republic Act 632. The evidence further discloses that the operation of the Insular Sugar Refinery for the years, 1954, 1955, 1956
and 1957 was disastrous in the sense that PHILSUGIN incurred tremendous losses as shown by an examination of the statements
of income and expenses marked Exhibits 5, 6, 7 and 8. Through the testimony of Mr. Cenon Flor Cruz, former acting general
manager of PHILSUGIN and at present technical consultant of said entity, presented by the defendants as witnesses, it has been
shown that the operation of the Insular Sugar Refinery has consumed 70% of the thinking time and effort of the PHILSUGIN
management. x x x .
Contending that the purchase of the Insular Sugar Refinery with money from the Philsugin Fund was not authorized by Republic Act 632 and
that the continued operation of the said refinery was inimical to their interests, the appellants refused to continue with their contributions to
the said fund. They maintained that their obligation to contribute or pay to the said Fund subsists only to the limit and extent that they are
benefited by such contributions since Republic Act 632 is not a revenue measure but an Act which establishes a "Special assessments."
Adverting to the finding of the lower court that proceeds of the said Fund had been used or applied to absorb the "tremendous losses"
incurred by Philsugin in its "disastrous operation" of the said refinery, the appellants herein argue that they should not only be released from
their obligation to pay the said assessment but be refunded, besides, of all that they might have previously paid thereunder.
The appellants' thesis is simply to the effect that the "10 centavos per picul of sugar" authorized to be collected under Sec. 15 of Republic
632 is a special assessment. As such, the proceeds thereof may be devoted only to the specific purpose for which the assessment was
authorized, a special assessment being a levy upon property predicated on the doctrine that the property against which it is levied derives
some special benefit from the improvement. It is not a tax measure intended to raise revenues for the Government. Consequently, once it has
been determined that no benefit accrues or inures to the property owners paying the assessment, or that the proceeds from the said
assessment are being misapplied to the prejudice of those against whom it has been levied, then the authority to insist on the payment of the
said assessment ceases.
On the other hand, the lower court adjudged the appellants herein liable under the aforementioned law, Republic Act 632, upon the following
considerations:

First, Subsection d) of Section 3 of Republic Act 632 authorizes Philsugin to buy and operate machineries, equipment, merchant vessels, etc.,
and any other equipment and material for the production, manufacture, handling, transportation and warehousing of sugar and its by-products.
It was, therefore, authorized to purchase and operate a sugar refinery.
Secondly, the corporate powers of the Philsugin are vested in and exercised by a board of directors composed of 5 members, 3 of whom shall
be appointed upon recommendation of the National Federation of Sugar Cane Planters and 2 upon recommendation of the Philippine Sugar
Association. (Sec. 4, Rep. Act 632). It has not been shown that this particular provision was not observed in this case. Therefore, the
appellants herein may not rightly claim that there had been a misapplication of the Philsugin funds when the same was used to procure the
Insular Sugar Refinery because the decision to purchase the said refinery was made by a board in which the applicants were fully and duly
represented, the appellants being members of the Philippine Sugar Association.
Thirdly, all financial transactions of the Philsugin are audited by the General Auditing Office, which must be presumed to have passed upon the
legality and prudence of the disbursements of the Fund. Additionally, other offices of the Government review such transactions as reflected
in the annual report obliged of the Philsugin to prepare. Among those offices are the Office of the President of the Philippines, the
Administrator of Economic Coordination and the Presiding Officers of the two chambers of Congress. With all these safeguards against any
imprudent or unauthorized expenditure of Philsugin Funds, the acquisition of the Insular Sugar Refinery must be upheld in its legality and
propriety.
Fourthly, it would be dangerous to sanction the unilateral refusal of the appellants herein to continue with their contribution to the Fund for
that conduct is no different "from the case of an ordinary taxpayer who refuses to pay his taxes on the ground that the money is being
misappropriated by Government officials." This is taking the law into their own hands.
Against the above ruling of the trial court, the appellants contend:
First. It is fallacious to argue that no mismanagement or abuse of corporate power could have been committed by Philsugin solely because its
charter incorporates so many devices or safeguards to preclude such abuse. This reasoning of the lower court does not reconcile with that
actually happened in this case.
Besides, the appellants contend that the issue on hand is not whether Philsugin abused or not its powers when it purchased the Insular Sugar
Refinery. The issue, rather, is whether Philsugin had any power or authority at all to acquire the said refinery. The appellants deny that
Philsugin is possessed of any such authority because what it is empowered to purchase is not a "sugar refinery but a central experiment
station or perhaps at the most a sugar central to be used for that purpose." (Sec. 3[a], Rep. Act 632) For this distinction, the appellants cite
the case of Collector vs. Ledesma, G.R. No. L-12158, May 27, 1959, in which this Court ruled that
We are of the opinion that a "sugar central," as that term is used in Section 189, applies to "a large mill that makes sugar out of the
cane brought from a wide surrounding territory," or a sugar mill which manufactures sugar for a number of plantations. The term
"sugar central" could not have been intended by Congress to refer to all sugar mills or sugar factories as contended by respondent.
If respondent's interpretation is to be followed, even sugar mills run by animal power (trapiche) would be considered sugar central.
We do not think Congress ever intended to place owners of (trapiches) in the same category as operators of sugar centrals.
That sugar mills are not the same as sugar centrals may also be gleaned from Commonwealth Act No. 470 (Assessment Law). In
prescribing the principle governing valuation and assessment of real property. Section 4 of said Act provides
"Machinery permanently used or in stalled in sugar centrals, mills, or refineries shall be assessed."
This clearly indicates that "Sugar centrals" are not the same as "sugar mills" or "sugar refineries."
Second. The appellants' refusal to continue paying the assessment under Republic Act 632 may not rightly be equated with a taxpayer's
refusal to pay his ordinary taxes precisely because there is a substantial distinction between a "special assessment" and an ordinary tax. The
purpose of the former is to finance the improvement of particular properties, with the benefits of the improvement accruing or inuring to the
owners thereof who, after all, pay the assessment. The purpose of an ordinary tax, on the other hand, is to provide the Government with
revenues needed for the financing of state affairs. Thus, while the refusal of a citizen to pay his ordinary taxes may not indeed be sanctioned
because it would impair government functions, the same would not hold true in the case of a refusal to comply with a special assessment.
Third. Upon a host of decisions of the United States Supreme Court, the imposition or collection of a special assessment upon property owners
who receive no benefit from such assessment amounts to a denial of due process. Thus, in the case of Norwood vs. Baer, 172 US 269, the
ruling was laid down that
As already indicated, the principle underlying special assessments to meet the cost of public improvements is that the property
upon which they are imposed is peculiarly benefited, and therefore, the panels do not, in fact, pay anything in excess of what they
received by reason of such improvement.
unless a corresponding benefit is realized by the property owner, the exaction of a special assessment would be "manifestly unfair" (Seattle
vs. Kelleher 195 U.S. 351) and "palpably arbitrary or plain abuse" (Gast Realty Investment Co. vs. Schneider Granite Co., 240 U.S. 57). In other
words, the assessment is violative of the due process guarantee of the constitution (Memphis vs. Charleston Ry v. Pace, 282 U.S. 241).
We find for the appellee.

The nature of a "special assessment" similar to the case at bar has already been discussed and explained by this Court in the case of Lutz vs.
Araneta, 98 Phil. 148. For in this Lutz case, Commonwealth Act 567, otherwise known as the Sugar Adjustment Act, levies on owners or
persons in control of lands devoted to the cultivation of sugar cane and ceded to others for a consideration, on lease or otherwise
a tax equivalent to the difference between the money value of the rental or consideration collected and the amount representing 12
per centum of the assessed value of such land. (Sec. 3). 1wph1.t
Under Section 6 of the said law, Commonwealth Act 567, all collections made thereunder "shall accrue to a special fund in the Philippine
Treasury, to be known as the 'Sugar Adjustment and Stabilization Fund,' and shall be paid out only for any or all of the following purposes or
to attain any or all of the following objectives, as may be provided by law." It then proceeds to enumerate the said purposes, among which are
"to place the sugar industry in a position to maintain itself; ... to readjust the benefits derived from the sugar industry ... so that all might
continue profitably to engage therein; to limit the production of sugar to areas more economically suited to the production thereof; and to
afford laborers employed in the industry a living wage and to improve their living and working conditions.
The plaintiff in the above case, Walter Lutz, contended that the aforementioned tax or special assessment was unconstitutional because it
was being "levied for the aid and support of the sugar industry exclusively," and therefore, not for a public purpose. In rejecting the theory
advanced by the said plaintiff, this Court said:
The basic defect in the plaintiff's position in his assumption that the tax provided for in Commonwealth Act No. 567 is a pure
exercise of the taxing power. Analysis of the Act, and particularly Section 6, will show that the tax is levied with a regulatory
purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry. In other words, the act is
primarily an exercise of the police power.
This Court can take judicial notice of the fact that sugar production is one of the great industries of our nation, sugar occupying a
leading position among its export products; that it gives employment to thousands of laborers in fields and factories; that it is a
great source of the state's wealth, is one, of the important sources to foreign exchange needed by our government, and is thus
pivotal in the plans of a regime committed to a policy of currency stability. Its promotion, protection and advancement, therefore
redounds greatly to the general welfare. Hence, it was competent for the Legislature to find that the general welfare demanded
that the sugar industry should be stabilized in turn; and in the wide field of its police power, the law-making body could provide
that the distribution of benefits therefrom be readjusted among its components, to enable it to resist the added strain of the
increase in taxes that it had to sustain (Sligh vs. Kirkwood, 237 U.S. 52, 59 L. Ed. 835; Johnson vs. State ex rel. Marey, 99 Fla.
1311, 128 So. 853; Marcy Inc. vs. Mayo, 103 Fla. 552, 139 So. 121)
As stated in Johnson vs. State ex rel. Marcy, with reference to the citrus industry in Florida
"The protection of a large industry constituting one of the great source of the state's wealth and therefore directly or
indirectly affecting the welfare of so great a portion of the population of the State is affected to such an extent by
public interests as to be within the police power of the sovereign." (128 So. 857).
Once it is conceded, as it must that the protection and promotion of the sugar industry is a matter of public concern, it follows
that the Legislature may determine within reasonable bounds what is necessary for its protection and expedient for its promotion.
Here, the legislative discretion must be allowed full play, subject only to the test of reasonableness; and it is not contended that
the means provided in Section 6 of the law (above quoted) bear no relation to the objective pursued or are oppressive in character.
If objective and methods are alike constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for their
prosecution and attainment. Taxation may be made the implement of the state's police power. (Great Atl. & Pac. Tea Co. vs.
Grosjean, 301 U.S. 412, 81 L. Ed. 1193; U.S. vs. Butler, 297 U.S. 1, 80 L. Ed. 477; M'cullock vs. Maryland, 4 Wheat. 316, 4 L. Ed.
579).
On the authority of the above case, then, We hold that the special assessment at bar may be considered as similarly as the above, that is,
that the levy for the Philsugin Fund is not so much an exercise of the power of taxation, nor the imposition of a special assessment, but, the
exercise of the police power for the general welfare of the entire country. It is, therefore, an exercise of a sovereign power which no private
citizen may lawfully resist.
Besides, under Section 2(a) of the charter, the Philsugin is authorized "to conduct research work for the sugar industry in all its phases,
either agricultural or industrial, for the purpose of introducing into the sugar industry such practices or processes that will reduce the cost of
production, ..., and achieve greater efficiency in the industry." This provision, first of all, more than justifies the acquisition of the refinery in
question. The case dispute that the operation of a sugar refinery is a phase of sugar production and that from such operation may be learned
methods of reducing the cost of sugar manufactured no less than it may afford the opportunity to discover the more effective means of
achieving progress in the industry. Philsugin's experience alone of running a refinery is a gain to the entire industry. That the operation
resulted in a financial loss is by no means an index that the industry did not profit therefrom, as other farms of a different nature may have
been realized. Thus, from its financially unsuccessful venture, the Philsugin could very well have advanced in its appreciation of the problems
of management faced by sugar centrals. It could have understood more clearly the difficulties of marketing sugar products. It could have
known with better intimacy the precise area of the industry in need of the more help from the government. The view of the appellants herein,
therefore, that they were not benefited by the unsuccessful operation of the refinery in question is not entirely accurate.
Furthermore, Section 2(a) specifies a field of research which, indeed, would be difficult to carry out save through the actual operation of a
refinery. Quite obviously, the most practical or realistic approach to the problem of what "practices or processes" might most effectively cut
the cost of production is to experiment on production itself. And yet, how can such an experiment be carried out without the tools, which is all
that a refinery is?

In view of all the foregoing, the decision appealed from is hereby affirmed, with costs.
G.R. No. 101273 July 3, 1992
CONGRESSMAN ENRIQUE T. GARCIA (Second District of Bataan), petitioner,
vs.
THE EXECUTIVE SECRETARY, THE COMMISSIONER OF CUSTOMS, THE NATIONAL ECONOMIC AND DEVELOPMENT
AUTHORITY, THE TARIFF COMMISSION, THE SECRETARY OF FINANCE, and THE ENERGY REGULATORY BOARD, respondents.
FELICIANO, J.:
On 27 November 1990, the President issued Executive Order No. 438 which imposed, in addition to any other duties, taxes and charges
imposed by law on all articles imported into the Philippines, an additional duty of five percent (5%) ad valorem. This additional duty was
imposed across the board on all imported articles, including crude oil and other oil products imported into the Philippines. This additional duty
was subsequently increased from five percent (5%) ad valorem to nine percent (9%) ad valorem by the promulgation of Executive Order No.
443, dated 3 January 1991.
On 24 July 1991, the Department of Finance requested the Tariff Commission to initiate the process required by the Tariff and Customs Code
for the imposition of a specific levy on crude oil and other petroleum products, covered by HS Heading Nos. 27.09, 27.10 and 27.11 of Section
104 of the Tariff and Customs Code as amended. Accordingly, the Tariff Commission, following the procedure set forth in Section 401 of the
Tariff and Customs Code, scheduled a public hearing to give interested parties an opportunity to be heard and to present evidence in support
of their respective positions.
Meantime, Executive Order No. 475 was issued by the President, on 15 August 1991 reducing the rate of additional duty on all imported
articles from nine percent (9%) to five percent (5%) ad valorem, except in the cases of crude oil and other oil products which continued to be
subject to the additional duty of nine percent (9%) ad valorem.
Upon completion of the public hearings, the Tariff Commission submitted to the President a "Report on Special Duty on Crude Oil and Oil
Products" dated 16 August 1991, for consideration and appropriate action. Seven (7) days later, the President issued Executive Order No. 478,
dated 23 August 1991, which levied (in addition to the aforementioned additional duty of nine percent (9%) ad valorem and all other existing
ad valorem duties) a special duty of P0.95 per liter or P151.05 per barrel of imported crude oil and P1.00 per liter of imported oil products.
In the present Petition for Certiorari, Prohibition and Mandamus, petitioner assails the validity of Executive Orders Nos. 475 and 478. He
argues that Executive Orders Nos. 475 and 478 are violative of Section 24, Article VI of the 1987 Constitution which provides as follows:
Sec. 24: All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application,
and private bills shall originate exclusively in the House of Representatives, but the Senate may propose or concur with
amendments.
He contends that since the Constitution vests the authority to enact revenue bills in Congress, the President may not assume such
power by issuing Executive Orders Nos. 475 and 478 which are in the nature of revenue-generating measures.
Petitioner further argues that Executive Orders No. 475 and 478 contravene Section 401 of the Tariff and Customs Code, which Section
authorizes the President, according to petitioner, to increase, reduce or remove tariff duties or to impose additional duties only when
necessary to protect local industries or products but not for the purpose of raising additional revenue for the government.
Thus, petitioner questions first the constitutionality and second the legality of Executive Orders Nos. 475 and 478, and asks us to restrain
the implementation of those Executive Orders. We will examine these questions in that order.
Before doing so, however, the Court notes that the recent promulgation of Executive Order No. 507 did not render the instant Petition moot
and academic. Executive Order No. 517 which is dated 30 April 1992 provides as follows:
Sec. 1. Lifting of the Additional Duty. The additional duty in the nature of ad valorem imposed on all imported articles
prescribed by the provisions of Executive Order No. 443, as amended, is hereby lifted; Provided, however, that the
selected articles covered by HS Heading Nos. 27.09 and 27.10 of Section 104 of the Tariff and Customs Code, as
amended, subject of Annex "A" hereof, shall continue to be subject to the additional duty of nine (9%) percent ad
valorem.
Under the above quoted provision, crude oil and other oil products continue to be subject to the additional duty of nine percent
(9%) ad valorem under Executive Order No. 475 and to the special duty of P0.95 per liter of imported crude oil and P1.00 per liter
of imported oil products under Executive Order No. 478.
Turning first to the question of constitutionality, under Section 24, Article VI of the Constitution, the enactment of appropriation, revenue
and tariff bills, like all other bills is, of course, within the province of the Legislative rather than the Executive Department. It does not
follow, however, that therefore Executive Orders Nos. 475 and 478, assuming they may be characterized as revenue measures, are prohibited
to the President, that they must be enacted instead by the Congress of the Philippines. Section 28(2) of Article VI of the Constitution
provides as follows:

(2) The Congress may, by law, authorize the President to fix within specified limits, and subject to such limitations and
restrictions as it may impose, tariff rates, import and export quotas, tonage and wharfage dues, and other duties or
imposts within the framework of the national development program of the Government. (Emphasis supplied)
There is thus explicit constitutional permission 1 to Congress to authorize the President "subject to such limitations and restrictions is
[Congress] may impose" to fix "within specific limits" "tariff rates . . . and other duties or imposts . . ."
The relevant congressional statute is the Tariff and Customs Code of the Philippines, and Sections 104 and 401, the pertinent provisions
thereof. These are the provisions which the President explicitly invoked in promulgating Executive Orders Nos. 475 and 478. Section 104 of
the Tariff and Customs Code provides in relevant part:
Sec. 104. All tariff sections, chapters, headings and subheadings and the rates of import duty under Section 104 of
Presidential Decree No. 34 and all subsequent amendments issued under Executive Orders and Presidential Decrees are
hereby adopted and form part of this Code.
There shall be levied, collected, and paid upon all imported articles the rates of duty indicated in the Section under this
section except as otherwise specifically provided for in this Code: Provided, that, the maximum rate shall not exceed one
hundred per cent ad valorem.

The rates of duty herein provided or subsequently fixed pursuant to Section Four Hundred One of this Code shall be
subject to periodic investigation by the Tariff Commission and may be revised by the President upon recommendation of
the National Economic and Development Authority.
xxx xxx xxx
(Emphasis supplied)
Section 401 of the same Code needs to be quoted in full:
Sec. 401. Flexible Clause.
a. In the interest of national economy, general welfare and/or national security , and subject to the limitations herein
prescribed, the President, upon recommendation of the National Economic and Development Authority (hereinafter
referred to as NEDA), is hereby empowered: (1) to increase, reduce or remove existing protective rates of import duty
(including any necessary change in classification). The existing rates may be increased or decreased but in no case shall
the reduced rate of import duty be lower than the basic rate of ten (10) per cent ad valorem, nor shall the increased
rate of import duty be higher than a maximum of one hundred (100) per cent ad valorem; (2) to establish import quota or
to ban imports of any commodity, as may be necessary; and (3) to impose an additional duty on all imports not exceeding
ten (10) per cent ad valorem, whenever necessary; Provided, That upon periodic investigations by the Tariff Commission
and recommendation of the NEDA, the President may cause a gradual reduction of protection levels granted in Section
One hundred and four of this Code, including those subsequently granted pursuant to this section.
b. Before any recommendation is submitted to the President by the NEDA pursuant to the provisions of this section,
except in the imposition of an additional duty not exceeding ten (10) per cent ad valorem , the Commission shall conduct
an investigation in the course of which they shall hold public hearings wherein interested parties shall be afforded
reasonable opportunity to be present, produce evidence and to be heard. The Commission shall also hear the views and
recommendations of any government office, agency or instrumentality concerned. The Commission shall submit their
findings and recommendations to the NEDA within thirty (30) days after the termination of the public hearings.
c. The power of the President to increase or decrease rates of import duty within the limits fixed in subsection "a" shall
include the authority to modify the form of duty. In modifying the form of duty, the corresponding ad valorem or
specific equivalents of the duty with respect to imports from the principal competing foreign country for the most
recent representative period shall be used as bases.
d. The Commissioner of Customs shall regularly furnish the Commission a copy of all customs import entries as filed in
the Bureau of Customs. The Commission or its duly authorized representatives shall have access to, and the right to copy
all liquidated customs import entries and other documents appended thereto as finally filed in the Commission on Audit.
e. The NEDA shall promulgate rules and regulations necessary to carry out the provisions of this section.
f. Any Order issued by the President pursuant to the provisions of this section shall take effect thirty (30) days after
promulgation, except in the imposition of additional duty not exceeding ten (10) per cent ad valorem which shall take
effect at the discretion of the President. (Emphasis supplied)
Petitioner, however, seeks to avoid the thrust of the delegated authorizations found in Sections 104 and 401 of the Tariff and Customs Code,
by contending that the President is authorized to act under the Tariff and Customs Code only "to protect local industries and products for the
sake of the national economy, general welfare and/or national security." 2 He goes on to claim that:

E.O. Nos. 478 and 475 having nothing to do whatsoever with the protection of local industries and products for the sake
of national economy, general welfare and/or national security. On the contrary, they work in reverse, especially as to
crude oil, an essential product which we do not have to protect, since we produce only minimal quantities and have to
import the rest of what we need.
These Executive Orders are avowedly solely to enable the government to raise government finances, contrary to
Sections 24 and 28 (2) of Article VI of the Constitution, as well as to Section 401 of the Tariff and Customs Code.
(Emphasis in the original)

The Court is not persuaded. In the first place, there is nothing in the language of either Section 104 or of 401 of the Tariff and Customs Code
that suggest such a sharp and absolute limitation of authority. The entire contention of petitioner is anchored on just two (2) words, one found
in Section 401 (a)(1): "existing protective rates of import duty," and the second in the proviso found at the end of Section 401 (a): "protection
levels granted in Section 104 of this Code . . . . " We believe that the words "protective" and ''protection" are simply not enough to support
the very broad and encompassing limitation which petitioner seeks to rest on those two (2) words.
In the second place, petitioner's singular theory collides with a very practical fact of which this Court may take judicial notice that the
Bureau of Customs which administers the Tariff and Customs Code, is one of the two (2) principal traditional generators or producers of
governmental revenue, the other being the Bureau of Internal Revenue. (There is a third agency, non-traditional in character, that generates
lower but still comparable levels of revenue for the government The Philippine Amusement and Games Corporation [PAGCOR].)
In the third place, customs duties which are assessed at the prescribed tariff rates are very much like taxes which are frequently imposed
for both revenue-raising and for regulatory purposes. 4 Thus, it has been held that "customs duties" is "the name given to taxes on the
importation and exportation of commodities, the tariff or tax assessed upon merchandise imported from, or exported to, a foreign country." 5
The levying of customs duties on imported goods may have in some measure the effect of protecting local industries where such local
industries actually exist and are producing comparable goods. Simultaneously, however, the very same customs duties inevitably have the
effect of producing governmental revenues. Customs duties like internal revenue taxes are rarely, if ever, designed to achieve one policy
objective only. Most commonly, customs duties, which constitute taxes in the sense of exactions the proceeds of which become public funds 6
have either or both the generation of revenue and the regulation of economic or social activity as their moving purposes and frequently, it is
very difficult to say which, in a particular instance, is the dominant or principal objective. In the instant case, since the Philippines in fact
produces ten (10) to fifteen percent (15%) of the crude oil consumed here, the imposition of increased tariff rates and a special duty on
imported crude oil and imported oil products may be seen to have some "protective" impact upon indigenous oil production. For the effective,
price of imported crude oil and oil products is increased. At the same time, it cannot be gainsaid that substantial revenues for the government
are raised by the imposition of such increased tariff rates or special duty.
In the fourth place, petitioner's concept which he urges us to build into our constitutional and customs law, is a stiflingly narrow one. Section
401 of the Tariff and Customs Code establishes general standards with which the exercise of the authority delegated by that provision to the
President must be consistent: that authority must be exercised in "the interest of national economy, general welfare and/or national security."
Petitioner, however, insists that the "protection of local industries" is the only permissible objective that can be secured by the exercise of
that delegated authority, and that therefore "protection of local industries" is the sum total or the alpha and the omega of "the national
economy, general welfare and/or national security." We find it extremely difficult to take seriously such a confined and closed view of the
legislative standards and policies summed up in Section 401. We believe, for instance, that the protection of consumers, who after all
constitute the very great bulk of our population, is at the very least as important a dimension of "the national economy, general welfare and
national security" as the protection of local industries. And so customs duties may be reduced or even removed precisely for the purpose of
protecting consumers from the high prices and shoddy quality and inefficient service that tariff-protected and subsidized local manufacturers
may otherwise impose upon the community.
It seems also important to note that tariff rates are commonly established and the corresponding customs duties levied and collected upon
articles and goods which are not found at all and not produced in the Philippines. The Tariff and Customs Code is replete with such articles and
commodities: among the more interesting examples are ivory (Chapter 5, 5.10); castoreum or musk taken from the beaver (Chapter 5, 5.14);
Olives (Chapter 7, Notes); truffles or European fungi growing under the soil on tree roots (Chapter 7, Notes); dates (Chapter 8, 8.01); figs
(Chapter 8, 8.03); caviar (Chapter 16, 16.01); aircraft (Chapter 88, 88.0l); special diagnostic instruments and apparatus for human medicine
and surgery (Chapter 90, Notes); X-ray generators; X-ray tubes;
X-ray screens, etc. (Chapter 90, 90.20); etc. In such cases, customs duties may be seen to be imposed either for revenue purposes purely or
perhaps, in certain cases, to discourage any importation of the items involved. In either case, it is clear that customs duties are levied and
imposed entirely apart from whether or not there are any competing local industries to protect.
Accordingly, we believe and so hold that Executive Orders Nos. 475 and 478 which may be conceded to be substantially moved by the desire
to generate additional public revenues, are not, for that reason alone, either constitutionally flawed, or legally infirm under Section 401 of the
Tariff and Customs Code. Petitioner has not successfully overcome the presumptions of constitutionality and legality to which those Executive
Orders are entitled. 7
The conclusion we have reached above renders it unnecessary to deal with petitioner's additional contention that, should Executive Orders
Nos. 475 and 478 be declared unconstitutional and illegal, there should be a roll back of prices of petroleum products equivalent to the
"resulting excess money not be needed to adequately maintain the Oil Price Stabilization Fund (OPSF)." 8
WHEREFORE, premises considered, the Petition for Certiorari, Prohibition and Mandamus is hereby DISMISSED for lack of merit. Costs
against petitioner.
SO ORDERED.
G.R. No. L-17725

February 28, 1962

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

vs.
MAMBULAO LUMBER COMPANY, ET AL., defendants-appellants.

Office
of
the
Arthur Tordesillas for defendants-appellants.

Solicitor

General

for

plaintiff-appellee.

BARRERA, J.:
From the decision of the Court of First Instance of Manila (in Civil Case No. 34100) ordering it to pay to plaintiff Republic of the Philippines
the sum of P4,802.37 with 6% interest thereon from the date of the filing of the complaint until fully paid, plus costs, defendant Mambulao
Lumber Company interposed the present appeal.1
The facts of the case are briefly stated in the decision of the trial court, to wit: .
The facts of this case are not contested and may be briefly summarized as follows: (a) under the first cause of action, for forest
charges covering the period from September 10, 1952 to May 24, 1953, defendants admitted that they have a liability of P587.37,
which liability is covered by a bond executed by defendant General Insurance & Surety Corporation for Mambulao Lumber Company,
jointly and severally in character, on July 29, 1953, in favor of herein plaintiff; (b) under the second cause of action, both
defendants admitted a joint and several liability in favor of plaintiff in the sum of P296.70, also covered by a bond dated November
27, 1953; and (c) under the third cause of action, both defendants admitted a joint and several liability in favor of plaintiff for
P3,928.30, also covered by a bond dated July 20, 1954. These three liabilities aggregate to P4,802.37. If the liability of
defendants in favor of plaintiff in the amount already mentioned is admitted, then what is the defense interposed by the
defendants? The defense presented by the defendants is quite unusual in more ways than one. It appears from Exh. 3 that from
July 31, 1948 to December 29, 1956, defendant Mambulao Lumber Company paid to the Republic of the Philippines P8,200.52 for
'reforestation charges' and for the period commencing from April 30, 1947 to June 24, 1948, said defendant paid P927.08 to the
Republic of the Philippines for 'reforestation charges'. These reforestation were paid to the plaintiff in pursuance of Section 1 of
Republic Act 115 which provides that there shall be collected, in addition to the regular forest charges provided under Section 264
of Commonwealth Act 466 known as the National Internal Revenue Code, the amount of P0.50 on each cubic meter of timber... cut
out and removed from any public forest for commercial purposes. The amount collected shall be expended by the director of
forestry, with the approval of the secretary of agriculture and commerce, for reforestation and afforestation of watersheds,
denuded areas ... and other public forest lands, which upon investigation, are found needing reforestation or afforestation .... The
total amount of the reforestation charges paid by Mambulao Lumber Company is P9,127.50, and it is the contention of the
defendant Mambulao Lumber Company that since the Republic of the Philippines has not made use of those reforestation charges
collected from it for reforesting the denuded area of the land covered by its license, the Republic of the Philippines should refund
said amount, or, if it cannot be refunded, at least it should be compensated with what Mambulao Lumber Company owed the Republic
of the Philippines for reforestation charges. In line with this thought, defendant Mambulao Lumber Company wrote the director of
forestry, on February 21, 1957 letter Exh. 1, in paragraph 4 of which said defendant requested "that our account with your bureau
be credited with all the reforestation charges that you have imposed on us from July 1, 1947 to June 14, 1956, amounting to around
P2,988.62 ...". This letter of defendant Mambulao Lumber Company was answered by the director of forestry on March 12, 1957,
marked Exh. 2, in which the director of forestry quoted an opinion of the secretary of justice, to the effect that he has no
discretion to extend the time for paying the reforestation charges and also explained why not all denuded areas are being
reforested.
The only issue to be resolved in this appeal is whether the sum of P9,127.50 paid by defendant-appellant company to plaintiff-appellee as
reforestation charges from 1947 to 1956 may be set off or applied to the payment of the sum of P4,802.37 as forest charges due and owing
from appellant to appellee. It is appellant's contention that said sum of P9,127.50, not having been used in the reforestation of the area
covered by its license, the same is refundable to it or may be applied in compensation of said sum of P4,802.37 due from it as forest
charges.1wph1.t
We find appellant's claim devoid of any merit. Section 1 of Republic Act No. 115, provides:
SECTION 1. There shall be collected, in addition to the regular forest charges provided for under Section two hundred and sixtyfour of Commonwealth Act Numbered Four Hundred Sixty-six, known as the National Internal Revenue Code, the amount of fifty
centavos on each cubic meter of timber for the first and second groups and forty centavos for the third and fourth groups cut out
and removed from any public forest for commercial purposes. The amount collected shall be expended by the Director of Forestry,
with the approval of the Secretary of Agriculture and Natural Resources (commerce), for reforestation and afforestation of
watersheds, denuded areas and cogon and open lands within forest reserves, communal forest, national parks, timber lands, sand
dunes, and other public forest lands, which upon investigation, are found needing reforestation or afforestation, or needing to be
under forest cover for the growing of economic trees for timber, tanning, oils, gums, and other minor forest products or medicinal
plants, or for watersheds protection, or for prevention of erosion and floods and preparation of necessary plans and estimate of
costs and for reconnaisance survey of public forest lands and for such other expenses as may be deemed necessary for the proper
carrying out of the purposes of this Act.
All revenues collected by virtue of, and pursuant to, the provisions of the preceding paragraph and from the sale of barks, medical
plants and other products derived from plantations as herein provided shall constitute a fund to be known as Reforestation Fund, to
be expended exclusively in carrying out the purposes provided for under this Act. All provincial or city treasurers and their
deputies shall act as agents of the Director of Forestry for the collection of the revenues or incomes derived from the provisions
of this Act. (Emphasis supplied.)

Under this provision, it seems quite clear that the amount collected as reforestation charges from a timber licenses or concessionaire shall
constitute a fund to be known as the Reforestation Fund, and that the same shall be expended by the Director of Forestry, with the approval
of the Secretary of Agriculture and Natural Resources for the reforestation or afforestation, among others, of denuded areas which, upon
investigation, are found to be needing reforestation or afforestation. Note that there is nothing in the law which requires that the amount
collected as reforestation charges should be used exclusively for the reforestation of the area covered by the license of a licensee or
concessionaire, and that if not so used, the same should be refunded to him. Observe too, that the licensee's area may or may not be
reforested at all, depending on whether the investigation thereof by the Director of Forestry shows that said area needs reforestation. The
conclusion seems to be that the amount paid by a licensee as reforestation charges is in the nature of a tax which forms a part of the
Reforestation Fund, payable by him irrespective of whether the area covered by his license is reforested or not. Said fund, as the law
expressly provides, shall be expended in carrying out the purposes provided for thereunder, namely, the reforestation or afforestation, among
others, of denuded areas needing reforestation or afforestation.
Appellant maintains that the principle of a compensation in Article 1278 of the new Civil Code 2 is applicable, such that the sum of P9,127.50
paid by it as reforestation charges may compensate its indebtedness to appellee in the sum of P4,802.37 as forest charges. But in the view we
take of this case, appellant and appellee are not mutually creditors and debtors of each other. Consequently, the law on compensation is
inapplicable. On this point, the trial court correctly observed: .
Under Article 1278, NCC, compensation should take place when two persons in their own right are creditors and debtors of each
other. With respect to the forest charges which the defendant Mambulao Lumber Company has paid to the government, they are in
the coffers of the government as taxes collected, and the government does not owe anything, crystal clear that the Republic of the
Philippines and the Mambulao Lumber Company are not creditors and debtors of each other, because compensation refers to mutual
debts. ..
And the weight of authority is to the effect that internal revenue taxes, such as the forest charges in question, can be the subject of set-off
or compensation.
A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of set-off, which
are construed uniformly, in the light of public policy, to exclude the remedy in an action or any indebtedness of the state or
municipality to one who is liable to the state or municipality for taxes. Neither are they a proper subject of recoupment since they
do not arise out of the contract or transaction sued on. ... (80 C.J.S. 73-74. ) .
The general rule, based on grounds of public policy is well-settled that no set-off is admissible against demands for taxes levied for
general or local governmental purposes. The reason on which the general rule is based, is that taxes are not in the nature of
contracts between the party and party but grow out of a duty to, and are the positive acts of the government, to the making and
enforcing of which, the personal consent of individual taxpayers is not required. ... If the taxpayer can properly refuse to pay his
tax when called upon by the Collector, because he has a claim against the governmental body which is not included in the tax levy, it
is plain that some legitimate and necessary expenditure must be curtailed. If the taxpayer's claim is disputed, the collection of the
tax must await and abide the result of a lawsuit, and meanwhile the financial affairs of the government will be thrown into great
confusion. (47 Am. Jur. 766-767.)
WHEREFORE, the judgment of the trial court appealed from is hereby affirmed in all respects, with costs against the defendant-appellant. So
ordered.
G.R. No. 125704 August 28, 1998
PHILEX MINING CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, COURT OF APPEALS, and THE COURT OF TAX APPEALS, respondents.
ROMERO, J.:
Petitioner Philex Mining Corp. assails the decision of the Court of Appeals promulgated on April 8, 1996 in CA-G.R. SP No. 36975 1 affirming
the Court of Tax Appeals decision in CTA Case No. 4872 dated March 16, 1995 2 ordering it to pay the amount of P110,677,668.52 as excise
tax liability for the period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from August 6, 1994 until fully
paid pursuant to Sections 248 and 249 of the Tax Code of 1977.
The facts show that on August 5, 1992, the BIR sent a letter to Philex asking it to settle its tax liabilities for the 2nd, 3rd and 4th quarter of
1991 as well as the 1st and 2nd quarter of 1992 in the total amount of P123,821.982.52 computed as follows:
PERIOD COVERED BASIC TAX 25% SURCHARGE INTEREST TOTAL EXCISE
TAX DUE
2nd Qtr., 1991 12,911,124.60 3,227,781.15 3,378,116.16 19,517,021.91
3rd Qtr., 1991 14,994,749.21 3,748,687.30 2,978,409.09 21,721,845.60
4th Qtr., 1991 19,406,480.13 4,851,620.03 2,631,837.72 26,889,937.88


47,312,353.94 11,828,088.48 8,988,362.97 68,128,805.39

1st Qtr., 1992 23,341,849.94 5,835,462.49 1,710,669.82 30,887,982.25
2nd Qtr., 1992 19,671,691.76 4,917,922.94 215,580.18 24,805,194.88

43,013,541.70 10,753,385.43 1,926,250.00 55,693,177.13

90,325,895.64 22,581,473.91 10,914,612.97 123,821,982.52

========= ========= ========= =========

In a letter dated August 20, 1992, 4 Philex protested the demand for payment of the tax liabilities stating that it has pending claims for VAT
input credit/refund for the taxes it paid for the years 1989 to 1991 in the amount of P119,977,037.02 plus interest. Therefore these claims
for tax credit/refund should be applied against the tax liabilities, citing our ruling in Commissioner of Internal Revenue v. Itogon-Suyoc Mines,
Inc. 5
In reply, the BIR, in a letter dated September 7, 1992, 6 found no merit in Philex's position. Since these pending claims have not yet been
established or determined with certainty, it follows that no legal compensation can take place. Hence, the BIR reiterated its demand that
Philex settle the amount plus interest within 30 days from the receipt of the letter.
In view of the BIR's denial of the offsetting of Philex's claim for VAT input credit/refund against its excise tax obligation, Philex raised the
issue to the Court of Tax Appeals on November 6, 1992. 7 In the course of the proceedings, the BIR issued Tax Credit Certificate SN 001795
in the amount of P13,144,313.88 which, applied to the total tax liabilities of Philex of P123,821,982.52; effectively lowered the latter's tax
obligation to P110,677,688.52.
Despite the reduction of its tax liabilities, the CTA still ordered Philex to pay the remaining balance of P110,677,688.52 plus interest,
elucidating its reason, to wit:
Thus, for legal compensation to take place, both obligations must be liquidated and demandable. "Liquidated" debts are
those where the exact amount has already been determined (PARAS, Civil Code of the Philippines, Annotated, Vol. IV,
Ninth Edition, p. 259). In the instant case, the claims of the Petitioner for VAT refund is still pending litigation, and still
has to be determined by this Court (C.T.A. Case No. 4707). A fortiori, the liquidated debt of the Petitioner to the
government cannot, therefore, be set-off against the unliquidated claim which Petitioner conceived to exist in its favor
(see Compaia General de Tabacos vs. French and Unson, No. 14027, November 8, 1918, 39 Phil. 34). 8
Moreover, the Court of Tax Appeals ruled that "taxes cannot be subject to set-off on compensation since claim for taxes is not a debt or
contract." 9 The dispositive portion of the CTA decision 10 provides:
In all the foregoing, this Petition for Review is hereby DENIED for lack of merit and Petitioner is hereby ORDERED to
PAY the Respondent the amount of P110,677,668.52 representing excise tax liability for the period from the 2nd
quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from August 6, 1994 until fully paid pursuant to
Section 248 and 249 of the Tax Code, as amended.
Aggrieved with the decision, Philex appealed the case before the Court of Appeals docketed as CA-GR. CV No. 36975. 11 Nonetheless, on April
8, 1996, the Court of Appeals a Affirmed the Court of Tax Appeals observation. The pertinent portion of which reads: 12
WHEREFORE, the appeal by way of petition for review is hereby DISMISSED and the decision dated March 16, 1995 is
AFFIRMED.
Philex filed a motion for reconsideration which was, nevertheless, denied in a Resolution dated July 11, 1996.

13

However, a few days after the denial of its motion for reconsideration, Philex was able to obtain its VAT input credit/refund not only for the
taxable year 1989 to 1991 but also for 1992 and 1994, computed as follows: 14
Period Covered Tax Credit Date
By Claims For Certificate of

VAT refund/credit Number Issue Amount

1994 (2nd Quarter) 007730 11 July 1996 P25,317,534.01
1994 (4th Quarter) 007731 11 July 1996 P21,791,020.61
1989 007732 11 July 1996 P37,322,799.19
1990-1991 007751 16 July 1996 P84,662,787.46
1992 (1st-3rd Quarter) 007755 23 July 1996 P36,501,147.95
In view of the grant of its VAT input credit/refund, Philex now contends that the same should, ipso jure, off-set its excise tax liabilities
since both had already become "due and demandable, as well as fully liquidated;" 16 hence, legal compensation can properly take place.

15

We see no merit in this contention.

In several instances prior to the instant case, we have already made the pronouncement that taxes cannot be subject to compensation for the
simple reason that the government and the taxpayer are not creditors and debtors of each other. 17 There is a material distinction between a
tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due to the Government in its sovereign capacity. 18
We find no cogent reason to deviate from the aforementioned distinction.
Prescinding from this premise, in Francia v. Intermediate Appellate Court ,
compensation, thus:

19

we categorically held that taxes cannot be subject to set-off or

We have consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer may have
against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount
equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the
government.
The ruling in Francia has been applied to the subsequent case of Caltex Philippines, Inc. v. Commission on Audit, 20 which reiterated that:
. . . a taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot be the
subject of compensation because the government and taxpayer are not mutually creditors and debtors of each other and
a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off.
Further, Philex's reliance on our holding in Commissioner of Internal Revenue v. Itogon-Suyoc Mines Inc ., wherein we ruled that a pending
refund may be set off against an existing tax liability even though the refund has not yet been approved by the Commissioner, 21 is no longer
without any support in statutory law.
It is important to note, that the premise of our ruling in the aforementioned case was anchored on Section 51 (d) of the National Revenue
Code of 1939. However, when the National Internal Revenue Code of 1977 was enacted, the same provision upon which the Itogon-Suyoc
pronouncement was based was omitted. 22 Accordingly, the doctrine enunciated in Itogon-Suyoc cannot be invoked by Philex.
Despite the foregoing rulings clearly adverse to Philex's position, it asserts that the imposition of surcharge and interest for the non-payment
of the excise taxes within the time prescribed was unjustified. Philex posits the theory that it had no obligation to pay the excise tax
liabilities within the prescribed period since, after all, it still has pending claims for VAT input credit/refund with BIR. 23
We fail to see the logic of Philex's claim for this is an outright disregard of the basic principle in tax law that taxes are the lifeblood of the
government and so should be collected without unnecessary hindrance. 24 Evidently, to countenance Philex's whimsical reason would render
ineffective our tax collection system. Too simplistic, it finds no support in law or in jurisprudence.
To be sure, we cannot allow Philex to refuse the payment of its tax liabilities on the ground that it has a pending tax claim for refund or credit
against the government which has not yet been granted. It must be noted that a distinguishing feature of a tax is that it is compulsory rather
than a matter of bargain. 25 Hence, a tax does not depend upon the consent of the taxpayer. 26 If any taxpayer can defer the payment of taxes
by raising the defense that it still has a pending claim for refund or credit, this would adversely affect the government revenue system. A
taxpayer cannot refuse to pay his taxes when they fall due simply because he has a claim against the government or that the collection of the
tax is contingent on the result of the lawsuit it filed against the government. 27 Moreover, Philex's theory that would automatically apply its
VAT input credit/refund against its tax liabilities can easily give rise to confusion and abuse, depriving the government of authority over the
manner by which taxpayers credit and offset their tax liabilities.
Corollarily, the fact that Philex has pending claims for VAT input claim/refund with the government is immaterial for the imposition of charges
and penalties prescribed under Section 248 and 249 of the Tax Code of 1977. The payment of the surcharge is mandatory and the BIR is not
vested with any authority to waive the collection thereof. 28 The same cannot be condoned for flimsy reasons, 29 similar to the one advanced by
Philex in justifying its non-payment of its tax liabilities.

Finally, Philex asserts that the BIR violated Section 106 (e) 30 of the National Internal Revenue Code of 1977, which requires the refund of
input taxes within 60 days, 31 when it took five years for the latter to grant its tax claim for VAT input credit/refund. 32
In this regard, we agree with Philex. While there is no dispute that a claimant has the burden of proof to establish the factual basis of his or
her claim for tax credit or refund, 33 however, once the claimant has submitted all the required documents it is the function of the BIR to
assess these documents with purposeful dispatch. After all, since taxpayers owe honestly to government it is but just that government render
fair service to the taxpayers. 34
In the instant case, the VAT input taxes were paid between 1989 to 1991 but the refund of these erroneously paid taxes was only granted in
1996. Obviously, had the BIR been more diligent and judicious with their duty, it could have granted the refund earlier. We need not remind
the BIR that simple justice requires the speedy refund of wrongly-held taxes. 35 Fair dealing and nothing less, is expected by the taxpayer
from the BIR in the latter's discharge of its function. As aptly held in Roxas v. Court of Tax Appeals: 36
The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to
minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax
collector kill the "hen that lays the golden egg" And, in order to maintain the general public's trust and confidence in the
Government this power must be used justly and not treacherously.
Despite our concern with the lethargic manner by which the BIR handled Philex's tax claim, it is a settled rule that in the performance of
governmental function, the State is not bound by the neglect of its agents and officers. Nowhere is this more true than in the field of
taxation. 37 Again, while we understand Philex's predicament, it must be stressed that the same is not a valid reason for the non-payment of
its tax liabilities.
To be sure, this is not to state that the taxpayer is devoid of remedy against public servants or employees, especially BIR examiners who, in
investigating tax claims are seen to drag their feet needlessly. First, if the BIR takes time in acting upon the taxpayer's claim for refund, the
latter can seek judicial remedy before the Court of Tax Appeals in the manner prescribed by law. 38 Second, if the inaction can be
characterized as willful neglect of duty, then recourse under the Civil Code and the Tax Code can also be availed of.
Art. 27 of the Civil Code provides:
Art. 27. Any person suffering material or moral loss because a public servant or employee refuses or neglects, without
just cause, to perform his official duty may file an action for damages and other relief against the latter, without
prejudice to any disciplinary action that may be taken.
More importantly, Section 269 (c) of the National Internal Revenue Act of 1997 states:
xxx xxx xxx
(c) Wilfully neglecting to give receipts, as by law required for any sum collected in the performance of duty or wilfully
neglecting to perform, any other duties enjoyed by law.
Simply put, both provisions abhor official inaction, willful neglect and unreasonable delay in the performance of official duties. 39 In no
uncertain terms must we stress that every public employee or servant must strive to render service to the people with utmost diligence and
efficiency. Insolence and delay have no place in government service. The BIR, being the government collecting arm, must and should do no less.
It simply cannot be apathetic and laggard in rendering service to the taxpayer if it wishes to remain true to its mission of hastening the
country's development. We take judicial notice of the taxpayer's generally negative perception towards the BIR; hence, it is up to the latter
to prove its detractors wrong.
In sum, while we can never condone the BIR's apparent callousness in performing its duties, still, the same cannot justify Philex's non-payment
of its tax liabilities. The adage "no one should take the law into his own hands" should have guided Philex's action.
WHEREFORE, in view of the foregoing, the instant petition is hereby DISMISSED. The assailed decision of the Court of Appeals dated April
8, 1996 is hereby AFFIRMED.
SO ORDERED.
G.R. No. 92585 May 8, 1992
CALTEX PHILIPPINES, INC., petitioner,
vs.
THE HONORABLE COMMISSION ON AUDIT, HONORABLE COMMISSIONER BARTOLOME C. FERNANDEZ and HONORABLE
COMMISSIONER ALBERTO P. CRUZ, respondents.

DAVIDE, JR., J.:

This is a petition erroneously brought under Rule 44 of the Rules of Court 1 questioning the authority of the Commission on Audit (COA) in
disallowing petitioner's claims for reimbursement from the Oil Price Stabilization Fund (OPSF) and seeking the reversal of said Commission's
decision denying its claims for recovery of financing charges from the Fund and reimbursement of underrecovery arising from sales to the
National Power Corporation, Atlas Consolidated Mining and Development Corporation (ATLAS) and Marcopper Mining Corporation (MARCOPPER), preventing it from exercising the right to offset its remittances against its reimbursement vis-a-vis the OPSF and disallowing its
claims which are still pending resolution before the Office of Energy Affairs (OEA) and the Department of Finance (DOF).
Pursuant to the 1987 Constitution, 2 any decision, order or ruling of the Constitutional Commissions 3 may be brought to this Court on
certiorari by the aggrieved party within thirty (30) days from receipt of a copy thereof. The certiorari referred to is the special civil action
for certiorari under Rule 65 of the Rules of Court. 4
Considering, however, that the allegations that the COA acted with:
(a) total lack of jurisdiction in completely ignoring and showing absolutely no respect for the findings and rulings of the administrator of the
fund itself and in disallowing a claim which is still pending resolution at the OEA level, and (b) "grave abuse of discretion and completely
without jurisdiction" 5 in declaring that petitioner cannot avail of the right to offset any amount that it may be required under the law to
remit to the OPSF against any amount that it may receive by way of reimbursement therefrom are sufficient to bring this petition within Rule
65 of the Rules of Court, and, considering further the importance of the issues raised, the error in the designation of the remedy pursued
will, in this instance, be excused.
The issues raised revolve around the OPSF created under Section 8 of Presidential Decree (P.D.) No. 1956, as amended by Executive Order
(E.O.) No. 137. As amended, said Section 8 reads as follows:
Sec. 8 . There is hereby created a Trust Account in the books of accounts of the Ministry of Energy to be designated as
Oil Price Stabilization Fund (OPSF) for the purpose of minimizing frequent price changes brought about by exchange
rate adjustments and/or changes in world market prices of crude oil and imported petroleum products. The Oil Price
Stabilization Fund may be sourced from any of the following:
a) Any increase in the tax collection from ad valorem tax or customs duty imposed on petroleum
products subject to tax under this Decree arising from exchange rate adjustment, as may be
determined by the Minister of Finance in consultation with the Board of Energy;
b) Any increase in the tax collection as a result of the lifting of tax exemptions of government
corporations, as may be determined by the Minister of Finance in consultation with the Board of
Energy;
c) Any additional amount to be imposed on petroleum products to augment the resources of the
Fund through an appropriate Order that may be issued by the Board of Energy requiring payment
by persons or companies engaged in the business of importing, manufacturing and/or marketing
petroleum products;
d) Any resulting peso cost differentials in case the actual peso costs paid by oil companies in the
importation of crude oil and petroleum products is less than the peso costs computed using the
reference foreign exchange rate as fixed by the Board of Energy.
The Fund herein created shall be used for the following:
1) To reimburse the oil companies for cost increases in crude oil and imported petroleum products
resulting from exchange rate adjustment and/or increase in world market prices of crude oil;
2) To reimburse the oil companies for possible cost under-recovery incurred as a result of the
reduction of domestic prices of petroleum products. The magnitude of the underrecovery, if any,
shall be determined by the Ministry of Finance. "Cost underrecovery" shall include the following:
i. Reduction in oil company take as directed by the Board of Energy without
the corresponding reduction in the landed cost of oil inventories in the
possession of the oil companies at the time of the price change;
ii. Reduction in internal ad valorem taxes as a result of foregoing government
mandated price reductions;
iii. Other factors as may be determined by the Ministry of Finance to result
in cost underrecovery.
The Oil Price Stabilization Fund (OPSF) shall be administered by the Ministry of Energy.
The material operative facts of this case, as gathered from the pleadings of the parties, are not disputed.

On 2 February 1989, the COA sent a letter to Caltex Philippines, Inc. (CPI), hereinafter referred to as Petitioner, directing the latter to
remit to the OPSF its collection, excluding that unremitted for the years 1986 and 1988, of the additional tax on petroleum products
authorized under the aforesaid Section 8 of P.D. No. 1956 which, as of 31 December 1987, amounted to P335,037,649.00 and informing it
that, pending such remittance, all of its claims for reimbursement from the OPSF shall be held in abeyance. 6
On 9 March 1989, the COA sent another letter to petitioner informing it that partial verification with the OEA showed that the grand total
of its unremitted collections of the above tax is P1,287,668,820.00, broken down as follows:
1986
1987
1988 719,412,254.00;

P233,190,916.00
335,065,650.00

directing it to remit the same, with interest and surcharges thereon, within sixty (60) days from receipt of the letter; advising it that the
COA will hold in abeyance the audit of all its claims for reimbursement from the OPSF; and directing it to desist from further offsetting the
taxes collected against outstanding claims in 1989 and subsequent periods. 7
In its letter of 3 May 1989, petitioner requested the COA for an early release of its reimbursement certificates from the OPSF covering
claims with the Office of Energy Affairs since June 1987 up to March 1989, invoking in support thereof COA Circular No. 89-299 on the
lifting of pre-audit of government transactions of national government agencies and government-owned or controlled corporations. 8
In its Answer dated 8 May 1989, the COA denied petitioner's request for the early release of the reimbursement certificates from the OPSF
and repeated its earlier directive to petitioner to forward payment of the latter's unremitted collections to the OPSF to facilitate COA's
audit action on the reimbursement claims. 9
By way of a reply, petitioner, in a letter dated 31 May 1989, submitted to the COA a proposal for the payment of the collections and the
recovery of claims, since the outright payment of the sum of P1.287 billion to the OEA as a prerequisite for the processing of said claims
against the OPSF will cause a very serious impairment of its cash position. 10 The proposal reads:
We, therefore, very respectfully propose the following:
(1) Any procedural arrangement acceptable to COA to facilitate monitoring of payments and
reimbursements will be administered by the ERB/Finance Dept./OEA, as agencies designated by
law to administer/regulate OPSF.
(2) For the retroactive period, Caltex will deliver to OEA, P1.287 billion as payment to OPSF,
similarly OEA will deliver to Caltex the same amount in cash reimbursement from OPSF.
(3) The COA audit will commence immediately and will be conducted expeditiously.
(4) The review of current claims (1989) will be conducted expeditiously to preclude further
accumulation of reimbursement from OPSF.
On 7 June 1989, the COA, with the Chairman taking no part, handed down Decision No. 921 accepting the above-stated proposal but
prohibiting petitioner from further offsetting remittances and reimbursements for the current and ensuing years. 11 Decision No. 921 reads:
This pertains to the within separate requests of Mr. Manuel A. Estrella, President, Petron Corporation, and Mr. Francis
Ablan, President and Managing Director, Caltex (Philippines) Inc., for reconsideration of this Commission's adverse
action embodied in its letters dated February 2, 1989 and March 9, 1989, the former directing immediate remittance to
the Oil Price Stabilization Fund of collections made by the firms pursuant to P.D. 1956, as amended by E.O. No. 137, S.
1987, and the latter reiterating the same directive but further advising the firms to desist from offsetting collections
against their claims with the notice that "this Commission will hold in abeyance the audit of all . . . claims for
reimbursement from the OPSF."
It appears that under letters of authority issued by the Chairman, Energy Regulatory Board, the aforenamed oil
companies were allowed to offset the amounts due to the Oil Price Stabilization Fund against their outstanding claims
from the said Fund for the calendar years 1987 and 1988, pending with the then Ministry of Energy, the government
entity charged with administering the OPSF. This Commission, however, expressing serious doubts as to the propriety of
the offsetting of all types of reimbursements from the OPSF against all categories of remittances, advised these oil
companies that such offsetting was bereft of legal basis. Aggrieved thereby, these companies now seek reconsideration
and in support thereof clearly manifest their intent to make arrangements for the remittance to the Office of Energy
Affairs of the amount of collections equivalent to what has been previously offset, provided that this Commission
authorizes the Office of Energy Affairs to prepare the corresponding checks representing reimbursement from the
OPSF. It is alleged that the implementation of such an arrangement, whereby the remittance of collections due to the
OPSF and the reimbursement of claims from the Fund shall be made within a period of not more than one week from
each other, will benefit the Fund and not unduly jeopardize the continuing daily cash requirements of these firms.
Upon a circumspect evaluation of the circumstances herein obtaining, this Commission perceives no further objectionable
feature in the proposed arrangement, provided that 15% of whatever amount is due from the Fund is retained by the
Office of Energy Affairs, the same to be answerable for suspensions or disallowances, errors or discrepancies which

may be noted in the course of audit and surcharges for late remittances without prejudice to similar future retentions
to answer for any deficiency in such surcharges, and provided further that no offsetting of remittances and
reimbursements for the current and ensuing years shall be allowed.
Pursuant to this decision, the COA, on 18 August 1989, sent the following letter to Executive Director Wenceslao R. De la Paz of the Office of
Energy Affairs: 12
Dear Atty. dela Paz:
Pursuant to the Commission on Audit Decision No. 921 dated June 7, 1989, and based on our initial verification of
documents submitted to us by your Office in support of Caltex (Philippines), Inc. offsets ( sic) for the year 1986 to May
31, 1989, as well as its outstanding claims against the Oil Price Stabilization Fund (OPSF) as of May 31, 1989, we are
pleased to inform your Office that Caltex (Philippines), Inc. shall be required to remit to OPSF an amount of
P1,505,668,906, representing remittances to the OPSF which were offset against its claims reimbursements (net of
unsubmitted claims). In addition, the Commission hereby authorize ( sic) the Office of Energy Affairs (OEA) to cause
payment of P1,959,182,612 to Caltex, representing claims initially allowed in audit, the details of which are presented
hereunder: . . .
As presented in the foregoing computation the disallowances totalled P387,683,535, which included P130,420,235
representing those claims disallowed by OEA, details of which is (sic) shown in Schedule 1 as summarized as follows:

Disallowance of COA
Particulars Amount
Recovery of financing charges P162,728,475 /a
Product sales 48,402,398 /b
Inventory losses
Borrow loan arrangement 14,034,786 /c
Sales to Atlas/Marcopper 32,097,083 /d
Sales to NPC 558

P257,263,300
Disallowances of OEA 130,420,235

Total P387,683,535
The reasons for the disallowances are discussed hereunder:
a. Recovery of Financing Charges
Review of the provisions of P.D. 1596 as amended by E.O. 137 seems to indicate that recovery of financing charges by oil
companies is not among the items for which the OPSF may be utilized. Therefore, it is our view that recovery of
financing charges has no legal basis. The mechanism for such claims is provided in DOF Circular 1-87.
b. Product Sales Sales to International Vessels/Airlines
BOE Resolution No. 87-01 dated February 7, 1987 as implemented by OEA Order No. 87-03-095 indicating that ( sic)
February 7, 1987 as the effectivity date that ( sic) oil companies should pay OPSF impost on export sales of petroleum
products. Effective February 7, 1987 sales to international vessels/airlines should not be included as part of its
domestic sales. Changing the effectivity date of the resolution from February 7, 1987 to October 20, 1987 as covered
by subsequent ERB Resolution No. 88-12 dated November 18, 1988 has allowed Caltex to include in their domestic sales
volumes to international vessels/airlines and claim the corresponding reimbursements from OPSF during the period. It is
our opinion that the effectivity of the said resolution should be February 7, 1987.
c. Inventory losses Settlement of Ad Valorem
We reviewed the system of handling Borrow and Loan (BLA) transactions including the related BLA agreement, as they
affect the claims for reimbursements of ad valorem taxes. We observed that oil companies immediately settle ad
valorem taxes for BLA transaction ( sic). Loan balances therefore are not tax paid inventories of Caltex subject to
reimbursements but those of the borrower. Hence, we recommend reduction of the claim for July, August, and
November, 1987 amounting to P14,034,786.
d. Sales to Atlas/Marcopper
LOI No. 1416 dated July 17, 1984 provides that "I hereby order and direct the suspension of payment of all taxes,
duties, fees, imposts and other charges whether direct or indirect due and payable by the copper mining companies in
distress to the national and local governments." It is our opinion that LOI 1416 which implements the exemption from
payment of OPSF imposts as effected by OEA has no legal basis.

Furthermore, we wish to emphasize that payment to Caltex (Phil.) Inc., of the amount as herein authorized shall be
subject to availability of funds of OPSF as of May 31, 1989 and applicable auditing rules and regulations. With regard to
the disallowances, it is further informed that the aggrieved party has 30 days within which to appeal the decision of the
Commission in accordance with law.
On 8 September 1989, petitioner filed an Omnibus Request for the Reconsideration of the decision based on the following grounds:

13

A) COA-DISALLOWED CLAIMS ARE AUTHORIZED UNDER EXISTING RULES, ORDERS, RESOLUTIONS,

CIRCULARS ISSUED BY THE DEPARTMENT OF FINANCE AND THE ENERGY REGULATORY BOARD PURSUANT TO
EXECUTIVE ORDER NO. 137.
xxx xxx xxx
B) ADMINISTRATIVE INTERPRETATIONS IN THE COURSE OF EXERCISE OF EXECUTIVE POWER BY
DEPARTMENT OF FINANCE AND ENERGY REGULATORY BOARD ARE LEGAL AND SHOULD BE RESPECTED AND
APPLIED UNLESS DECLARED NULL AND VOID BY COURTS OR REPEALED BY LEGISLATION.
xxx xxx xxx
C) LEGAL BASIS FOR RETENTION OF OFFSET ARRANGEMENT, AS AUTHORIZED BY THE EXECUTIVE BRANCH OF
GOVERNMENT, REMAINS VALID.
xxx xxx xxx
On 6 November 1989, petitioner filed with the COA a Supplemental Omnibus Request for Reconsideration.

14

On 16 February 1990, the COA, with Chairman Domingo taking no part and with Commissioner Fernandez dissenting in part, handed down
Decision No. 1171 affirming the disallowance for recovery of financing charges, inventory losses, and sales to MARCOPPER and ATLAS, while
allowing the recovery of product sales or those arising from export sales. 15 Decision No. 1171 reads as follows:
Anent the recovery of financing charges you contend that Caltex Phil. Inc. has the .authority to recover financing
charges from the OPSF on the basis of Department of Finance (DOF) Circular 1-87, dated February 18, 1987, which
allowed oil companies to "recover cost of financing working capital associated with crude oil shipments," and provided a
schedule of reimbursement in terms of peso per barrel. It appears that on November 6, 1989, the DOF issued a
memorandum to the President of the Philippines explaining the nature of these financing charges and justifying their
reimbursement as follows:
As part of your program to promote economic recovery, . . . oil companies (were authorized) to
refinance their imports of crude oil and petroleum products from the normal trade credit of 30
days up to 360 days from date of loading . . . Conformably . . ., the oil companies deferred their
foreign exchange remittances for purchases by refinancing their import bills from the normal 30day payment term up to the desired 360 days. This refinancing of importations carried additional
costs (financing charges) which then became, due to government mandate, an inherent part of the
cost of the purchases of our country's oil requirement.
We beg to disagree with such contention. The justification that financing charges increased oil costs and the schedule
of reimbursement rate in peso per barrel (Exhibit 1) used to support alleged increase ( sic) were not validated in our
independent inquiry. As manifested in Exhibit 2, using the same formula which the DOF used in arriving at the
reimbursement rate but using comparable percentages instead of pesos, the ineluctable conclusion is that the oil
companies are actually gaining rather than losing from the extension of credit because such extension enables them to
invest the collections in marketable securities which have much higher rates than those they incur due to the extension.
The Data we used were obtained from CPI (CALTEX) Management and can easily be verified from our records.
With respect to product sales or those arising from sales to international vessels or airlines , . . ., it is believed that
export sales (product sales) are entitled to claim refund from the OPSF.
As regard your claim for underrecovery arising from inventory losses , . . . It is the considered view of this Commission
that the OPSF is not liable to refund such surtax on inventory losses because these are paid to BIR and not OPSF, in
view of which CPI (CALTEX) should seek refund from BIR. . . .
Finally, as regards the sales to Atlas and Marcopper , it is represented that you are entitled to claim recovery from the
OPSF pursuant to LOI 1416 issued on July 17, 1984, since these copper mining companies did not pay CPI (CALTEX) and
OPSF imposts which were added to the selling price.
Upon a circumspect evaluation, this Commission believes and so holds that the CPI (CALTEX) has no authority to claim
reimbursement for this uncollected OPSF impost because LOI 1416 dated July 17, 1984, which exempts distressed
mining companies from "all taxes, duties, import fees and other charges" was issued when OPSF was not yet in existence
and could not have contemplated OPSF imposts at the time of its formulation. Moreover, it is evident that OPSF was not
created to aid distressed mining companies but rather to help the domestic oil industry by stabilizing oil prices.

Unsatisfied with the decision, petitioner filed on 28 March 1990 the present petition wherein it imputes to the COA the commission of the
following errors: 16
I
RESPONDENT COMMISSION ERRED IN DISALLOWING RECOVERY OF FINANCING CHARGES FROM THE OPSF.
II
RESPONDENT
COMMISSION
ERRED
IN
DISALLOWING
CPI's 17 CLAIM FOR REIMBURSEMENT OF UNDERRECOVERY ARISING FROM SALES TO NPC.
III
RESPONDENT COMMISSION ERRED IN DENYING CPI's CLAIMS FOR REIMBURSEMENT ON SALES TO ATLAS
AND MARCOPPER.
IV
RESPONDENT COMMISSION ERRED IN PREVENTING CPI FROM EXERCISING ITS LEGAL RIGHT TO OFFSET ITS
REMITTANCES AGAINST ITS REIMBURSEMENT VIS-A-VIS THE OPSF.
V
RESPONDENT COMMISSION ERRED IN DISALLOWING CPI's CLAIMS WHICH ARE STILL PENDING RESOLUTION
BY (SIC) THE OEA AND THE DOF.
In the Resolution of 5 April 1990, this Court required the respondents to comment on the petition within ten (10) days from notice.

18

On 6 September 1990, respondents COA and Commissioners Fernandez and Cruz, assisted by the Office of the Solicitor General, filed their
Comment. 19
This Court resolved to give due course to this petition on 30 May 1991 and required the parties to file their respective Memoranda within
twenty (20) days from notice. 20
In a Manifestation dated 18 July 1991, the Office of the Solicitor General prays that the Comment filed on 6 September 1990 be considered
as the Memorandum for respondents. 21
Upon the other hand, petitioner filed its Memorandum on 14 August 1991.
I. Petitioner dwells lengthily on its first assigned error contending, in support thereof, that:
(1) In view of the expanded role of the OPSF pursuant to Executive Order No. 137, which added a second purpose, to wit:
2) To reimburse the oil companies for possible cost underrecovery incurred as a result of the reduction of domestic
prices of petroleum products. The magnitude of the underrecovery, if any, shall be determined by the Ministry of
Finance. "Cost underrecovery" shall include the following:
i. Reduction in oil company take as directed by the Board of Energy without the corresponding
reduction in the landed cost of oil inventories in the possession of the oil companies at the time of
the price change;
ii. Reduction in internal ad valorem taxes as a result of foregoing government mandated price
reductions;
iii. Other factors as may be determined by the Ministry of Finance to result in cost
underrecovery.
the "other factors" mentioned therein that may be determined by the Ministry (now Department) of Finance may include financing charges for
"in essence, financing charges constitute unrecovered cost of acquisition of crude oil incurred by the oil companies," as explained in the 6
November 1989 Memorandum to the President of the Department of Finance; they "directly translate to cost underrecovery in cases where
the money market placement rates decline and at the same time the tax on interest income increases. The relationship is such that the
presence of underrecovery or overrecovery is directly dependent on the amount and extent of financing charges."

(2) The claim for recovery of financing charges has clear legal and factual basis; it was filed on the basis of Department of Finance Circular
No.
1-87, dated 18 February 1987, which provides:
To allow oil companies to recover the costs of financing working capital associated with crude oil shipments, the following
guidelines on the utilization of the Oil Price Stabilization Fund pertaining to the payment of the foregoing ( sic) exchange
risk premium and recovery of financing charges will be implemented:
1. The OPSF foreign exchange premium shall be reduced to a flat rate of one (1) percent for the
first (6) months and 1/32 of one percent per month thereafter up to a maximum period of one
year, to be applied on crude oil' shipments from January 1, 1987. Shipments with outstanding
financing as of January 1, 1987 shall be charged on the basis of the fee applicable to the remaining
period of financing.
2. In addition, for shipments loaded after January 1987, oil companies shall be allowed to recover
financing charges directly from the OPSF per barrel of crude oil based on the following schedule:
Financing Period Reimbursement Rate
Pesos per Barrel
Less than 180 days None
180 days to 239 days 1.90
241 (sic) days to 299 4.02
300 days to 369 (sic) days 6.16
360 days or more 8.28
The above rates shall be subject to review every sixty
days. 22
Pursuant to this circular, the Department of Finance, in its letter of 18 February 1987, advised the Office of Energy Affairs as follows:
HON. VICENTE T. PATERNO
Deputy Executive Secretary
For Energy Affairs
Office of the President
Makati, Metro Manila
Dear Sir:
This refers to the letters of the Oil Industry dated December 4, 1986 and February 5, 1987 and subsequent discussions
held by the Price Review committee on February 6, 1987.
On the basis of the representations made, the Department of Finance recognizes the necessity to reduce the foreign
exchange risk premium accruing to the Oil Price Stabilization Fund (OPSF). Such a reduction would allow the industry to
recover partly associated financing charges on crude oil imports. Accordingly, the OPSF foreign exchange risk fee shall
be reduced to a flat charge of 1% for the first six (6) months plus 1/32% of 1% per month thereafter up to a maximum
period of one year, effective January 1, 1987. In addition, since the prevailing company take would still leave
unrecovered financing charges, reimbursement may be secured from the OPSF in accordance with the provisions of the
attached Department of Finance circular. 23
Acting on this letter, the OEA issued on 4 May 1987 Order No. 87-05-096 which contains the guidelines for the computation of the foreign
exchange risk fee and the recovery of financing charges from the OPSF, to wit:
B. FINANCE CHARGES
1. Oil companies shall be allowed to recover financing charges directly from the OPSF for both
crude and product shipments loaded after January 1, 1987 based on the following rates:
Financing Period Reimbursement Rate
(PBbl.)
Less than 180 days None
180 days to 239 days 1.90
240 days to 229 (sic) days 4.02
300 days to 359 days 6.16
360 days to more 8.28
2. The above rates shall be subject to review every sixty days.

24

Then on 22 November 1988, the Department of Finance issued Circular No. 4-88 imposing further guidelines on the recoverability of financing
charges, to wit:
Following are the supplemental rules to Department of Finance Circular No. 1-87 dated February 18, 1987 which allowed
the recovery of financing charges directly from the Oil Price Stabilization Fund. (OPSF):
1. The Claim for reimbursement shall be on a per shipment basis.
2. The claim shall be filed with the Office of Energy Affairs together with the claim on peso cost
differential for a particular shipment and duly certified supporting documents provided for under
Ministry of Finance No. 11-85.
3. The reimbursement shall be on the form of reimbursement certificate (Annex A) to be issued
by the Office of Energy Affairs. The said certificate may be used to offset against amounts
payable to the OPSF. The oil companies may also redeem said certificates in cash if not utilized,
subject to availability of funds. 25
The OEA disseminated this Circular to all oil companies in its Memorandum Circular No. 88-12-017.

26

The COA can neither ignore these issuances nor formulate its own interpretation of the laws in the light of the determination of executive
agencies. The determination by the Department of Finance and the OEA that financing charges are recoverable from the OPSF is entitled to
great weight and consideration. 27 The function of the COA, particularly in the matter of allowing or disallowing certain expenditures, is
limited to the promulgation of accounting and auditing rules for, among others, the disallowance of irregular, unnecessary, excessive,
extravagant, or unconscionable expenditures, or uses of government funds and properties. 28
(3) Denial of petitioner's claim for reimbursement would be inequitable. Additionally, COA's claim that petitioner is gaining, instead of losing,
from the extension of credit, is belatedly raised and not supported by expert analysis.
In impeaching the validity of petitioner's assertions, the respondents argue that:
1. The Constitution gives the COA discretionary power to disapprove irregular or unnecessary government expenditures
and as the monetary claims of petitioner are not allowed by law, the COA acted within its jurisdiction in denying them;
2. P.D. No. 1956 and E.O. No. 137 do not allow reimbursement of financing charges from the OPSF;
3. Under the principle of ejusdem generis, the "other factors" mentioned in the second purpose of the OPSF pursuant to
E.O. No. 137 can only include "factors which are of the same nature or analogous to those enumerated;"
4. In allowing reimbursement of financing charges from OPSF, Circular No. 1-87 of the Department of Finance violates
P.D. No. 1956 and E.O. No. 137; and
5. Department of Finance rules and regulations implementing P.D. No. 1956 do not likewise allow reimbursement of
financing
charges. 29
We find no merit in the first assigned error.
As to the power of the COA, which must first be resolved in view of its primacy, We find the theory of petitioner that such does not
extend to the disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures, or use of government funds and
properties, but only to the promulgation of accounting and auditing rules for, among others, such disallowance to be untenable in the light of
the provisions of the 1987 Constitution and related laws.
Section 2, Subdivision D, Article IX of the 1987 Constitution expressly provides:
Sec. 2(l). The Commission on Audit shall have the power, authority, and duty to examine, audit, and settle all accounts
pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or
pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities, including government-owned and
controlled corporations with original charters, and on a post-audit basis: (a) constitutional bodies, commissions and
offices that have been granted fiscal autonomy under this Constitution; (b) autonomous state colleges and universities;
(c) other government-owned or controlled corporations and their subsidiaries; and (d) such non-governmental entities
receiving subsidy or equity, directly or indirectly, from or through the government, which are required by law or the
granting institution to submit to such audit as a condition of subsidy or equity. However, where the internal control
system of the audited agencies is inadequate, the Commission may adopt such measures, including temporary or special
pre-audit, as are necessary and appropriate to correct the deficiencies. It shall keep the general accounts, of the
Government and, for such period as may be provided by law, preserve the vouchers and other supporting papers
pertaining thereto.

(2) The Commission shall have exclusive authority, subject to the limitations in this Article, to define the scope of its
audit and examination, establish the techniques and methods required therefor, and promulgate accounting and auditing
rules and regulations, including those for the prevention and disallowance of irregular, unnecessary, excessive,
extravagant, or, unconscionable expenditures, or uses of government funds and properties.
These present powers, consistent with the declared independence of the Commission,
by the 1973 Constitution. Under the latter, the Commission was empowered to:

30

are broader and more extensive than that conferred

Examine, audit, and settle, in accordance with law and regulations, all accounts pertaining to the revenues, and receipts
of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any
of its subdivisions, agencies, or instrumentalities including government-owned or controlled corporations, keep the
general accounts of the Government and, for such period as may be provided by law, preserve the vouchers pertaining
thereto; and promulgate accounting and auditing rules and regulations including those for the prevention of irregular,
unnecessary, excessive, or extravagant expenditures or uses of funds and property. 31
Upon the other hand, under the 1935 Constitution, the power and authority of the COA's precursor, the General Auditing Office, were,
unfortunately, limited; its very role was markedly passive. Section 2 of Article XI thereof provided:
Sec. 2. The Auditor General shall examine, audit, and settle all accounts pertaining to the revenues and receipts from
whatever source, including trust funds derived from bond issues; and audit, in accordance with law and administrative
regulations, all expenditures of funds or property pertaining to or held in trust by the Government or the provinces or
municipalities thereof. He shall keep the general accounts of the Government and the preserve the vouchers pertaining
thereto. It shall be the duty of the Auditor General to bring to the attention of the proper administrative officer
expenditures of funds or property which, in his opinion, are irregular, unnecessary, excessive, or extravagant. He shall
also perform such other functions as may be prescribed by law.
As clearly shown above, in respect to irregular, unnecessary, excessive or extravagant expenditures or uses of funds, the 1935 Constitution
did not grant the Auditor General the power to issue rules and regulations to prevent the same. His was merely to bring that matter to the
attention of the proper administrative officer.
The ruling on this particular point, quoted by petitioner from the cases of Guevarra vs. Gimenez
controlling as the two (2) were decided in the light of the 1935 Constitution.

32

and Ramos vs. Aquino,

33

are no longer

There can be no doubt, however, that the audit power of the Auditor General under the 1935 Constitution and the Commission on Audit under
the 1973 Constitution authorized them to disallow illegal expenditures of funds or uses of funds and property. Our present Constitution
retains that same power and authority, further strengthened by the definition of the COA's general jurisdiction in Section 26 of the
Government Auditing Code of the Philippines 34 and Administrative Code of 1987. 35 Pursuant to its power to promulgate accounting and
auditing rules and regulations for the prevention of irregular, unnecessary, excessive or extravagant expenditures or uses of funds, 36 the
COA promulgated on 29 March 1977 COA Circular No. 77-55. Since the COA is responsible for the enforcement of the rules and regulations,
it goes without saying that failure to comply with them is a ground for disapproving the payment of the proposed expenditure. As observed by
one of the Commissioners of the 1986 Constitutional Commission, Fr. Joaquin G. Bernas: 37
It should be noted, however, that whereas under Article XI, Section 2, of the 1935 Constitution the Auditor General
could not correct "irregular, unnecessary, excessive or extravagant" expenditures of public funds but could only "bring
[the matter] to the attention of the proper administrative officer," under the 1987 Constitution, as also under the 1973
Constitution, the Commission on Audit can "promulgate accounting and auditing rules and regulations including those for
the prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures or
uses of government funds and properties." Hence, since the Commission on Audit must ultimately be responsible for the
enforcement of these rules and regulations, the failure to comply with these regulations can be a ground for
disapproving the payment of a proposed expenditure.
Indeed, when the framers of the last two (2) Constitutions conferred upon the COA a more active role and invested it with broader and more
extensive powers, they did not intend merely to make the COA a toothless tiger, but rather envisioned a dynamic, effective, efficient and
independent watchdog of the Government.
The issue of the financing charges boils down to the validity of Department of Finance Circular No. 1-87, Department of Finance Circular No.
4-88 and the implementing circulars of the OEA, issued pursuant to Section 8, P.D. No. 1956, as amended by E.O. No. 137, authorizing it to
determine "other factors" which may result in cost underrecovery and a consequent reimbursement from the OPSF.
The Solicitor General maintains that, following the doctrine of ejusdem generis, financing charges are not included in "cost underrecovery"
and, therefore, cannot be considered as one of the "other factors." Section 8 of P.D. No. 1956, as amended by E.O. No. 137, does not explicitly
define what "cost underrecovery" is. It merely states what it includes. Thus:
. . . "Cost underrecovery" shall include the following:
i. Reduction in oil company takes as directed by the Board of Energy without the corresponding reduction in the landed
cost of oil inventories in the possession of the oil companies at the time of the price change;
ii. Reduction in internal ad valorem taxes as a result of foregoing government mandated price reductions;

iii. Other factors as may be determined by the Ministry of Finance to result in cost underrecovery.
These "other factors" can include only those which are of the same class or nature as the two specifically enumerated in subparagraphs (i) and
(ii). A common characteristic of both is that they are in the nature of government mandated price reductions. Hence, any other factor which
seeks to be a part of the enumeration, or which could qualify as a cost underrecovery, must be of the same class or nature as those
specifically enumerated.
Petitioner, however, suggests that E.O. No. 137 intended to grant the Department of Finance broad and unrestricted authority to determine
or define "other factors."
Both views are unacceptable to this Court.
The rule of ejusdem generis states that "[w]here general words follow an enumeration of persons or things, by words of a particular and
specific meaning, such general words are not to be construed in their widest extent, but are held to be as applying only to persons or things of
the same kind or class as those specifically mentioned. 38 A reading of subparagraphs (i) and (ii) easily discloses that they do not have a
common characteristic. The first relates to price reduction as directed by the Board of Energy while the second refers to reduction in
internal ad valorem taxes. Therefore, subparagraph (iii) cannot be limited by the enumeration in these subparagraphs. What should be
considered for purposes of determining the "other factors" in subparagraph (iii) is the first sentence of paragraph (2) of the Section which
explicitly allows cost underrecovery only if such were incurred as a result of the reduction of domestic prices of petroleum products .
Although petitioner's financing losses, if indeed incurred, may constitute cost underrecovery in the sense that such were incurred as a result
of the inability to fully offset financing expenses from yields in money market placements, they do not, however, fall under the foregoing
provision of P.D. No. 1956, as amended, because the same did not result from the reduction of the domestic price of petroleum products. Until
paragraph (2), Section 8 of the decree, as amended, is further amended by Congress, this Court can do nothing. The duty of this Court is not
to legislate, but to apply or interpret the law. Be that as it may, this Court wishes to emphasize that as the facts in this case have shown, it
was at the behest of the Government that petitioner refinanced its oil import payments from the normal 30-day trade credit to a maximum of
360 days. Petitioner could be correct in its assertion that owing to the extended period for payment, the financial institution which refinanced
said payments charged a higher interest, thereby resulting in higher financing expenses for the petitioner. It would appear then that equity
considerations dictate that petitioner should somehow be allowed to recover its financing losses, if any, which may have been sustained
because it accommodated the request of the Government. Although under Section 29 of the National Internal Revenue Code such losses may
be deducted from gross income, the effect of that loss would be merely to reduce its taxable income, but not to actually wipe out such losses.
The Government then may consider some positive measures to help petitioner and others similarly situated to obtain substantial relief. An
amendment, as aforestated, may then be in order.
Upon the other hand, to accept petitioner's theory of "unrestricted authority" on the part of the Department of Finance to determine or
define "other factors" is to uphold an undue delegation of legislative power, it clearly appearing that the subject provision does not provide
any standard for the exercise of the authority. It is a fundamental rule that delegation of legislative power may be sustained only upon the
ground that some standard for its exercise is provided and that the legislature, in making the delegation, has prescribed the manner of the
exercise of the delegated authority. 39
Finally, whether petitioner gained or lost by reason of the extensive credit is rendered irrelevant by reason of the foregoing disquisitions. It
may nevertheless be stated that petitioner failed to disprove COA's claim that it had in fact gained in the process. Otherwise stated,
petitioner failed to sufficiently show that it incurred a loss. Such being the case, how can petitioner claim for reimbursement? It cannot have
its cake and eat it too.
II. Anent the claims arising from sales to the National Power Corporation, We find for the petitioner. The respondents themselves admit in
their Comment that underrecovery arising from sales to NPC are reimbursable because NPC was granted full exemption from the payment of
taxes; to prove this, respondents trace the laws providing for such exemption. 40 The last law cited is the Fiscal Incentives Regulatory Board's
Resolution No. 17-87 of 24 June 1987 which provides, in part, "that the tax and duty exemption privileges of the National Power Corporation,
including those pertaining to its domestic purchases of petroleum and petroleum products . . . are restored effective March 10, 1987." In a
Memorandum issued on 5 October 1987 by the Office of the President, NPC's tax exemption was confirmed and approved.
Furthermore, as pointed out by respondents, the intention to exempt sales of petroleum products to the NPC is evident in the recently passed
Republic Act No. 6952 establishing the Petroleum Price Standby Fund to support the OPSF. 41 The pertinent part of Section 2, Republic Act
No. 6952 provides:
Sec. 2. Application of the Fund shall be subject to the following conditions:
(1) That the Fund shall be used to reimburse the oil companies for (a) cost increases of imported
crude oil and finished petroleum products resulting from foreign exchange rate adjustments
and/or increases in world market prices of crude oil; (b) cost underrecovery incurred as a result
of fuel oil sales to the National Power Corporation (NPC); and (c) other cost underrecoveries
incurred as may be finally decided by the Supreme Court; . . .
Hence, petitioner can recover its claim arising from sales of petroleum products to the National Power Corporation.
III. With respect to its claim for reimbursement on sales to ATLAS and MARCOPPER, petitioner relies on Letter of Instruction (LOI) 1416,
dated 17 July 1984, which ordered the suspension of payments of all taxes, duties, fees and other charges, whether direct or indirect, due
and payable by the copper mining companies in distress to the national government. Pursuant to this LOI, then Minister of Energy, Hon.

Geronimo Velasco, issued Memorandum Circular No. 84-11-22 advising the oil companies that Atlas Consolidated Mining Corporation and
Marcopper Mining Corporation are among those declared to be in distress.
In denying the claims arising from sales to ATLAS and MARCOPPER, the COA, in its 18 August 1989 letter to Executive Director Wenceslao R.
de la Paz, states that "it is our opinion that LOI 1416 which implements the exemption from payment of OPSF imposts as effected by OEA has
no legal basis;" 42 in its Decision No. 1171, it ruled that "the CPI (CALTEX) (Caltex) has no authority to claim reimbursement for this
uncollected impost because LOI 1416 dated July 17, 1984, . . . was issued when OPSF was not yet in existence and could not have contemplated
OPSF imposts at the time of its formulation." 43 It is further stated that: "Moreover, it is evident that OPSF was not created to aid
distressed mining companies but rather to help the domestic oil industry by stabilizing oil prices."
In sustaining COA's stand, respondents vigorously maintain that LOI 1416 could not have intended to exempt said distressed mining companies
from the payment of OPSF dues for the following reasons:
a. LOI 1416 granting the alleged exemption was issued on July 17, 1984. P.D. 1956 creating the OPSF was promulgated on
October 10, 1984, while E.O. 137, amending P.D. 1956, was issued on February 25, 1987.
b. LOI 1416 was issued in 1984 to assist distressed copper mining companies in line with the government's effort to
prevent the collapse of the copper industry. P.D No. 1956, as amended, was issued for the purpose of minimizing
frequent price changes brought about by exchange rate adjustments and/or changes in world market prices of crude oil
and imported petroleum product's; and
c. LOI 1416 caused the "suspension of all taxes, duties, fees, imposts and other charges, whether direct or indirect, due
and payable by the copper mining companies in distress to the Notional and Local Governments . . ." On the other hand,
OPSF dues are not payable by ( sic) distressed copper companies but by oil companies. It is to be noted that the copper
mining companies do not pay OPSF dues. Rather, such imposts are built in or already incorporated in the prices of oil
products. 44
Lastly, respondents allege that while LOI 1416 suspends the payment of taxes by distressed mining companies, it does not accord petitioner
the same privilege with respect to its obligation to pay OPSF dues.
We concur with the disquisitions of the respondents. Aside from such reasons, however, it is apparent that LOI 1416 was never published in
the Official Gazette 45 as required by Article 2 of the Civil Code, which reads:
Laws shall take effect after fifteen days following the completion of their publication in the Official Gazette, unless it
is otherwise provided. . . .
In applying said provision, this Court ruled in the case of Taada vs. Tuvera:

46

WHEREFORE, the Court hereby orders respondents to publish in the Official Gazette all unpublished presidential
issuances which are of general application, and unless so published they shall have no binding force and effect.
Resolving the motion for reconsideration of said decision, this Court, in its Resolution promulgated on 29 December 1986,

47

ruled:

We hold therefore that all statutes, including those of local application and private laws, shall be published as a condition
for their effectivity, which shall begin fifteen days after publication unless a different effectivity date is fixed by the
legislature.
Covered by this rule are presidential decrees and executive orders promulgated by the President in the exercise of
legislative powers whenever the same are validly delegated by the legislature or, at present, directly conferred by the
Constitution. Administrative rules and regulations must also be published if their purpose is to enforce or implement
existing laws pursuant also to a valid delegation.
xxx xxx xxx
WHEREFORE, it is hereby declared that all laws as above defined shall immediately upon their approval, or as soon
thereafter as possible, be published in full in the Official Gazette, to become effective only after fifteen days from
their publication, or on another date specified by the legislature, in accordance with Article 2 of the Civil Code.
LOI 1416 has, therefore, no binding force or effect as it was never published in the Official Gazette after its issuance or at any time after
the decision in the abovementioned cases.
Article 2 of the Civil Code was, however, later amended by Executive Order No. 200, issued on 18 June 1987. As amended, the said provision
now reads:
Laws shall take effect after fifteen days following the completion of their publication either in the Official Gazette or
in a newspaper of general circulation in the Philippines, unless it is otherwise provided.

We are not aware of the publication of LOI 1416 in any newspaper of general circulation pursuant to Executive Order No. 200.
Furthermore, even granting arguendo that LOI 1416 has force and effect, petitioner's claim must still fail. Tax exemptions as a general rule
are construed strictly against the grantee and liberally in favor of the taxing authority. 48 The burden of proof rests upon the party claiming
exemption to prove that it is in fact covered by the exemption so claimed. The party claiming exemption must therefore be expressly
mentioned in the exempting law or at least be within its purview by clear legislative intent.
In the case at bar, petitioner failed to prove that it is entitled, as a consequence of its sales to ATLAS and MARCOPPER, to claim
reimbursement from the OPSF under LOI 1416. Though LOI 1416 may suspend the payment of taxes by copper mining companies, it does not
give petitioner the same privilege with respect to the payment of OPSF dues.
IV. As to COA's disallowance of the amount of P130,420,235.00, petitioner maintains that the Department of Finance has still to issue a final
and definitive ruling thereon; accordingly, it was premature for COA to disallow it. By doing so, the latter acted beyond its jurisdiction. 49
Respondents, on the other hand, contend that said amount was already disallowed by the OEA for failure to substantiate it. 50 In fact, when
OEA submitted the claims of petitioner for pre-audit, the abovementioned amount was already excluded.
An examination of the records of this case shows that petitioner failed to prove or substantiate its contention that the amount of
P130,420,235.00 is still pending before the OEA and the DOF. Additionally, We find no reason to doubt the submission of respondents that
said amount has already been passed upon by the OEA. Hence, the ruling of respondent COA disapproving said claim must be upheld.
V. The last issue to be resolved in this case is whether or not the amounts due to the OPSF from petitioner may be offset against petitioner's
outstanding claims from said fund. Petitioner contends that it should be allowed to offset its claims from the OPSF against its contributions
to the fund as this has been allowed in the past, particularly in the years 1987 and 1988. 51
Furthermore, petitioner cites, as bases for offsetting, the provisions of the New Civil Code on compensation and Section 21, Book V, Title I-B
of the Revised Administrative Code which provides for "Retention of Money for Satisfaction of Indebtedness to Government." 52 Petitioner
also mentions communications from the Board of Energy and the Department of Finance that supposedly authorize compensation.
Respondents, on the other hand, citing Francia vs. IAC and Fernandez, 53 contend that there can be no offsetting of taxes against the claims
that a taxpayer may have against the government, as taxes do not arise from contracts or depend upon the will of the taxpayer, but are
imposed by law. Respondents also allege that petitioner's reliance on Section 21, Book V, Title I-B of the Revised Administrative Code, is
misplaced because "while this provision empowers the COA to withhold payment of a government indebtedness to a person who is also indebted
to the government and apply the government indebtedness to the satisfaction of the obligation of the person to the government, like authority
or right to make compensation is not given to the private person." 54 The reason for this, as stated in Commissioner of Internal Revenue vs.
Algue, Inc., 55 is that money due the government, either in the form of taxes or other dues, is its lifeblood and should be collected without
hindrance. Thus, instead of giving petitioner a reason for compensation or set-off, the Revised Administrative Code makes it the respondents'
duty to collect petitioner's indebtedness to the OPSF.
Refuting respondents' contention, petitioner claims that the amounts due from it do not arise as a result of taxation because "P.D. 1956,
amended, did not create a source of taxation; it instead established a special fund . . .," 56 and that the OPSF contributions do not go to the
general fund of the state and are not used for public purpose, i.e., not for the support of the government, the administration of law, or the
payment of public expenses. This alleged lack of a public purpose behind OPSF exactions distinguishes such from a tax. Hence, the ruling in the
Francia case is inapplicable.
Lastly, petitioner cites R.A. No. 6952 creating the Petroleum Price Standby Fund to support the OPSF; the said law provides in part that:
Sec. 2. Application of the fund shall be subject to the following conditions:
xxx xxx xxx
(3) That no amount of the Petroleum Price Standby Fund shall be used to pay any oil company which
has an outstanding obligation to the Government without said obligation being offset first, subject
to the requirements of compensation or offset under the Civil Code.
We find no merit in petitioner's contention that the OPSF contributions are not for a public purpose because they go to a special fund of the
government. Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of the government; taxes may be
levied with a regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry which is affected with
public interest as to be within the police power of the state. 57 There can be no doubt that the oil industry is greatly imbued with public
interest as it vitally affects the general welfare. Any unregulated increase in oil prices could hurt the lives of a majority of the people and
cause economic crisis of untold proportions. It would have a chain reaction in terms of, among others, demands for wage increases and upward
spiralling of the cost of basic commodities. The stabilization then of oil prices is of prime concern which the state, via its police power, may
properly address.
Also, P.D. No. 1956, as amended by E.O. No. 137, explicitly provides that the source of OPSF is taxation. No amount of semantical juggleries
could dim this fact.
It is settled that a taxpayer may not offset taxes due from the claims that he may have against the government. 58 Taxes cannot be the
subject of compensation because the government and taxpayer are not mutually creditors and debtors of each other and a claim for taxes is
not such a debt, demand, contract or judgment as is allowed to be set-off. 59

We may even further state that technically, in respect to the taxes for the OPSF, the oil companies merely act as agents for the Government
in the latter's collection since the taxes are, in reality, passed unto the end-users the consuming public. In that capacity, the petitioner, as
one of such companies, has the primary obligation to account for and remit the taxes collected to the administrator of the OPSF. This duty
stems from the fiduciary relationship between the two; petitioner certainly cannot be considered merely as a debtor. In respect, therefore,
to its collection for the OPSF vis-a-vis its claims for reimbursement, no compensation is likewise legally feasible. Firstly, the Government and
the petitioner cannot be said to be mutually debtors and creditors of each other. Secondly, there is no proof that petitioner's claim is already
due and liquidated. Under Article 1279 of the Civil Code, in order that compensation may be proper, it is necessary that:
(1) each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;
(2) both debts consist in a sum of :money, or if the things due are consumable, they be of the same kind, and also of the
same quality if the latter has been stated;
(3) the two (2) debts be due;
(4) they be liquidated and demandable;
(5) over neither of them there be any retention or controversy, commenced by third persons and communicated in due
time to the debtor.
That compensation had been the practice in the past can set no valid precedent. Such a practice has no legal basis. Lastly, R.A. No. 6952 does
not authorize oil companies to offset their claims against their OPSF contributions. Instead, it prohibits the government from paying any
amount from the Petroleum Price Standby Fund to oil companies which have outstanding obligations with the government, without said
obligation being offset first subject to the rules on compensation in the Civil Code.
WHEREFORE, in view of the foregoing, judgment is hereby rendered AFFIRMING the challenged decision of the Commission on Audit, except
that portion thereof disallowing petitioner's claim for reimbursement of underrecovery arising from sales to the National Power Corporation,
which is hereby allowed.
With costs against petitioner.
SO ORDERED.
G.R. No. L-67649 June 28, 1988
ENGRACIO FRANCIA, petitioner,
vs.
INTERMEDIATE APPELLATE COURT and HO FERNANDEZ, respondents.
GUTIERREZ, JR., J.:
The petitioner invokes legal and equitable grounds to reverse the questioned decision of the Intermediate Appellate Court, to set aside the
auction sale of his property which took place on December 5, 1977, and to allow him to recover a 203 square meter lot which was, sold at public
auction to Ho Fernandez and ordered titled in the latter's name.
The antecedent facts are as follows:
Engracio Francia is the registered owner of a residential lot and a two-story house built upon it situated at Barrio San Isidro, now District of
Sta. Clara, Pasay City, Metro Manila. The lot, with an area of about 328 square meters, is described and covered by Transfer Certificate of
Title No. 4739 (37795) of the Registry of Deeds of Pasay City.
On October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the Republic of the Philippines for the sum of
P4,116.00 representing the estimated amount equivalent to the assessed value of the aforesaid portion.
Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5, 1977, his property was sold at public auction
by the City Treasurer of Pasay City pursuant to Section 73 of Presidential Decree No. 464 known as the Real Property Tax Code in order to
satisfy a tax delinquency of P2,400.00. Ho Fernandez was the highest bidder for the property.
Francia was not present during the auction sale since he was in Iligan City at that time helping his uncle ship bananas.
On March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-P "In re: Petition for Entry of New Certificate of Title" filed by
Ho Fernandez, seeking the cancellation of TCT No. 4739 (37795) and the issuance in his name of a new certificate of title. Upon verification
through his lawyer, Francia discovered that a Final Bill of Sale had been issued in favor of Ho Fernandez by the City Treasurer on December
11, 1978. The auction sale and the final bill of sale were both annotated at the back of TCT No. 4739 (37795) by the Register of Deeds.
On March 20, 1979, Francia filed a complaint to annul the auction sale. He later amended his complaint on January 24, 1980.

On April 23, 1981, the lower court rendered a decision, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered dismissing the amended complaint and ordering:
(a) The Register of Deeds of Pasay City to issue a new Transfer Certificate of Title in favor of
the defendant Ho Fernandez over the parcel of land including the improvements thereon, subject
to whatever encumbrances appearing at the back of TCT No. 4739 (37795) and ordering the same
TCT No. 4739 (37795) cancelled.
(b) The plaintiff to pay defendant Ho Fernandez the sum of P1,000.00 as attorney's fees. (p. 30,
Record on Appeal)
The Intermediate Appellate Court affirmed the decision of the lower court in toto.
Hence, this petition for review.
Francia prefaced his arguments with the following assignments of grave errors of law:
I
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE ERROR OF LAW IN NOT HOLDING PETITIONER'S
OBLIGATION TO PAY P2,400.00 FOR SUPPOSED TAX DELINQUENCY WAS SET-OFF BY THE AMOUNT OF P4,116.00 WHICH THE
GOVERNMENT IS INDEBTED TO THE FORMER.
II
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE AND SERIOUS ERROR IN NOT HOLDING THAT PETITIONER
WAS NOT PROPERLY AND DULY NOTIFIED THAT AN AUCTION SALE OF HIS PROPERTY WAS TO TAKE PLACE ON DECEMBER 5, 1977
TO SATISFY AN ALLEGED TAX DELINQUENCY OF P2,400.00.
III
RESPONDENT INTERMEDIATE APPELLATE COURT FURTHER COMMITTED A SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN
NOT HOLDING THAT THE PRICE OF P2,400.00 PAID BY RESPONTDENT HO FERNANDEZ WAS GROSSLY INADEQUATE AS TO SHOCK
ONE'S CONSCIENCE AMOUNTING TO FRAUD AND A DEPRIVATION OF PROPERTY WITHOUT DUE PROCESS OF LAW, AND
CONSEQUENTLY, THE AUCTION SALE MADE THEREOF IS VOID. (pp. 10, 17, 20-21, Rollo)
We gave due course to the petition for a more thorough inquiry into the petitioner's allegations that his property was sold at public auction
without notice to him and that the price paid for the property was shockingly inadequate, amounting to fraud and deprivation without due
process of law.
A careful review of the case, however, discloses that Mr. Francia brought the problems raised in his petition upon himself. While we
commiserate with him at the loss of his property, the law and the facts militate against the grant of his petition. We are constrained to
dismiss it.
Francia contends that his tax delinquency of P2,400.00 has been extinguished by legal compensation. He claims that the government owed him
P4,116.00 when a portion of his land was expropriated on October 15, 1977. Hence, his tax obligation had been set-off by operation of law as
of October 15, 1977.
There is no legal basis for the contention. By legal compensation, obligations of persons, who in their own right are reciprocally debtors and
creditors of each other, are extinguished (Art. 1278, Civil Code). The circumstances of the case do not satisfy the requirements provided by
Article 1279, to wit:
(1) that each one of the obligors be bound principally and that he be at the same time a principal creditor of the other;
xxx xxx xxx
(3) that the two debts be due.
xxx xxx xxx
This principal contention of the petitioner has no merit. We have consistently ruled that there can be no off-setting of taxes against the
claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him
an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the
government.

In the case of Republic v. Mambulao Lumber Co . (4 SCRA 622), this Court ruled that Internal Revenue Taxes can not be the subject of set-off
or compensation. We stated that:
A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of
set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an action or any
indebtedness of the state or municipality to one who is liable to the state or municipality for taxes. Neither are they a
proper subject of recoupment since they do not arise out of the contract or transaction sued on. ... (80 C.J.S., 7374).
"The general rule based on grounds of public policy is well-settled that no set-off admissible against demands for taxes
levied for general or local governmental purposes. The reason on which the general rule is based, is that taxes are not in
the nature of contracts between the party and party but grow out of duty to, and are the positive acts of the
government to the making and enforcing of which, the personal consent of individual taxpayers is not required. ..."
We stated that a taxpayer cannot refuse to pay his tax when called upon by the collector because he has a claim against the governmental
body not included in the tax levy.
This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331) where we stated that: "... internal revenue taxes can not be the
subject of compensation: Reason: government and taxpayer are not mutually creditors and debtors of each other' under Article 1278 of the
Civil Code and a "claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off."
There are other factors which compel us to rule against the petitioner. The tax was due to the city government while the expropriation was
effected by the national government. Moreover, the amount of P4,116.00 paid by the national government for the 125 square meter portion of
his lot was deposited with the Philippine National Bank long before the sale at public auction of his remaining property. Notice of the deposit
dated September 28, 1977 was received by the petitioner on September 30, 1977. The petitioner admitted in his testimony that he knew
about the P4,116.00 deposited with the bank but he did not withdraw it. It would have been an easy matter to withdraw P2,400.00 from the
deposit so that he could pay the tax obligation thus aborting the sale at public auction.
Petitioner had one year within which to redeem his property although, as well be shown later, he claimed that he pocketed the notice of the
auction sale without reading it.
Petitioner contends that "the auction sale in question was made without complying with the mandatory provisions of the statute governing tax
sale. No evidence, oral or otherwise, was presented that the procedure outlined by law on sales of property for tax delinquency was
followed. ... Since defendant Ho Fernandez has the affirmative of this issue, the burden of proof therefore rests upon him to show that
plaintiff was duly and properly notified ... .(Petition for Review, Rollo p. 18; emphasis supplied)
We agree with the petitioner's claim that Ho Fernandez, the purchaser at the auction sale, has the burden of proof to show that there was
compliance with all the prescribed requisites for a tax sale.
The case of Valencia v. Jimenez (11 Phil. 492) laid down the doctrine that:
xxx xxx xxx
... [D]ue process of law to be followed in tax proceedings must be established by proof and the general rule is that the
purchaser of a tax title is bound to take upon himself the burden of showing the regularity of all proceedings leading up
to the sale. (emphasis supplied)
There is no presumption of the regularity of any administrative action which results in depriving a taxpayer of his property through a tax sale.
(Camo v. Riosa Boyco, 29 Phil. 437); Denoga v. Insular Government, 19 Phil. 261). This is actually an exception to the rule that administrative
proceedings are presumed to be regular.
But even if the burden of proof lies with the purchaser to show that all legal prerequisites have been complied with, the petitioner can not,
however, deny that he did receive the notice for the auction sale. The records sustain the lower court's finding that:
[T]he plaintiff claimed that it was illegal and irregular. He insisted that he was not properly notified of the auction sale.
Surprisingly, however, he admitted in his testimony that he received the letter dated November 21, 1977 (Exhibit "I")
as shown by his signature (Exhibit "I-A") thereof. He claimed further that he was not present on December 5, 1977 the
date of the auction sale because he went to Iligan City. As long as there was substantial compliance with the
requirements of the notice, the validity of the auction sale can not be assailed ... .
We quote the following testimony of the petitioner on cross-examination, to wit:
Q. My question to you is this letter marked as Exhibit I for Ho Fernandez notified you that the
property in question shall be sold at public auction to the highest bidder on December 5, 1977
pursuant to Sec. 74 of PD 464. Will you tell the Court whether you received the original of this
letter?
A. I just signed it because I was not able to read the same. It was just sent by mail carrier.

Q. So you admit that you received the original of Exhibit I and you signed upon receipt thereof
but you did not read the contents of it?
A. Yes, sir, as I was in a hurry.
Q. After you received that original where did you place it?
A. I placed it in the usual place where I place my mails.
Petitioner, therefore, was notified about the auction sale. It was negligence on his part when he ignored such notice. By his very own admission
that he received the notice, his now coming to court assailing the validity of the auction sale loses its force.
Petitioner's third assignment of grave error likewise lacks merit. As a general rule, gross inadequacy of price is not material (De Leon v.
Salvador, 36 SCRA 567; Ponce de Leon v. Rehabilitation Finance Corporation, 36 SCRA 289; Tolentino v. Agcaoili, 91 Phil. 917 Unrep.). See also
Barrozo Vda. de Gordon v. Court of Appeals (109 SCRA 388) we held that "alleged gross inadequacy of price is not material when the law gives
the owner the right to redeem as when a sale is made at public auction, upon the theory that the lesser the price, the easier it is for the
owner to effect redemption." In Velasquez v. Coronel (5 SCRA 985), this Court held:
... [R]espondent treasurer now claims that the prices for which the lands were sold are unconscionable considering the
wide divergence between their assessed values and the amounts for which they had been actually sold. However, while in
ordinary sales for reasons of equity a transaction may be invalidated on the ground of inadequacy of price, or when such
inadequacy shocks one's conscience as to justify the courts to interfere, such does not follow when the law gives to the
owner the right to redeem, as when a sale is made at public auction, upon the theory that the lesser the price the easier
it is for the owner to effect the redemption. And so it was aptly said: "When there is the right to redeem, inadequacy of
price should not be material, because the judgment debtor may reacquire the property or also sell his right to redeem
and thus recover the loss he claims to have suffered by reason of the price obtained at the auction sale."
The reason behind the above rulings is well enunciated in the case of Hilton et. ux. v. De Long, et al. (188 Wash. 162, 61 P. 2d, 1290):
If mere inadequacy of price is held to be a valid objection to a sale for taxes, the collection of taxes in this manner
would be greatly embarrassed, if not rendered altogether impracticable. In Black on Tax Titles (2nd Ed.) 238, the
correct rule is stated as follows: "where land is sold for taxes, the inadequacy of the price given is not a valid objection
to the sale." This rule arises from necessity, for, if a fair price for the land were essential to the sale, it would be
useless to offer the property. Indeed, it is notorious that the prices habitually paid by purchasers at tax sales are
grossly out of proportion to the value of the land. (Rothchild Bros. v. Rollinger, 32 Wash. 307, 73 P. 367, 369).
In this case now before us, we can aptly use the language of McGuire, et al. v. Bean, et al. (267 P. 555):
Like most cases of this character there is here a certain element of hardship from which we would be glad to relieve,
but do so would unsettle long-established rules and lead to uncertainty and difficulty in the collection of taxes which are
the life blood of the state. We are convinced that the present rules are just, and that they bring hardship only to those
who have invited it by their own neglect.
We are inclined to believe the petitioner's claim that the value of the lot has greatly appreciated in value. Precisely because of the widening of
Buendia Avenue in Pasay City, which necessitated the expropriation of adjoining areas, real estate values have gone up in the area. However,
the price quoted by the petitioner for a 203 square meter lot appears quite exaggerated. At any rate, the foregoing reasons which answer the
petitioner's claims lead us to deny the petition.
And finally, even if we are inclined to give relief to the petitioner on equitable grounds, there are no strong considerations of substantial
justice in his favor. Mr. Francia failed to pay his taxes for 14 years from 1963 up to the date of the auction sale. He claims to have pocketed
the notice of sale without reading it which, if true, is still an act of inexplicable negligence. He did not withdraw from the expropriation
payment deposited with the Philippine National Bank an amount sufficient to pay for the back taxes. The petitioner did not pay attention to
another notice sent by the City Treasurer on November 3, 1978, during the period of redemption, regarding his tax delinquency. There is
furthermore no showing of bad faith or collusion in the purchase of the property by Mr. Fernandez. The petitioner has no standing to invoke
equity in his attempt to regain the property by belatedly asking for the annulment of the sale.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition for review is DISMISSED. The decision of the respondent court is affirmed.
SO ORDERED.