GENERAL PRINCIPLES OF TAXATION - PART 2

1. G.R. No. 156278

March 29, 2004 PLANTERS PRODUCTS, INC., petitioner, vs.
FERTIPHIL CORPORATION, respondent.
DECISION
PUNO, J.:
Before us is a petition for review under Rule 45 assailing the Decision dated July 19, 2002 1 of the Court
of Appeals in CA-G.R. SP No. 67434, and its Resolution dated December 4, 2002 denying petitioners
motion for reconsideration.
Petitioner Planters Products, Inc. ("PPI") and respondent Fertiphil Corporation ("Fertiphil") are domestic
corporations engaged in the importation and distribution of fertilizers, pesticides and agricultural
chemicals. On the strength of Letter of Instruction No. 1465 issued by then President Ferdinand E.
Marcos on June 3, 1985, Fertiphil and other domestic corporations engaged in the fertilizer business
paid P10.00 for every bag of fertilizer sold in the country to the Fertilizer and Pesticide Authority (FPA),
the government agency governing the fertilizer industry. FPA in turn remitted the amount to PPI for its
rehabilitation, according to the express mandate of LOI No. 1465. 2
After the EDSA I revolution in 1986, the imposition of P10.00 by the FPA on every bag of fertilizer sold
was voluntarily stopped. Fertiphil demanded from PPI the refund of P6,698,144.00 which it paid under
LOI No. 1465. PPI refused. Hence, on September 14, 1987, Fertiphil filed a collection and damage suit
against FPA and PPI before the Regional Trial Court of Makati City docketed as Civil Case No. 17835
demanding refund of the P6,698,144.00. Fertiphil contended that LOI No. 1465 was void and
unconstitutional for being a glaring example of crony capitalism as it favored PPI only. PPI filed its
answer but for failure to attend the pre-trial conference, it was declared in default and Fertiphil was
allowed to present evidence ex-parte.
On November 20, 1991, the RTC of Makati City, Branch 147, decided in favor of Fertiphil declaring LOI
No. 1465 void and unconstitutional. It ordered PPI to return the amount which Fertiphil paid
thereunder, with twelve percent (12%) interest from the time of judicial demand. PPIs motion for
reconsideration was denied in an Order dated February 13, 1992. Hence, it filed notice of appeal on
February 20, 1992. At the same time, Fertiphil moved for execution of the decision pending appeal.
The trial court granted the motion and a writ of execution pending appeal was issued upon the posting
of a surety bond by Fertiphil in the amount of P6,698,000.00. PPI assailed the propriety of the
execution pending appeal before the Court of Appeals and, thereafter, to this Court. We resolved the
case in its favor in our Decision dated October 22, 1999 in G.R. No. 106052. 3 Fertiphil was ordered to
return all the properties of PPI taken in the course of execution pending appeal or the value thereof, if
return is no longer possible. After the decision became final and executory, PPI moved for execution
before the trial court and Fertiphils bank deposits were accordingly garnished.
On January 5, 2001, Fertiphil moved to dismiss PPIs appeal from the trial courts Decision dated
November 20, 1991 citing as grounds the non-payment of the appellate docket fee and alleged failure
of PPI to prosecute the appeal within a reasonable time. The trial court denied the motion in an Order
dated April 3, 2001 ruling that the payment of the appellate docket fee within the period for taking an
appeal is a new requirement under the 1997 Rules of Civil Procedure which was not yet applicable
when PPI filed its appeal in 1992. Moreover, the court found that PPI did not fail to prosecute the
appeal within a reasonable time.

On April 5, 2001, the court issued another order, upon PPIs motion, directing Fertiphils banks to
deliver to the Deputy Sheriff the garnished deposits maintained with them and for the levying upon of
the surety bond posted by Fertiphil.
Fertiphil moved to reconsider the Orders dated April 3 and 5, 2001, to no avail. Hence, on October 30,
2001, it filed a special civil action for certiorari with the Court of Appeals imputing grave abuse of
discretion on the part of the trial court in issuing the two orders. 4 The Court of Appeals partially
granted the petition and set aside the Order dated April 3, 2001. It ruled that although PPI filed its
appeal in 1992, the 1997 Rules of Civil Procedure should nevertheless be followed since it applies to
actions pending and undetermined at the time of its passage. Due to PPIs failure to pay the appellate
docket fee for three (3) years from the time the 1997 Rules of Civil Procedure took effect on July 1,
1997 until Fertiphil moved to dismiss the appeal in 2001, the trial courts decision became final and
executory. The Court of Appeals thus disposed of the petition, viz:
WHEREFORE, the instant petition is PARTIALLY GRANTED and the Order of 03 April 2001 of the Regional
Trial Court of Makati City, Branch 147, is SET ASIDE. The decision of 20 November 1991 of the said
court is hereby declared final and executory.
The Clerk of Court is directed to return to the Regional Trial Court of Makati City, Branch 147, the
record of Civil Case No. 17385 (sic) entitled "Fertiphil Corporation vs. Planters Product(s) Inc., and
Fertilizer and Pesticide Authority," for the computation of the amount due the petitioner Fertiphil
Corporation pursuant to the 20 November 1991 decision.
SO ORDERED.5
Hence, this petition by PPI.
As a general rule, rules of procedure apply to actions pending and undetermined at the time of their
passage, hence, retrospective in nature. However, the general rule is not without an exception.
Retrospective application is allowed if no vested rights are impaired. 6 Thus, in Land Bank of the
Philippines v. de Leon 7 our ruling that the appropriate mode of review from decisions of Special
Agrarian Courts is a petition for review under Sec. 60 of R.A. No. 6657 and not an ordinary appeal as
Sec. 61 thereof seems to imply, was not given retroactive application. We held that to give our ruling a
retrospective application would prejudice petitioners pending appeals brought under said Sec. 61
before the Court of Appeals at a time when there was yet no clear pronouncement as to the proper
interpretation of the seemingly conflicting Secs. 60 and 61. In fine, to apply the Courts ruling
retroactively would prejudice LBPs right to appeal because its pending appeals would then be
dismissed outright on a mere technicality thereby sacrificing the substantial merits of the cases.
In the instant case, at the time PPI filed its appeal in 1992, all that the rules required for the perfection
of its appeal was the filing of a notice of appeal with the court which rendered the judgment or order
appealed from, within fifteen (15) days from notice thereof. 8 PPI complied with this requirement when it
filed a notice of appeal on February 20, 1992 with the RTC of Makati City, Branch 147, after receiving
copy of its Order dated February 13, 1992 denying its motion for reconsideration of the adverse
Decision dated November 20, 1991 rendered in Civil Case No. 17835. PPIs appeal was therefore
already perfected at that time.
Thus, the 1997 Rules of Civil Procedure which took effect on July 1, 1997 and which required that
appellate docket and other lawful fees should be paid within the same period for taking an appeal, 9 can
not affect PPIs appeal which was already perfected in 1992. Much less could it be considered a ground
for dismissal thereof since PPIs period for taking an appeal, likewise the period for payment of the
appellate docket fee as now required by the rules, has long lapsed in 1992. While the right to appeal is
statutory, the mode or manner by which this right may be exercised is a question of procedure which
may be altered and modified only when vested rights are not impaired. 10 Thus, failure to pay the
appellate docket fee when the 1997 Rules of Procedure took effect cannot operate to deprive PPI of its

right, already perfected in 1992, to have its case reviewed on appeal. In fact the Court of Appeals
recognized such fact when it gave PPI a fresh period to pay the appellate docket fee in an Order dated
April 9, 2002 issued in UDK-CV-No. 0304 11 directing it to pay the fee within fifteen (15) days from
receipt thereof.
This is not all. We have also previously ruled that failure to pay the appellate docket fee does not
automatically result in the dismissal of an appeal, dismissal being discretionary on the part of the
appellate court.12 And in determining whether or not to dismiss an appeal on such ground, courts have
always been guided by the peculiar legal and equitable circumstances attendant to each case. Thus, in
Pedrosa v. Hill13 and Gegare v. Court of Appeals, 14 the appeals were dismissed because appellants
failed to pay the appellate docket fees despite timely notice given them by the Court of Appeals and
despite its admonitions that the appeals would be dismissed in case of non-compliance. On the other
hand, the appeal in Mactan Cebu International Airport Authority v. Mangubat 15 was not dismissed
because we took into account the fact that the 1997 Rules of Civil Procedure had only been in effect for
fourteen (14) days when the Office of the Solicitor General appealed from the decision of the RTC of
Lapu-Lapu City on July 14, 1997 without paying the appellate court docket fees as required by the new
rules. Considering the recency of the changes and appellants immediate payment of the fees when
required to do so, the appeal was not dismissed. We can do no less in the instant case where PPI was
not even required under the rules in 1992 to pay the appellate docket fees at the time it filed its
appeal. We note moreover that PPI, like the appellant in Mactan, promptly paid the fees when required
to do so for the first time by the RTC of Makati in its Order dated April 3, 2001, and informed the Court
of Appeals of such compliance when it in turn notified PPI that the fees were due, in an Order dated
April 9, 2002. The remedy of appeal being an essential part of our judicial system, caution must always
be observed so that every party-litigant is not deprived of its right to appeal, but rather, given amplest
opportunity for the proper and just disposition of his cause, freed from the constraints of
technicalities.16
Having so ruled, we shall refrain from delving into the merits of petitioners other contentions,
discussion of one being the proper subject of the appeal before the Court of Appeals, 17 and the other,
being premature at this point.18
IN VIEW WHEREOF, the petition is GRANTED. The questioned Decision dated July 19, 2002 of the Court
of Appeals in CA-G.R. SP No. 67434 and its Resolution dated December 4, 2002 denying petitioners
motion for reconsideration are SET ASIDE.
The Order dated April 3, 2001 of the Regional Trial Court of Makati City, Branch 147, in Civil Case No.
17835 is reinstated, and the Court of Appeals is ordered to proceed with the resolution of petitioners
appeal docketed as CA-G.R. CV No. 75501 entitled "Fertiphil Corporation v. Planters Products, Inc."
SO ORDERED.
2. G.R. No. 149110

April 9, 2003 NATIONAL POWER CORPORATION, petitioner, vs. CITY

OF ABANATUAN, respondent.

PUNO, J.:
This is a petition for review1 of the Decision2 and the Resolution3 of the Court of Appeals dated March
12, 2001 and July 10, 2001, respectively, finding petitioner National Power Corporation (NPC) liable to
pay franchise tax to respondent City of Cabanatuan.
Petitioner is a government-owned and controlled corporation created under Commonwealth Act No.
120, as amended.4 It is tasked to undertake the "development of hydroelectric generations of power
and the production of electricity from nuclear, geothermal and other sources, as well as, the
transmission of electric power on a nationwide basis."5 Concomitant to its mandated duty, petitioner
has, among others, the power to construct, operate and maintain power plants, auxiliary plants, power

stations and substations for the purpose of developing hydraulic power and supplying such power to
the inhabitants.6
For many years now, petitioner sells electric power to the residents of Cabanatuan City, posting a
gross income of P107,814,187.96 in 1992. 7 Pursuant to section 37 of Ordinance No. 165-92, 8 the
respondent assessed the petitioner a franchise tax amounting to P808,606.41, representing 75% of 1%
of the latter's gross receipts for the preceding year.9
Petitioner, whose capital stock was subscribed and paid wholly by the Philippine Government, 10 refused
to pay the tax assessment. It argued that the respondent has no authority to impose tax on
government entities. Petitioner also contended that as a non-profit organization, it is exempted from
the payment of all forms of taxes, charges, duties or fees 11 in accordance with sec. 13 of Rep. Act No.
6395, as amended, viz:
"Sec.13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties, Fees,
Imposts and Other Charges by Government and Governmental Instrumentalities.- The
Corporation shall be non-profit and shall devote all its return from its capital investment, as
well as excess revenues from its operation, for expansion. To enable the Corporation to pay its
indebtedness and obligations and in furtherance and effective implementation of the policy
enunciated in Section one of this Act, the Corporation is hereby exempt:
(a) From the payment of all taxes, duties, fees, imposts, charges, costs and service fees in any
court or administrative proceedings in which it may be a party, restrictions and duties to the
Republic of the Philippines, its provinces, cities, municipalities and other government agencies
and instrumentalities;
(b) From all income taxes, franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other government agencies and
instrumentalities;
(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees on
import of foreign goods required for its operations and projects; and
(d) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of the
Philippines, its provinces, cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the Corporation in the generation,
transmission, utilization, and sale of electric power." 12
The respondent filed a collection suit in the Regional Trial Court of Cabanatuan City, demanding that
petitioner pay the assessed tax due, plus a surcharge equivalent to 25% of the amount of tax, and 2%
monthly interest.13Respondent alleged that petitioner's exemption from local taxes has been repealed
by section 193 of Rep. Act No. 7160,14 which reads as follows:
"Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or
juridical, including government owned or controlled corporations, except local water districts,
cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and
educational institutions, are hereby withdrawn upon the effectivity of this Code."
On January 25, 1996, the trial court issued an Order 15 dismissing the case. It ruled that the tax
exemption privileges granted to petitioner subsist despite the passage of Rep. Act No. 7160 for the
following reasons: (1) Rep. Act No. 6395 is a particular law and it may not be repealed by Rep. Act No.
7160 which is a general law; (2) section 193 of Rep. Act No. 7160 is in the nature of an implied repeal
which is not favored; and (3) local governments have no power to tax instrumentalities of the national
government. Pertinent portion of the Order reads:

"The question of whether a particular law has been repealed or not by a subsequent law is a
matter of legislative intent. The lawmakers may expressly repeal a law by incorporating therein
repealing provisions which expressly and specifically cite(s) the particular law or laws, and
portions thereof, that are intended to be repealed. A declaration in a statute, usually in its
repealing clause, that a particular and specific law, identified by its number or title is repealed
is an express repeal; all others are implied repeal. Sec. 193 of R.A. No. 7160 is an implied
repealing clause because it fails to identify the act or acts that are intended to be repealed. It
is a well-settled rule of statutory construction that repeals of statutes by implication are not
favored. The presumption is against inconsistency and repugnancy for the legislative is
presumed to know the existing laws on the subject and not to have enacted inconsistent or
conflicting statutes. It is also a well-settled rule that, generally, general law does not repeal a
special law unless it clearly appears that the legislative has intended by the latter general act
to modify or repeal the earlier special law. Thus, despite the passage of R.A. No. 7160 from
which the questioned Ordinance No. 165-92 was based, the tax exemption privileges of
defendant NPC remain.
Another point going against plaintiff in this case is the ruling of the Supreme Court in the case
of Basco vs. Philippine Amusement and Gaming Corporation, 197 SCRA 52, where it was held
that:
'Local governments have no power to tax instrumentalities of the National
Government. PAGCOR is a government owned or controlled corporation with an original
charter, PD 1869. All of its shares of stocks are owned by the National Government.
xxx Being an instrumentality of the government, PAGCOR should be and actually is
exempt from local taxes. Otherwise, its operation might be burdened, impeded or
subjected to control by mere local government.'
Like PAGCOR, NPC, being a government owned and controlled corporation with an original
charter and its shares of stocks owned by the National Government, is beyond the taxing
power of the Local Government. Corollary to this, it should be noted here that in the NPC
Charter's declaration of Policy, Congress declared that: 'xxx (2) the total electrification of the
Philippines through the development of power from all services to meet the needs of industrial
development and dispersal and needs of rural electrification are primary objectives of the
nations which shall be pursued coordinately and supported by all instrumentalities and
agencies of the government, including its financial institutions.' (underscoring supplied). To
allow plaintiff to subject defendant to its tax-ordinance would be to impede the avowed goal of
this government instrumentality.
Unlike the State, a city or municipality has no inherent power of taxation. Its taxing power is
limited to that which is provided for in its charter or other statute. Any grant of taxing power is
to be construed strictly, with doubts resolved against its existence.
From the existing law and the rulings of the Supreme Court itself, it is very clear that the
plaintiff could not impose the subject tax on the defendant."16
On appeal, the Court of Appeals reversed the trial court's Order 17 on the ground that section 193, in
relation to sections 137 and 151 of the LGC, expressly withdrew the exemptions granted to the
petitioner.18 It ordered the petitioner to pay the respondent city government the following: (a) the sum
of P808,606.41 representing the franchise tax due based on gross receipts for the year 1992, (b) the
tax due every year thereafter based in the gross receipts earned by NPC, (c) in all cases, to pay a
surcharge of 25% of the tax due and unpaid, and (d) the sum of P 10,000.00 as litigation expense. 19
On April 4, 2001, the petitioner filed a Motion for Reconsideration on the Court of Appeal's Decision.
This was denied by the appellate court, viz:

"The Court finds no merit in NPC's motion for reconsideration. Its arguments reiterated therein
that the taxing power of the province under Art. 137 (sic) of the Local Government Code refers
merely to private persons or corporations in which category it (NPC) does not belong, and that
the LGC (RA 7160) which is a general law may not impliedly repeal the NPC Charter which is a
special lawfinds the answer in Section 193 of the LGC to the effect that 'tax exemptions or
incentives granted to, or presently enjoyed by all persons, whether natural or juridical,
including government-owned or controlled corporations except local water districts xxx are
hereby withdrawn.' The repeal is direct and unequivocal, not implied.
IN VIEW WHEREOF, the motion for reconsideration is hereby DENIED.
SO ORDERED."20
In this petition for review, petitioner raises the following issues:
"A. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC, A PUBLIC NON-PROFIT
CORPORATION, IS LIABLE TO PAY A FRANCHISE TAX AS IT FAILED TO CONSIDER THAT SECTION
137 OF THE LOCAL GOVERNMENT CODE IN RELATION TO SECTION 131 APPLIES ONLY TO
PRIVATE PERSONS OR CORPORATIONS ENJOYING A FRANCHISE.
B. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC'S EXEMPTION FROM ALL
FORMS OF TAXES HAS BEEN REPEALED BY THE PROVISION OF THE LOCAL GOVERNMENT CODE
AS THE ENACTMENT OF A LATER LEGISLATION, WHICH IS A GENERAL LAW, CANNOT BE
CONSTRUED TO HAVE REPEALED A SPECIAL LAW.
C. THE COURT OF APPEALS GRAVELY ERRED IN NOT CONSIDERING THAT AN EXERCISE OF
POLICE POWER THROUGH TAX EXEMPTION SHOULD PREVAIL OVER THE LOCAL GOVERNMENT
CODE."21
It is beyond dispute that the respondent city government has the authority to issue Ordinance No. 16592 and impose an annual tax on "businesses enjoying a franchise," pursuant to section 151 in relation
to section 137 of the LGC, viz:
"Sec. 137. Franchise Tax. - Notwithstanding any exemption granted by any law or other special
law, the province may impose a tax on businesses enjoying a franchise, at a rate not
exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the
preceding calendar year based on the incoming receipt, or realized, within its territorial
jurisdiction.
In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one
percent (1%) of the capital investment. In the succeeding calendar year, regardless of when
the business started to operate, the tax shall be based on the gross receipts for the preceding
calendar year, or any fraction thereof, as provided herein." (emphasis supplied)
x

Sec. 151. Scope of Taxing Powers.- Except as otherwise provided in this Code, the city, may
levy the taxes, fees, and charges which the province or municipality may impose: Provided,
however, That the taxes, fees and charges levied and collected by highly urbanized and
independent component cities shall accrue to them and distributed in accordance with the
provisions of this Code.

The rates of taxes that the city may levy may exceed the maximum rates allowed for the
province or municipality by not more than fifty percent (50%) except the rates of professional
and amusement taxes."
Petitioner, however, submits that it is not liable to pay an annual franchise tax to the respondent city
government. It contends that sections 137 and 151 of the LGC in relation to section 131, limit the
taxing power of the respondent city government to private entities that are engaged in trade or
occupation for profit.22
Section 131 (m) of the LGC defines a "franchise" as "a right or privilege, affected with public interest
which is conferred upon private persons or corporations, under such terms and conditions as the
government and its political subdivisions may impose in the interest of the public welfare, security and
safety." From the phraseology of this provision, the petitioner claims that the word "private" modifies
the terms "persons" and "corporations." Hence, when the LGC uses the term "franchise," petitioner
submits that it should refer specifically to franchises granted to private natural persons and to private
corporations.23 Ergo, its charter should not be considered a "franchise" for the purpose of imposing the
franchise tax in question.
On the other hand, section 131 (d) of the LGC defines "business" as "trade or commercial activity
regularly engaged in as means of livelihood or with a view to profit." Petitioner claims that it is not
engaged in an activity for profit, in as much as its charter specifically provides that it is a "non-profit
organization." In any case, petitioner argues that the accumulation of profit is merely incidental to its
operation; all these profits are required by law to be channeled for expansion and improvement of its
facilities and services.24
Petitioner also alleges that it is an instrumentality of the National Government, 25 and as such, may not
be taxed by the respondent city government. It cites the doctrine in Basco vs. Philippine Amusement
and Gaming Corporation26 where this Court held that local governments have no power to tax
instrumentalities of the National Government, viz:
"Local governments have no power to tax instrumentalities of the National Government.
PAGCOR has a dual role, to operate and regulate gambling casinos. The latter role is
governmental, which places it in the category of an agency or instrumentality of the
Government. Being an instrumentality of the Government, PAGCOR should be and actually is
exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected to
control by a mere local government.
'The states have no power by taxation or otherwise, to retard, impede, burden or in
any manner control the operation of constitutional laws enacted by Congress to carry
into execution the powers vested in the federal government. (MC Culloch v. Maryland,
4 Wheat 316, 4 L Ed. 579)'
This doctrine emanates from the 'supremacy' of the National Government over local
governments.
'Justice Holmes, speaking for the Supreme Court, made reference to the entire absence
of power on the part of the States to touch, in that way (taxation) at least, the
instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it can be
agreed that no state or political subdivision can regulate a federal instrumentality in
such a way as to prevent it from consummating its federal responsibilities, or even
seriously burden it from accomplishment of them.' (Antieau, Modern Constitutional
Law, Vol. 2, p. 140, italics supplied)

Otherwise, mere creatures of the State can defeat National policies thru extermination of what
local authorities may perceive to be undesirable activities or enterprise using the power to tax
as ' a tool regulation' (U.S. v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the 'power to destroy' ( Mc Culloch v.
Maryland,supra) cannot be allowed to defeat an instrumentality or creation of the very entity
which has the inherent power to wield it."27
Petitioner contends that section 193 of Rep. Act No. 7160, withdrawing the tax privileges of
government-owned or controlled corporations, is in the nature of an implied repeal. A special law, its
charter cannot be amended or modified impliedly by the local government code which is a general law.
Consequently, petitioner claims that its exemption from all taxes, fees or charges under its charter
subsists despite the passage of the LGC, viz:
"It is a well-settled rule of statutory construction that repeals of statutes by implication are not
favored and as much as possible, effect must be given to all enactments of the legislature.
Moreover, it has to be conceded that the charter of the NPC constitutes a special law. Republic
Act No. 7160, is a general law. It is a basic rule in statutory construction that the enactment of
a later legislation which is a general law cannot be construed to have repealed a special law.
Where there is a conflict between a general law and a special statute, the special statute
should prevail since it evinces the legislative intent more clearly than the general statute." 28
Finally, petitioner submits that the charter of the NPC, being a valid exercise of police power, should
prevail over the LGC. It alleges that the power of the local government to impose franchise tax is
subordinate to petitioner's exemption from taxation; "police power being the most pervasive, the least
limitable and most demanding of all powers, including the power of taxation." 29
The petition is without merit.
Taxes are the lifeblood of the government,30 for without taxes, the government can neither exist nor
endure. A principal attribute of sovereignty, 31 the exercise of taxing power derives its source from the
very existence of the state whose social contract with its citizens obliges it to promote public interest
and common good. The theory behind the exercise of the power to tax emanates from
necessity;32 without taxes, government cannot fulfill its mandate of promoting the general welfare and
well-being of the people.
In recent years, the increasing social challenges of the times expanded the scope of state activity, and
taxation has become a tool to realize social justice and the equitable distribution of wealth, economic
progress and the protection of local industries as well as public welfare and similar
objectives.33 Taxation assumes even greater significance with the ratification of the 1987 Constitution.
Thenceforth, the power to tax is no longer vested exclusively on Congress; local legislative bodies are
now given direct authority to levy taxes, fees and other charges 34 pursuant to Article X, section 5 of the
1987 Constitution, viz:
"Section 5.- Each Local Government unit shall have the power to create its own sources of
revenue, to levy taxes, fees and charges subject to such guidelines and limitations as the
Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees and
charges shall accrue exclusively to the Local Governments."
This paradigm shift results from the realization that genuine development can be achieved only by
strengthening local autonomy and promoting decentralization of governance. For a long time, the
country's highly centralized government structure has bred a culture of dependence among local
government leaders upon the national leadership. It has also "dampened the spirit of initiative,
innovation and imaginative resilience in matters of local development on the part of local government
leaders."35 The only way to shatter this culture of dependence is to give the LGUs a wider role in the

delivery of basic services, and confer them sufficient powers to generate their own sources for the
purpose. To achieve this goal, section 3 of Article X of the 1987 Constitution mandates Congress to
enact a local government code that will, consistent with the basic policy of local autonomy, set the
guidelines and limitations to this grant of taxing powers, viz:
"Section 3. The Congress shall enact a local government code which shall provide for a more
responsive and accountable local government structure instituted through a system of
decentralization with effective mechanisms of recall, initiative, and referendum, allocate
among the different local government units their powers, responsibilities, and resources, and
provide for the qualifications, election, appointment and removal, term, salaries, powers and
functions and duties of local officials, and all other matters relating to the organization and
operation of the local units."
To recall, prior to the enactment of the Rep. Act No. 7160, 36 also known as the Local Government Code
of 1991 (LGC), various measures have been enacted to promote local autonomy. These include the
Barrio Charter of 1959,37 the Local Autonomy Act of 1959, 38 the Decentralization Act of 196739 and the
Local Government Code of 1983. 40 Despite these initiatives, however, the shackles of dependence on
the national government remained. Local government units were faced with the same problems that
hamper their capabilities to participate effectively in the national development efforts, among which
are: (a) inadequate tax base, (b) lack of fiscal control over external sources of income, (c) limited
authority to prioritize and approve development projects, (d) heavy dependence on external sources of
income, and (e) limited supervisory control over personnel of national line agencies. 41
Considered as the most revolutionary piece of legislation on local autonomy, 42 the LGC effectively
deals with the fiscal constraints faced by LGUs. It widens the tax base of LGUs to include taxes which
were prohibited by previous laws such as the imposition of taxes on forest products, forest
concessionaires, mineral products, mining operations, and the like. The LGC likewise provides enough
flexibility to impose tax rates in accordance with their needs and capabilities. It does not prescribe
graduated fixed rates but merely specifies the minimum and maximum tax rates and leaves the
determination of the actual rates to the respective sanggunian.43
One of the most significant provisions of the LGC is the removal of the blanket exclusion of
instrumentalities and agencies of the national government from the coverage of local taxation.
Although as a general rule, LGUs cannot impose taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities, this rule now admits an exception, i.e., when specific
provisions of the LGC authorize the LGUs to impose taxes, fees or charges on the aforementioned
entities, viz:
"Section 133. Common Limitations on the Taxing Powers of the Local Government
Units.- Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of the following:
x

(o) Taxes, fees, or charges of any kind on the National Government, its agencies and
instrumentalities, and local government units." (emphasis supplied)
In view of the afore-quoted provision of the LGC, the doctrine in Basco vs. Philippine Amusement and
Gaming Corporation44 relied upon by the petitioner to support its claim no longer applies. To
emphasize, the Basco case was decided prior to the effectivity of the LGC, when no law empowering
the local government units to tax instrumentalities of the National Government was in effect. However,
as this Court ruled in the case of Mactan Cebu International Airport Authority (MCIAA) vs.
Marcos,45 nothing prevents Congress from decreeing that even instrumentalities or agencies of the
government performing governmental functions may be subject to tax. 46 In enacting the LGC, Congress
exercised its prerogative to tax instrumentalities and agencies of government as it sees fit. Thus, after

reviewing the specific provisions of the LGC, this Court held that MCIAA, although an instrumentality of
the national government, was subject to real property tax, viz:
"Thus, reading together sections 133, 232, and 234 of the LGC, we conclude that as a general
rule, as laid down in section 133, the taxing power of local governments cannot extend to the
levy of inter alia, 'taxes, fees and charges of any kind on the national government, its agencies
and instrumentalities, and local government units'; however, pursuant to section 232,
provinces, cities and municipalities in the Metropolitan Manila Area may impose the real
property tax except on, inter alia, 'real property owned by the Republic of the Philippines or
any of its political subdivisions except when the beneficial use thereof has been granted for
consideration or otherwise, to a taxable person as provided in the item (a) of the first
paragraph of section 12.'"47
In the case at bar, section 151 in relation to section 137 of the LGC clearly authorizes the respondent
city government to impose on the petitioner the franchise tax in question.
In its general signification, a franchise is a privilege conferred by government authority, which does not
belong to citizens of the country generally as a matter of common right. 48 In its specific sense, a
franchise may refer to a general or primary franchise, or to a special or secondary franchise. The
former relates to the right to exist as a corporation, by virtue of duly approved articles of incorporation,
or a charter pursuant to a special law creating the corporation. 49 The right under a primary or general
franchise is vested in the individuals who compose the corporation and not in the corporation
itself.50 On the other hand, the latter refers to the right or privileges conferred upon an existing
corporation such as the right to use the streets of a municipality to lay pipes of tracks, erect poles or
string wires.51 The rights under a secondary or special franchise are vested in the corporation and may
ordinarily be conveyed or mortgaged under a general power granted to a corporation to dispose of its
property, except such special or secondary franchises as are charged with a public use. 52
In section 131 (m) of the LGC, Congress unmistakably defined a franchise in the sense of a secondary
or special franchise. This is to avoid any confusion when the word franchise is used in the context of
taxation. As commonly used, a franchise tax is "a tax on the privilege of transacting business in the
state and exercising corporate franchises granted by the state." 53 It is not levied on the corporation
simply for existing as a corporation, upon its property 54 or its income,55 but on its exercise of the rights
or privileges granted to it by the government. Hence, a corporation need not pay franchise tax from
the time it ceased to do business and exercise its franchise. 56 It is within this context that the phrase
"tax on businesses enjoying a franchise" in section 137 of the LGC should be interpreted and
understood. Verily, to determine whether the petitioner is covered by the franchise tax in question, the
following requisites should concur: (1) that petitioner has a "franchise" in the sense of a secondary or
special franchise; and (2) that it is exercising its rights or privileges under this franchise within the
territory of the respondent city government.
Petitioner fulfills the first requisite. Commonwealth Act No. 120, as amended by Rep. Act No. 7395,
constitutes petitioner's primary and secondary franchises. It serves as the petitioner's charter, defining
its composition, capitalization, the appointment and the specific duties of its corporate officers, and its
corporate life span.57 As its secondary franchise, Commonwealth Act No. 120, as amended, vests the
petitioner the following powers which are not available to ordinary corporations, viz:
"x x x
(e) To conduct investigations and surveys for the development of water power in any part of
the Philippines;
(f) To take water from any public stream, river, creek, lake, spring or waterfall in the
Philippines, for the purposes specified in this Act; to intercept and divert the flow of waters
from lands of riparian owners and from persons owning or interested in waters which are or

may be necessary for said purposes, upon payment of just compensation therefor; to alter,
straighten, obstruct or increase the flow of water in streams or water channels intersecting or
connecting therewith or contiguous to its works or any part thereof: Provided, That just
compensation shall be paid to any person or persons whose property is, directly or indirectly,
adversely affected or damaged thereby;
(g) To construct, operate and maintain power plants, auxiliary plants, dams, reservoirs, pipes,
mains, transmission lines, power stations and substations, and other works for the purpose of
developing hydraulic power from any river, creek, lake, spring and waterfall in the Philippines
and supplying such power to the inhabitants thereof; to acquire, construct, install, maintain,
operate, and improve gas, oil, or steam engines, and/or other prime movers, generators and
machinery in plants and/or auxiliary plants for the production of electric power; to establish,
develop, operate, maintain and administer power and lighting systems for the transmission
and utilization of its power generation; to sell electric power in bulk to (1) industrial
enterprises, (2) city, municipal or provincial systems and other government institutions, (3)
electric cooperatives, (4) franchise holders, and (5) real estate subdivisions x x x;
(h) To acquire, promote, hold, transfer, sell, lease, rent, mortgage, encumber and otherwise
dispose of property incident to, or necessary, convenient or proper to carry out the purposes
for which the Corporation was created: Provided, That in case a right of way is necessary for its
transmission lines, easement of right of way shall only be sought: Provided, however, That in
case the property itself shall be acquired by purchase, the cost thereof shall be the fair market
value at the time of the taking of such property;
(i) To construct works across, or otherwise, any stream, watercourse, canal, ditch, flume,
street, avenue, highway or railway of private and public ownership, as the location of said
works may require xxx;
(j) To exercise the right of eminent domain for the purpose of this Act in the manner provided
by law for instituting condemnation proceedings by the national, provincial and municipal
governments;
x

(m) To cooperate with, and to coordinate its operations with those of the National
Electrification Administration and public service entities;
(n) To exercise complete jurisdiction and control over watersheds surrounding the reservoirs of
plants and/or projects constructed or proposed to be constructed by the Corporation. Upon
determination by the Corporation of the areas required for watersheds for a specific project,
the Bureau of Forestry, the Reforestation Administration and the Bureau of Lands shall, upon
written advice by the Corporation, forthwith surrender jurisdiction to the Corporation of all
areas embraced within the watersheds, subject to existing private rights, the needs of
waterworks systems, and the requirements of domestic water supply;
(o) In the prosecution and maintenance of its projects, the Corporation shall adopt measures to
prevent environmental pollution and promote the conservation, development and maximum
utilization of natural resources xxx "58
With these powers, petitioner eventually had the monopoly in the generation and distribution of
electricity. This monopoly was strengthened with the issuance of Pres. Decree No. 40, 59 nationalizing
the electric power industry. Although Exec. Order No. 21560 thereafter allowed private sector
participation in the generation of electricity, the transmission of electricity remains the monopoly of
the petitioner.

Petitioner also fulfills the second requisite. It is operating within the respondent city government's
territorial jurisdiction pursuant to the powers granted to it by Commonwealth Act No. 120, as
amended. From its operations in the City of Cabanatuan, petitioner realized a gross income of
P107,814,187.96 in 1992. Fulfilling both requisites, petitioner is, and ought to be, subject of the
franchise tax in question.
Petitioner, however, insists that it is excluded from the coverage of the franchise tax simply because
its stocks are wholly owned by the National Government, and its charter characterized it as a "nonprofit" organization.
These contentions must necessarily fail.
To stress, a franchise tax is imposed based not on the ownership but on the exercise by the corporation
of a privilege to do business. The taxable entity is the corporation which exercises the franchise, and
not the individual stockholders. By virtue of its charter, petitioner was created as a separate and
distinct entity from the National Government. It can sue and be sued under its own name, 61 and can
exercise all the powers of a corporation under the Corporation Code. 62
To be sure, the ownership by the National Government of its entire capital stock does not necessarily
imply that petitioner is not engaged in business. Section 2 of Pres. Decree No. 2029 63 classifies
government-owned or controlled corporations (GOCCs) into those performing governmental functions
and those performing proprietary functions, viz:
"A government-owned or controlled corporation is a stock or a non-stock corporation, whether
performing governmental or proprietary functions, which is directly chartered by special law or
if organized under the general corporation law is owned or controlled by the government
directly, or indirectly through a parent corporation or subsidiary corporation, to the extent of at
least a majority of its outstanding voting capital stock x x x." (emphases supplied)
Governmental functions are those pertaining to the administration of government, and as such, are
treated as absolute obligation on the part of the state to perform while proprietary functions are those
that are undertaken only by way of advancing the general interest of society, and are merely optional
on the government.64 Included in the class of GOCCs performing proprietary functions are "businesslike" entities such as the National Steel Corporation (NSC), the National Development Corporation
(NDC), the Social Security System (SSS), the Government Service Insurance System (GSIS), and the
National Water Sewerage Authority (NAWASA),65 among others.
Petitioner was created to "undertake the development of hydroelectric generation of power and the
production of electricity from nuclear, geothermal and other sources, as well as the transmission of
electric power on a nationwide basis." 66 Pursuant to this mandate, petitioner generates power and sells
electricity in bulk. Certainly, these activities do not partake of the sovereign functions of the
government. They are purely private and commercial undertakings, albeit imbued with public interest.
The public interest involved in its activities, however, does not distract from the true nature of the
petitioner as a commercial enterprise, in the same league with similar public utilities like telephone
and telegraph companies, railroad companies, water supply and irrigation companies, gas, coal or light
companies, power plants, ice plant among others; all of which are declared by this Court as ministrant
or proprietary functions of government aimed at advancing the general interest of society. 67
A closer reading of its charter reveals that even the legislature treats the character of the petitioner's
enterprise as a "business," although it limits petitioner's profits to twelve percent (12%), viz:68
"(n) When essential to the proper administration of its corporate affairs or necessary for the
proper transaction of its business or to carry out the purposes for which it was organized, to
contract indebtedness and issue bonds subject to approval of the President upon
recommendation of the Secretary of Finance;

(o) To exercise such powers and do such things as may be reasonably necessary to carry out
the business and purposes for which it was organized, or which, from time to time, may be
declared by the Board to be necessary, useful, incidental or auxiliary to accomplish the said
purpose xxx."(emphases supplied)
It is worthy to note that all other private franchise holders receiving at least sixty percent (60%) of its
electricity requirement from the petitioner are likewise imposed the cap of twelve percent (12%) on
profits.69 The main difference is that the petitioner is mandated to devote "all its returns from its capital
investment, as well as excess revenues from its operation, for expansion" 70 while other franchise
holders have the option to distribute their profits to its stockholders by declaring dividends. We do not
see why this fact can be a source of difference in tax treatment. In both instances, the taxable entity is
the corporation, which exercises the franchise, and not the individual stockholders.
We also do not find merit in the petitioner's contention that its tax exemptions under its charter subsist
despite the passage of the LGC.
As a rule, tax exemptions are construed strongly against the claimant. Exemptions must be shown to
exist clearly and categorically, and supported by clear legal provisions. 71 In the case at bar, the
petitioner's sole refuge is section 13 of Rep. Act No. 6395 exempting from, among others, "all income
taxes, franchise taxes and realty taxes to be paid to the National Government, its provinces, cities,
municipalities and other government agencies and instrumentalities." However, section 193 of the LGC
withdrew, subject to limited exceptions, the sweeping tax privileges previously enjoyed by private and
public corporations. Contrary to the contention of petitioner, section 193 of the LGC is an express,
albeit general, repeal of all statutes granting tax exemptions from local taxes. 72 It reads:
"Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this Code,
tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural
or juridical, including government-owned or controlled corporations, except local water
districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals
and educational institutions, are hereby withdrawn upon the effectivity of this Code."
(emphases supplied)
It is a basic precept of statutory construction that the express mention of one person, thing, act, or
consequence excludes all others as expressed in the familiar maxim expressio unius est exclusio
alterius.73 Not being a local water district, a cooperative registered under R.A. No. 6938, or a non-stock
and non-profit hospital or educational institution, petitioner clearly does not belong to the exception. It
is therefore incumbent upon the petitioner to point to some provisions of the LGC that expressly grant
it exemption from local taxes.
But this would be an exercise in futility. Section 137 of the LGC clearly states that the LGUs can impose
franchise tax "notwithstanding any exemption granted by any law or other special law." This particular
provision of the LGC does not admit any exception. In City Government of San Pablo, Laguna v.
Reyes,74 MERALCO's exemption from the payment of franchise taxes was brought as an issue before
this Court. The same issue was involved in the subsequent case of Manila Electric Company v. Province
of Laguna.75 Ruling in favor of the local government in both instances, we ruled that the franchise tax
in question is imposable despite any exemption enjoyed by MERALCO under special laws, viz:
"It is our view that petitioners correctly rely on provisions of Sections 137 and 193 of the LGC
to support their position that MERALCO's tax exemption has been withdrawn. The explicit
language of section 137 which authorizes the province to impose franchise tax
'notwithstanding any exemption granted by any law or other special law' is all-encompassing
and clear. The franchise tax is imposable despite any exemption enjoyed under special laws.
Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating that
unless otherwise provided in this Code, tax exemptions or incentives granted to or presently

enjoyed by all persons, whether natural or juridical, including government-owned or controlled

corporations except (1) local water districts, (2) cooperatives duly registered under R.A. 6938,
(3) non-stock and non-profit hospitals and educational institutions, are withdrawn upon the
effectivity of this code, the obvious import is to limit the exemptions to the three enumerated
entities. It is a basic precept of statutory construction that the express mention of one person,
thing, act, or consequence excludes all others as expressed in the familiar maxim expressio
unius est exclusio alterius. In the absence of any provision of the Code to the contrary, and we
find no other provision in point, any existing tax exemption or incentive enjoyed by MERALCO
under existing law was clearly intended to be withdrawn.
Reading together sections 137 and 193 of the LGC, we conclude that under the LGC the local
government unit may now impose a local tax at a rate not exceeding 50% of 1% of the gross
annual receipts for the preceding calendar based on the incoming receipts realized within its
territorial jurisdiction. The legislative purpose to withdraw tax privileges enjoyed under
existing law or charter is clearly manifested by the language used on (sic) Sections 137 and
193 categorically withdrawing such exemption subject only to the exceptions enumerated.
Since it would be not only tedious and impractical to attempt to enumerate all the existing
statutes providing for special tax exemptions or privileges, the LGC provided for an express,
albeit general, withdrawal of such exemptions or privileges. No more unequivocal language
could have been used."76 (emphases supplied).
It is worth mentioning that section 192 of the LGC empowers the LGUs, through ordinances duly
approved, to grant tax exemptions, initiatives or reliefs. 77 But in enacting section 37 of Ordinance No.
165-92 which imposes an annual franchise tax "notwithstanding any exemption granted by law or
other special law," the respondent city government clearly did not intend to exempt the petitioner from
the coverage thereof.
Doubtless, the power to tax is the most effective instrument to raise needed revenues to finance and
support myriad activities of the local government units for the delivery of basic services essential to
the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the
people. As this Court observed in the Mactan case, "the original reasons for the withdrawal of tax
exemption privileges granted to government-owned or controlled corporations and all other units of
government were that such privilege resulted in serious tax base erosion and distortions in the tax
treatment of similarly situated enterprises." 78 With the added burden of devolution, it is even more
imperative for government entities to share in the requirements of development, fiscal or otherwise, by
paying taxes or other charges due from them.
IN VIEW WHEREOF, the instant petition is DENIED and the assailed Decision and Resolution of the
Court of Appeals dated March 12, 2001 and July 10, 2001, respectively, are hereby AFFIRMED.
SO ORDERED.
3. G.R. No. 168056 September 1, 2005 ABAKADA GURO PARTY LIST (Formerly AASJAS)
OFFICERS SAMSON S. ALCANTARA and ED VINCENT S. ALBANO, Petitioners, vs. THE
HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA; HONORABLE SECRETARY OF
THE DEPARTMENT OF FINANCE CESAR PURISIMA; and HONORABLE COMMISSIONER
OF INTERNAL REVENUE GUILLERMO PARAYNO, JR., Respondent.
x-------------------------x
G.R. No. 168207 AQUILINO Q. PIMENTEL, JR., LUISA P. EJERCITO-ESTRADA, JINGGOY
E. ESTRADA, PANFILO M. LACSON, ALFREDO S. LIM, JAMBY A.S. MADRIGAL, AND
SERGIO
R.
OSMEA
III,
Petitioners, vs.
EXECUTIVE SECRETARY EDUARDO R. ERMITA, CESAR V. PURISIMA, SECRETARY OF
FINANCE, GUILLERMO L. PARAYNO, JR., COMMISSIONER OF THE BUREAU OF
INTERNAL REVENUE, Respondent.

x-------------------------x
G.R. No. 168461 ASSOCIATION OF PILIPINAS SHELL DEALERS, INC. represented by its President,
ROSARIO ANTONIO; PETRON DEALERS ASSOCIATION represented by its President, RUTH E.
BARBIBI; ASSOCIATION OF CALTEX DEALERS OF THE PHILIPPINES represented by its President,
MERCEDITAS A. GARCIA; ROSARIO ANTONIO doing business under the name and style of "ANB
NORTH SHELL SERVICE STATION"; LOURDES MARTINEZ doing business under the name and
style of "SHELL GATE N. DOMINGO"; BETHZAIDA TAN doing business under the name and
style of "ADVANCE SHELL STATION"; REYNALDO P. MONTOYA doing business under the name
and style of "NEW LAMUAN SHELL SERVICE STATION"; EFREN SOTTO doing business under the
name and style of "RED FIELD SHELL SERVICE STATION"; DONICA CORPORATION represented
by its President, DESI TOMACRUZ; RUTH E. MARBIBI doing business under the name and style
of "R&R PETRON STATION"; PETER M. UNGSON doing business under the name and style of
"CLASSIC STAR GASOLINE SERVICE STATION"; MARIAN SHEILA A. LEE doing business under the
name and style of "NTE GASOLINE & SERVICE STATION"; JULIAN CESAR P. POSADAS doing
business under the name and style of "STARCARGA ENTERPRISES"; ADORACION MAEBO doing
business under the name and style of "CMA MOTORISTS CENTER"; SUSAN M. ENTRATA doing
business under the name and style of "LEONAS GASOLINE STATION and SERVICE CENTER";
CARMELITA BALDONADO doing business under the name and style of "FIRST CHOICE SERVICE
CENTER"; MERCEDITAS A. GARCIA doing business under the name and style of "LORPED
SERVICE CENTER"; RHEAMAR A. RAMOS doing business under the name and style of "RJRAM
PTT GAS STATION"; MA. ISABEL VIOLAGO doing business under the name and style of
"VIOLAGO-PTT SERVICE CENTER"; MOTORISTS HEART CORPORATION represented by its VicePresident for Operations, JOSELITO F. FLORDELIZA; MOTORISTS HARVARD CORPORATION
represented by its Vice-President for Operations, JOSELITO F. FLORDELIZA; MOTORISTS
HERITAGE CORPORATION represented by its Vice-President for Operations, JOSELITO F.
FLORDELIZA; PHILIPPINE STANDARD OIL CORPORATION represented by its Vice-President for
Operations, JOSELITO F. FLORDELIZA; ROMEO MANUEL doing business under the name and
style of "ROMMAN GASOLINE STATION"; ANTHONY ALBERT CRUZ III doing business under the
name
and
style
of
"TRUE
SERVICE
STATION",
Petitioners, vs.
CESAR V. PURISIMA, in his capacity as Secretary of the Department of Finance and
GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of Internal
Revenue, Respondent.
x-------------------------x
G.R. No. 168463 FRANCIS JOSEPH G. ESCUDERO, VINCENT CRISOLOGO, EMMANUEL JOEL J.
VILLANUEVA, RODOLFO G. PLAZA, DARLENE ANTONINO-CUSTODIO, OSCAR G. MALAPITAN,
BENJAMIN C. AGARAO, JR. JUAN EDGARDO M. ANGARA, JUSTIN MARC SB. CHIPECO, FLORENCIO
G. NOEL, MUJIV S. HATAMAN, RENATO B. MAGTUBO, JOSEPH A. SANTIAGO, TEOFISTO DL.
GUINGONA III, RUY ELIAS C. LOPEZ, RODOLFO Q. AGBAYANI and TEODORO A. CASIO,
Petitioners, vs. CESAR V. PURISIMA, in his capacity as Secretary of Finance,
GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of Internal Revenue,
and EDUARDO R. ERMITA, in his capacity as Executive Secretary, Respondent.
x-------------------------x
G.R. No. 168730 BATAAN GOVERNOR ENRIQUE T. GARCIA, JR. Petitioner, vs. HON. EDUARDO R.
ERMITA, in his capacity as the Executive Secretary; HON. MARGARITO TEVES, in his capacity as
Secretary of Finance; HON. JOSE MARIO BUNAG, in his capacity as the OIC Commissioner of the
Bureau of Internal Revenue; and HON. ALEXANDER AREVALO, in his capacity as the OIC
Commissioner of the Bureau of Customs, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:

The expenses of government, having for their object the interest of all, should be borne by everyone,
and the more man enjoys the advantages of society, the more he ought to hold himself honored in
contributing to those expenses.
-Anne Robert Jacques Turgot (1727-1781)
French statesman and economist
Mounting budget deficit, revenue generation, inadequate fiscal allocation for education, increased
emoluments for health workers, and wider coverage for full value-added tax benefits these are the
reasons why Republic Act No. 9337 (R.A. No. 9337) 1 was enacted. Reasons, the wisdom of which, the
Court even with its extensive constitutional power of review, cannot probe. The petitioners in these
cases, however, question not only the wisdom of the law, but also perceived constitutional infirmities
in its passage.
Every law enjoys in its favor the presumption of constitutionality. Their arguments notwithstanding,
petitioners failed to justify their call for the invalidity of the law. Hence, R.A. No. 9337 is not
unconstitutional.
LEGISLATIVE HISTORY
R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill Nos. 3555 and 3705, and
Senate Bill No. 1950.
House Bill No. 35552 was introduced on first reading on January 7, 2005. The House Committee on
Ways and Means approved the bill, in substitution of House Bill No. 1468, which Representative (Rep.)
Eric D. Singson introduced on August 8, 2004. The President certified the bill on January 7, 2005 for
immediate enactment. On January 27, 2005, the House of Representatives approved the bill on second
and third reading.
House Bill No. 37053 on the other hand, substituted House Bill No. 3105 introduced by Rep. Salacnib
F. Baterina, and House Bill No. 3381 introduced by Rep. Jacinto V. Paras. Its "mother bill" is House Bill
No. 3555. The House Committee on Ways and Means approved the bill on February 2, 2005. The
President also certified it as urgent on February 8, 2005. The House of Representatives approved the
bill on second and third reading on February 28, 2005.
Meanwhile, the Senate Committee on Ways and Means approved Senate Bill No. 19504 on March 7,
2005, "in substitution of Senate Bill Nos. 1337, 1838 and 1873, taking into consideration House Bill
Nos. 3555 and 3705." Senator Ralph G. Recto sponsored Senate Bill No. 1337, while Senate Bill Nos.
1838 and 1873 were both sponsored by Sens. Franklin M. Drilon, Juan M. Flavier and Francis N.
Pangilinan. The President certified the bill on March 11, 2005, and was approved by the Senate on
second and third reading on April 13, 2005.
On the same date, April 13, 2005, the Senate agreed to the request of the House of Representatives
for a committee conference on the disagreeing provisions of the proposed bills.
Before long, the Conference Committee on the Disagreeing Provisions of House Bill No. 3555, House
Bill No. 3705, and Senate Bill No. 1950, "after having met and discussed in full free and conference,"
recommended the approval of its report, which the Senate did on May 10, 2005, and with the House of
Representatives agreeing thereto the next day, May 11, 2005.
On May 23, 2005, the enrolled copy of the consolidated House and Senate version was transmitted to
the President, who signed the same into law on May 24, 2005. Thus, came R.A. No. 9337.
July 1, 2005 is the effectivity date of R.A. No. 9337. 5 When said date came, the Court issued a
temporary restraining order, effective immediately and continuing until further orders, enjoining
respondents from enforcing and implementing the law.

Oral arguments were held on July 14, 2005. Significantly, during the hearing, the Court speaking
through Mr. Justice Artemio V. Panganiban, voiced the rationale for its issuance of the temporary
restraining order on July 1, 2005, to wit:
J. PANGANIBAN : . . . But before I go into the details of your presentation, let me just tell you a little
background. You know when the law took effect on July 1, 2005, the Court issued a TRO at about 5
oclock in the afternoon. But before that, there was a lot of complaints aired on television and on radio.
Some people in a gas station were complaining that the gas prices went up by 10%. Some people were
complaining that their electric bill will go up by 10%. Other times people riding in domestic air carrier
were complaining that the prices that theyll have to pay would have to go up by 10%. While all that
was being aired, per your presentation and per our own understanding of the law, thats not true. Its
not true that the e-vat law necessarily increased prices by 10% uniformly isnt it?
ATTY. BANIQUED : No, Your Honor.
J. PANGANIBAN : It is not?
ATTY. BANIQUED : Its not, because, Your Honor, there is an Executive Order that granted the Petroleum
companies some subsidy . . . interrupted
J. PANGANIBAN : Thats correct . . .
ATTY. BANIQUED : . . . and therefore that was meant to temper the impact . . . interrupted
J. PANGANIBAN : . . . mitigating measures . . .
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : As a matter of fact a part of the mitigating measures would be the elimination of the
Excise Tax and the import duties. That is why, it is not correct to say that the VAT as to petroleum
dealers increased prices by 10%.
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : And therefore, there is no justification for increasing the retail price by 10% to cover
the E-Vat tax. If you consider the excise tax and the import duties, the Net Tax would probably be in the
neighborhood of 7%? We are not going into exact figures I am just trying to deliver a point that
different industries, different products, different services are hit differently. So its not correct to say
that all prices must go up by 10%.
ATTY. BANIQUED : Youre right, Your Honor.
J. PANGANIBAN : Now. For instance, Domestic Airline companies, Mr. Counsel, are at present imposed a
Sales Tax of 3%. When this E-Vat law took effect the Sales Tax was also removed as a mitigating
measure. So, therefore, there is no justification to increase the fares by 10% at best 7%, correct?
ATTY. BANIQUED : I guess so, Your Honor, yes.
J. PANGANIBAN : There are other products that the people were complaining on that first day, were
being increased arbitrarily by 10%. And thats one reason among many others this Court had to issue
TRO because of the confusion in the implementation. Thats why we added as an issue in this case,
even if its tangentially taken up by the pleadings of the parties, the confusion in the implementation
of the E-vat. Our people were subjected to the mercy of that confusion of an across the board increase
of 10%, which you yourself now admit and I think even the Government will admit is incorrect. In some
cases, it should be 3% only, in some cases it should be 6% depending on these mitigating measures
and the location and situation of each product, of each service, of each company, isnt it?

ATTY. BANIQUED : Yes, Your Honor.

J. PANGANIBAN : Alright. So thats one reason why we had to issue a TRO pending the clarification of all
these and we wish the government will take time to clarify all these by means of a more detailed
implementing rules, in case the law is upheld by this Court. . . . 6
The Court also directed the parties to file their respective Memoranda.
G.R. No. 168056
Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition for
prohibition on May 27, 2005. They question the constitutionality of Sections 4, 5 and 6 of R.A. No.
9337, amending Sections 106, 107 and 108, respectively, of the National Internal Revenue Code
(NIRC). Section 4 imposes a 10% VAT on sale of goods and properties, Section 5 imposes a 10% VAT on
importation of goods, and Section 6 imposes a 10% VAT on sale of services and use or lease of
properties. These questioned provisions contain a uniform provisoauthorizing the President, upon
recommendation of the Secretary of Finance, to raise the VAT rate to 12%, effective January 1, 2006,
after any of the following conditions have been satisfied, to wit:
. . . That the President, upon the recommendation of the Secretary of Finance, shall, effective January
1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the following
conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half
percent (1 %).
Petitioners argue that the law is unconstitutional, as it constitutes abandonment by Congress of its
exclusive authority to fix the rate of taxes under Article VI, Section 28(2) of the 1987 Philippine
Constitution.
G.R. No. 168207
On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a petition for certiorari likewise assailing the
constitutionality of Sections 4, 5 and 6 of R.A. No. 9337.
Aside from questioning the so-called stand-by authority of the President to increase the VAT rate to
12%, on the ground that it amounts to an undue delegation of legislative power, petitioners also
contend that the increase in the VAT rate to 12% contingent on any of the two conditions being
satisfied violates the due process clause embodied in Article III, Section 1 of the Constitution, as it
imposes an unfair and additional tax burden on the people, in that: (1) the 12% increase is ambiguous
because it does not state if the rate would be returned to the original 10% if the conditions are no
longer satisfied; (2) the rate is unfair and unreasonable, as the people are unsure of the applicable VAT
rate from year to year; and (3) the increase in the VAT rate, which is supposed to be an incentive to the
President to raise the VAT collection to at least 2 4/5 of the GDP of the previous year, should only be
based on fiscal adequacy.
Petitioners further claim that the inclusion of a stand-by authority granted to the President by the
Bicameral Conference Committee is a violation of the "no-amendment rule" upon last reading of a bill
laid down in Article VI, Section 26(2) of the Constitution.
G.R. No. 168461
Thereafter, a petition for prohibition was filed on June 29, 2005, by the Association of Pilipinas Shell
Dealers, Inc.,et al., assailing the following provisions of R.A. No. 9337:

1) Section 8, amending Section 110 (A)(2) of the NIRC, requiring that the input tax on depreciable
goods shall be amortized over a 60-month period, if the acquisition, excluding the VAT components,
exceeds One Million Pesos (P1, 000,000.00);
2) Section 8, amending Section 110 (B) of the NIRC, imposing a 70% limit on the amount of input tax to
be credited against the output tax; and
3) Section 12, amending Section 114 (c) of the NIRC, authorizing the Government or any of its political
subdivisions, instrumentalities or agencies, including GOCCs, to deduct a 5% final withholding tax on
gross payments of goods and services, which are subject to 10% VAT under Sections 106 (sale of
goods and properties) and 108 (sale of services and use or lease of properties) of the NIRC.
Petitioners contend that these provisions are unconstitutional for being arbitrary, oppressive,
excessive, and confiscatory.
Petitioners argument is premised on the constitutional right of non-deprivation of life, liberty or
property without due process of law under Article III, Section 1 of the Constitution. According to
petitioners, the contested sections impose limitations on the amount of input tax that may be claimed.
Petitioners also argue that the input tax partakes the nature of a property that may not be confiscated,
appropriated, or limited without due process of law. Petitioners further contend that like any other
property or property right, the input tax credit may be transferred or disposed of, and that by limiting
the same, the government gets to tax a profit or value-added even if there is no profit or value-added.
Petitioners also believe that these provisions violate the constitutional guarantee of equal protection of
the law under Article III, Section 1 of the Constitution, as the limitation on the creditable input tax if: (1)
the entity has a high ratio of input tax; or (2) invests in capital equipment; or (3) has several
transactions with the government, is not based on real and substantial differences to meet a valid
classification.
Lastly, petitioners contend that the 70% limit is anything but progressive, violative of Article VI,
Section 28(1) of the Constitution, and that it is the smaller businesses with higher input tax to output
tax ratio that will suffer the consequences thereof for it wipes out whatever meager margins the
petitioners make.
G.R. No. 168463
Several members of the House of Representatives led by Rep. Francis Joseph G. Escudero filed this
petition forcertiorari on June 30, 2005. They question the constitutionality of R.A. No. 9337 on the
following grounds:
1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue delegation of legislative power, in violation
of Article VI, Section 28(2) of the Constitution;
2) The Bicameral Conference Committee acted without jurisdiction in deleting the no pass
on provisions present in Senate Bill No. 1950 and House Bill No. 3705; and
3) Insertion by the Bicameral Conference Committee of Sections 27, 28, 34, 116, 117, 119, 121,
125,7 148, 151, 236, 237 and 288, which were present in Senate Bill No. 1950, violates Article VI,
Section 24(1) of the Constitution, which provides that all appropriation, revenue or tariff bills shall
originate exclusively in the House of Representatives
G.R. No. 168730
On the eleventh hour, Governor Enrique T. Garcia filed a petition for certiorari and prohibition on July
20, 2005, alleging unconstitutionality of the law on the ground that the limitation on the creditable
input tax in effect allows VAT-registered establishments to retain a portion of the taxes they collect,
thus violating the principle that tax collection and revenue should be solely allocated for public

purposes and expenditures. Petitioner Garcia further claims that allowing these establishments to pass
on the tax to the consumers is inequitable, in violation of Article VI, Section 28(1) of the Constitution.
RESPONDENTS COMMENT
The Office of the Solicitor General (OSG) filed a Comment in behalf of respondents. Preliminarily,
respondents contend that R.A. No. 9337 enjoys the presumption of constitutionality and petitioners
failed to cast doubt on its validity.
Relying on the case of Tolentino vs. Secretary of Finance, 235 SCRA
630 (1994), respondents argue that the procedural issues raised by petitioners, i.e., legality of the
bicameral proceedings, exclusive origination of revenue measures and the power of the Senate
concomitant thereto, have already been settled. With regard to the issue of undue delegation of
legislative power to the President, respondents contend that the law is complete and leaves no
discretion to the President but to increase the rate to 12% once any of the two conditions provided
therein arise.
Respondents also refute petitioners argument that the increase to 12%, as well as the 70% limitation
on the creditable input tax, the 60-month amortization on the purchase or importation of capital goods
exceedingP1,000,000.00, and the 5% final withholding tax by government agencies, is arbitrary,
oppressive, and confiscatory, and that it violates the constitutional principle on progressive taxation,
among others.
Finally, respondents manifest that R.A. No. 9337 is the anchor of the governments fiscal reform
agenda. A reform in the value-added system of taxation is the core revenue measure that will tilt the
balance towards a sustainable macroeconomic environment necessary for economic growth.
ISSUES
The Court defined the issues, as follows:
PROCEDURAL ISSUE
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)
SUBSTANTIVE ISSUES
1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC,
violate the following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article VI, Section 28(2)
2. Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and
Section 12 of R.A. No. 9337, amending Section 114(C) of the NIRC, violate the following provisions of
the Constitution:
a. Article VI, Section 28(1), and

b. Article III, Section 1

RULING OF THE COURT
As a prelude, the Court deems it apt to restate the general principles and concepts of value-added tax
(VAT), as the confusion and inevitably, litigation, breeds from a fallacious notion of its nature.
The VAT is a tax on spending or consumption. It is levied on the sale, barter, exchange or lease of
goods or properties and services.8 Being an indirect tax on expenditure, the seller of goods or services
may pass on the amount of tax paid to the buyer, 9 with the seller acting merely as a tax
collector.10 The burden of VAT is intended to fall on the immediate buyers and ultimately, the endconsumers.
In contrast, a direct tax is a tax for which a taxpayer is directly liable on the transaction or business it
engages in, without transferring the burden to someone else. 11 Examples are individual and corporate
income taxes, transfer taxes, and residence taxes. 12
In the Philippines, the value-added system of sales taxation has long been in existence, albeit in a
different mode. Prior to 1978, the system was a single-stage tax computed under the "cost deduction
method" and was payable only by the original sellers. The single-stage system was subsequently
modified, and a mixture of the "cost deduction method" and "tax credit method" was used to
determine the value-added tax payable. 13 Under the "tax credit method," an entity can credit against
or subtract from the VAT charged on its sales or outputs the VAT paid on its purchases, inputs and
imports.14
It was only in 1987, when President Corazon C. Aquino issued Executive Order No. 273, that the VAT
system was rationalized by imposing a multi-stage tax rate of 0% or 10% on all sales using the "tax
credit method."15
E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT Law, 16 R.A. No. 8241 or the Improved
VAT Law,17 R.A. No. 8424 or the Tax Reform Act of 1997, 18 and finally, the presently beleaguered R.A.
No. 9337, also referred to by respondents as the VAT Reform Act.
The Court will now discuss the issues in logical sequence.
PROCEDURAL ISSUE
I.
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)
A. The Bicameral Conference Committee
Petitioners Escudero, et al., and Pimentel, et al., allege that the Bicameral Conference Committee
exceeded its authority by:
1) Inserting the stand-by authority in favor of the President in Sections 4, 5, and 6 of R.A. No. 9337;
2) Deleting entirely the no pass-on provisions found in both the House and Senate bills;

3) Inserting the provision imposing a 70% limit on the amount of input tax to be credited against the
output tax; and
4) Including the amendments introduced only by Senate Bill No. 1950 regarding other kinds of taxes in
addition to the value-added tax.
Petitioners now beseech the Court to define the powers of the Bicameral Conference Committee.
It should be borne in mind that the power of internal regulation and discipline are intrinsic in any
legislative body for, as unerringly elucidated by Justice Story, "[i]f the power did not exist, it
would be utterly impracticable to transact the business of the nation, either at all, or at
least with decency, deliberation, and order."19Thus, Article VI, Section 16 (3) of the Constitution
provides that "each House may determine the rules of its proceedings." Pursuant to this inherent
constitutional power to promulgate and implement its own rules of procedure, the respective rules of
each house of Congress provided for the creation of a Bicameral Conference Committee.
Thus, Rule XIV, Sections 88 and 89 of the Rules of House of Representatives provides as follows:
Sec. 88. Conference Committee. In the event that the House does not agree with the Senate on the
amendment to any bill or joint resolution, the differences may be settled by the conference
committees of both chambers.
In resolving the differences with the Senate, the House panel shall, as much as possible, adhere to and
support the House Bill. If the differences with the Senate are so substantial that they materially impair
the House Bill, the panel shall report such fact to the House for the latters appropriate action.
Sec. 89. Conference Committee Reports. . . . Each report shall contain a detailed, sufficiently explicit
statement of the changes in or amendments to the subject measure.
...
The Chairman of the House panel may be interpellated on the Conference Committee Report prior to
the voting thereon. The House shall vote on the Conference Committee Report in the same manner
and procedure as it votes on a bill on third and final reading.
Rule XII, Section 35 of the Rules of the Senate states:
Sec. 35. In the event that the Senate does not agree with the House of Representatives on the
provision of any bill or joint resolution, the differences shall be settled by a conference committee of
both Houses which shall meet within ten (10) days after their composition. The President shall
designate the members of the Senate Panel in the conference committee with the approval of the
Senate.
Each Conference Committee Report shall contain a detailed and sufficiently explicit statement of the
changes in, or amendments to the subject measure, and shall be signed by a majority of the members
of each House panel, voting separately.
A comparative presentation of the conflicting House and Senate provisions and a reconciled version
thereof with the explanatory statement of the conference committee shall be attached to the report.
...
The creation of such conference committee was apparently in response to a problem, not addressed by
any constitutional provision, where the two houses of Congress find themselves in disagreement over
changes or amendments introduced by the other house in a legislative bill. Given that one of the most
basic powers of the legislative branch is to formulate and implement its own rules of proceedings and

to discipline its members, may the Court then delve into the details of how Congress complies with its
internal rules or how it conducts its business of passing legislation? Note that in the present petitions,
the issue is not whether provisions of the rules of both houses creating the bicameral conference
committee are unconstitutional, but whether the bicameral conference committee has strictly
complied with the rules of both houses, thereby remaining within the jurisdiction conferred
upon it by Congress.
In
the
recent
case
of Farias
vs.
The
Executive
Secretary,20 the
Court En
Banc, unanimously reiterated and emphasized its adherence to the "enrolled bill doctrine," thus,
declining therein petitioners plea for the Court to go behind the enrolled copy of the bill. Assailed in
said case was Congresss creation of two sets of bicameral conference committees, the lack of records
of said committees proceedings, the alleged violation of said committees of the rules of both houses,
and the disappearance or deletion of one of the provisions in the compromise bill submitted by the
bicameral conference committee. It was argued that such irregularities in the passage of the law
nullified R.A. No. 9006, or the Fair Election Act.
Striking down such argument, the Court held thus:
Under the "enrolled bill doctrine," the signing of a bill by the Speaker of the House and the Senate
President and the certification of the Secretaries of both Houses of Congress that it was passed are
conclusive of its due enactment. A review of cases reveals the Courts consistent adherence to the
rule. The Court finds no reason to deviate from the salutary rule in this case where the
irregularities alleged by the petitioners mostly involved the internal rules of
Congress, e.g., creation of the 2nd or 3 rd Bicameral Conference Committee by the
House. This Court is not the proper forum for the enforcement of these internal rules of
Congress, whether House or Senate. Parliamentary rules are merely procedural and with
their observance the courts have no concern. Whatever doubts there may be as to the
formal validity of Rep. Act No. 9006 must be resolved in its favor. The Court reiterates its
ruling in Arroyo vs. De Venecia, viz.:
But the cases, both here and abroad, in varying forms of expression, all deny to the courts
the power to inquire into allegations that, in enacting a law, a House of Congress failed to
comply with its own rules, in the absence of showing that there was a violation of a
constitutional provision or the rights of private individuals. In Osmea v. Pendatun, it was held:
"At any rate, courts have declared that the rules adopted by deliberative bodies are subject to
revocation, modification or waiver at the pleasure of the body adopting them. And it has been said
that "Parliamentary rules are merely procedural, and with their observance, the courts
have no concern. They may be waived or disregarded by the legislative body."
Consequently, "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."21(Emphasis supplied)
The foregoing declaration is exactly in point with the present cases, where petitioners allege
irregularities committed by the conference committee in introducing changes or deleting provisions in
the House and Senate bills. Akin to the Farias case,22 the present petitions also raise an issue
regarding the actions taken by the conference committee on matters regarding Congress compliance
with its own internal rules. As stated earlier, one of the most basic and inherent power of the
legislature is the power to formulate rules for its proceedings and the discipline of its members.
Congress is the best judge of how it should conduct its own business expeditiously and in the most
orderly manner. It is also the sole
concern of Congress to instill discipline among the members of its conference committee if it believes
that said members violated any of its rules of proceedings. Even the expanded jurisdiction of this Court
cannot apply to questions regarding only the internal operation of Congress, thus, the Court is wont to
deny a review of the internal proceedings of a co-equal branch of government.
Moreover, as far back as 1994 or more than ten years ago, in the case of Tolentino vs. Secretary of
Finance,23the Court already made the pronouncement that "[i]f a change is desired in the practice
[of the Bicameral Conference Committee] it must be sought in Congress since this question

is not covered by any constitutional provision but is only an internal rule of each
house." 24 To date, Congress has not seen it fit to make such changes adverted to by the Court. It
seems, therefore, that Congress finds the practices of the bicameral conference committee to be very
useful for purposes of prompt and efficient legislative action.
Nevertheless, just to put minds at ease that no blatant irregularities tainted the proceedings of the
bicameral conference committees, the Court deems it necessary to dwell on the issue. The Court
observes that there was a necessity for a conference committee because a comparison of the
provisions of House Bill Nos. 3555 and 3705 on one hand, and Senate Bill No. 1950 on the other,
reveals that there were indeed disagreements. As pointed out in the petitions, said disagreements
were as follows:

House Bill No. 3555

With regard to "Stand-By Authority" in favor of President

Provides for 12% VAT on every sale of goods or properties (amending Sec. 106 of NIRC); 12% VAT on importation of g
properties (amending Sec. 108 of NIRC)

With regard to the "no pass-on" provision

No similar provision

With regard to 70% limit on input tax credit

Provides that the input tax credit for capital goods on which a VAT has been paid shall be equally distributed over 5 year
other than capital goods shall not exceed 5% of the total amount of such goods and services; and for persons engaged
amount of goods purchased.

With regard to amendments to be made to NIRC provisions regarding income and excise
taxes

No similar provision

No similar provision

Provided for amendments to

several
NIRC
provisions
regarding corporate income,
percentage, franchise and
excise taxes

The disagreements between the provisions in the House bills and the Senate bill were with regard to
(1) what rate of VAT is to be imposed; (2) whether only the VAT imposed on electricity generation,
transmission and distribution companies should not be passed on to consumers, as proposed in the
Senate bill, or both the VAT imposed on electricity generation, transmission and distribution companies
and the VAT imposed on sale of petroleum products should not be passed on to consumers, as
proposed in the House bill; (3) in what manner input tax credits should be limited; (4) and whether the
NIRC provisions on corporate income taxes, percentage, franchise and excise taxes should be
amended.
There being differences and/or disagreements on the foregoing provisions of the House and Senate
bills, the Bicameral Conference Committee was mandated by the rules of both houses of Congress to
act on the same by settling said differences and/or disagreements. The Bicameral Conference
Committee acted on the disagreeing provisions by making the following changes:
1. With regard to the disagreement on the rate of VAT to be imposed, it would appear from the
Conference Committee Report that the Bicameral Conference Committee tried to bridge the gap in the
difference between the 10% VAT rate proposed by the Senate, and the various rates with 12% as the
highest VAT rate proposed by the House, by striking a compromise whereby the present 10% VAT rate
would be retained until certain conditions arise, i.e., the value-added tax collection as a percentage of
gross domestic product (GDP) of the previous year exceeds 2 4/5%, or National Government deficit as
a percentage of GDP of the previous year exceeds 1%, when the President, upon recommendation of
the Secretary of Finance shall raise the rate of VAT to 12% effective January 1, 2006.
2. With regard to the disagreement on whether only the VAT imposed on electricity generation,
transmission and distribution companies should not be passed on to consumers or whether both the
VAT imposed on electricity generation, transmission and distribution companies and the VAT imposed
on sale of petroleum products may be passed on to consumers, the Bicameral Conference Committee
chose to settle such disagreement by altogether deleting from its Report any no pass-on provision.
3. With regard to the disagreement on whether input tax credits should be limited or not, the
Bicameral Conference Committee decided to adopt the position of the House by putting a limitation on
the amount of input tax that may be credited against the output tax, although it crafted its own
language as to the amount of the limitation on input tax credits and the manner of computing the
same by providing thus:
(A) Creditable Input Tax. . . .
...
Provided, The input tax on goods purchased or imported in a calendar month for use in trade or
business for which deduction for depreciation is allowed under this Code, shall be spread evenly over
the month of acquisition and the fifty-nine (59) succeeding months if the aggregate acquisition cost for
such goods, excluding the VAT component thereof, exceeds one million Pesos (P1,000,000.00):
PROVIDED, however, that if the estimated useful life of the capital good is less than five (5) years, as
used for depreciation purposes, then the input VAT shall be spread over such shorter period: . . .
(B) Excess Output or Input Tax. If at the end of any taxable quarter the output tax exceeds the input
tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the
excess shall be carried over to the succeeding quarter or quarters: PROVIDED that the input tax
inclusive of input VAT carried over from the previous quarter that may be credited in every quarter
shall not exceed seventy percent (70%) of the output VAT: PROVIDED, HOWEVER, THAT any input tax
attributable to zero-rated sales by a VAT-registered person may at his option be refunded or credited
against other internal revenue taxes, . . .
4. With regard to the amendments to other provisions of the NIRC on corporate income tax, franchise,
percentage and excise taxes, the conference committee decided to include such amendments and
basically adopted the provisions found in Senate Bill No. 1950, with some changes as to the rate of the
tax to be imposed.

Under the provisions of both the Rules of the House of Representatives and Senate Rules, the
Bicameral Conference Committee is mandated to settle the differences between the disagreeing
provisions in the House bill and the Senate bill. The term "settle" is synonymous to "reconcile" and
"harmonize."25 To reconcile or harmonize disagreeing provisions, the Bicameral Conference Committee
may then (a) adopt the specific provisions of either the House bill or Senate bill, (b) decide that neither
provisions in the House bill or the provisions in the Senate bill would
be carried into the final form of the bill, and/or (c) try to arrive at a compromise between the
disagreeing provisions.
In the present case, the changes introduced by the Bicameral Conference Committee on disagreeing
provisions were meant only to reconcile and harmonize the disagreeing provisions for it did not inject
any idea or intent that is wholly foreign to the subject embraced by the original provisions.
The so-called stand-by authority in favor of the President, whereby the rate of 10% VAT wanted by the
Senate is retained until such time that certain conditions arise when the 12% VAT wanted by the House
shall be imposed, appears to be a compromise to try to bridge the difference in the rate of VAT
proposed by the two houses of Congress. Nevertheless, such compromise is still totally within the
subject of what rate of VAT should be imposed on taxpayers.
The no pass-on provision was deleted altogether. In the transcripts of the proceedings of the Bicameral
Conference Committee held on May 10, 2005, Sen. Ralph Recto, Chairman of the Senate Panel,
explained the reason for deleting the no pass-on provision in this wise:
. . . the thinking was just to keep the VAT law or the VAT bill simple. And we were thinking that no
sector should be a beneficiary of legislative grace, neither should any sector be discriminated on. The
VAT is an indirect tax. It is a pass on-tax. And lets keep it plain and simple. Lets not confuse the bill
and put a no pass-on provision. Two-thirds of the world have a VAT system and in this two-thirds of the
globe, I have yet to see a VAT with a no pass-though provision. So, the thinking of the Senate is
basically simple, lets keep the VAT simple. 26 (Emphasis supplied)
Rep. Teodoro Locsin further made the manifestation that the no pass-on provision "never really enjoyed
the support of either House."27
With regard to the amount of input tax to be credited against output tax, the Bicameral Conference
Committee came to a compromise on the percentage rate of the limitation or cap on such input tax
credit, but again, the change introduced by the Bicameral Conference Committee was totally within the
intent of both houses to put a cap on input tax that may be
credited against the output tax. From the inception of the subject revenue bill in the House of
Representatives, one of the major objectives was to "plug a glaring loophole in the tax policy and
administration by creating vital restrictions on the claiming of input VAT tax credits . . ." and "[b]y
introducing limitations on the claiming of tax credit, we are capping a major leakage that has placed
our collection efforts at an apparent disadvantage."28
As to the amendments to NIRC provisions on taxes other than the value-added tax proposed in Senate
Bill No. 1950, since said provisions were among those referred to it, the conference committee had to
act on the same and it basically adopted the version of the Senate.
Thus, all the changes or modifications made by the Bicameral Conference Committee were germane to
subjects of the provisions referred
to it for reconciliation. Such being the case, the Court does not see any grave abuse of discretion
amounting to lack or excess of jurisdiction committed by the Bicameral Conference Committee. In the
earlier cases of Philippine Judges Association vs. Prado 29 and Tolentino vs. Secretary of Finance, 30 the
Court recognized the long-standing legislative practice of giving said conference committee ample
latitude for compromising differences between the Senate and the House. Thus, in the Tolentino case,
it was held that:

. . . it is within the power of a conference committee to include in its report an entirely new provision
that is not found either in the House bill or in the Senate bill. If the committee can propose an
amendment consisting of one or two provisions, there is no reason why it cannot propose several
provisions, collectively considered as an "amendment in the nature of a substitute," so long as such
amendment is germane to the subject of the bills before the committee. After all, its report was not
final but needed the approval of both houses of Congress to become valid as an act of the legislative
department. The charge that in this case the Conference Committee acted as a third
legislative chamber is thus without any basis.31 (Emphasis supplied)
B. R.A. No. 9337 Does Not Violate Article VI, Section 26(2) of the Constitution on the "No-Amendment
Rule"
Article VI, Sec. 26 (2) of the Constitution, states:
No bill passed by either House shall become a law unless it has passed three readings on separate
days, and printed copies thereof in its final form have been distributed to its Members three days
before its passage, except when the President certifies to the necessity of its immediate enactment to
meet a public calamity or emergency. Upon the last reading of a bill, no amendment thereto shall be
allowed, and the vote thereon shall be taken immediately thereafter, and the yeas and nays entered in
the Journal.
Petitioners argument that the practice where a bicameral conference committee is allowed to add or
delete provisions in the House bill and the Senate bill after these had passed three readings is in effect
a circumvention of the "no amendment rule" (Sec. 26 (2), Art. VI of the 1987 Constitution), fails to
convince the Court to deviate from its ruling in the Tolentino case that:
Nor is there any reason for requiring that the Committees Report in these cases must have undergone
three readings in each of the two houses. If that be the case, there would be no end to negotiation
since each house may seek modification of the compromise bill. . . .
Art. VI. 26 (2) must, therefore, be construed as referring only to bills introduced for the
first time in either house of Congress, not to the conference committee report. 32 (Emphasis
supplied)
The Court reiterates here that the "no-amendment rule" refers only to the procedure to be
followed by each house of Congress with regard to bills initiated in each of said respective
houses, before said bill is transmitted to the other house for its concurrence or
amendment. Verily, to construe said provision in a way as to proscribe any further changes to a bill
after one house has voted on it would lead to absurdity as this would mean that the other house of
Congress would be deprived of its constitutional power to amend or introduce changes to said bill.
Thus, Art. VI, Sec. 26 (2) of the Constitution cannot be taken to mean that the introduction by the
Bicameral Conference Committee of amendments and modifications to disagreeing provisions in bills
that have been acted upon by both houses of Congress is prohibited.
C. R.A. No. 9337 Does Not Violate Article VI, Section 24 of the Constitution on Exclusive Origination of
Revenue Bills
Coming to the issue of the validity of the amendments made regarding the NIRC provisions on
corporate income taxes and percentage, excise taxes. Petitioners refer to the following provisions, to
wit:

Section 27

Rates of Income Tax on Domestic Corporation

28(A)(1)

Tax on Resident Foreign Corporation

28(B)(1)

Inter-corporate Dividends

34(B)(1)

Inter-corporate Dividends

116

Tax on Persons Exempt from VAT

117

Percentage Tax on domestic carriers and keepers of Garage

119

Tax on franchises

121

Tax on banks and Non-Bank Financial Intermediaries

148

Excise Tax on manufactured oils and other fuels

151

Excise Tax on mineral products

236

Registration requirements

237

Issuance of receipts or sales or commercial invoices

288

Disposition of Incremental Revenue

Petitioners claim that the amendments to these provisions of the NIRC did not at all originate from the
House. They aver that House Bill No. 3555 proposed amendments only regarding Sections 106, 107,
108, 110 and 114 of the NIRC, while House Bill No. 3705 proposed amendments only to Sections 106,
107,108, 109, 110 and 111 of the NIRC; thus, the other sections of the NIRC which the Senate
amended but which amendments were not found in the House bills are not intended to be amended by
the House of Representatives. Hence, they argue that since the proposed amendments did not
originate from the House, such amendments are a violation of Article VI, Section 24 of the Constitution.
The argument does not hold water.
Article VI, Section 24 of the Constitution reads:

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.
In the present cases, petitioners admit that it was indeed House Bill Nos. 3555 and 3705 that initiated
the move for amending provisions of the NIRC dealing mainly with the value-added tax. Upon
transmittal of said House bills to the Senate, the Senate came out with Senate Bill No. 1950 proposing
amendments not only to NIRC provisions on the value-added tax but also amendments to NIRC
provisions on other kinds of taxes. Is the introduction by the Senate of provisions not dealing directly
with the value- added tax, which is the only kind of tax being amended in the House bills, still within
the purview of the constitutional provision authorizing the Senate to propose or concur with
amendments to a revenue bill that originated from the House?
The foregoing question had been squarely answered in the Tolentino case, wherein the Court held,
thus:
. . . 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 Senates 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.33 (Emphasis supplied)
Since there is no question that the revenue bill exclusively originated in the House of Representatives,
the Senate was acting within its
constitutional power to introduce amendments to the House bill when it included provisions in Senate
Bill No. 1950 amending corporate income taxes, percentage, excise and franchise taxes. Verily, Article
VI, Section 24 of the Constitution does not contain any prohibition or limitation on the extent of the
amendments that may be introduced by the Senate to the House revenue bill.
Furthermore, the amendments introduced by the Senate to the NIRC provisions that had not been
touched in the House bills are still in furtherance of the intent of the House in initiating the subject
revenue bills. The Explanatory Note of House Bill No. 1468, the very first House bill introduced on the
floor, which was later substituted by House Bill No. 3555, stated:
One of the challenges faced by the present administration is the urgent and daunting task of solving
the countrys serious financial problems. To do this, government expenditures must be strictly

monitored and controlled and revenues must be significantly increased. This may be easier said than
done, but our fiscal authorities are still optimistic the government will be operating on a balanced
budget by the year 2009. In fact, several measures that will result to significant expenditure savings
have been identified by the administration. It is supported with a credible package of revenue
measures that include measures to improve tax administration and control the leakages in
revenues from income taxes and the value-added tax (VAT). (Emphasis supplied)
Rep. Eric D. Singson, in his sponsorship speech for House Bill No. 3555, declared that:
In the budget message of our President in the year 2005, she reiterated that we all acknowledged that
on top of our agenda must be the restoration of the health of our fiscal system.
In order to considerably lower the consolidated public sector deficit and eventually achieve a balanced
budget by the year 2009, we need to seize windows of opportunities which might seem
poignant in the beginning, but in the long run prove effective and beneficial to the overall
status of our economy. One such opportunity is a review of existing tax rates, evaluating
the relevance given our present conditions.34(Emphasis supplied)
Notably therefore, the main purpose of the bills emanating from the House of Representatives is to
bring in sizeable revenues for the government
to supplement our countrys serious financial problems, and improve tax administration and control of
the leakages in revenues from income taxes and value-added taxes. As these house bills were
transmitted to the Senate, the latter, approaching the measures from the point of national perspective,
can introduce amendments within the purposes of those bills. It can provide for ways that would soften
the impact of the VAT measure on the consumer,i.e., by distributing the burden across all sectors
instead of putting it entirely on the shoulders of the consumers. The sponsorship speech of Sen. Ralph
Recto on why the provisions on income tax on corporation were included is worth quoting:
All in all, the proposal of the Senate Committee on Ways and Means will raise P64.3 billion in additional
revenues annually even while by mitigating prices of power, services and petroleum products.
However, not all of this will be wrung out of VAT. In fact, only P48.7 billion amount is from the VAT on
twelve goods and services. The rest of the tab P10.5 billion- will be picked by corporations.
What we therefore prescribe is a burden sharing between corporate Philippines and the consumer. Why
should the latter bear all the pain? Why should the fiscal salvation be only on the burden of the
consumer?
The corporate worlds equity is in form of the increase in the corporate income tax from 32 to 35
percent, but up to 2008 only. This will raise P10.5 billion a year. After that, the rate will slide back, not
to its old rate of 32 percent, but two notches lower, to 30 percent.
Clearly, we are telling those with the capacity to pay, corporations, to bear with this emergency
provision that will be in effect for 1,200 days, while we put our fiscal house in order. This fiscal
medicine will have an expiry date.
For their assistance, a reward of tax reduction awaits them. We intend to keep the length of their
sacrifice brief. We would like to assure them that not because there is a light at the end of the tunnel,
this government will keep on making the tunnel long.
The responsibility will not rest solely on the weary shoulders of the small man. Big business will be
there to share the burden.35
As the Court has said, the Senate can propose amendments and in fact, the amendments made on
provisions in the tax on income of corporations are germane to the purpose of the house bills which is
to raise revenues for the government.

Likewise, the Court finds the sections referring to other percentage and excise taxes germane to the
reforms to the VAT system, as these sections would cushion the effects of VAT on consumers.
Considering that certain goods and services which were subject to percentage tax and excise tax
would no longer be VAT-exempt, 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. Again, in his sponsorship speech, Sen. Recto said:
However, for power plants that run on oil, we will reduce to zero the present excise tax on bunker fuel,
to lessen the effect of a VAT on this product.
For electric utilities like Meralco, we will wipe out the franchise tax in exchange for a VAT.
And in the case of petroleum, while we will levy the VAT on oil products, so as not to destroy the VAT
chain, we will however bring down the excise tax on socially sensitive products such as diesel, bunker,
fuel and kerosene.
...
What do all these exercises point to? These are not contortions of giving to the left hand what was
taken from the right. Rather, these sprang from our concern of softening the impact of VAT, so that the
people can cushion the blow of higher prices they will have to pay as a result of VAT. 36
The other sections amended by the Senate pertained to matters of tax administration which are
necessary for the implementation of the changes in the VAT system.
To reiterate, the sections introduced by the Senate are germane to the subject matter and purposes of
the house bills, which is to supplement our countrys fiscal deficit, among others. Thus, the Senate
acted within its power to propose those amendments.
SUBSTANTIVE ISSUES
I.
Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC, violate
the following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article VI, Section 28(2)
A. No Undue Delegation of Legislative Power
Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et al., and Escudero, et al. contend in
common that Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively,
of the NIRC giving the President the stand-by authority to raise the VAT rate from 10% to 12% when a
certain condition is met, constitutes undue delegation of the legislative power to tax.
The assailed provisions read as follows:
SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 106. Value-Added Tax on Sale of Goods or Properties.
(A) Rate and Base of Tax. There shall be levied, assessed and collected on every sale, barter or
exchange of goods or properties, a value-added tax equivalent to ten percent (10%) of the gross

selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax
to be paid by the seller or transferor:provided, that the President, upon the recommendation of
the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax
to twelve percent (12%), after any of the following conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the
previous year exceeds two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year exceeds one
and one-half percent (1 %).
SEC. 5. Section 107 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 107. Value-Added Tax on Importation of Goods.
(A) In General. There shall be levied, assessed and collected on every importation of goods a valueadded tax equivalent to ten percent (10%) based on the total value used by the Bureau of Customs in
determining tariff and customs duties, plus customs duties, excise taxes, if any, and other charges,
such tax to be paid by the importer prior to the release of such goods from customs custody: Provided,
That where the customs duties are determined on the basis of the quantity or volume of the goods, the
value-added tax shall be based on the landed cost plus excise taxes, if any: provided, further, that
the President, upon the recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the rate of value-added tax to twelve percent (12%) after any of the
following conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the
previous year exceeds two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year exceeds one
and one-half percent (1 %).
SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties
(A) Rate and Base of Tax. There shall be levied, assessed and collected, a value-added tax equivalent
to ten percent (10%) of gross receipts derived from the sale or exchange of services: provided, that
the President, upon the recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the
following conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the
previous year exceeds two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year exceeds one
and one-half percent (1 %). (Emphasis supplied)
Petitioners allege that the grant of the stand-by authority to the President to increase the VAT rate is a
virtual abdication by Congress of its exclusive power to tax because such delegation is not within the
purview of Section 28 (2), Article VI of the Constitution, which provides:
The Congress may, by law, authorize the President to fix within specified limits, and 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.

They argue that the VAT is a tax levied on the sale, barter or exchange of goods and properties as well
as on the sale or exchange of services, which cannot be included within the purview of tariffs under the
exempted delegation as the latter refers to customs duties, tolls or tribute payable upon merchandise
to the government and usually imposed on goods or merchandise imported or exported.
Petitioners ABAKADA GURO Party List, et al., further contend that delegating to the President the
legislative power to tax is contrary to republicanism. They insist that accountability, responsibility and
transparency should dictate the actions of Congress and they should not pass to the President the
decision to impose taxes. They also argue that the law also effectively nullified the Presidents power
of control, which includes the authority to set aside and nullify the acts of her subordinates like the
Secretary of Finance, by mandating the fixing of the tax rate by the President upon the
recommendation of the Secretary of Finance.
Petitioners Pimentel, et al. aver that the President has ample powers to cause, influence or create the
conditions provided by the law to bring about either or both the conditions precedent.
On the other hand, petitioners Escudero, et al. find bizarre and revolting the situation that the
imposition of the 12% rate would be subject to the whim of the Secretary of Finance, an unelected
bureaucrat, contrary to the principle of no taxation without representation. They submit that the
Secretary of Finance is not mandated to give a favorable recommendation and he may not even give
his recommendation. Moreover, they allege that no guiding standards are provided in the law on what
basis and as to how he will make his recommendation. They claim, nonetheless, that any
recommendation of the Secretary of Finance can easily be brushed aside by the President since the
former is a mere alter ego of the latter, such that, ultimately, it is the President who decides whether
to impose the increased tax rate or not.
A brief discourse on the principle of non-delegation of powers is instructive.
The principle of separation of powers ordains that each of the three great branches of government has
exclusive cognizance of and is supreme in matters falling within its own constitutionally allocated
sphere.37 A logical
corollary to the doctrine of separation of powers is the principle of non-delegation of powers, as
expressed in the Latin maxim: potestas delegata non delegari potest which means "what has been
delegated, cannot be delegated."38 This doctrine is based on the ethical principle that such as
delegated power constitutes not only a right but a duty to be performed by the delegate through the
instrumentality of his own judgment and not through the intervening mind of another. 39
With respect to the Legislature, Section 1 of Article VI of the Constitution provides that "the Legislative
power shall be vested in the Congress of the Philippines which shall consist of a Senate and a House of
Representatives." The powers which Congress is prohibited from delegating are those which are
strictly, or inherently and exclusively, legislative. Purely legislative power, which can never be
delegated, has been described as the authority to make a complete law complete as to the
time when it shall take effect and as to whom it shall be applicable and to determine the
expediency of its enactment.40 Thus, the rule is that in order that a court may be justified in holding
a statute unconstitutional as a delegation of legislative power, it must appear that the power involved
is purely legislative in nature that is, one appertaining exclusively to the legislative department. It is
the nature of the power, and not the liability of its use or the manner of its exercise, which determines
the validity of its delegation.
Nonetheless, the general rule barring delegation of legislative powers is subject to the following
recognized limitations or exceptions:
(1) Delegation of tariff powers to the President under Section 28 (2) of Article VI of the Constitution;
(2) Delegation of emergency powers to the President under Section 23 (2) of Article VI of the
Constitution;

(3) Delegation to the people at large;

(4) Delegation to local governments; and
(5) Delegation to administrative bodies.
In every case of permissible delegation, there must be a showing that the delegation itself is valid. It is
valid only if the law (a) is complete in itself, setting forth therein the policy to be executed, carried out,
or implemented by the delegate;41 and (b) fixes a standard the limits of which are sufficiently
determinate and determinable to which the delegate must conform in the performance of his
functions.42 A sufficient standard is one which 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. 43 Both tests are intended to prevent a total transference of
legislative authority to the delegate, who is not allowed to step into the shoes of the legislature and
exercise a power essentially legislative.44
In People vs. Vera,45 the Court, through eminent Justice Jose P. Laurel, expounded on the concept and
extent of delegation of power in this wise:
In testing whether a statute constitutes an undue delegation of legislative power or not, it is usual to
inquire whether the statute was complete in all its terms and provisions when it left the hands of the
legislature so that nothing was left to the judgment of any other appointee or delegate of the
legislature.
...
The true distinction, says Judge Ranney, is between the delegation of power to make the
law, which necessarily involves a discretion as to what it shall be, and conferring an
authority or discretion as to its execution, to be exercised under and in pursuance of the
law. The first cannot be done; to the latter no valid objection can be made.
...
It is contended, however, that a legislative act may be made to the effect as law after it leaves the
hands of the legislature. It is true that laws may be made effective on certain contingencies, as by
proclamation of the executive or the adoption by the people of a particular community. In Wayman vs.
Southard, the Supreme Court of the United States ruled that the legislature may delegate a power not
legislative which it may itself rightfully exercise.The power to ascertain facts is such a power
which may be delegated. There is nothing essentially legislative in ascertaining the
existence of facts or conditions as the basis of the taking into effect of a law. That is a
mental process common to all branches of the government. Notwithstanding the apparent
tendency, however, to relax the rule prohibiting delegation of legislative authority on account of the
complexity arising from social and economic forces at work in this modern industrial age, the orthodox
pronouncement of Judge Cooley in his work on Constitutional Limitations finds restatement in Prof.
Willoughby's treatise on the Constitution of the United States in the following language speaking of
declaration of legislative power to administrative agencies: The principle which permits the
legislature to provide that the administrative agent may determine when the
circumstances are such as require the application of a law is defended upon the ground
that at the time this authority is granted, the rule of public policy, which is the essence of
the legislative act, is determined by the legislature. In other words, the legislature, as it is
its duty to do, determines that, under given circumstances, certain executive or
administrative action is to be taken, and that, under other circumstances, different or no
action at all is to be taken. What is thus left to the administrative official is not the
legislative determination of what public policy demands, but simply the ascertainment of
what the facts of the case require to be done according to the terms of the law by which he
is governed. The efficiency of an Act as a declaration of legislative will must, of course,
come from Congress, but the ascertainment of the contingency upon which the Act shall
take effect may be left to such agencies as it may designate. The legislature, then, may

provide that a law shall take effect upon the happening of future specified contingencies
leaving to some other person or body the power to determine when the specified
contingency has arisen.(Emphasis supplied).46
In Edu vs. Ericta,47 the Court reiterated:
What cannot be delegated is the authority under the Constitution to make laws and to alter and repeal
them; the test is the completeness of the statute in all its terms and provisions when it leaves the
hands of the legislature. To determine whether or not there is an undue delegation of legislative power,
the inquiry must be directed to the scope and definiteness of the measure enacted. The legislative
does not abdicate its functions when it describes what job must be done, who is to do it,
and what is the scope of his authority. For a complex economy, that may be the only way in which
the legislative process can go forward. A distinction has rightfully been made between
delegation of power to make the laws which necessarily involves a discretion as to what it
shall be, which constitutionally may not be done, and delegation of authority or discretion
as to its execution to be exercised under and in pursuance of the law, to which no valid
objection can be made. The Constitution is thus not to be regarded as denying the legislature the
necessary resources of flexibility and practicability. (Emphasis supplied). 48
Clearly, the legislature may delegate to executive officers or bodies the power to determine certain
facts or conditions, or the happening of contingencies, on which the operation of a statute is, by its
terms, made to depend, but the legislature must prescribe sufficient standards, policies or limitations
on their authority.49 While the power to tax cannot be delegated to executive agencies, details as to
the enforcement and administration of an exercise of such power may be left to them, including the
power to determine the existence of facts on which its operation depends. 50
The rationale for this is that the preliminary ascertainment of facts as basis for the enactment of
legislation is not of itself a legislative function, but is simply ancillary to legislation. Thus, the duty of
correlating information and making recommendations is the kind of subsidiary activity which the
legislature may perform through its members, or which it may delegate to others to perform.
Intelligent legislation on the complicated problems of modern society is impossible in the absence of
accurate information on the part of the legislators, and any reasonable method of securing such
information is proper.51 The Constitution as a continuously operative charter of government does not
require that Congress find for itself
every fact upon which it desires to base legislative action or that it make for itself detailed
determinations which it has declared to be prerequisite to application of legislative policy to particular
facts and circumstances impossible for Congress itself properly to investigate. 52
In the present case, the challenged section of R.A. No. 9337 is the common proviso in Sections 4, 5 and
6 which reads as follows:
That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1,
2006, raise the rate of value-added tax to twelve percent (12%), after any of the following conditions
has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half
percent (1 %).
The case before the Court is not a delegation of legislative power. It is simply a delegation of
ascertainment of facts upon which enforcement and administration of the increase rate under the law
is contingent. The legislature has made the operation of the 12% rate effective January 1, 2006,
contingent upon a specified fact or condition. It leaves the entire operation or non-operation of the
12% rate upon factual matters outside of the control of the executive.

No discretion would be exercised by the President. Highlighting the absence of discretion is the fact
that the wordshall is used in the common proviso. The use of the word shall connotes a mandatory
order. Its use in a statute denotes an imperative obligation and is inconsistent with the idea of
discretion.53 Where the law is clear and unambiguous, it must be taken to mean exactly what it says,
and courts have no choice but to see to it that the mandate is obeyed. 54
Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon the existence
of any of the conditions specified by Congress. This is a duty which cannot be evaded by the President.
Inasmuch as the law specifically uses the word shall, the exercise of discretion by the President does
not come into play. It is a clear directive to impose the 12% VAT rate when the specified conditions are
present. The time of taking into effect of the 12% VAT rate is based on the happening of a certain
specified contingency, or upon the ascertainment of certain facts or conditions by a person or body
other than the legislature itself.
The Court finds no merit to the contention of petitioners ABAKADA GURO Party List, et al. that the law
effectively nullified the Presidents power of control over the Secretary of Finance by mandating the
fixing of the tax rate by the President upon the recommendation of the Secretary of Finance. The Court
cannot also subscribe to the position of petitioners
Pimentel, et al. that the word shall should be interpreted to mean may in view of the phrase "upon the
recommendation of the Secretary of Finance." Neither does the Court find persuasive the submission of
petitioners Escudero, et al. that any recommendation by the Secretary of Finance can easily be
brushed aside by the President since the former is a mere alter ego of the latter.
When one speaks of the Secretary of Finance as the alter ego of the President, it simply means that as
head of the Department of Finance he is the assistant and agent of the Chief Executive. The
multifarious executive and administrative functions of the Chief Executive are performed by and
through the executive departments, and the acts of the secretaries of such departments, such as the
Department of Finance, performed and promulgated in the regular course of business, are, unless
disapproved or reprobated by the Chief Executive, presumptively the acts of the Chief Executive. The
Secretary of Finance, as such, occupies a political position and holds office in an advisory capacity,
and, in the language of Thomas Jefferson, "should be of the President's bosom confidence" and, in the
language of Attorney-General Cushing, is "subject to the direction of the President." 55
In the present case, 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. In such instance, he is not subject to the power of control and direction of the President.
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. 56The 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. His personality in such instance is in reality but a
projection of that of Congress. Thus, being the agent of Congress and not of the President, the
President cannot alter or modify or nullify, or set aside the findings of the Secretary of Finance and to
substitute the judgment of the former for that of the latter.
Congress simply 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 Gross
Domestic Product (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. There is no undue delegation of legislative power but only
of the discretion as to the execution of a law. This is constitutionally permissible.57 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. 58

As to the argument of petitioners ABAKADA GURO Party List, et al. that delegating to the President the
legislative power to tax is contrary to the principle of republicanism, the same deserves scant
consideration. 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 do so in such a manner is not within the
province of the Court to inquire into, its task being to interpret the law. 59
The insinuation by petitioners Pimentel, et al. that the President has ample powers to cause, influence
or create the conditions to bring about either or both the conditions precedent does not deserve any
merit as this argument is highly speculative. The Court does not rule on allegations which are
manifestly conjectural, as these may not exist at all. The Court deals with facts, not fancies; on
realities, not appearances. When the Court acts on appearances instead of realities, justice and law will
be short-lived.
B. The 12% Increase VAT Rate Does Not Impose an Unfair and Unnecessary Additional Tax Burden
Petitioners Pimentel, et al. argue that the 12% increase in the VAT rate imposes an unfair and
additional tax burden on the people. Petitioners also argue that the 12% increase, dependent on any of
the 2 conditions set forth in the contested provisions, is ambiguous because it does not state if the VAT
rate would be returned to the original 10% if the rates are no longer satisfied. Petitioners also argue
that such rate is unfair and unreasonable, as the people are unsure of the applicable VAT rate from
year to year.
Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of the two conditions set
forth therein are satisfied, the President shall increase the VAT rate to 12%. The provisions of the law
are clear. It does not provide for a return to the 10% rate nor does it empower the President to so
revert if, after the rate is increased to 12%, the VAT collection goes below the 2 4/5 of the GDP of the
previous year or that the national government deficit as a percentage of GDP of the previous year does
not exceed 1%.
Therefore, no statutory construction or interpretation is needed. Neither can conditions or limitations
be introduced where none is provided for. Rewriting the law is a forbidden ground that only Congress
may tread upon.60
Thus, in the absence of any provision providing for a return to the 10% rate, which in this case the
Court finds none, petitioners argument is, at best, purely speculative. There is no basis for petitioners
fear of a fluctuating VAT rate because the law itself does not provide that the rate should go back to
10% if the conditions provided in Sections 4, 5 and 6 are no longer present. The rule is that where the
provision of the law is clear and unambiguous, so that there is no occasion for the court's seeking the
legislative intent, the law must be taken as it is, devoid of judicial addition or subtraction. 61
Petitioners also contend that the increase in the VAT rate, which was allegedly an incentive to the
President to raise the VAT collection to at least 2 4/5 of the GDP of the previous year, should be based
on fiscal adequacy.
Petitioners obviously overlooked that increase in VAT collection is not the only condition. There is
another condition, i.e., the national government deficit as a percentage of GDP of the previous year
exceeds one and one-half percent (1 %).
Respondents explained the philosophy behind these alternative conditions:
1. VAT/GDP Ratio > 2.8%
The condition set for increasing VAT rate to 12% have economic or fiscal meaning. If VAT/GDP is less
than 2.8%, it means that government has weak or no capability of implementing the VAT or that VAT is
not effective in the function of the tax collection. Therefore, there is no value to increase it to 12%
because such action will also be ineffectual.

2. Natl Govt Deficit/GDP >1.5%

The condition set for increasing VAT
government has reached a relatively
position. Therefore, there is no need
healthy position. Otherwise stated, if
the VAT rate.62

when deficit/GDP is 1.5% or less means the fiscal condition of

sound position or is towards the direction of a balanced budget
to increase the VAT rate since the fiscal house is in a relatively
the ratio is more than 1.5%, there is indeed a need to increase

That the first condition amounts to an incentive to the President to increase the VAT collection does not
render it unconstitutional so long as there is a public purpose for which the law was passed, which in
this case, is mainly to raise revenue. In fact, fiscal adequacy dictated the need for a raise in revenue.
The principle of fiscal adequacy as a characteristic of a sound tax system was originally stated by
Adam Smith in his Canons of Taxation (1776), as:
IV. Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people
as little as possible over and above what it brings into the public treasury of the state. 63
It simply means that sources of revenues must be adequate to meet government expenditures and
their variations.64
The dire need for revenue cannot be ignored. Our country is in a quagmire of financial woe. During the
Bicameral Conference Committee hearing, then Finance Secretary Purisima bluntly depicted the
countrys gloomy state of economic affairs, thus:
First, let me explain the position that the Philippines finds itself in right now. We are in a position where
90 percent of our revenue is used for debt service. So, for every peso of revenue that we currently
raise, 90 goes to debt service. Thats interest plus amortization of our debt. So clearly, this is not a
sustainable situation. Thats the first fact.
The second fact is that our debt to GDP level is way out of line compared to other peer countries that
borrow money from that international financial markets. Our debt to GDP is approximately equal to our
GDP. Again, that shows you that this is not a sustainable situation.
The third thing that Id like to point out is the environment that we are presently operating in is not as
benign as what it used to be the past five years.
What do I mean by that?
In the past five years, weve been lucky because we were operating in a period of basically global
growth and low interest rates. The past few months, we have seen an inching up, in fact, a rapid
increase in the interest rates in the leading economies of the world. And, therefore, our ability to
borrow at reasonable prices is going to be challenged. In fact, ultimately, the question is our ability to
access the financial markets.
When the President made her speech in July last year, the environment was not as bad as it is now, at
least based on the forecast of most financial institutions. So, we were assuming that raising 80 billion
would put us in a position where we can then convince them to improve our ability to borrow at lower
rates. But conditions have changed on us because the interest rates have gone up. In fact, just within
this room, we tried to access the market for a billion dollars because for this year alone, the Philippines
will have to borrow 4 billion dollars. Of that amount, we have borrowed 1.5 billion. We issued last
January a 25-year bond at 9.7 percent cost. We were trying to access last week and the market was
not as favorable and up to now we have not accessed and we might pull back because the conditions
are not very good.
So given this situation, we at the Department of Finance believe that we really need to front-end our
deficit reduction. Because it is deficit that is causing the increase of the debt and we are in what we

call a debt spiral. The more debt you have, the more deficit you have because interest and debt
service eats and eats more of your revenue. We need to get out of this debt spiral. And the only way, I
think, we can get out of this debt spiral is really have a front-end adjustment in our revenue base. 65
The image portrayed is chilling. Congress passed the law hoping for rescue from an inevitable
catastrophe. Whether the law is indeed sufficient to answer the states economic dilemma is not for
the Court to judge. In theFarias case, the Court refused to consider the various arguments raised
therein that dwelt on the wisdom of Section 14 of R.A. No. 9006 (The Fair Election Act), pronouncing
that:
. . . policy matters are not the concern of the Court. Government policy is within the exclusive
dominion of the political branches of the government. It is not for this Court to look into the wisdom or
propriety of legislative determination. Indeed, whether an enactment is wise or unwise, whether it is
based on sound economic theory, whether it is the best means to achieve the desired results, whether,
in short, the legislative discretion within its prescribed limits should be exercised in a particular manner
are matters for the judgment of the legislature, and the serious conflict of opinions does not suffice to
bring them within the range of judicial cognizance.66
In the same vein, the Court in this case will not dawdle on the purpose of Congress or the executive
policy, given that it is not for the judiciary to "pass upon questions of wisdom, justice or expediency of
legislation."67
II.
Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and Section
12 of R.A. No. 9337, amending Section 114(C) of the NIRC, violate the following provisions of the
Constitution:
a. Article VI, Section 28(1), and
b. Article III, Section 1
A. Due Process and Equal Protection Clauses
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue that Section 8 of R.A. No. 9337,
amending Sections 110 (A)(2), 110 (B), and Section 12 of R.A. No. 9337, amending Section 114 (C) of
the NIRC are arbitrary, oppressive, excessive and confiscatory. Their argument is premised on the
constitutional right against deprivation of life, liberty of property without due process of law, as
embodied in Article III, Section 1 of the Constitution.
Petitioners also contend that these provisions violate the constitutional guarantee of equal protection
of the law.
The doctrine is 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.68
Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC imposes a limitation on the amount of
input tax that may be credited against the output tax. It states, in part: "[ P]rovided, that the input tax
inclusive of the input VAT carried over from the previous quarter that may be credited in every quarter
shall not exceed seventy percent (70%) of the output VAT: "
Input Tax is defined under Section 110(A) of the NIRC, as amended, as the value-added tax
due from or paid by a VAT-registered person on the importation of goods or local purchase of good and
services, including lease or use of property, in the course of trade or business, from a VAT-registered

person, and Output Tax is the value-added tax due on the sale or lease of taxable goods or properties
or services by any person registered or required to register under the law.
Petitioners claim that the contested sections impose limitations on the amount of input tax that may
be claimed. In effect, a portion of the input tax that has already been paid cannot now be credited
against the output tax.
Petitioners argument is not absolute. It assumes that the input tax exceeds 70% of the output tax, and
therefore, the input tax in excess of 70% remains uncredited. However, to the extent that the input tax
is less than 70% of the output tax, then 100% of such input tax is still creditable.
More importantly, the excess input tax, if any, is retained in a businesss books of accounts and
remains creditable in the succeeding quarter/s. This is explicitly allowed by Section 110(B), which
provides that "if the input tax exceeds the output tax, the excess shall be carried over to the
succeeding quarter or quarters." In addition, Section 112(B) allows a VAT-registered person to apply for
the issuance of a tax credit certificate or refund for any unused input taxes, to the extent that such
input taxes have not been applied against the output taxes. Such unused input tax may be used in
payment of his other internal revenue taxes.
The non-application of the unutilized input tax in a given quarter is not ad infinitum, as petitioners
exaggeratedly contend. Their analysis of the effect of the 70% limitation is incomplete and one-sided.
It ends at the net effect that there will be unapplied/unutilized inputs VAT for a given quarter. It does
not proceed further to the fact that such unapplied/unutilized input tax may be credited in the
subsequent periods as allowed by the carry-over provision of Section 110(B) or that it may later on be
refunded through a tax credit certificate under Section 112(B).
Therefore, petitioners argument must be rejected.
On the other hand, it appears that petitioner Garcia failed to comprehend the operation of the 70%
limitation on the input tax. According to petitioner, the limitation on the creditable input tax in effect
allows VAT-registered establishments to retain a portion of the taxes they collect, which violates the
principle that tax collection and revenue should be for public purposes and expenditures
As earlier stated, the input tax is the tax paid by a person, passed on to him by the seller, when he
buys goods. Output tax meanwhile is the tax due to the person when he sells goods. In computing the
VAT payable, three possible scenarios may arise:
First, if at the end of a taxable quarter the output taxes charged by the seller are equal to the input
taxes that he paid and passed on by the suppliers, then no payment is required;
Second, when the output taxes exceed the input taxes, the person shall be liable for the excess, which
has to be paid to the Bureau of Internal Revenue (BIR); 69 and
Third, if the input taxes exceed the output taxes, the excess shall be carried over to the succeeding
quarter or quarters. Should the input taxes result from zero-rated or effectively zero-rated
transactions, any excess over the output taxes shall instead be refunded to the taxpayer or credited
against other internal revenue taxes, at the taxpayers option. 70
Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input tax. Thus, a person can
credit his input tax only up to the extent of 70% of the output tax. In laymans term, the value-added
taxes that a person/taxpayer paid and passed on to him by a seller can only be credited up to 70% of
the value-added taxes that is due to him on a taxable transaction. There is no retention of any tax
collection because the person/taxpayer has already previously paid the input tax to a seller, and the
seller will subsequently remit such input tax to the BIR. The party directly liable for the payment of the
tax is the seller.71 What only needs to be done is for the person/taxpayer to apply or credit these input
taxes, as evidenced by receipts, against his output taxes.

Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also argue that the input tax partakes the
nature of a property that may not be confiscated, appropriated, or limited without due process of law.
The input tax is not a property or a property right within the constitutional purview of the due process
clause. A VAT-registered persons entitlement to the creditable input tax is a mere statutory privilege.
The distinction between statutory privileges and vested rights must be borne in mind for persons have
no vested rights in statutory privileges. The state may change or take away rights, which were created
by the law of the state, although it may not take away property, which was vested by virtue of such
rights.72
Under the previous system of single-stage taxation, taxes paid at every level of distribution are not
recoverable from the taxes payable, although it becomes part of the cost, which is deductible from the
gross revenue. When Pres. Aquino issued E.O. No. 273 imposing a 10% multi-stage tax on all sales, it
was 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 introduced. 73 This was adopted by the Expanded
VAT Law (R.A. No. 7716), 74 and The Tax Reform Act of 1997 (R.A. No. 8424). 75 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
remove, or in this case, limit.
Petitioners also contest as arbitrary, oppressive, excessive and confiscatory, Section 8 of R.A. No.
9337, amending Section 110(A) of the NIRC, which provides:
SEC. 110. Tax Credits.
(A) Creditable Input Tax.
Provided, That the input tax on goods purchased or imported in a calendar month for use in trade or
business for which deduction for depreciation is allowed under this Code, shall be spread evenly over
the month of acquisition and the fifty-nine (59) succeeding months if the aggregate acquisition cost for
such
goods,
excluding
the
VAT
component
thereof,
exceeds
One
million
pesos
(P1,000,000.00): Provided, however, That if the estimated useful life of the capital goods is less than
five (5) years, as used for depreciation purposes, then the input VAT shall be spread over such a
shorter period: Provided, finally, That in the case of purchase of services, lease or use of properties,
the input tax shall be creditable to the purchaser, lessee or license upon payment of the
compensation, rental, royalty or fee.
The foregoing section imposes a 60-month period within which to amortize the creditable input tax on
purchase or importation of capital goods with acquisition cost of P1 Million pesos, exclusive of the VAT
component. Such spread out only poses a delay in the crediting of the input tax. Petitioners argument
is without basis because the taxpayer is not permanently deprived of his privilege to credit the input
tax.
It is worth mentioning that Congress admitted that the spread-out of the creditable input tax in this
case amounts to a 4-year interest-free loan to the government. 76 In the same breath, Congress also
justified its move by saying that the provision was designed to raise an annual revenue of 22.6
billion.77 The legislature also dispelled the fear that the provision will fend off foreign investments,
saying that foreign investors have other tax incentives provided by law, and citing the case of China,
where despite a 17.5% non-creditable VAT, foreign investments were not deterred. 78 Again, for
whatever is the purpose of the 60-month amortization, this involves executive economic policy and
legislative wisdom in which the Court cannot intervene.
With regard to the 5% creditable withholding tax imposed on payments made by the government for
taxable transactions, Section 12 of R.A. No. 9337, which amended Section 114 of the NIRC, reads:
SEC. 114. Return and Payment of Value-added Tax.

(C) Withholding of Value-added Tax. The Government or any of its political subdivisions,
instrumentalities or agencies, including government-owned or controlled corporations (GOCCs) shall,
before making payment on account of each purchase of goods and services which are subject to the
value-added tax imposed in Sections 106 and 108 of this Code, deduct and withhold a final valueadded tax at the rate of five percent (5%) of the gross payment thereof: Provided, That the payment
for lease or use of properties or property rights to nonresident owners shall be subject to ten percent
(10%) withholding tax at the time of payment. For purposes of this Section, the payor or person in
control of the payment shall be considered as the withholding agent.
The value-added tax withheld under this Section shall be remitted within ten (10) days following the
end of the month the withholding was made.
Section 114(C) merely provides a method of collection, or as stated by respondents, a more simplified
VAT withholding system. The government in this case is constituted as a withholding agent with
respect to their payments for goods and services.
Prior to its amendment, Section 114(C) provided for different rates of value-added taxes to be withheld
-- 3% on gross payments for purchases of goods; 6% on gross payments for services supplied by
contractors other than by public works contractors; 8.5% on gross payments for services supplied by
public work contractors; or 10% on payment for the lease or use of properties or property rights to
nonresident owners. Under the present Section 114(C), these different rates, except for the 10% on
lease or property rights payment to nonresidents, were deleted, and a uniform rate of 5% is applied.
The Court observes, however, that the law the used the word final. In tax usage, final, as opposed to
creditable, means full. Thus, it is provided in Section 114(C): "final value-added tax at the rate of five
percent (5%)."
In Revenue Regulations No. 02-98, implementing R.A. No. 8424 (The Tax Reform Act of 1997), the
concept of final withholding tax on income was explained, to wit:
SECTION 2.57. Withholding of Tax at Source
(A) Final Withholding Tax. Under the final withholding tax system the amount of income tax withheld
by the withholding agent is constituted as full and final payment of the income tax due from the
payee on the said income. The liability for payment of the tax rests primarily on the payor as a
withholding agent. Thus, in case of his failure to withhold the tax or in case of underwithholding, the
deficiency tax shall be collected from the payor/withholding agent.
(B) Creditable Withholding Tax. Under the creditable withholding tax system, taxes withheld on
certain income payments are intended to equal or at least approximate the tax due of the payee on
said income. Taxes withheld on income payments covered by the expanded withholding tax
(referred to in Sec. 2.57.2 of these regulations) and compensation income (referred to in Sec. 2.78 also
of these regulations) are creditable in nature.
As applied to value-added tax, this means that taxable transactions with the government are subject
to a 5% rate, which constitutes as full payment of the tax payable on the transaction. This represents
the net VAT payable of the seller. The other 5% effectively accounts for the standard input VAT
(deemed input VAT), in lieu of the actual input VAT directly or attributable to the taxable transaction. 79
The Court need not explore the rationale behind the provision. It is clear that Congress intended to
treat differently taxable transactions with the government. 80 This is supported by the fact that under
the old provision, the 5% tax withheld by the government remains creditable against the tax liability of
the seller or contractor, to wit:
SEC. 114. Return and Payment of Value-added Tax.

(C) Withholding of Creditable Value-added Tax. The Government or any of its political
subdivisions, instrumentalities or agencies, including government-owned or controlled corporations
(GOCCs) shall, before making payment on account of each purchase of goods from sellers and services
rendered by contractors which are subject to the value-added tax imposed in Sections 106 and 108 of
this Code, deduct and withhold the value-added tax due at the rate of three percent (3%) of the gross
payment for the purchase of goods and six percent (6%) on gross receipts for services rendered by
contractors on every sale or installment payment which shall becreditable against the valueadded tax liability of the seller or contractor: Provided, however, That in the case of government
public works contractors, the withholding rate shall be eight and one-half percent (8.5%): Provided,
further, That the payment for lease or use of properties or property rights to nonresident owners shall
be subject to ten percent (10%) withholding tax at the time of payment. For this purpose, the payor or
person in control of the payment shall be considered as the withholding agent.
The valued-added tax withheld under this Section shall be remitted within ten (10) days following the
end of the month the withholding was made. (Emphasis supplied)
As amended, the use of the word final and the deletion of the word creditable exhibits Congresss
intention to treat transactions with the government differently. Since it has not been shown that the
class subject to the 5% final withholding tax has been unreasonably narrowed, there is no reason to
invalidate the provision. Petitioners, as petroleum dealers, are not the only ones subjected to the 5%
final withholding tax. It applies to all those who deal with the government.
Moreover, the actual input tax is not totally lost or uncreditable, as petitioners believe. Revenue
Regulations No. 14-2005 or the Consolidated Value-Added Tax Regulations 2005 issued by the BIR,
provides that should the actual input tax exceed 5% of gross payments, the excess may form part of
the cost. Equally, should the actual input tax be less than 5%, the difference is treated as income. 81
Petitioners also argue that by imposing a limitation on the creditable input tax, the government gets to
tax a profit or value-added even if there is no profit or value-added.
Petitioners stance is purely hypothetical, argumentative, and again, one-sided. The Court will not
engage in a legal joust where premises are what ifs, arguments, theoretical and facts, uncertain. Any
disquisition by the Court on this point will only be, as Shakespeare describes life in Macbeth,82 "full of
sound and fury, signifying nothing."
Whats more, petitioners contention assumes the proposition that there is no profit or value-added. It
need not take an astute businessman to know that it is a matter of exception that a business will sell
goods or services without profit or value-added. It cannot be overstressed that a business is created
precisely for profit.
The equal protection clause under the Constitution means that "no person or class of persons shall be
deprived of the same protection of laws which is enjoyed by other persons or other classes in the same
place and in like circumstances."83
The power of the State to make reasonable and natural classifications for the purposes of taxation has
long been established. Whether it relates to the subject of taxation, the kind of property, the rates to
be levied, or the amounts to be raised, the methods of assessment, valuation and collection, the
States power is entitled to presumption of validity. As a rule, the judiciary will not interfere with such
power absent a clear showing of unreasonableness, discrimination, or arbitrariness. 84
Petitioners point out that the limitation on the creditable input tax if the entity has a high ratio of input
tax, or invests in capital equipment, or has several transactions with the government, is not based on
real and substantial differences to meet a valid classification.
The argument is pedantic, if not outright baseless. The law does not make any classification in the
subject of taxation, the kind of property, the rates to be levied or the amounts to be raised, the
methods of assessment, valuation and collection. Petitioners alleged distinctions are based on
variables that bear different consequences. While the implementation of the law may yield varying end

results depending on ones profit margin and value-added, the Court cannot go beyond what the
legislature has laid down and interfere with the affairs of business.
The equal protection clause does not require the universal application of the laws on all persons or
things without distinction. This might in fact sometimes result in unequal protection. What the clause
requires is equality among equals as determined according to a valid classification. By classification is
meant the grouping of persons or things similar to each other in certain particulars and different from
all others in these same particulars.85
Petitioners brought to the Courts attention the introduction of Senate Bill No. 2038 by Sens. S.R.
Osmea III and Ma. Ana Consuelo A.S. Madrigal on June 6, 2005, and House Bill No. 4493 by Rep. Eric
D. Singson. The proposed legislation seeks to amend the 70% limitation by increasing the same to
90%. This, according to petitioners, supports their stance that the 70% limitation is arbitrary and
confiscatory. On this score, suffice it to say that these are still proposed legislations. Until Congress
amends the law, and absent any unequivocal basis for its unconstitutionality, the 70% limitation stays.
B. Uniformity and Equitability of Taxation
Article VI, Section 28(1) of the Constitution reads:
The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of
taxation.
Uniformity in taxation means that all taxable articles or kinds of property of the same class shall be
taxed at the same rate. Different articles may be taxed at different amounts provided that the rate is
uniform on the same class everywhere with all people at all times. 86
In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or 12%) on all goods
and services. Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively,
of the NIRC, provide for a rate of 10% (or 12%) on sale of goods and properties, importation of goods,
and sale of services and use or lease of properties. These same sections also provide for a 0% rate on
certain sales and transaction.
Neither does the law make any distinction as to the type of industry or trade that will bear the 70%
limitation on the creditable input tax, 5-year amortization of input tax paid on purchase of capital
goods or the 5% final withholding tax by the government. It must be stressed that the rule of uniform
taxation does not deprive Congress of the power to classify subjects of taxation, and only demands
uniformity within the particular class.87
R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The VAT rate of 0% or
10% (or 12%) does not apply to sales of goods or services with gross annual sales or receipts not
exceeding P1,500,000.00.88Also, basic marine and agricultural food products in their original state are
still not subject to the tax, 89 thus ensuring that prices at the grassroots level will remain accessible. As
was stated in Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan:90
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 sarisari 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.
It is admitted that R.A. No. 9337 puts a premium on businesses with low profit margins, and unduly
favors those with high profit margins. Congress was not oblivious to this. Thus, to equalize the weighty
burden the law entails, the law, under Section 116, imposed a 3% percentage tax on VAT-exempt
persons under Section 109(v), i.e., transactions with gross annual sales and/or receipts not
exceeding P1.5 Million. This acts as a equalizer because in effect, bigger businesses that qualify for
VAT coverage and VAT-exempt taxpayers stand on equal-footing.

Moreover, Congress provided mitigating measures to cushion the impact of the imposition of the tax
on those previously exempt. Excise taxes on petroleum products 91 and natural gas92 were reduced.
Percentage tax on domestic carriers was removed.93 Power producers are now exempt from paying
franchise tax.94
Aside from these, Congress also increased the income tax rates of corporations, in order to distribute
the burden of taxation. Domestic, foreign, and non-resident corporations are now subject to a 35%
income tax rate, from a previous 32%. 95 Intercorporate dividends of non-resident foreign corporations
are still subject to 15% final withholding tax but the tax credit allowed on the corporations domicile
was increased to 20%.96 The Philippine Amusement and Gaming Corporation (PAGCOR) is not exempt
from income taxes anymore.97 Even the sale by an artist of his works or services performed for the
production of such works was not spared.
All these were designed to ease, as well as spread out, the burden of taxation, which would otherwise
rest largely on the consumers. It cannot therefore be gainsaid that R.A. No. 9337 is equitable.
C. Progressivity of Taxation
Lastly, petitioners contend that the limitation on the creditable input tax is anything but regressive. It
is the smaller business with higher input tax-output tax ratio that will suffer the consequences.
Progressive taxation is built on the principle of the taxpayers ability to pay. This principle was also
lifted from Adam Smiths Canons of Taxation, and it states:
I. The subjects of every state ought to contribute towards the support of the government, as nearly as
possible, in proportion to their respective abilities; that is, in proportion to the revenue which they
respectively enjoy under the protection of the state.
Taxation is progressive when its rate goes up depending on the resources of the person affected. 98
The VAT is an antithesis of progressive taxation. By its very nature, it is regressive. The principle of
progressive taxation has no relation with the VAT system inasmuch as the VAT paid by the consumer or
business for every goods bought or services enjoyed is the same regardless of income. In
other words, the VAT paid eats the same portion of an income, whether big or small. The disparity lies
in the income earned by a person or profit margin marked by a business, such that the higher the
income or profit margin, the smaller the portion of the income or profit that is eaten by VAT. A
converso, the lower the income or profit margin, the bigger the part that the VAT eats away. At the end
of the day, it is really the lower income group or businesses with low-profit margins that is always
hardest hit.
Nevertheless, the Constitution does not really prohibit the imposition of indirect taxes, like the VAT.
What it simply provides is that Congress shall "evolve a progressive system of taxation." The Court
stated in the Tolentino case, thus:
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) 99
CONCLUSION
It has been said that taxes are the lifeblood of the government. In this case, it is just an enema, a firstaid measure to resuscitate an economy in distress. The Court is neither blind nor is it turning a deaf
ear on the plight of the masses. But it does not have the panacea for the malady that the law seeks to
remedy. As in other cases, the Court cannot strike down a law as unconstitutional simply because of its
yokes.
Let us not be overly influenced by the plea that for every wrong there is a remedy, and that the
judiciary should stand ready to afford relief. There are undoubtedly many wrongs the judicature may
not correct, for instance, those involving political questions. . . .
Let us likewise disabuse our minds from the notion that the judiciary is the repository of remedies for
all political or social ills; We should not forget that the Constitution has judiciously allocated the powers
of government to three distinct and separate compartments; and that judicial interpretation has
tended to the preservation of the independence of the three, and a zealous regard of the prerogatives
of each, knowing full well that one is not the guardian of the others and that, for official wrong-doing,
each may be brought to account, either by impeachment, trial or by the ballot box. 100
The words of the Court in Vera vs. Avelino101 holds true then, as it still holds true now. All things
considered, there is no raison d'tre for the unconstitutionality of R.A. No. 9337.
WHEREFORE, Republic Act No. 9337 not being unconstitutional, the petitions in G.R. Nos. 168056,
168207, 168461, 168463, and 168730, are hereby DISMISSED.
There being no constitutional impediment to the full enforcement and implementation of R.A. No.
9337, the temporary restraining order issued by the Court on July 1, 2005 is LIFTED upon finality of
herein decision.
4. G.R.
No.
153793
August
29,
2006
COMMISSIONER
OF
INTERNAL
REVENUE, Petitioner, vs. JULIANE BAIER-NICKEL, as represented by Marina Q. Guzman
(Attorney-in-fact) Respondent.
DECISION
YNARES-SANTIAGO, J.:
Petitioner Commissioner of Internal Revenue (CIR) appeals from the January 18, 2002 Decision 1 of the
Court of Appeals in CA-G.R. SP No. 59794, which granted the tax refund of respondent Juliane BaierNickel and reversed the June 28, 2000 Decision 2 of the Court of Tax Appeals (CTA) in C.T.A. Case No.
5633. Petitioner also assails the May 8, 2002 Resolution 3 of the Court of Appeals denying its motion for
reconsideration.
The facts show that respondent Juliane Baier-Nickel, a non-resident German citizen, is the President of
JUBANITEX, Inc., a domestic corporation engaged in "[m]anufacturing, marketing on wholesale only,
buying or otherwise acquiring, holding, importing and exporting, selling and disposing embroidered
textile products."4Through JUBANITEXs General Manager, Marina Q. Guzman, the corporation
appointed and engaged the services of respondent as commission agent. It was agreed that
respondent will receive 10% sales commission on all sales actually concluded and collected through
her efforts.5

In 1995, respondent received the amount of P1,707,772.64, representing her sales commission income
from which JUBANITEX withheld the corresponding 10% withholding tax amounting to P170,777.26,
and remitted the same to the Bureau of Internal Revenue (BIR). On October 17, 1997, respondent filed
her 1995 income tax return reporting a taxable income of P1,707,772.64 and a tax due of
P170,777.26.6
On April 14, 1998, respondent filed a claim to refund the amount of P170,777.26 alleged to have been
mistakenly withheld and remitted by JUBANITEX to the BIR. Respondent contended that her sales
commission income is not taxable in the Philippines because the same was a compensation for her
services rendered in Germany and therefore considered as income from sources outside the
Philippines.
The next day, April 15, 1998, she filed a petition for review with the CTA contending that no action was
taken by the BIR on her claim for refund. 7 On June 28, 2000, the CTA rendered a decision denying her
claim. It held that the commissions received by respondent were actually her remuneration in the
performance of her duties as President of JUBANITEX and not as a mere sales agent thereof. The
income derived by respondent is therefore an income taxable in the Philippines because JUBANITEX is
a domestic corporation.
On petition with the Court of Appeals, the latter reversed the Decision of the CTA, holding that
respondent received the commissions as sales agent of JUBANITEX and not as President thereof. And
since the "source" of income means the activity or service that produce the income, the sales
commission received by respondent is not taxable in the Philippines because it arose from the
marketing activities performed by respondent in Germany. The dispositive portion of the appellate
courts Decision, reads:
WHEREFORE, premises considered, the assailed decision of the Court of Tax Appeals dated June 28,
2000 is hereby REVERSED and SET ASIDE and the respondent court is hereby directed to grant
petitioner a tax refund in the amount of Php 170,777.26.
SO ORDERED.8
Petitioner filed a motion for reconsideration but was denied. 9 Hence, the instant recourse.
Petitioner maintains that the income earned by respondent is taxable in the Philippines because the
source thereof is JUBANITEX, a domestic corporation located in the City of Makati. It thus implied that
source of income means the physical source where the income came from. It further argued that since
respondent is the President of JUBANITEX, any remuneration she received from said corporation should
be construed as payment of her overall managerial services to the company and should not be
interpreted as a compensation for a distinct and separate service as a sales commission agent.
Respondent, on the other hand, claims that the income she received was payment for her marketing
services. She contended that income of nonresident aliens like her is subject to tax only if the source of
the income is within the Philippines. Source, according to respondent is the situs of the activity which
produced the income. And since the source of her income were her marketing activities in Germany,
the income she derived from said activities is not subject to Philippine income taxation.
The issue here is whether respondents sales commission income is taxable in the Philippines.
Pertinent portion of the National Internal Revenue Code (NIRC), states:
SEC. 25. Tax on Nonresident Alien Individual.
(A) Nonresident Alien Engaged in Trade or Business Within the Philippines.

(1) In General. A nonresident alien individual engaged in trade or business in the Philippines shall be
subject to an income tax in the same manner as an individual citizen and a resident alien individual, on
taxable income received from all sources within the Philippines. A nonresident alien individual who
shall come to the Philippines and stay therein for an aggregate period of more than one hundred
eighty (180) days during any calendar year shall be deemed a nonresident alien doing business in the
Philippines, Section 22(G) of this Code notwithstanding.
xxxx
(B) Nonresident Alien Individual Not Engaged in Trade or Business Within the Philippines. There shall
be levied, collected and paid for each taxable year upon the entire income received from all sources
within the Philippines by every nonresident alien individual not engaged in trade or business within the
Philippines x x x a tax equal to twenty-five percent (25%) of such income. x x x
Pursuant to the foregoing provisions of the NIRC, non-resident aliens, whether or not engaged in trade
or business, are subject to Philippine income taxation on their income received from all sources within
the Philippines. Thus, the keyword in determining the taxability of non-resident aliens is the incomes
"source." In construing the meaning of "source" in Section 25 of the NIRC, resort must be had on the
origin of the provision.
The first Philippine income tax law enacted by the Philippine Legislature was Act No. 2833, 10 which took
effect on January 1, 1920. 11 Under Section 1 thereof, nonresident aliens are likewise subject to tax on
income "from all sources within the Philippine Islands," thus
SECTION 1. (a) There shall be levied, assessed, collected, and paid annually upon the entire net
income received in the preceding calendar year from all sources by every individual, a citizen or
resident of the Philippine Islands, a tax of two per centum upon such income; and a like tax shall be
levied, assessed, collected, and paid annually upon the entire net income received in the preceding
calendar year from all sources within the Philippine Islands by every individual, a nonresident alien,
including interest on bonds, notes, or other interest-bearing obligations of residents, corporate or
otherwise.
Act No. 2833 substantially reproduced the United States (U.S.) Revenue Law of 1916 as amended by
U.S. Revenue Law of 1917.12 Being a law of American origin, the authoritative decisions of the official
charged with enforcing it in the U.S. have peculiar persuasive force in the Philippines. 13
The Internal Revenue Code of the U.S. enumerates specific types of income to be treated as from
sources within the U.S. and specifies when similar types of income are to be treated as from sources
outside the U.S.14 Under the said Code, compensation for labor and personal services performed in the
U.S., is generally treated as income from U.S. sources; while compensation for said services performed
outside the U.S., is treated as income from sources outside the U.S. 15 A similar provision is found in
Section 42 of our NIRC, thus:
SEC. 42. x x x
(A) Gross Income From Sources Within the Philippines. x x x
xxxx
(3) Services. Compensation for labor or personal services performed in the Philippines;
xxxx
(C) Gross Income From Sources Without the Philippines. x x x

xxxx
(3) Compensation for labor or personal services performed without the Philippines;
The following discussions on sourcing of income under the Internal Revenue Code of the U.S., are
instructive:
The Supreme Court has said, in a definition much quoted but often debated, that income may be
derived from three possible sources only: (1) capital and/or (2) labor; and/or (3) the sale of capital
assets. While the three elements of this attempt at definition need not be accepted as all-inclusive,
they serve as useful guides in any inquiry into whether a particular item is from "sources within the
United States" and suggest an investigation into the nature and location of the activities or property
which produce the income.
If the income is from labor the place where the labor is done should be decisive; if it is done in this
country, the income should be from "sources within the United States." If the income is from capital,
the place where the capital is employed should be decisive; if it is employed in this country, the
income should be from "sources within the United States." If the income is from the sale of capital
assets, the place where the sale is made should be likewise decisive.
Much confusion will be avoided by regarding the term "source" in this fundamental light. It is not a
place, it is an activity or property. As such, it has a situs or location, and if that situs or location is
within the United States the resulting income is taxable to nonresident aliens and foreign corporations.
The intention of Congress in the 1916 and subsequent statutes was to discard the 1909 and 1913 basis
of taxing nonresident aliens and foreign corporations and to make the test of taxability the "source," or
situs of the activities or property which produce the income. The result is that, on the one hand,
nonresident aliens and nonresident foreign corporations are prevented from deriving income from the
United States free from tax, and, on the other hand, there is no undue imposition of a tax when the
activities do not take place in, and the property producing income is not employed in, this country.
Thus, if income is to be taxed, the recipient thereof must be resident within the jurisdiction, or the
property or activities out of which the income issues or is derived must be situated within the
jurisdiction so that the source of the income may be said to have a situs in this country.
The underlying theory is that the consideration for taxation is protection of life and property and that
the income rightly to be levied upon to defray the burdens of the United States Government is that
income which is created by activities and property protected by this Government or obtained by
persons enjoying that protection. 16
The important factor therefore which determines the source of income of personal services is not the
residence of the payor, or the place where the contract for service is entered into, or the place of
payment, but the place where the services were actually rendered. 17
In Alexander Howden & Co., Ltd. v. Collector of Internal Revenue, 18 the Court addressed the issue on
the applicable source rule relating to reinsurance premiums paid by a local insurance company to a
foreign insurance company in respect of risks located in the Philippines. It was held therein that the
undertaking of the foreign insurance company to indemnify the local insurance company is the activity
that produced the income. Since the activity took place in the Philippines, the income derived
therefrom is taxable in our jurisdiction. Citing Mertens, The Law of Federal Income Taxation, the Court
emphasized that the technical meaning of source of income is the property, activity or service that
produced the same. Thus:
The source of an income is the property, activity or service that produced the income. The reinsurance
premiums remitted to appellants by virtue of the reinsurance contracts, accordingly, had for their
source the undertaking to indemnify Commonwealth Insurance Co. against liability. Said undertaking is

the activity that produced the reinsurance premiums, and the same took place in the Philippines. x x x
the reinsured, the liabilities insured and the risk originally underwritten by Commonwealth Insurance
Co., upon which the reinsurance premiums and indemnity were based, were all situated in the
Philippines. x x x19
In Commissioner of Internal Revenue v. British Overseas Airways Corporation (BOAC),20 the issue was
whether BOAC, a foreign airline company which does not maintain any flight to and from the
Philippines is liable for Philippine income taxation in respect of sales of air tickets in the Philippines,
through a general sales agent relating to the carriage of passengers and cargo between two points
both outside the Philippines. Ruling in the affirmative, the Court applied the case of Alexander Howden
& Co., Ltd. v. Collector of Internal Revenue, and reiterated the rule that the source of income is that
"activity" which produced the income. It was held that the "sale of tickets" in the Philippines is the
"activity" that produced the income and therefore BOAC should pay income tax in the Philippines
because it undertook an income producing activity in the country.
Both the petitioner and respondent cited the case of Commissioner of Internal Revenue v. British
Overseas Airways Corporation in support of their arguments, but the correct interpretation of the said
case favors the theory of respondent that it is the situs of the activity that determines whether such
income is taxable in the Philippines. The conflict between the majority and the dissenting opinion in
the said case has nothing to do with the underlying principle of the law on sourcing of income. In fact,
both applied the case of Alexander Howden & Co., Ltd. v. Collector of Internal Revenue. The divergence
in opinion centered on whether the sale of tickets in the Philippines is to be construed as the "activity"
that produced the income, as viewed by the majority, or merely the physical source of the income, as
ratiocinated by Justice Florentino P. Feliciano in his dissent. The majority, through Justice Ameurfina
Melencio-Herrera, as ponente, interpreted the sale of tickets as a business activity that gave rise to the
income of BOAC. Petitioner cannot therefore invoke said case to support its view that source of income
is the physical source of the money earned. If such was the interpretation of the majority, the Court
would have simply stated that source of income is not the business activity of BOAC but the place
where the person or entity disbursing the income is located or where BOAC physically received the
same. But such was not the import of the ruling of the Court. It even explained in detail the business
activity undertaken by BOAC in the Philippines to pinpoint the taxable activity and to justify its
conclusion that BOAC is subject to Philippine income taxation. Thus
BOAC, during the periods covered by the subject assessments, maintained a general sales agent in the
Philippines. That general sales agent, from 1959 to 1971, "was engaged in (1) selling and issuing
tickets; (2) breaking down the whole trip into series of trips each trip in the series corresponding to a
different airline company; (3) receiving the fare from the whole trip; and (4) consequently allocating to
the various airline companies on the basis of their participation in the services rendered through the
mode of interline settlement as prescribed by Article VI of the Resolution No. 850 of the IATA
Agreement." Those activities were in exercise of the functions which are normally incident to, and are
in progressive pursuit of, the purpose and object of its organization as an international air carrier. In
fact, the regular sale of tickets, its main activity, is the very lifeblood of the airline business, the
generation of sales being the paramount objective. There should be no doubt then that BOAC was
"engaged in" business in the Philippines through a local agent during the period covered by the
assessments. x x x21
xxxx
The source of an income is the property, activity or service that produced the income. For the source of
income to be considered as coming from the Philippines, it is sufficient that the income is derived from
activity within the Philippines. In BOAC's case, the sale of tickets in the Philippines is the activity that
produces the income. The tickets exchanged hands here and payments for fares were also made here
in Philippine currency. The situs of the source of payments is the Philippines. The flow of wealth
proceeded from, and occurred within, Philippine territory, enjoying the protection accorded by the
Philippine government. In consideration of such protection, the flow of wealth should share the burden
of supporting the government.

A transportation ticket is not a mere piece of paper. When issued by a common carrier, it constitutes
the contract between the ticket-holder and the carrier. It gives rise to the obligation of the purchaser of
the ticket to pay the fare and the corresponding obligation of the carrier to transport the passenger
upon the terms and conditions set forth thereon. The ordinary ticket issued to members of the
traveling public in general embraces within its terms all the elements to constitute it a valid contract,
binding upon the parties entering into the relationship. 22
The Court reiterates the rule that "source of income" relates to the property, activity or service that
produced the income. With respect to rendition of labor or personal service, as in the instant case, it is
the place where the labor or service was performed that determines the source of the income. There is
therefore no merit in petitioners interpretation which equates source of income in labor or personal
service with the residence of the payor or the place of payment of the income.
Having disposed of the doctrine applicable in this case, we will now determine whether respondent was
able to establish the factual circumstances showing that her income is exempt from Philippine income
taxation.
The decisive factual consideration here is not the capacity in which respondent received the income,
but the sufficiency of evidence to prove that the services she rendered were performed in Germany.
Though not raised as an issue, the Court is clothed with authority to address the same because the
resolution thereof will settle the vital question posed in this controversy. 23
The settled rule is that tax refunds are in the nature of tax exemptions and are to be
construed strictissimi jurisagainst the taxpayer.24 To those therefore, who claim a refund rest the
burden of proving that the transaction subjected to tax is actually exempt from taxation.
In the instant case, the appointment letter of respondent as agent of JUBANITEX stipulated that the
activity or the service which would entitle her to 10% commission income, are "sales actually
concluded and collected through [her] efforts." 25 What she presented as evidence to prove that she
performed income producing activities abroad, were copies of documents she allegedly faxed to
JUBANITEX and bearing instructions as to the sizes of, or designs and fabrics to be used in the finished
products as well as samples of sales orders purportedly relayed to her by clients. However, these
documents do not show whether the instructions or orders faxed ripened into concluded or collected
sales in Germany. At the very least, these pieces of evidence show that while respondent was in
Germany, she sent instructions/orders to JUBANITEX. As to whether these instructions/orders gave rise
to consummated sales and whether these sales were truly concluded in Germany, respondent
presented no such evidence. Neither did she establish reasonable connection between the
orders/instructions faxed and the reported monthly sales purported to have transpired in Germany.
The paucity of respondents evidence was even noted by Atty. Minerva Pacheco, petitioners counsel at
the hearing before the Court of Tax Appeals. She pointed out that respondent presented no contracts
or orders signed by the customers in Germany to prove the sale transactions therein. 26 Likewise, in her
Comment to the Formal Offer of respondents evidence, she objected to the admission of the faxed
documents bearing instruction/orders marked as Exhibits "R," 27 "V," "W", and "X,"28 for being self
serving.29 The concern raised by petitioners counsel as to the absence of substantial evidence that
would constitute proof that the sale transactions for which respondent was paid commission actually
transpired outside the Philippines, is relevant because respondent stayed in the Philippines for 89 days
in 1995. Except for the months of July and September 1995, respondent was in the Philippines in the
months of March, May, June, and August 1995,30 the same months when she earned commission
income for services allegedly performed abroad. Furthermore, respondent presented no evidence to
prove that JUBANITEX does not sell embroidered products in the Philippines and that her appointment
as commission agent is exclusively for Germany and other European markets.
In sum, we find that the faxed documents presented by respondent did not constitute substantial
evidence, or that relevant evidence that a reasonable mind might accept as adequate to support the

conclusion31 that it was in Germany where she performed the income producing service which gave
rise to the reported monthly sales in the months of March and May to September of 1995. She thus
failed to discharge the burden of proving that her income was from sources outside the Philippines and
exempt from the application of our income tax law. Hence, the claim for tax refund should be denied.
The Court notes that in Commissioner of Internal Revenue v. Baier-Nickel,32 a previous case for refund
of income withheld from respondents remunerations for services rendered abroad, the Court in a
Minute Resolution dated February 17, 2003, 33 sustained the ruling of the Court of Appeals that
respondent is entitled to refund the sum withheld from her sales commission income for the
year 1994. This ruling has no bearing in the instant controversy because the subject matter thereof is
the income of respondent for the year 1994 while, the instant case deals with her income in 1995.
Otherwise, stated, res judicata has no application here. Its elements are: (1) there must be a final
judgment or order; (2) the court that rendered the judgment must have jurisdiction over the subject
matter and the parties; (3) it must be a judgment on the merits; (4) there must be between the two
cases identity of parties, of subject matter, and of causes of action. 34 The instant case, however, did
not satisfy the fourth requisite because there is no identity as to the subject matter of the previous and
present case of respondent which deals with income earned and activities performed for different
taxable years.
WHEREFORE, the petition is GRANTED and the January 18, 2002 Decision and May 8, 2002
Resolution of the Court of Appeals in CA-G.R. SP No. 59794, are REVERSED and SET ASIDE. The June
28, 2000 Decision of the Court of Tax Appeals in C.T.A. Case No. 5633, which denied respondents claim
for refund of income tax paid for the year 1995 is REINSTATED.
SO ORDERED.
5. G.R.
No.
152609
June
29,
2005
COMMISSIONER
OF
INTERNAL
REVENUE, Petitioner, vs.AMERICAN EXPRESS INTERNATIONAL, INC. (PHILIPPINE
BRANCH), Respondent.
DECISION
PANGANIBAN, J.:
As a general rule, the value-added tax (VAT) system uses the destination principle. However, our VAT
law itself provides for a clear exception, under which the supply of service shall be zero-rated when the
following requirements are met: (1) the service is performed in the Philippines; (2) the service falls
under any of the categories provided in Section 102(b) of the Tax Code; and (3) it is paid for in
acceptable foreign currency that is accounted for in accordance with the regulations of the Bangko
Sentral ng Pilipinas. Since respondents services meet these requirements, they are zero-rated.
Petitioners Revenue Regulations that alter or revoke the above requirements are ultra vires and
invalid.
The Case
Before us is a Petition for Review 1 under Rule 45 of the Rules of Court, assailing the February 28, 2002
Decision2of the Court of Appeals (CA) in CA-GR SP No. 62727. The assailed Decision disposed as
follows:
"WHEREFORE, premises considered, the petition is hereby DISMISSED for lack of merit. The assailed
decision of the Court of Tax Appeals (CTA) is AFFIRMED in toto."3
The Facts
Quoting the CTA, the CA narrated the undisputed facts as follows:

"[Respondent] is a Philippine branch of American Express International, Inc., a corporation duly

organized and existing under and by virtue of the laws of the State of Delaware, U.S.A., with office in
the Philippines at the Ground Floor, ACE Building, corner Rada and de la Rosa Streets, Legaspi Village,
Makati City. It is a servicing unit of American Express International, Inc. - Hongkong Branch (Amex-HK)
and is engaged primarily to facilitate the collections of Amex-HK receivables from card members
situated in the Philippines and payment to service establishments in the Philippines.
"Amex Philippines registered itself with the Bureau of Internal Revenue (BIR), Revenue District Office
No. 47 (East Makati) as a value-added tax (VAT) taxpayer effective March 1988 and was issued VAT
Registration Certificate No. 088445 bearing VAT Registration No. 32A-3-004868. For the period January
1, 1997 to December 31, 1997, [respondent] filed with the BIR its quarterly VAT returns as follows:
Exhibit

Period Covered

Date Filed

1997 1st Qtr.

April 18, 1997

2nd Qtr.

July 21, 1997

3rd Qtr.

October 2, 1997

4th Qtr.

January 20, 1998

"On March 23, 1999, however, [respondent] amended the aforesaid returns and declared the following:
Exh 1997

Taxable Sales

Output
VAT

Zero-rated
Sales

Domestic
Purchases

Input
VAT

I 1st qtr

P59,597.20

P5,959.72

P17,513,801.11

P6,778,182.30

P677,818.23

J 2nd qtr

67,517.20

6,751.72

17,937,361.51

9,333,242.90

933,324.29

K 3rd qtr

51,936.60

5,193.66

19,627,245.36

8,438,357.00

843,835.70

L 4th qtr

67,994.30

6,799.43

25,231,225.22

13,080,822.10

1,308,082.21

Total

P247,045.30

P24,704.53

P80,309,633.20

P37,630,604.30

P3,763,060.43

"On April 13, 1999, [respondent] filed with the BIR a letter-request for the refund of its 1997 excess
input taxes in the amount of P3,751,067.04, which amount was arrived at after deducting from its total
input VAT paid ofP3,763,060.43 its applied output VAT liabilities only for the third and fourth quarters of
1997 amounting toP5,193.66 and P6,799.43, respectively. [Respondent] cites as basis therefor, Section
110 (B) of the 1997 Tax Code, to state:
Section 110. Tax Credits. xxxxxxxxx
(B) Excess Output or Input Tax. - If at the end of any taxable quarter the output tax exceeds the input
tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the
excess shall be carried over to the succeeding quarter or quarters. Any input tax attributable to the
purchase of capital goods or to zero-rated sales by a VAT-registered person may at his option be
refunded or credited against other internal revenue taxes, subject to the provisions of Section 112.
"There being no immediate action on the part of the [petitioner], [respondents] petition was filed on
April 15, 1999.
"In support of its Petition for Review, the following arguments were raised by [respondent]:

A. Export sales by a VAT-registered person, the consideration for which is paid for in acceptable foreign
currency inwardly remitted to the Philippines and accounted for in accordance with existing regulations
of the Bangko Sentral ng Pilipinas, are subject to [VAT] at zero percent (0%). According to [respondent],
being a VAT-registered entity, it is subject to the VAT imposed under Title IV of the Tax Code, to wit:
Section 102.(sic) Value-added tax on sale of services.- (a) Rate and base of tax. - There shall be
levied, assessed and collected, a value-added tax equivalent to 10% percent of gross receipts derived
by any person engaged in the sale of services. The phrase "sale of services" means the performance of
all kinds of services for others for a fee, remuneration or consideration, including those performed or
rendered by construction and service contractors: stock, real estate, commercial, customs and
immigration brokers; lessors of personal property; lessors or distributors of cinematographic films;
persons engaged in milling, processing, manufacturing or repacking goods for others; and similar
services regardless of whether o[r] not the performance thereof calls for the exercise or use of the
physical or mental faculties: Provided That the following services performed in the Philippines by VATregistered persons shall be subject to 0%:
(1) x x x
(2) Services other than those mentioned in the preceding subparagraph, the consideration is
paid for in acceptable foreign currency which is remitted inwardly to the Philippines and
accounted for in accordance with the rules and regulations of the BSP. x x x.
In addition, [respondent] relied on VAT Ruling No. 080-89, dated April 3, 1989, the pertinent portion of
which reads as follows:
In Reply, please be informed that, as a VAT registered entity whose service is paid for in acceptable
foreign currency which is remitted inwardly to the Philippines and accounted for in accordance with the
rules and regulations of the Central [B]ank of the Philippines, your service income is automatically zero
rated effective January 1, 1998. [Section 102(a)(2) of the Tax Code as amended]. 4 For this, there is no
need to file an application for zero-rate.
B. Input taxes on domestic purchases of taxable goods and services related to zero-rated revenues are
available as tax refund in accordance with Section 106 (now Section 112) of the [Tax Code] and Section
8(a) of [Revenue] Regulations [(RR)] No. 5-87, to state:
Section 106. Refunds or tax credits of input tax. (A) Zero-rated or effectively Zero-rated Sales. - Any VAT-registered person, except those covered by
paragraph (a) above, whose sales are zero-rated or are effectively zero-rated, may, within two (2)
years after the close of the taxable quarter when such sales were made, apply for the issuance of tax
credit certificate or refund of the input taxes due or attributable to such sales, to the extent that such
input tax has not been applied against output tax. x x x. [Section 106(a) of the Tax Code] 5
Section 8. Zero-rating. - (a) In general. - A zero-rated sale is a taxable transaction for value-added
tax purposes. A sale by a VAT-registered person of goods and/or services taxed at zero rate shall not
result in any output tax. The input tax on his purchases of goods or services related to such zero-rated
sale shall be available as tax credit or refundable in accordance with Section 16 of these Regulations. x
x x. [Section 8(a), [RR] 5-87].6
"[Petitioner], in his Answer filed on May 6, 1999, claimed by way of Special and Affirmative Defenses
that:
7. The claim for refund is subject to investigation by the Bureau of Internal Revenue;
8. Taxes paid and collected are presumed to have been made in accordance with laws and regulations,
hence, not refundable. Claims for tax refund are construed strictly against the claimant as they partake
of the nature of tax exemption from tax and it is incumbent upon the [respondent] to prove that it is

entitled thereto under the law and he who claims exemption must be able to justify his claim by the
clearest grant of organic or statu[t]e law. An exemption from the common burden [cannot] be
permitted to exist upon vague implications;
9. Moreover, [respondent] must prove that it has complied with the governing rules with reference to
tax recovery or refund, which are found in Sections 204(c) and 229 of the Tax Code, as amended,
which are quoted as follows:
Section 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. - The
Commissioner may - x x x.
(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority,
refund the value of internal revenue stamps when they are returned in good condition by the
purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for
use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be
allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within
two (2) years after payment of the tax or penalty: Provided, however, That a return filed with an
overpayment shall be considered a written claim for credit or refund.
Section 229. Recovery of tax erroneously or illegally collected.- No suit or proceeding shall be
maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have
been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected
without authority, or of any sum alleged to have been excessively or in any manner wrongfully
collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or
proceeding may be maintained, whether or not such tax, penalty or sum has been paid under protest
or duress.
In any case, no such suit or proceeding shall be begun (sic) after the expiration of two (2) years from
the date of payment of the tax or penalty regardless of any supervening cause that may arise after
payment: Provided, however, That the Commissioner may, even without written claim therefor, refund
or credit any tax, where on the face of the return upon which payment was made, such payment
appears clearly to have been erroneously paid.
"From the foregoing, the [CTA], through the Presiding Judge Ernesto D. Acosta rendered a decision 7 in
favor of the herein respondent holding that its services are subject to zero-rate pursuant to Section
108(b) of the Tax Reform Act of 1997 and Section 4.102-2 (b)(2) of Revenue Regulations 5-96, the
decretal portion of which reads as follows:
WHEREFORE, in view of all the foregoing, this Court finds the [petition] meritorious and in
accordance with law. Accordingly, [petitioner] is hereby ORDERED to REFUND to [respondent] the
amount of P3,352,406.59 representing the latters excess input VAT paid for the year 1997." 8
Ruling of the Court of Appeals
In affirming the CTA, the CA held that respondents services fell under the first type enumerated in
Section 4.102-2(b)(2) of RR 7-95, as amended by RR 5-96. More particularly, its "services were not of
the same class or of the same nature as project studies, information, or engineering and architectural
designs" for non-resident foreign clients; rather, they were "services other than the processing,
manufacturing or repacking of goods for persons doing business outside the Philippines." The
consideration in both types of service, however, was paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas.
Furthermore, the CA reasoned that reliance on VAT Ruling No. 040-98 was unwarranted. By requiring
that respondents services be consumed abroad in order to be zero-rated, petitioner went beyond the
sphere of interpretation and into that of legislation. Even granting that it is valid, the ruling cannot be
given retroactive effect, for it will be harsh and oppressive to respondent, which has already relied
upon VAT Ruling No. 080-89 for zero rating.

Hence, this Petition.9

The Issue
Petitioner raises this sole issue for our consideration:
"Whether or not the Court of Appeals committed reversible error in holding that respondent is entitled
to the refund of the amount of P3,352,406.59 allegedly representing excess input VAT for the year
1997."10
The Courts Ruling
The Petition is unmeritorious.
Sole Issue:
Entitlement to Tax Refund
Section 102 of the Tax Code11 provides:
"Sec. 102. Value-added tax on sale of services and use or lease of properties. -- (a) Rate and base of
tax. -- There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%)
of gross receipts derived from the sale or exchange of services x x x.
"The phrase 'sale or exchange of services' means the performance of all kinds of services in the
Philippines for others for a fee, remuneration or consideration, including those performed or rendered
by x x x persons engaged in milling, processing, manufacturing or repacking goods for others; x x x
services of banks, non-bank financial intermediaries and finance companies; x x x and similar services
regardless of whether or not the performance thereof calls for the exercise or use of the physical or
mental faculties. The phrase 'sale or exchange of services' shall likewise include:
xxxxxxxxx
(3) The supply of x x x commercial knowledge or information;
(4) The supply of any assistance that is ancillary and subsidiary to and is furnished as a means of
enabling the application or enjoyment of x x x any such knowledge or information as is mentioned in
subparagraph (3);
xxxxxxxxx
(6) The supply of technical advice, assistance or services rendered in connection with technical
management or administration of any x x x commercial undertaking, venture, project or scheme;
xxxxxxxxx
"The term 'gross receipts means the total amount of money or its equivalent representing the contract
price, compensation, service fee, rental or royalty, including the amount charged for materials supplied
with the services and deposits and advanced payments actually or constructively received during the
taxable quarter for the services performed or to be performed for another person, excluding valueadded tax.
"(b) Transactions subject to zero percent (0%) rate. -- The following services performed in the
Philippines by VAT-registered persons shall be subject to zero percent (0%) rate[:]

(1) Processing, manufacturing or repacking goods for other persons doing business outside the
Philippines which goods are subsequently exported, where the services are paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral
ng Pilipinas (BSP);
(2) Services other than those mentioned in the preceding subparagraph, the consideration for which is
paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations
of the [BSP];"
xxxxxxxxx
Zero Rating of "Other" Services
The law is very clear. Under the last paragraph quoted above, services performed by VAT-registered
persons in the Philippines (other than the processing, manufacturing or repacking of goods for persons
doing business outside the Philippines), when paid in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP, are zero-rated.
Respondent is a VAT-registered person that facilitates the collection and payment of receivables
belonging to its non-resident foreign client, for which it gets paid in acceptable foreign currency
inwardly remitted and accounted for in conformity with BSP rules and regulations. Certainly, the
service it renders in the Philippines is not in the same category as "processing, manufacturing or
repacking of goods" and should, therefore, be zero-rated. In reply to a query of respondent, the BIR
opined in VAT Ruling No. 080-89 that the income respondent earned from its parent companys
regional operating centers (ROCs) was automatically zero-rated effective January 1, 1988. 12
Service has been defined as "the art of doing something useful for a person or company for a fee" 13 or
"useful labor or work rendered or to be rendered by one person to another." 14 For facilitating in the
Philippines the collection and payment of receivables belonging to its Hong Kong-based foreign client,
and getting paid for it in duly accounted acceptable foreign currency, respondent renders service
falling under the category of zero rating. Pursuant to the Tax Code, a VAT of zero percent should,
therefore, be levied upon the supply of that service.15
The Credit Card System and Its Components
For sure, the ancillary business of facilitating the said collection is different from the main business of
issuing credit cards.16 Under the credit card system, the credit card company extends credit
accommodations to its card holders for the purchase of goods and services from its member
establishments, to be reimbursed by them later on upon proper billing. Given the complexities of
present-day business transactions, the components of this system can certainly function as separate
billable services.
Under RA 8484,17 the credit card that is issued by banks18 in general, or by non-banks in particular,
refers to "any card x x x or other credit device existing for the purpose of obtaining x x x goods x x x or
services x x x on credit;"19 and is being used "usually on a revolving basis." 20 This means that the
consumer-credit arrangement that exists between the issuer and the holder of the credit card enables
the latter to procure goods or services "on a continuing basis as long as the outstanding balance does
not exceed a specified limit." 21 The card holder is, therefore, given "the power to obtain present control
of goods or service on a promise to pay for them in the future."22
Business establishments may extend credit sales through the use of the credit card facilities of a nonbank credit card company to avoid the risk of uncollectible accounts from their customers. Under this
system, the establishments do not deposit in their bank accounts the credit card drafts 23 that arise
from the credit sales. Instead, they merely record their receivables from the credit card company and
periodically send the drafts evidencing those receivables to the latter.
The credit card company, in turn, sends checks as payment to these business establishments, but it
does not redeem the drafts at full price. The agreement between them usually provides for discounts

to be taken by the company upon its redemption of the drafts. 24 At the end of each month, it then bills
its credit card holders for their respective drafts redeemed during the previous month. If the holders
fail to pay the amounts owed, the company sustains the loss. 25
In the present case, respondents role in the consumer credit 26 process described above primarily
consists of gathering the bills and credit card drafts of different service establishments located in the
Philippines and forwarding them to the ROCs outside the country. Servicing the bill is not the same as
billing. For the former type of service alone, respondent already gets paid.
The parent company -- to which the ROCs and respondent belong -- takes charge not only of
redeeming the drafts from the ROCs and sending the checks to the service establishments, but also of
billing the credit card holders for their respective drafts that it has redeemed. While it usually imposes
finance charges27 upon the holders, none may be exacted by respondent upon either the ROCs or the
card holders.
Branch and Home Office
By designation alone, respondent and the ROCs are operated as branches. This means that each of
them is a unit, "an offshoot, lateral extension, or division" 28 located at some distance from the home
office29 of the parent company; carrying separate inventories; incurring their own expenses; and
generating their respective incomes. Each may conduct sales operations in any locality as an
extension of the principal office.30
The extent of accounting activity at any of these branches depends upon company policy, 31 but the
financial reports of the entire business enterprise -- the credit card company to which they all belong -must always show its financial position, results of operation, and changes in its financial position as a
single unit.32 Reciprocal accounts are reconciled or eliminated, because they lose all significance when
the branches and home office are viewed as a single entity. 33 In like manner, intra-company profits or
losses must be offset against each other for accounting purposes.
Contrary to petitioners assertion, 34 respondent can sell its services to another branch of the same
parent company.35 In fact, the business concept of a transfer price allows goods and services to be sold
between and among intra-company units at cost or above cost. 36 A branch may be operated as a
revenue center, cost center, profit center or investment center, depending upon the policies and
accounting system of its parent company. 37Furthermore, the latter may choose not to make any sale
itself, but merely to function as a control center, where most or all of its expenses are allocated to any
of its branches.38
Gratia argumenti that the sending of drafts and bills by service establishments to respondent is
equivalent to the act of sending them directly to its parent company abroad, and that the parent
companys subsequent redemption of these drafts and billings of credit card holders is also
attributable to respondent, then with greater reason should the service rendered by respondent be
zero-rated under our VAT system. The service partakes of the nature of export sales as applied to
goods,39 especially when rendered in the Philippines by a VAT-registered person 40 that gets paid in
acceptable foreign currency accounted for in accordance with BSP rules and regulations.
VAT Requirements for the Supply of Service
The VAT is a tax on consumption41 "expressed as a percentage of the value added to goods or
services"42purchased by the producer or taxpayer.43 As an indirect tax44 on services,45 its main object is
the transaction46itself or, more concretely, the performance of all kinds of services 47 conducted in the
course of trade or business in the Philippines. 48 These services must be regularly conducted in this
country; undertaken in "pursuit of a commercial or an economic activity;" 49 for a valuable
consideration; and not exempt under the Tax Code, other special laws, or any international
agreement.50
Without doubt, the transactions respondent entered into with its Hong Kong-based client meet all these
requirements.

First, respondent regularly renders in the Philippines the service of facilitating the collection
and payment of receivables belonging to a foreign company that is a clearly separate and
distinct entity.
Second, such service is commercial in nature; carried on over a sustained period of time; on a
significant scale; with a reasonable degree of frequency; and not at random, fortuitous or
attenuated.
Third, for this service, respondent definitely receives consideration in foreign currency that is
accounted for in conformity with law.
Finally, respondent is not an entity exempt under any of our laws or international agreements.
Services Subject to Zero VAT
As a general rule, the VAT system uses the destination principle as a basis for the jurisdictional reach
of the tax.51Goods and services are taxed only in the country where they are consumed. Thus, exports
are zero-rated, while imports are taxed.
Confusion in zero rating arises because petitioner equates the performance of a particular type of
service with theconsumption of its output abroad. In the present case, the facilitation of the
collection of receivables is different from the utilization or consumption of the outcome of such service.
While the facilitation is done in the Philippines, the consumption is not. Respondent renders assistance
to its foreign clients -- the ROCs outside the country -- by receiving the bills of service establishments
located here in the country and forwarding them to the ROCs abroad. The consumption contemplated
by law, contrary to petitioners administrative interpretation, 52 does not imply that the service be done
abroad in order to be zero-rated.
Consumption is "the use of a thing in a way that thereby exhausts it." 53 Applied to services, the term
means the performance or "successful completion of a contractual duty, usually resulting in the
performers release from any past or future liability x x x." 54 The services rendered by respondent are
performed or successfully completed upon its sending to its foreign client the drafts and bills it has
gathered from service establishments here. Its services, having been performed in the Philippines, are
therefore also consumed in the Philippines.
Unlike goods, services cannot be physically used in or bound for a specific place when their destination
is determined. Instead, there can only be a "predetermined end of a course" 55 when determining the
service "location or position x x x for legal purposes." 56 Respondents facilitation service has no
physical existence, yet takes place upon rendition, and therefore upon consumption, in the Philippines.
Under the destination principle, as petitioner asserts, such service is subject to VAT at the rate of 10
percent.
Respondents Services Exempt from the Destination Principle
However, the law clearly provides for an exception to the destination principle; that is, for a zero
percent VAT rate for services that are performed in the Philippines, "paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations of the [BSP]." 57 Thus, for the
supply of service to be zero-rated as an exception, the law merely requires that first, the service be
performed in the Philippines; second, the service fall under any of the categories in Section 102(b) of
the Tax Code; and, third, it be paid in acceptable foreign currency accounted for in accordance with
BSP rules and regulations.
Indeed, these three requirements for exemption from the destination principle are met by respondent.
Its facilitation service is performed in the Philippines. It falls under the second category found in
Section 102(b) of the Tax Code, because it is a service other than "processing, manufacturing or
repacking of goods" as mentioned in the provision. Undisputed is the fact that such service meets the
statutory condition that it be paid in acceptable foreign currency duly accounted for in accordance with
BSP rules. Thus, it should be zero-rated.

Performance of Service versus Product Arising from Performance

Again, contrary to petitioners stand, for the cost of respondents service to be zero-rated, it need not
be tacked in as part of the cost of goods exported. 58 The law neither imposes such requirement nor
associates services with exported goods. It simply states that the services performed by VAT-registered
persons in the Philippines -- services other than the processing, manufacturing or repacking of goods
for persons doing business outside this country -- if paid in acceptable foreign currency and accounted
for in accordance with the rules and regulations of the BSP, are zero-rated. The service rendered by
respondent is clearly different from the product that arises from the rendition of such service. The
activity that creates the income must not be confused with the main business in the course of which
that income is realized.59
Tax Situs of a Zero-Rated Service
The law neither makes a qualification nor adds a condition in determining the tax situs of a zero-rated
service. Under this criterion, the place where the service is rendered determines the jurisdiction 60 to
impose the VAT.61Performed in the Philippines, such service is necessarily subject to its
jurisdiction,62 for the State necessarily has to have "a substantial connection" 63 to it, in order to enforce
a zero rate.64 The place of payment is immaterial; 65much less is the place where the output of the
service will be further or ultimately used.
Statutory Construction or Interpretation Unnecessary
As mentioned at the outset, Section 102(b)(2) of the Tax Code is very clear. Therefore, no statutory
construction or interpretation is needed. Neither can conditions or limitations be introduced where
none is provided for. Rewriting the law is a forbidden ground that only Congress may tread upon.
The Court may not construe a statute that is free from doubt. 66 "[W]here the law speaks in clear and
categorical language, there is no room for interpretation. There is only room for application." 67 The
Court has no choice but to "see to it that its mandate is obeyed."68
No Qualifications Under RR 5-87
In implementing the VAT provisions of the Tax Code, RR 5-87 provides for the zero rating of services
other than the processing, manufacturing or repacking of goods -- in general and without qualifications
-- when paid for by the person to whom such services are rendered in acceptable foreign currency
inwardly remitted and duly accounted for in accordance with the BSP (then Central Bank) regulations.
Section 8 of RR 5-87 states:
"SECTION 8. Zero-rating. -- (a) In general. -- A zero-rated sale is a taxable transaction for value-added
tax purposes. A sale by a VAT-registered person of goods and/or services taxed at zero rate shall not
result in any output tax. The input tax on his purchases of goods or services related to such zero-rated
sale shall be available as tax credit or refundable in accordance with Section 16 of these Regulations.
xxxxxxxxx
" (c) Zero-rated sales of services. -- The following services rendered by VAT-registered persons are
zero-rated:
(1) Services in connection with the processing, manufacturing or repacking of goods for persons doing
business outside the Philippines, where such goods are actually shipped out of the Philippines to said
persons or their assignees and the services are paid for in acceptable foreign currency inwardly
remitted and duly accounted for under the regulations of the Central Bank of the Philippines.
xxxxxxxxx

(3) Services performed in the Philippines other than those mentioned in subparagraph (1) above which
are paid for by the person or entity to whom the service is rendered in acceptable foreign currency
inwardly remitted and duly accounted for in accordance with Central Bank regulations. Where the
contract involves payment in both foreign and local currency, only the service corresponding to that
paid in foreign currency shall enjoy zero-rating. The portion paid for in local currency shall be subject to
VAT at the rate of 10%."
RR 7-95 Broad Enough
RR 7-95, otherwise known as the "Consolidated VAT Regulations," 69 reiterates the above-quoted
provision and further presents as examples only the services performed in the Philippines by VATregistered hotels and other service establishments. Again, the condition remains that these services
must be paid in acceptable foreign currency inwardly remitted and accounted for in accordance with
the rules and regulations of the BSP. The term "other service establishments" is obviously broad
enough to cover respondents facilitation service. Section 4.102-2 of RR 7-95 provides thus:
"SECTION 4.102-2. Zero-Rating. -- (a) In general. -- A zero-rated sale by a VAT registered person, which
is a taxable transaction for VAT purposes, shall not result in any output tax. However, the input tax on
his purchases of goods, properties or services related to such zero-rated sale shall be available as tax
credit or refund in accordance with these regulations.
"(b) Transaction subject to zero-rate. -- The following services performed in the Philippines by VATregistered persons shall be subject to 0%:
(1) Processing, manufacturing or repacking goods for other persons doing business outside the
Philippines which goods are subsequently exported, where the services are paid for in
acceptable foreign currency and accounted for in accordance with the rules and regulations of
the BSP;
(2) Services other than those mentioned in the preceding subparagraph, e.g. those rendered
by hotels and other service establishments, the consideration for which is paid for in
acceptable foreign currency and accounted for in accordance with the rules and regulations of
the BSP;"
xxxxxxxxx
Meaning of "as well as" in RR 5-96
Section 4.102-2(b)(2) of RR 7-95 was subsequently amended by RR 5-96 to read as follows:
"Section 4.102-2(b)(2) -- Services other than processing, manufacturing or repacking for other persons
doing business outside the Philippines for goods which are subsequently exported, as well as services
by a resident to a non-resident foreign client such as project studies, information services, engineering
and architectural designs and other similar services, the consideration for which is paid for in
acceptable foreign currency and accounted for in accordance with the rules and regulations of the
BSP."
Aside from the already scopious coverage of services in Section 4.102-2(b)(2) of RR 7-95, the
amendment introduced by RR 5-96 further enumerates specific services entitled to zero rating.
Although superfluous, these sample services are meant to be merely illustrative. In this provision, the
use of the term "as well as" is not restrictive. As a prepositional phrase with an adverbial relation to
some other word, it simply means "in addition to, besides, also or too." 70
Neither the law nor any of the implementing revenue regulations aforequoted categorically defines or
limits the services that may be sold or exchanged for a fee, remuneration or consideration. Rather,
both merely enumerate the items of service that fall under the term "sale or exchange of services." 71

Ejusdem Generis Inapplicable

The canon of statutory construction known as ejusdem generis or "of the same kind or specie" does
not apply to Section 4.102-2(b)(2) of RR 7-95 as amended by RR 5-96.
First, although the regulatory provision contains an enumeration of particular or specific words,
followed by the general phrase "and other similar services," such words do not constitute a
readily discernible class and are patently not of the same kind. 72 Project studies involve
investments or marketing; information services focus on data technology; engineering and
architectural designs require creativity. Aside from calling for the exercise or use of mental
faculties or perhaps producing written technical outputs, no common denominator to the
exclusion of all others characterizes these three services. Nothing sets them apart from other
and similar general services that may involve advertising, computers, consultancy, health
care, management, messengerial work -- to name only a few.
Second, there is the regulatory intent to give the general phrase "and other similar services" a
broader meaning.73 Clearly, the preceding phrase "as well as" is not meant to limit the effect of
"and other similar services."
Third, and most important, the statutory provision upon which this regulation is based is by
itself not restrictive. The scope of the word "services" in Section 102(b)(2) of the Tax Code is
broad; it is not susceptible of narrow interpretation. 741avvphi1.zw+
VAT Ruling Nos. 040-98 and 080-89
VAT Ruling No. 040-98 relied upon by petitioner is a less general interpretation at the administrative
level,75rendered by the BIR commissioner upon request of a taxpayer to clarify certain provisions of the
VAT law. As correctly held by the CA, when this ruling states that the service must be "destined for
consumption outside of the Philippines"76 in order to qualify for zero rating, it contravenes both the law
and the regulations issued pursuant to it. 77 This portion of VAT Ruling No. 040-98 is clearly ultra
vires and invalid.78
Although "[i]t is widely accepted that the interpretation placed upon a statute by the executive
officers, whose duty is to enforce it, is entitled to great respect by the courts," 79 this interpretation is
not conclusive and will have to be "ignored if judicially found to be erroneous" 80 and "clearly absurd x x
x or improper."81 An administrative issuance that overrides the law it merely seeks to interpret, instead
of remaining consistent and in harmony with it, will not be countenanced by this Court. 82
In the present case, respondent has relied upon VAT Ruling No. 080-89, which clearly recognizes its
zero rating. Changing this status will certainly deprive respondent of a refund of the substantial
amount of excess input taxes to which it is entitled.
Again, assuming arguendo that VAT Ruling No. 040-98 revoked VAT Ruling No. 080-89, such revocation
could not be given retroactive effect if the application of the latter ruling would only be prejudicial to
respondent.83 Section 246 of the Tax Code categorically declares that "[a]ny revocation x x x of x x x
any of the rulings x x x promulgated by the Commissioner shall not be given retroactive application if
the revocation x x x will be prejudicial to the taxpayers."84
It is also basic in law that "no x x x rule x x x shall be given retrospective effect 85 unless explicitly
stated."86 No indication of such retroactive application to respondent does the Court find in VAT Ruling
No. 040-98. Neither do the exceptions enumerated in Section 246 87 of the Tax Code apply.
Though vested with the power to interpret the provisions of the Tax Code 88 and not bound by
predecessors acts or rulings, the BIR commissioner may render a different construction to a
statute89 only if the new interpretation is in congruence with the law. Otherwise, no amount of
interpretation can ever revoke, repeal or modify what the law says.

"Consumed Abroad" Not Required by Legislature

Interpellations on the subject in the halls of the Senate also reveal a clear intent on the part of the
legislators not to impose the condition of being "consumed abroad" in order for services performed in
the Philippines by a VAT-registered person to be zero-rated. We quote the relevant portions of the
proceedings:
"Senator Maceda: Going back to Section 102 just for the moment. Will the Gentleman kindly explain
to me - I am referring to the lower part of the first paragraph with the Provided. Section
102. Provided that the following services performed in the Philippines by VAT registered persons shall
be subject to zero percent. There are three here. What is the difference between the three here which
is subject to zero percent and Section 103 which is exempt transactions, to being with?
"Senator Herrera: Mr. President, in the case of processing and manufacturing or repacking goods for
persons doing business outside the Philippines which are subsequently exported, and where the
services are paid for in acceptable foreign currencies inwardly remitted, this is considered as subject to
0%. But if these conditions are not complied with, they are subject to the VAT.
"In the case of No. 2, again, as the Gentleman pointed out, these three are zero-rated and the other
one that he indicated are exempted from the very beginning. These three enumerations under Section
102 are zero-rated provided that these conditions indicated in these three paragraphs are also
complied with. If they are not complied with, then they are not entitled to the zero ratings. Just like in
the export of minerals, if these are not exported, then they cannot qualify under this provision of zero
rating.
"Senator Maceda: Mr. President, just one small item so we can leave this. Under the proviso, it is
required that the following services be performed in the Philippines.
"Under No. 2, services other than those mentioned above includes, let us say, manufacturing
computers and computer chips or repacking goods for persons doing business outside the Philippines.
Meaning to say, we ship the goods to them in Chicago or Washington and they send the payment
inwardly to the Philippines in foreign currency, and that is, of course, zero-rated.lawphil.net
"Now, when we say services other than those mentioned in the preceding subsection[,] may I have
some examples of these?
"Senator Herrera: Which portion is the Gentleman referring to?
"Senator Maceda: I am referring to the second paragraph, in the same Section 102. The first
paragraph is when one manufactures or packages something here and he sends it abroad and they
pay him, that is covered. That is clear to me. The second paragraph says Services other than those
mentioned in the preceding subparagraph, the consideration of which is paid for in acceptable foreign
currency
"One example I could immediately think of -- I do not know why this comes to my mind tonight -- is for
tourism or escort services. For example, the services of the tour operator or tour escort -- just a good
name for all kinds of activities -- is made here at the Midtown Ramada Hotel or at the Philippine Plaza,
but the payment is made from outside and remitted into the country.
"Senator Herrera: What is important here is that these services are paid in acceptable foreign
currency remitted inwardly to the Philippines.
"Senator Maceda: Yes, Mr. President. Like those Japanese tours which include $50 for the services of
a woman or a tourist guide, it is zero-rated when it is remitted here.
"Senator Herrera: I guess it can be interpreted that way, although this tourist guide should also be
considered as among the professionals. If they earn more than P200,000, they should be covered.

xxxxxxxxx
Senator Maceda: So, the services by Filipino citizens outside the Philippines are subject to VAT, and I
am talking of all services. Do big contractual engineers in Saudi Arabia pay VAT?
"Senator Herrera: This provision applies to a VAT-registered person. When he performs services in
the Philippines, that is zero-rated.
"Senator Maceda: That is right."90
Legislative Approval By Reenactment
Finally, upon the enactment of RA 8424, which substantially carries over the particular provisions on
zero rating of services under Section 102(b) of the Tax Code, the principle of legislative approval of
administrative interpretation by reenactment clearly obtains. This principle means that "the
reenactment of a statute substantially unchanged is persuasive indication of the adoption by Congress
of a prior executive construction."91
The legislature is presumed to have reenacted the law with full knowledge of the contents of the
revenue regulations then in force regarding the VAT, and to have approved or confirmed them because
they would carry out the legislative purpose. The particular provisions of the regulations we have
mentioned earlier are, therefore, re-enforced. "When a statute is susceptible of the meaning placed
upon it by a ruling of the government agency charged with its enforcement and the [l]egislature
thereafter [reenacts] the provisions [without] substantial change, such action is to some extent
confirmatory that the ruling carries out the legislative purpose." 92
In sum, having resolved that transactions of respondent are zero-rated, the Court upholds the formers
entitlement to the refund as determined by the appellate court. Moreover, there is no conflict between
the decisions of the CTA and CA. This Court respects the findings and conclusions of a specialized court
like the CTA "which, by the nature of its functions, is dedicated exclusively to the study and
consideration of tax cases and has necessarily developed an expertise on the subject." 93
Furthermore, under a zero-rating scheme, the sale or exchange of a particular service is completely
freed from the VAT, because the seller is entitled to recover, by way of a refund or as an input tax
credit, the tax that is included in the cost of purchases attributable to the sale or exchange. 94 "[T]he
tax paid or withheld is not deducted from the tax base." 95 Having been applied for within the
reglementary period,96 respondents refund is in order.
WHEREFORE, the Petition
pronouncement as to costs.

is

hereby DENIED,

and

the

assailed

Decision AFFIRMED. No

SO ORDERED.
6. G.R.
No.
144104
June
29,
2004
LUNG
CENTER
OF
THE
PHILIPPINES, petitioner, vs.QUEZON CITY and CONSTANTINO P. ROSAS, in his capacity
as City Assessor of Quezon City,respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court, as amended, of the
Decision1 dated July 17, 2000 of the Court of Appeals in CA-G.R. SP No. 57014 which affirmed the
decision of the Central Board of Assessment Appeals holding that the lot owned by the petitioner and
its hospital building constructed thereon are subject to assessment for purposes of real property tax.

The Antecedents
The petitioner Lung Center of the Philippines is a non-stock and non-profit entity established on
January 16, 1981 by virtue of Presidential Decree No. 1823. 2 It is the registered owner of a parcel of
land, particularly described as Lot No. RP-3-B-3A-1-B-1, SWO-04-000495, located at Quezon Avenue
corner Elliptical Road, Central District, Quezon City. The lot has an area of 121,463 square meters and
is covered by Transfer Certificate of Title (TCT) No. 261320 of the Registry of Deeds of Quezon City.
Erected in the middle of the aforesaid lot is a hospital known as the Lung Center of the Philippines. A
big space at the ground floor is being leased to private parties, for canteen and small store spaces,
and to medical or professional practitioners who use the same as their private clinics for their patients
whom they charge for their professional services. Almost one-half of the entire area on the left side of
the building along Quezon Avenue is vacant and idle, while a big portion on the right side, at the corner
of Quezon Avenue and Elliptical Road, is being leased for commercial purposes to a private enterprise
known as the Elliptical Orchids and Garden Center.
The petitioner accepts paying and non-paying patients. It also renders medical services to out-patients,
both paying and non-paying. Aside from its income from paying patients, the petitioner receives
annual subsidies from the government.
On June 7, 1993, both the land and the hospital building of the petitioner were assessed for real
property taxes in the amount of P4,554,860 by the City Assessor of Quezon City. 3 Accordingly, Tax
Declaration Nos. C-021-01226 (16-2518) and C-021-01231 (15-2518-A) were issued for the land and
the hospital building, respectively.4 On August 25, 1993, the petitioner filed a Claim for
Exemption5 from real property taxes with the City Assessor, predicated on its claim that it is a
charitable institution. The petitioners request was denied, and a petition was, thereafter, filed before
the Local Board of Assessment Appeals of Quezon City (QC-LBAA, for brevity) for the reversal of the
resolution of the City Assessor. The petitioner alleged that under Section 28, paragraph 3 of the 1987
Constitution, the property is exempt from real property taxes. It averred that a minimum of 60% of its
hospital beds are exclusively used for charity patients and that the major thrust of its hospital
operation is to serve charity patients. The petitioner contends that it is a charitable institution and, as
such, is exempt from real property taxes. The QC-LBAA rendered judgment dismissing the petition and
holding the petitioner liable for real property taxes.6
The QC-LBAAs decision was, likewise, affirmed on appeal by the Central Board of Assessment Appeals
of Quezon City (CBAA, for brevity)7 which ruled that the petitioner was not a charitable institution and
that its real properties were not actually, directly and exclusively used for charitable purposes; hence,
it was not entitled to real property tax exemption under the constitution and the law. The petitioner
sought relief from the Court of Appeals, which rendered judgment affirming the decision of the CBAA. 8
Undaunted, the petitioner filed its petition in this Court contending that:
A. THE COURT A QUO ERRED IN DECLARING PETITIONER AS NOT ENTITLED TO REALTY TAX
EXEMPTIONS ON THE GROUND THAT ITS LAND, BUILDING AND IMPROVEMENTS, SUBJECT OF
ASSESSMENT, ARE NOT ACTUALLY, DIRECTLY AND EXCLUSIVELY DEVOTED FOR CHARITABLE
PURPOSES.
B. WHILE PETITIONER IS NOT DECLARED AS REAL PROPERTY TAX EXEMPT UNDER ITS CHARTER,
PD 1823, SAID EXEMPTION MAY NEVERTHELESS BE EXTENDED UPON PROPER APPLICATION.
The petitioner avers that it is a charitable institution within the context of Section 28(3), Article VI of
the 1987 Constitution. It asserts that its character as a charitable institution is not altered by the fact
that it admits paying patients and renders medical services to them, leases portions of the land to
private parties, and rents out portions of the hospital to private medical practitioners from which it
derives income to be used for operational expenses. The petitioner points out that for the years 1995
to 1999, 100% of its out-patients were charity patients and of the hospitals 282-bed capacity, 60%

thereof, or 170 beds, is allotted to charity patients. It asserts that the fact that it receives subsidies
from the government attests to its character as a charitable institution. It contends that the
"exclusivity" required in the Constitution does not necessarily mean "solely." Hence, even if a portion of
its real estate is leased out to private individuals from whom it derives income, it does not lose its
character as a charitable institution, and its exemption from the payment of real estate taxes on its
real property. The petitioner cited our ruling in Herrera v. QC-BAA9 to bolster its pose. The petitioner
further contends that even if P.D. No. 1823 does not exempt it from the payment of real estate taxes, it
is not precluded from seeking tax exemption under the 1987 Constitution.
In their comment on the petition, the respondents aver that the petitioner is not a charitable entity.
The petitioners real property is not exempt from the payment of real estate taxes under P.D. No. 1823
and even under the 1987 Constitution because it failed to prove that it is a charitable institution and
that the said property is actually, directly and exclusively used for charitable purposes. The
respondents noted that in a newspaper report, it appears that graft charges were filed with the
Sandiganbayan against the director of the petitioner, its administrative officer, and Zenaida Rivera, the
proprietress of the Elliptical Orchids and Garden Center, for entering into a lease contract over
7,663.13 square meters of the property in 1990 for only P20,000 a month, when the monthly rental
should beP357,000 a month as determined by the Commission on Audit; and that instead of complying
with the directive of the COA for the cancellation of the contract for being grossly prejudicial to the
government, the petitioner renewed the same on March 13, 1995 for a monthly rental of only P24,000.
They assert that the petitioner uses the subsidies granted by the government for charity patients and
uses the rest of its income from the property for the benefit of paying patients, among other purposes.
They aver that the petitioner failed to adduce substantial evidence that 100% of its out-patients and
170 beds in the hospital are reserved for indigent patients. The respondents further assert, thus:
13. That the claims/allegations of the Petitioner LCP do not speak well of its record of service.
That before a patient is admitted for treatment in the Center, first impression is that it is paypatient and required to pay a certain amount as deposit. That even if a patient is living below
the poverty line, he is charged with high hospital bills. And, without these bills being first
settled, the poor patient cannot be allowed to leave the hospital or be discharged without first
paying the hospital bills or issue a promissory note guaranteed and indorsed by an influential
agency or person known only to the Center; that even the remains of deceased poor patients
suffered the same fate. Moreover, before a patient is admitted for treatment as free or charity
patient, one must undergo a series of interviews and must submit all the requirements needed
by the Center, usually accompanied by endorsement by an influential agency or person known
only to the Center. These facts were heard and admitted by the Petitioner LCP during the
hearings before the Honorable QC-BAA and Honorable CBAA. These are the reasons of indigent
patients, instead of seeking treatment with the Center, they prefer to be treated at the Quezon
Institute. Can such practice by the Center be called charitable? 10
The Issues
The issues for resolution are the following: (a) whether the petitioner is a charitable institution within
the context of Presidential Decree No. 1823 and the 1973 and 1987 Constitutions and Section 234(b)
of Republic Act No. 7160; and (b) whether the real properties of the petitioner are exempt from real
property taxes.
The Courts Ruling
The petition is partially granted.
On the first issue, we hold that the petitioner is a charitable institution within the context of the 1973
and 1987 Constitutions. To determine whether an enterprise is a charitable institution/entity or not, the
elements which should be considered include the statute creating the enterprise, its corporate
purposes, its constitution and by-laws, the methods of administration, the nature of the actual work

performed, the character of the services rendered, the indefiniteness of the beneficiaries, and the use
and occupation of the properties.11
In the legal sense, a charity may be fully defined as a gift, to be applied consistently with existing laws,
for the benefit of an indefinite number of persons, either by bringing their minds and hearts under the
influence of education or religion, by assisting them to establish themselves in life or otherwise
lessening the burden of government. 12 It may be applied to almost anything that tend to promote the
well-doing and well-being of social man. It embraces the improvement and promotion of the happiness
of man.13 The word "charitable" is not restricted to relief of the poor or sick. 14 The test of a charity and
a charitable organization are in law the same. The test whether an enterprise is charitable or not is
whether it exists to carry out a purpose reorganized in law as charitable or whether it is maintained for
gain, profit, or private advantage.
Under P.D. No. 1823, the petitioner is a non-profit and non-stock corporation which, subject to the
provisions of the decree, is to be administered by the Office of the President of the Philippines with the
Ministry of Health and the Ministry of Human Settlements. It was organized for the welfare and benefit
of the Filipino people principally to help combat the high incidence of lung and pulmonary diseases in
the Philippines. The raison detre for the creation of the petitioner is stated in the decree, viz:
Whereas, for decades, respiratory diseases have been a priority concern, having been the
leading cause of illness and death in the Philippines, comprising more than 45% of the total
annual deaths from all causes, thus, exacting a tremendous toll on human resources, which
ailments are likely to increase and degenerate into serious lung diseases on account of
unabated pollution, industrialization and unchecked cigarette smoking in the country;lavvph!
l.net
Whereas, the more common lung diseases are, to a great extent, preventable, and curable
with early and adequate medical care, immunization and through prompt and intensive
prevention and health education programs;
Whereas, there is an urgent need to consolidate and reinforce existing programs, strategies
and efforts at preventing, treating and rehabilitating people affected by lung diseases, and to
undertake research and training on the cure and prevention of lung diseases, through a Lung
Center which will house and nurture the above and related activities and provide tertiary-level
care for more difficult and problematical cases;
Whereas, to achieve this purpose, the Government intends to provide material and financial
support towards the establishment and maintenance of a Lung Center for the welfare and
benefit of the Filipino people.15
The purposes for which the petitioner was created are spelled out in its Articles of Incorporation, thus:
SECOND: That the purposes for which such corporation is formed are as follows:
1. To construct, establish, equip, maintain, administer and conduct an integrated
medical institution which shall specialize in the treatment, care, rehabilitation and/or
relief of lung and allied diseases in line with the concern of the government to assist
and provide material and financial support in the establishment and maintenance of a
lung center primarily to benefit the people of the Philippines and in pursuance of the
policy of the State to secure the well-being of the people by providing them specialized
health and medical services and by minimizing the incidence of lung diseases in the
country and elsewhere.

2. To promote the noble undertaking of scientific research related to the prevention of

lung or pulmonary ailments and the care of lung patients, including the holding of a
series of relevant congresses, conventions, seminars and conferences;
3. To stimulate and, whenever possible, underwrite scientific researches on the
biological, demographic, social, economic, eugenic and physiological aspects of lung or
pulmonary diseases and their control; and to collect and publish the findings of such
research for public consumption;
4. To facilitate the dissemination of ideas and public acceptance of information on lung
consciousness or awareness, and the development of fact-finding, information and
reporting facilities for and in aid of the general purposes or objects aforesaid,
especially in human lung requirements, general health and physical fitness, and other
relevant or related fields;
5. To encourage the training of physicians, nurses, health officers, social workers and
medical and technical personnel in the practical and scientific implementation of
services to lung patients;
6. To assist universities and research institutions in their studies about lung diseases,
to encourage advanced training in matters of the lung and related fields and to support
educational programs of value to general health;
7. To encourage the formation of other organizations on the national, provincial and/or
city and local levels; and to coordinate their various efforts and activities for the
purpose of achieving a more effective programmatic approach on the common
problems relative to the objectives enumerated herein;
8. To seek and obtain assistance in any form from both international and local
foundations and organizations; and to administer grants and funds that may be given
to the organization;
9. To extend, whenever possible and expedient, medical services to the public and, in
general, to promote and protect the health of the masses of our people, which has long
been recognized as an economic asset and a social blessing;
10. To help prevent, relieve
maladies of the people in any
needy, all without regard to or
belief of the persons helped;
disorders occur;

and alleviate the lung or pulmonary afflictions and

and all walks of life, including those who are poor and
discrimination, because of race, creed, color or political
and to enable them to obtain treatment when such

11. To participate, as circumstances may warrant, in any activity designed and carried
on to promote the general health of the community;
12. To acquire and/or borrow funds and to own all funds or equipment, educational
materials and supplies by purchase, donation, or otherwise and to dispose of and
distribute the same in such manner, and, on such basis as the Center shall, from time
to time, deem proper and best, under the particular circumstances, to serve its general
and non-profit purposes and objectives;lavvphil.net
13. To buy, purchase, acquire, own, lease, hold, sell, exchange, transfer and dispose of
properties, whether real or personal, for purposes herein mentioned; and

14. To do everything necessary, proper, advisable or convenient for the

accomplishment of any of the powers herein set forth and to do every other act and
thing incidental thereto or connected therewith.16
Hence, the medical services of the petitioner are to be rendered to the public in general in any and all
walks of life including those who are poor and the needy without discrimination. After all, any person,
the rich as well as the poor, may fall sick or be injured or wounded and become a subject of charity. 17
As a general principle, a charitable institution does not lose its character as such and its exemption
from taxes simply because it derives income from paying patients, whether out-patient, or confined in
the hospital, or receives subsidies from the government, so long as the money received is devoted or
used altogether to the charitable object which it is intended to achieve; and no money inures to the
private benefit of the persons managing or operating the institution. 18 In Congregational Sunday
School, etc. v. Board of Review,19 the State Supreme Court of Illinois held, thus:
[A]n institution does not lose its charitable character, and consequent exemption from
taxation, by reason of the fact that those recipients of its benefits who are able to pay are
required to do so, where no profit is made by the institution and the amounts so received are
applied in furthering its charitable purposes, and those benefits are refused to none on account
of inability to pay therefor. The fundamental ground upon which all exemptions in favor of
charitable institutions are based is the benefit conferred upon the public by them, and a
consequent relief, to some extent, of the burden upon the state to care for and advance the
interests of its citizens.20
As aptly stated by the State Supreme Court of South Dakota in Lutheran Hospital Association of South
Dakota v. Baker:21
[T]he fact that paying patients are taken, the profits derived from attendance upon these
patients being exclusively devoted to the maintenance of the charity, seems rather to enhance
the usefulness of the institution to the poor; for it is a matter of common observation amongst
those who have gone about at all amongst the suffering classes, that the deserving poor can
with difficulty be persuaded to enter an asylum of any kind confined to the reception of objects
of charity; and that their honest pride is much less wounded by being placed in an institution in
which paying patients are also received. The fact of receiving money from some of the patients
does not, we think, at all impair the character of the charity, so long as the money thus
received is devoted altogether to the charitable object which the institution is intended to
further.22
The money received by the petitioner becomes a part of the trust fund and must be devoted to public
trust purposes and cannot be diverted to private profit or benefit. 23
Under P.D. No. 1823, the petitioner is entitled to receive donations. The petitioner does not lose its
character as a charitable institution simply because the gift or donation is in the form of subsidies
granted by the government. As held by the State Supreme Court of Utah in Yorgason v. County Board
of Equalization of Salt Lake County:24
Second, the government subsidy payments are provided to the project. Thus, those
payments are like a gift or donation of any other kind except they come from the government.
In both Intermountain Health Careand the present case, the crux is the presence or absence of
material reciprocity. It is entirely irrelevant to this analysis that the government, rather than a
private benefactor, chose to make up the deficit resulting from the exchange between St.
Marks Tower and the tenants by making a contribution to the landlord, just as it would have
been irrelevant in Intermountain Health Care if the patients income supplements had come
from private individuals rather than the government.

Therefore, the fact that subsidization of part of the cost of furnishing such housing is by the
government rather than private charitable contributions does not dictate the denial of a
charitable exemption if the facts otherwise support such an exemption, as they do here. 25
In this case, the petitioner adduced substantial evidence that it spent its income, including the
subsidies from the government for 1991 and 1992 for its patients and for the operation of the hospital.
It even incurred a net loss in 1991 and 1992 from its operations.
Even as we find that the petitioner is a charitable institution, we hold, anent the second issue, that
those portions of its real property that are leased to private entities are not exempt from real property
taxes as these are not actually, directly and exclusively used for charitable purposes.
The settled rule in this jurisdiction is that laws granting exemption from tax are construed strictissimi
juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption
is the exception. The effect of an exemption is equivalent to an appropriation. Hence, a claim for
exemption from tax payments must be clearly shown and based on language in the law too plain to be
mistaken.26 As held in Salvation Army v. Hoehn:27
An intention on the part of the legislature to grant an exemption from the taxing power of the
state will never be implied from language which will admit of any other reasonable
construction. Such an intention must be expressed in clear and unmistakable terms, or must
appear by necessary implication from the language used, for it is a well settled principle that,
when a special privilege or exemption is claimed under a statute, charter or act of
incorporation, it is to be construed strictly against the property owner and in favor of the
public. This principle applies with peculiar force to a claim of exemption from taxation . 28
Section 2 of Presidential Decree No. 1823, relied upon by the petitioner, specifically provides that the
petitioner shall enjoy the tax exemptions and privileges:
SEC. 2. TAX EXEMPTIONS AND PRIVILEGES. Being a non-profit, non-stock corporation organized
primarily to help combat the high incidence of lung and pulmonary diseases in the Philippines,
all donations, contributions, endowments and equipment and supplies to be imported by
authorized entities or persons and by the Board of Trustees of the Lung Center of the
Philippines, Inc., for the actual use and benefit of the Lung Center, shall be exempt from
income and gift taxes, the same further deductible in full for the purpose of determining the
maximum deductible amount under Section 30, paragraph (h), of the National Internal
Revenue Code, as amended.
The Lung Center of the Philippines shall be exempt from the payment of taxes, charges and
fees imposed by the Government or any political subdivision or instrumentality thereof with
respect to equipment purchases made by, or for the Lung Center.29
It is plain as day that under the decree, the petitioner does not enjoy any property tax exemption
privileges for its real properties as well as the building constructed thereon. If the intentions were
otherwise, the same should have been among the enumeration of tax exempt privileges under Section
2:
It is a settled rule of statutory construction that the express mention of one person, thing, or
consequence implies the exclusion of all others. The rule is expressed in the familiar
maxim, expressio unius est exclusio alterius.
The rule of expressio unius est exclusio alterius is formulated in a number of ways. One
variation of the rule is the principle that what is expressed puts an end to that which is
implied. Expressium facit cessare tacitum. Thus, where a statute, by its terms, is expressly

limited to certain matters, it may not, by interpretation or construction, be extended to other

matters.
...
The rule of expressio unius est exclusio alterius and its variations are canons of restrictive
interpretation. They are based on the rules of logic and the natural workings of the human
mind. They are predicated upon ones own voluntary act and not upon that of others. They
proceed from the premise that the legislature would not have made specified enumeration in a
statute had the intention been not to restrict its meaning and confine its terms to those
expressly mentioned.30
The exemption must not be so enlarged by construction since the reasonable presumption is that the
State has granted in express terms all it intended to grant at all, and that unless the privilege is limited
to the very terms of the statute the favor would be intended beyond what was meant. 31
Section 28(3), Article VI of the 1987 Philippine Constitution provides, thus:
(3) Charitable institutions, churches and parsonages or convents appurtenant thereto,
mosques,
non-profit
cemeteries,
and
all
lands,
buildings,
and
improvements, actually, directly and exclusively used for religious, charitable or educational
purposes shall be exempt from taxation.32
The tax exemption under this constitutional provision covers property taxes only.33 As Chief Justice
Hilario G. Davide, Jr., then a member of the 1986 Constitutional Commission, explained: ". . . what is
exempted is not the institution itself . . .; those exempted from real estate taxes are lands, buildings
and improvements actually, directly and exclusively used for religious, charitable or educational
purposes."34
Consequently, the constitutional provision is implemented by Section 234(b) of Republic Act No. 7160
(otherwise known as the Local Government Code of 1991) as follows:
SECTION 234. Exemptions from Real Property Tax. The following are exempted from payment
of the real property tax:
...
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto,
mosques, non-profit or religious cemeteries and all lands, buildings, and
improvements actually, directly, andexclusively used for religious, charitable or
educational purposes.35
We note that under the 1935 Constitution, "... all lands, buildings, and improvements used exclusively
for charitable purposes shall be exempt from taxation." 36 However, under the 1973 and the
present Constitutions, for "lands, buildings, and improvements" of the charitable institution to be
considered exempt, the same should not only be "exclusively" used for charitable purposes; it is
required that such property be used "actually" and "directly" for such purposes. 37
In light of the foregoing substantial changes in the Constitution, the petitioner cannot rely on our ruling
in Herrera v. Quezon City Board of Assessment Appeals which was promulgated on September 30,
1961 before the 1973 and 1987 Constitutions took effect. 38 As this Court held in Province of Abra v.
Hernando:39

 Under the 1935 Constitution: "Cemeteries, churches, and parsonages or convents

appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious,
charitable, or educational purposes shall be exempt from taxation." The present Constitution
added "charitable institutions, mosques, and non-profit cemeteries" and required that for the
exemption of "lands, buildings, and improvements," they should not only be "exclusively" but
also "actually" and "directly" used for religious or charitable purposes. The Constitution is
worded differently. The change should not be ignored. It must be duly taken into consideration.
Reliance on past decisions would have sufficed were the words "actually" as well as "directly"
not added. There must be proof therefore of the actual and direct use of the lands, buildings,
and improvements for religious or charitable purposes to be exempt from taxation.
Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the exemption,
the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a charitable
institution; and (b) its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable
purposes. "Exclusive" is defined as possessed and enjoyed to the exclusion of others; debarred from
participation or enjoyment; and "exclusively" is defined, "in a manner to exclude; as enjoying a
privilege exclusively."40 If real property is used for one or more commercial purposes, it is not
exclusively used for the exempted purposes but is subject to taxation. 41 The words "dominant use" or
"principal use" cannot be substituted for the words "used exclusively" without doing violence to the
Constitutions and the law.42 Solely is synonymous with exclusively.43
What is meant by actual, direct and exclusive use of the property for charitable purposes is the direct
and immediate and actual application of the property itself to the purposes for which the charitable
institution is organized. It is not the use of the income from the real property that is determinative of
whether the property is used for tax-exempt purposes.44
The petitioner failed to discharge its burden to prove that the entirety of its real property is actually,
directly and exclusively used for charitable purposes. While portions of the hospital are used for the
treatment of patients and the dispensation of medical services to them, whether paying or non-paying,
other portions thereof are being leased to private individuals for their clinics and a canteen. Further, a
portion of the land is being leased to a private individual for her business enterprise under the
business name "Elliptical Orchids and Garden Center." Indeed, the petitioners evidence shows that it
collected P1,136,483.45 as rentals in 1991 and P1,679,999.28 for 1992 from the said lessees.
Accordingly, we hold that the portions of the land leased to private entities as well as those parts of
the hospital leased to private individuals are not exempt from such taxes. 45 On the other hand, the
portions of the land occupied by the hospital and portions of the hospital used for its patients, whether
paying or non-paying, are exempt from real property taxes.
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The respondent Quezon
City Assessor is hereby DIRECTED to determine, after due hearing, the precise portions of the land
and the area thereof which are leased to private persons, and to compute the real property taxes due
thereon as provided for by law.
SO ORDERED.
7. G.R. No. 195909
September 26, 2012 COMMISSIONER OF INTERNAL
REVENUE, PETITIONER, vs. ST. LUKE'S MEDICAL CENTER, INC., RESPONDENT.
x-----------------------x
G.R. No. 195960 ST. LUKE'S MEDICAL CENTER, INC., PETITIONER, vs. COMMISSIONER
OF INTERNAL REVENUE, RESPONDENT.
DECISION

CARPIO, J.:
The Case
These are consolidated 1 petitions for review on certiorari under Rule 45 of the Rules of Court assailing
the Decision of 19 November 2010 of the Court of Tax Appeals (CTA) En Banc and its Resolution 2 of 1
March 2011 in CTA Case No. 6746. This Court resolves this case on a pure question of law, which
involves the interpretation of Section 27(B) vis--vis Section 30(E) and (G) of the National Internal
Revenue Code of the Philippines (NIRC), on the income tax treatment of proprietary non-profit
hospitals.
The Facts
St. Luke's Medical Center, Inc. (St. Luke's) is a hospital organized as a non-stock and non-profit
corporation. Under its articles of incorporation, among its corporate purposes are:
(a) To establish, equip, operate and maintain a non-stock, non-profit Christian, benevolent,
charitable and scientific hospital which shall give curative, rehabilitative and spiritual care to
the sick, diseased and disabled persons; provided that purely medical and surgical services
shall be performed by duly licensed physicians and surgeons who may be freely and
individually contracted by patients;
(b) To provide a career of health science education and provide medical services to the
community through organized clinics in such specialties as the facilities and resources of the
corporation make possible;
(c) To carry on educational activities related to the maintenance and promotion of health as
well as provide facilities for scientific and medical researches which, in the opinion of the Board
of Trustees, may be justified by the facilities, personnel, funds, or other requirements that are
available;
(d) To cooperate with organized medical societies, agencies of both government and private
sector; establish rules and regulations consistent with the highest professional ethics;
xxxx

On 16 December 2002, the Bureau of Internal Revenue (BIR) assessed St. Luke's deficiency taxes
amounting toP76,063,116.06 for 1998, comprised of deficiency income tax, value-added tax,
withholding tax on compensation and expanded withholding tax. The BIR reduced the amount
to P63,935,351.57 during trial in the First Division of the CTA. 4
On 14 January 2003, St. Luke's filed an administrative protest with the BIR against the deficiency tax
assessments. The BIR did not act on the protest within the 180-day period under Section 228 of the
NIRC. Thus, St. Luke's appealed to the CTA.
The BIR argued before the CTA that Section 27(B) of the NIRC, which imposes a 10% preferential tax
rate on the income of proprietary non-profit hospitals, should be applicable to St. Luke's. According to
the BIR, Section 27(B), introduced in 1997, "is a new provision intended to amend the exemption on
non-profit hospitals that were previously categorized as non-stock, non-profit corporations under
Section 26 of the 1997 Tax Code x x x." 5 It is a specific provision which prevails over the general
exemption on income tax granted under Section 30(E) and (G) for non-stock, non-profit charitable
institutions and civic organizations promoting social welfare. 6
The BIR claimed that St. Luke's was actually operating for profit in 1998 because only 13% of its
revenues came from charitable purposes. Moreover, the hospital's board of trustees, officers and
employees directly benefit from its profits and assets. St. Luke's had total revenues of P1,730,367,965
or approximately P1.73 billion from patient services in 1998. 7

St. Luke's contended that the BIR should not consider its total revenues, because its free services to
patients wasP218,187,498 or 65.20% of its 1998 operating income (i.e., total revenues less operating
expenses) ofP334,642,615. 8 St. Luke's also claimed that its income does not inure to the benefit of any
individual.
St. Luke's maintained that it is a non-stock and non-profit institution for charitable and social welfare
purposes under Section 30(E) and (G) of the NIRC. It argued that the making of profit per se does not
destroy its income tax exemption.
The petition of the BIR before this Court in G.R. No. 195909 reiterates its arguments before the CTA
that Section 27(B) applies to St. Luke's. The petition raises the sole issue of whether the enactment of
Section 27(B) takes proprietary non-profit hospitals out of the income tax exemption under Section 30
of the NIRC and instead, imposes a preferential rate of 10% on their taxable income. The BIR prays
that St. Luke's be ordered to payP57,659,981.19 as deficiency income and expanded withholding tax
for 1998 with surcharges and interest for late payment.
The petition of St. Luke's in G.R. No. 195960 raises factual matters on the treatment and withholding of
a part of its income, 9 as well as the payment of surcharge and delinquency interest. There is no
ground for this Court to undertake such a factual review. Under the Constitution 10 and the Rules of
Court, 11 this Court's review power is generally limited to "cases in which only an error or question of
law is involved." 12 This Court cannot depart from this limitation if a party fails to invoke a recognized
exception.
The Ruling of the Court of Tax Appeals
The CTA En Banc Decision on 19 November 2010 affirmed in toto the CTA First Division Decision dated
23 February 2009 which held:
WHEREFORE, the Amended Petition for Review [by St. Luke's] is hereby PARTIALLY GRANTED.
Accordingly, the 1998 deficiency VAT assessment issued by respondent against petitioner in the
amount of P110,000.00 is hereby CANCELLED and WITHDRAWN. However, petitioner is hereby
ORDERED to PAY deficiency income tax and deficiency expanded withholding tax for the taxable year
1998 in the respective amounts of P5,496,963.54 andP778,406.84 or in the sum of P6,275,370.38, x x
x.
xxxx
In addition, petitioner is hereby ORDERED to PAY twenty percent (20%) delinquency interest on the
total amount of P6,275,370.38 counted from October 15, 2003 until full payment thereof, pursuant to
Section 249(C)(3) of the NIRC of 1997.
SO ORDERED.

13

The deficiency income tax of P5,496,963.54, ordered by the CTA En Banc to be paid, arose from the
failure of St. Luke's to prove that part of its income in 1998 (declared as "Other Income-Net") 14 came
from charitable activities. The CTA cancelled the remainder of the P63,113,952.79 deficiency assessed
by the BIR based on the 10% tax rate under Section 27(B) of the NIRC, which the CTA En Banc held was
not applicable to St. Luke's. 15
The CTA ruled that St. Luke's is a non-stock and non-profit charitable institution covered by Section
30(E) and (G) of the NIRC. This ruling would exempt all income derived by St. Luke's from services to
its patients, whether paying or non-paying. The CTA reiterated its earlier decision in St. Luke's Medical
Center, Inc. v. Commissioner of Internal Revenue, 16 which examined the primary purposes of St. Luke's
under its articles of incorporation and various documents 17 identifying St. Luke's as a charitable
institution.

The CTA adopted the test in Hospital de San Juan de Dios, Inc. v. Pasay City, 18 which states that "a
charitable institution does not lose its charitable character and its consequent exemption from taxation
merely because recipients of its benefits who are able to pay are required to do so, where funds
derived in this manner are devoted to the charitable purposes of the institution x x x." 19 The
generation of income from paying patients does not per se destroy the charitable nature of St. Luke's.
Hospital de San Juan cited Jesus Sacred Heart College v. Collector of Internal Revenue, 20 which ruled
that the old NIRC (Commonwealth Act No. 466, as amended) 21 "positively exempts from taxation those
corporations or associations which, otherwise, would be subject thereto, because of the existence of x
x x net income." 22 The NIRC of 1997 substantially reproduces the provision on charitable institutions of
the old NIRC. Thus, in rejecting the argument that tax exemption is lost whenever there is net income,
the Court in Jesus Sacred Heart College declared: "[E]very responsible organization must be run to at
least insure its existence, by operating within the limits of its own resources, especially its regular
income. In other words, it should always strive, whenever possible, to have a surplus." 23
The CTA held that Section 27(B) of the present NIRC does not apply to St. Luke's. 24 The CTA explained
that to apply the 10% preferential rate, Section 27(B) requires a hospital to be "non-profit." On the
other hand, Congress specifically used the word "non-stock" to qualify a charitable "corporation or
association" in Section 30(E) of the NIRC. According to the CTA, this is unique in the present tax code,
indicating an intent to exempt this type of charitable organization from income tax. Section 27(B) does
not require that the hospital be "non-stock." The CTA stated, "it is clear that non-stock, non-profit
hospitals operated exclusively for charitable purpose are exempt from income tax on income received
by them as such, applying the provision of Section 30(E) of the NIRC of 1997, as amended." 25
The Issue
The sole issue is whether St. Luke's is liable for deficiency income tax in 1998 under Section 27(B) of
the NIRC, which imposes a preferential tax rate of 10% on the income of proprietary non-profit
hospitals.
The Ruling of the Court
St. Luke's Petition in G.R. No. 195960
As a preliminary matter, this Court denies the petition of St. Luke's in G.R. No. 195960 because the
petition raises factual issues. Under Section 1, Rule 45 of the Rules of Court, "[t]he petition shall raise
only questions of law which must be distinctly set forth." St. Luke's cites Martinez v. Court of
Appeals 26 which permits factual review "when the Court of Appeals [in this case, the CTA] manifestly
overlooked certain relevant facts not disputed by the parties and which, if properly considered, would
justify a different conclusion." 27
This Court does not see how the CTA overlooked relevant facts. St. Luke's itself stated that the CTA
"disregarded the testimony of [its] witness, Romeo B. Mary, being allegedly self-serving, to show the
nature of the 'Other Income-Net' x x x." 28 This is not a case of overlooking or failing to consider
relevant evidence. The CTA obviously considered the evidence and concluded that it is self-serving.
The CTA declared that it has "gone through the records of this case and found no other evidence aside
from the self-serving affidavit executed by [the] witnesses [of St. Luke's] x x x." 29
The deficiency tax on "Other Income-Net" stands. Thus, St. Luke's is liable to pay the 25% surcharge
under Section 248(A)(3) of the NIRC. There is "[f]ailure to pay the deficiency tax within the time
prescribed for its payment in the notice of assessment[.]" 30 St. Luke's is also liable to pay 20%
delinquency interest under Section 249(C)(3) of the NIRC. 31 As explained by the CTA En Banc, the
amount of P6,275,370.38 in the dispositive portion of the CTA First Division Decision includes only
deficiency interest under Section 249(A) and (B) of the NIRC and not delinquency interest. 32
The Main Issue

The issue raised by the BIR is a purely legal one. It involves the effect of the introduction of Section
27(B) in the NIRC of 1997 vis--vis Section 30(E) and (G) on the income tax exemption of charitable
and social welfare institutions. The 10% income tax rate under Section 27(B) specifically pertains to
proprietary educational institutions and proprietary non-profit hospitals. The BIR argues that Congress
intended to remove the exemption that non-profit hospitals previously enjoyed under Section 27(E) of
the NIRC of 1977, which is now substantially reproduced in Section 30(E) of the NIRC of
1997. 33 Section 27(B) of the present NIRC provides:
SEC. 27. Rates of Income Tax on Domestic Corporations. xxxx
(B) Proprietary Educational Institutions and Hospitals. - Proprietary educational institutions and
hospitals which are non-profit shall pay a tax of ten percent (10%) on their taxable income except
those covered by Subsection (D) hereof: Provided, That if the gross income from unrelated trade,
business or other activity exceeds fifty percent (50%) of the total gross income derived by such
educational institutions or hospitals from all sources, the tax prescribed in Subsection (A) hereof shall
be imposed on the entire taxable income. For purposes of this Subsection, the term 'unrelated trade,
business or other activity' means any trade, business or other activity, the conduct of which is not
substantially related to the exercise or performance by such educational institution or hospital of its
primary purpose or function. A 'proprietary educational institution' is any private school maintained
and administered by private individuals or groups with an issued permit to operate from the
Department of Education, Culture and Sports (DECS), or the Commission on Higher Education (CHED),
or the Technical Education and Skills Development Authority (TESDA), as the case may be, in
accordance with existing laws and regulations. (Emphasis supplied)
St. Luke's claims tax exemption under Section 30(E) and (G) of the NIRC. It contends that it is a
charitable institution and an organization promoting social welfare. The arguments of St. Luke's focus
on the wording of Section 30(E) exempting from income tax non-stock, non-profit charitable
institutions. 34 St. Luke's asserts that the legislative intent of introducing Section 27(B) was only to
remove the exemption for "proprietary non-profit" hospitals. 35 The relevant provisions of Section 30
state:
SEC. 30. Exemptions from Tax on Corporations. - The following organizations shall not be taxed under
this Title in respect to income received by them as such:
xxxx
(E) Nonstock corporation or association organized and operated exclusively for religious, charitable,
scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, no part of its net income
or asset shall belong to or inure to the benefit of any member, organizer, officer or any specific person;
xxxx
(G) Civic league or organization not organized for profit but operated exclusively for the promotion of
social welfare;
xxxx
Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and
character of the foregoing organizations from any of their properties, real or personal, or from any of
their activities conducted for profit regardless of the disposition made of such income, shall be subject
to tax imposed under this Code. (Emphasis supplied)
The Court partly grants the petition of the BIR but on a different ground. We hold that Section 27(B) of
the NIRC does not remove the income tax exemption of proprietary non-profit hospitals under Section
30(E) and (G). Section 27(B) on one hand, and Section 30(E) and (G) on the other hand, can be

construed together without the removal of such tax exemption. The effect of the introduction of
Section 27(B) is to subject the taxable income of two specific institutions, namely, proprietary nonprofit educational institutions 36 and proprietary non-profit hospitals, among the institutions covered by
Section 30, to the 10% preferential rate under Section 27(B) instead of the ordinary 30% corporate
rate under the last paragraph of Section 30 in relation to Section 27(A)(1).
Section 27(B) of the NIRC imposes a 10% preferential tax rate on the income of (1) proprietary nonprofit educational institutions and (2) proprietary non-profit hospitals. The only qualifications for
hospitals are that they must be proprietary and non-profit. "Proprietary" means private, following the
definition of a "proprietary educational institution" as "any private school maintained and administered
by private individuals or groups" with a government permit. "Non-profit" means no net income or asset
accrues to or benefits any member or specific person, with all the net income or asset devoted to the
institution's purposes and all its activities conducted not for profit.
"Non-profit" does not necessarily mean "charitable." In Collector of Internal Revenue v. Club Filipino
Inc. de Cebu,37 this Court considered as non-profit a sports club organized for recreation and
entertainment of its stockholders and members. The club was primarily funded by membership fees
and dues. If it had profits, they were used for overhead expenses and improving its golf course. 38 The
club was non-profit because of its purpose and there was no evidence that it was engaged in a profitmaking enterprise. 39
The sports club in Club Filipino Inc. de Cebu may be non-profit, but it was not charitable. The Court
defined "charity" in Lung Center of the Philippines v. Quezon City 40 as "a gift, to be applied
consistently with existing laws, for the benefit of an indefinite number of persons, either by bringing
their minds and hearts under the influence of education or religion, by assisting them to establish
themselves in life or [by] otherwise lessening the burden of government." 41 A non-profit club for the
benefit of its members fails this test. An organization may be considered as non-profit if it does not
distribute any part of its income to stockholders or members. However, despite its being a tax exempt
institution, any income such institution earns from activities conducted for profit is taxable, as
expressly provided in the last paragraph of Section 30.
To be a charitable institution, however, an organization must meet the substantive test of charity in
Lung Center. The issue in Lung Center concerns exemption from real property tax and not income tax.
However, it provides for the test of charity in our jurisdiction. Charity is essentially a gift to an
indefinite number of persons which lessens the burden of government. In other words, charitable
institutions provide for free goods and services to the public which would otherwise fall on the
shoulders of government. Thus, as a matter of efficiency, the government forgoes taxes which should
have been spent to address public needs, because certain private entities already assume a part of the
burden. This is the rationale for the tax exemption of charitable institutions. The loss of taxes by the
government is compensated by its relief from doing public works which would have been funded by
appropriations from the Treasury. 42
Charitable institutions, however, are not ipso facto entitled to a tax exemption. The requirements for a
tax exemption are specified by the law granting it. The power of Congress to tax implies the power to
exempt from tax. Congress can create tax exemptions, subject to the constitutional provision that "[n]o
law granting any tax exemption shall be passed without the concurrence of a majority of all the
Members of Congress." 43 The requirements for a tax exemption are strictly construed against the
taxpayer 44 because an exemption restricts the collection of taxes necessary for the existence of the
government.
The Court in Lung Center declared that the Lung Center of the Philippines is a charitable institution for
the purpose of exemption from real property taxes. This ruling uses the same premise as Hospital de
San Juan 45 and Jesus Sacred Heart College 46 which says that receiving income from paying patients
does not destroy the charitable nature of a hospital.
As a general principle, a charitable institution does not lose its character as such and its exemption
from taxes simply because it derives income from paying patients, whether out-patient, or confined in
the hospital, or receives subsidies from the government, so long as the money received is devoted or

used altogether to the charitable object which it is intended to achieve; and no money inures to the
private benefit of the persons managing or operating the institution. 47
For real property taxes, the incidental generation of income is permissible because the test of
exemption is the use of the property. The Constitution provides that "[c]haritable institutions, churches
and personages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands,
buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or
educational purposes shall be exempt from taxation." 48The test of exemption is not strictly a
requirement on the intrinsic nature or character of the institution. The test requires that the institution
use the property in a certain way, i.e. for a charitable purpose. Thus, the Court held that the Lung
Center of the Philippines did not lose its charitable character when it used a portion of its lot for
commercial purposes. The effect of failing to meet the use requirement is simply to remove from the
tax exemption that portion of the property not devoted to charity.
The Constitution exempts charitable institutions only from real property taxes. In the NIRC, Congress
decided to extend the exemption to income taxes. However, the way Congress crafted Section 30(E) of
the NIRC is materially different from Section 28(3), Article VI of the Constitution. Section 30(E) of the
NIRC defines the corporation or association that is exempt from income tax. On the other hand, Section
28(3), Article VI of the Constitution does not define a charitable institution, but requires that the
institution "actually, directly and exclusively" use the property for a charitable purpose.
Section 30(E) of the NIRC provides that a charitable institution must be:
(1) A non-stock corporation or association;
(2) Organized exclusively for charitable purposes;
(3) Operated exclusively for charitable purposes; and
(4) No part of its net income or asset shall belong to or inure to the benefit of any member,
organizer, officer or any specific person.
Thus, both the organization and operations of the charitable institution must be devoted "exclusively"
for charitable purposes. The organization of the institution refers to its corporate form, as shown by its
articles of incorporation, by-laws and other constitutive documents. Section 30(E) of the NIRC
specifically requires that the corporation or association be non-stock, which is defined by the
Corporation Code as "one where no part of its income is distributable as dividends to its members,
trustees, or officers" 49 and that any profit "obtain[ed] as an incident to its operations shall, whenever
necessary or proper, be used for the furtherance of the purpose or purposes for which the corporation
was organized." 50 However, under Lung Center, any profit by a charitable institution must not only be
plowed back "whenever necessary or proper," but must be "devoted or used altogether to the
charitable object which it is intended to achieve." 51
The operations of the charitable institution generally refer to its regular activities. Section 30(E) of the
NIRC requires that these operations be exclusive to charity. There is also a specific requirement that
"no part of [the] net income or asset shall belong to or inure to the benefit of any member, organizer,
officer or any specific person." The use of lands, buildings and improvements of the institution is but a
part of its operations.
There is no dispute that St. Luke's is organized as a non-stock and non-profit charitable institution.
However, this does not automatically exempt St. Luke's from paying taxes. This only refers to the
organization of St. Luke's. Even if St. Luke's meets the test of charity, a charitable institution is not ipso
facto tax exempt. To be exempt from real property taxes, Section 28(3), Article VI of the Constitution
requires that a charitable institution use the property "actually, directly and exclusively" for charitable
purposes. To be exempt from income taxes, Section 30(E) of the NIRC requires that a charitable
institution must be "organized and operated exclusively" for charitable purposes. Likewise, to be
exempt from income taxes, Section 30(G) of the NIRC requires that the institution be "operated
exclusively" for social welfare.

However, the last paragraph of Section 30 of the NIRC qualifies the words "organized and operated
exclusively" by providing that:
Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and
character of the foregoing organizations from any of their properties, real or personal, or from any of
their activities conducted for profit regardless of the disposition made of such income, shall be subject
to tax imposed under this Code. (Emphasis supplied)
In short, the last paragraph of Section 30 provides that if a tax exempt charitable institution conducts
"any" activity for profit, such activity is not tax exempt even as its not-for-profit activities remain tax
exempt. This paragraph qualifies the requirements in Section 30(E) that the "[n]on-stock corporation or
association [must be] organized and operated exclusively for x x x charitable x x x purposes x x x." It
likewise qualifies the requirement in Section 30(G) that the civic organization must be "operated
exclusively" for the promotion of social welfare.
Thus, even if the charitable institution must be "organized and operated exclusively" for charitable
purposes, it is nevertheless allowed to engage in "activities conducted for profit" without losing its tax
exempt status for its not-for-profit activities. The only consequence is that the "income of whatever
kind and character" of a charitable institution "from any of its activities conducted for profit, regardless
of the disposition made of such income, shall be subject to tax." Prior to the introduction of Section
27(B), the tax rate on such income from for-profit activities was the ordinary corporate rate under
Section 27(A). With the introduction of Section 27(B), the tax rate is now 10%.
In 1998, St. Luke's had total revenues of P1,730,367,965 from services to paying patients. It cannot be
disputed that a hospital which receives approximately P1.73 billion from paying patients is not an
institution "operated exclusively" for charitable purposes. Clearly, revenues from paying patients are
income received from "activities conducted for profit." 52 Indeed, St. Luke's admits that it derived
profits from its paying patients. St. Luke's declared P1,730,367,965 as "Revenues from Services to
Patients" in contrast to its "Free Services" expenditure ofP218,187,498. In its Comment in G.R. No.
195909, St. Luke's showed the following "calculation" to support its claim that 65.20% of its "income
after expenses was allocated to free or charitable services" in 1998. 53
REVENUES FROM SERVICES TO PATIENTS

P1,730,367,965.00

OPERATING EXPENSES
Professional care of patients

P1,016,608,394.00

Administrative

287,319,334.00

Household and Property

91,797,622.00
P1,395,725,350.00

INCOME FROM OPERATIONS

P334,642,615.00

100%

Free Services

-218,187,498.00

-65.20%

INCOME FROM OPERATIONS, Net of FREE SERVICES

P116,455,117.00

34.80%

OTHER INCOME

17,482,304.00

EXCESS OF REVENUES OVER EXPENSES

P133,937,421.00

In Lung Center, this Court declared:

"[e]xclusive" is defined as possessed and enjoyed to the exclusion of others; debarred from
participation or enjoyment; and "exclusively" is defined, "in a manner to exclude; as enjoying a
privilege exclusively." x x x The words "dominant use" or "principal use" cannot be substituted for the
words "used exclusively" without doing violence to the Constitution and the law. Solely is synonymous
with exclusively. 54
The Court cannot expand the meaning of the words "operated exclusively" without violating the NIRC.
Services to paying patients are activities conducted for profit. They cannot be considered any other
way. There is a "purpose to make profit over and above the cost" of services. 55 The P1.73 billion total
revenues from paying patients is not even incidental to St. Luke's charity expenditure of P218,187,498
for non-paying patients.
St. Luke's claims that its charity expenditure of P218,187,498 is 65.20% of its operating income in
1998. However, if a part of the remaining 34.80% of the operating income is reinvested in property,
equipment or facilities used for services to paying and non-paying patients, then it cannot be said that
the income is "devoted or used altogether to the charitable object which it is intended to
achieve." 56 The income is plowed back to the corporation not entirely for charitable purposes, but for
profit as well. In any case, the last paragraph of Section 30 of the NIRC expressly qualifies that income
from activities for profit is taxable "regardless of the disposition made of such income."
Jesus Sacred Heart College declared that there is no official legislative record explaining the phrase
"any activity conducted for profit." However, it quoted a deposition of Senator Mariano Jesus Cuenco,
who was a member of the Committee of Conference for the Senate, which introduced the phrase "or
from any activity conducted for profit."
P. Cuando ha hablado de la Universidad de Santo Toms que tiene un hospital, no cree Vd. que es una
actividad esencial dicho hospital para el funcionamiento del colegio de medicina de dicha universidad?
xxxx
R. Si el hospital se limita a recibir enformos pobres, mi contestacin seria afirmativa; pero
considerando que el hospital tiene cuartos de pago, y a los mismos generalmente van enfermos de
buena posicin social econmica, lo que se paga por estos enfermos debe estar sujeto a 'income tax',
y es una de las razones que hemos tenido para insertar las palabras o frase 'or from any activity
conducted for profit.' 57
The question was whether having a hospital is essential to an educational institution like the College of
Medicine of the University of Santo Tomas. Senator Cuenco answered that if the hospital has paid
rooms generally occupied by people of good economic standing, then it should be subject to income
tax. He said that this was one of the reasons Congress inserted the phrase "or any activity conducted
for profit."
The question in Jesus Sacred Heart College involves an educational institution. 58 However, it is
applicable to charitable institutions because Senator Cuenco's response shows an intent to focus on
the activities of charitable institutions. Activities for profit should not escape the reach of taxation.
Being a non-stock and non-profit corporation does not, by this reason alone, completely exempt an
institution from tax. An institution cannot use its corporate form to prevent its profitable activities from
being taxed.

The Court finds that St. Luke's is a corporation that is not "operated exclusively" for charitable or social
welfare purposes insofar as its revenues from paying patients are concerned. This ruling is based not
only on a strict interpretation of a provision granting tax exemption, but also on the clear and plain
text of Section 30(E) and (G). Section 30(E) and (G) of the NIRC requires that an institution be
"operated exclusively" for charitable or social welfare purposes to be completely exempt from income
tax. An institution under Section 30(E) or (G) does not lose its tax exemption if it earns income from its
for-profit activities. Such income from for-profit activities, under the last paragraph of Section 30, is
merely subject to income tax, previously at the ordinary corporate rate but now at the preferential 10%
rate pursuant to Section 27(B).
A tax exemption is effectively a social subsidy granted by the State because an exempt institution is
spared from sharing in the expenses of government and yet benefits from them. Tax exemptions for
charitable institutions should therefore be limited to institutions beneficial to the public and those
which improve social welfare. A profit-making entity should not be allowed to exploit this subsidy to the
detriment of the government and other taxpayers.1wphi1
St. Luke's fails to meet the requirements under Section 30(E) and (G) of the NIRC to be completely tax
exempt from all its income. However, it remains a proprietary non-profit hospital under Section 27(B)
of the NIRC as long as it does not distribute any of its profits to its members and such profits are
reinvested pursuant to its corporate purposes. St. Luke's, as a proprietary non-profit hospital, is
entitled to the preferential tax rate of 10% on its net income from its for-profit activities.
St. Luke's is therefore liable for deficiency income tax in 1998 under Section 27(B) of the NIRC.
However, St. Luke's has good reasons to rely on the letter dated 6 June 1990 by the BIR, which opined
that St. Luke's is "a corporation for purely charitable and social welfare purposes"59 and thus exempt
from income tax. 60 In Michael J. Lhuillier, Inc. v. Commissioner of Internal Revenue, 61 the Court said
that "good faith and honest belief that one is not subject to tax on the basis of previous interpretation
of government agencies tasked to implement the tax law, are sufficient justification to delete the
imposition of surcharges and interest." 62
WHEREFORE, the petition of the Commissioner of Internal Revenue in G.R. No. 195909 is PARTLY
GRANTED. The Decision of the Court of Tax Appeals En Banc dated 19 November 2010 and its
Resolution dated 1 March 2011 in CTA Case No. 6746 are MODIFIED. St. Luke's Medical Center, Inc. is
ORDERED TO PAY the deficiency income tax in 1998 based on the 10% preferential income tax rate
under Section 27(B) of the National Internal Revenue Code. However, it is not liable for surcharges and
interest on such deficiency income tax under Sections 248 and 249 of the National Internal Revenue
Code. All other parts of the Decision and Resolution of the Court of Tax Appeals are AFFIRMED.
The petition of St. Luke's Medical Center, Inc. in G.R. No. 195960 is DENIED for violating Section 1, Rule
45 of the Rules of Court.
SO ORDERED.
8. G. R. No. 119775
October 24, 2003 JOHN HAY PEOPLES ALTERNATIVE
COALITION, MATEO CARIO FOUNDATION INC., CENTER FOR ALTERNATIVE SYSTEMS
FOUNDATION INC., REGINA VICTORIA A. BENAFIN REPRESENTED AND JOINED BY HER
MOTHER MRS. ELISA BENAFIN, IZABEL M. LUYK REPRESENTED AND JOINED BY HER
MOTHER MRS. REBECCA MOLINA LUYK, KATHERINE PE REPRESENTED AND JOINED BY
HER MOTHER ROSEMARIE G. PE, SOLEDAD S. CAMILO, ALICIA C. PACALSO ALIAS
"KEVAB," BETTY I. STRASSER, RUBY C. GIRON, URSULA C. PEREZ ALIAS "BA-YAY,"
EDILBERTO T. CLARAVALL, CARMEN CAROMINA, LILIA G. YARANON, DIANE
MONDOC, Petitioners,
vs.
VICTOR
LIM,
PRESIDENT,
BASES
CONVERSION
DEVELOPMENT AUTHORITY; JOHN HAY PORO POINT DEVELOPMENT CORPORATION,
CITY OF BAGUIO, TUNTEX (B.V.I.) CO. LTD., ASIAWORLD INTERNATIONALE GROUP,
INC., DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES,Respondents.
DECISION

CARPIO MORALES, J.:

By the present petition for prohibition, mandamus and declaratory relief with prayer for a temporary
restraining order (TRO) and/or writ of preliminary injunction, petitioners assail, in the main, the
constitutionality of Presidential Proclamation No. 420, Series of 1994, "CREATING AND DESIGNATING a
portion of the area covered by the former Camp John [Hay] as THE JOHN HAY Special Economic Zone
pursuant to R.A. No. 7227."
R.A. No. 7227, AN ACT ACCELERATING THE CONVERSION OF MILITARY RESERVATIONS INTO OTHER
PRODUCTIVE USES, CREATING THE BASES CONVERSION AND DEVELOPMENT AUTHORITY FOR THIS
PURPOSE, PROVIDING FUNDS THEREFOR AND FOR OTHER PURPOSES, otherwise known as the "Bases
Conversion and Development Act of 1992," which was enacted on March 13, 1992, set out the policy of
the government to accelerate the sound and balanced conversion into alternative productive uses of
the former military bases under the 1947 Philippines-United States of America Military Bases
Agreement, namely, the Clark and Subic military reservations as well as their extensions including the
John Hay Station (Camp John Hay or the camp) in the City of Baguio. 1
As noted in its title, R.A. No. 7227 created public respondent Bases Conversion and Development
Authority2(BCDA), vesting it with powers pertaining to the multifarious aspects of carrying out the
ultimate objective of utilizing the base areas in accordance with the declared government policy.
R.A. No. 7227 likewise created the Subic Special Economic [and Free Port] Zone (Subic SEZ) the metes
and bounds of which were to be delineated in a proclamation to be issued by the President of the
Philippines.3
R.A. No. 7227 granted the Subic SEZ incentives ranging from tax and duty-free importations,
exemption of businesses therein from local and national taxes, to other hallmarks of a liberalized
financial and business climate.4
And R.A. No. 7227 expressly gave authority to the President to create through executive proclamation,
subject to the concurrence of the local government units directly affected, other Special Economic
Zones (SEZ) in the areas covered respectively by the Clark military reservation, the Wallace Air Station
in San Fernando, La Union, and Camp John Hay.5
On August 16, 1993, BCDA entered into a Memorandum of Agreement and Escrow Agreement with
private respondents Tuntex (B.V.I.) Co., Ltd (TUNTEX) and Asiaworld Internationale Group, Inc.
(ASIAWORLD), private corporations registered under the laws of the British Virgin Islands, preparatory
to the formation of a joint venture for the development of Poro Point in La Union and Camp John Hay as
premier tourist destinations and recreation centers. Four months later or on December 16, 1993,
BCDA, TUNTEX and ASIAWORD executed a Joint Venture Agreement 6 whereby they bound themselves
to put up a joint venture company known as the Baguio International Development and Management
Corporation which would lease areas within Camp John Hay and Poro Point for the purpose of turning
such places into principal tourist and recreation spots, as originally envisioned by the parties under
their Memorandum of Agreement.
The Baguio City government meanwhile passed a number of resolutions in response to the actions
taken by BCDA as owner and administrator of Camp John Hay.
By Resolution7 of September 29, 1993, the Sangguniang Panlungsod of Baguio City (the sanggunian)
officially asked BCDA to exclude all the barangays partly or totally located within Camp John Hay from
the reach or coverage of any plan or program for its development.
By a subsequent Resolution8 dated January 19, 1994, the sanggunian sought from BCDA an abdication,
waiver or quitclaim of its ownership over the home lots being occupied by residents of nine (9)
barangays surrounding the military reservation.
Still by another resolution passed on February 21, 1994, the sanggunian adopted and submitted to
BCDA a 15-point concept for the development of Camp John Hay. 9 The sanggunian's vision expressed,

among other things, a kind of development that affords protection to the environment, the making of a
family-oriented type of tourist destination, priority in employment opportunities for Baguio residents
and free access to the base area, guaranteed participation of the city government in the management
and operation of the camp, exclusion of the previously named nine barangays from the area for
development, and liability for local taxes of businesses to be established within the camp. 10
BCDA, Tuntex and AsiaWorld agreed to some, but rejected or modified the other proposals of
the sanggunian.11They stressed the need to declare Camp John Hay a SEZ as a condition precedent to
its full development in accordance with the mandate of R.A. No. 7227. 12
On May 11, 1994, the sanggunian passed a resolution requesting the Mayor to order the determination
of realty taxes which may otherwise be collected from real properties of Camp John Hay. 13 The
resolution was intended to intelligently guide the sanggunian in determining its position on whether
Camp John Hay be declared a SEZ, it (thesanggunian) being of the view that such declaration would
exempt the camp's property and the economic activity therein from local or national taxation.
More than a month later, however, the sanggunian passed Resolution No. 255, (Series of
1994),14 seeking and supporting, subject to its concurrence, the issuance by then President Ramos of a
presidential proclamation declaring an area of 288.1 hectares of the camp as a SEZ in accordance with
the provisions of R.A. No. 7227. Together with this resolution was submitted a draft of the proposed
proclamation for consideration by the President.15
On July 5, 1994 then President Ramos issued Proclamation No. 420, 16 the title of which was earlier
indicated, which established a SEZ on a portion of Camp John Hay and which reads as follows:
xxx
Pursuant to the powers vested in me by the law and the resolution of concurrence by the City Council
of Baguio, I, FIDEL V. RAMOS, President of the Philippines, do hereby create and designate a portion of
the area covered by the former John Hay reservation as embraced, covered, and defined by the 1947
Military Bases Agreement between the Philippines and the United States of America, as amended, as
the John Hay Special Economic Zone, and accordingly order:
SECTION 1. Coverage of John Hay Special Economic Zone. - The John Hay Special Economic Zone shall
cover the area consisting of Two Hundred Eighty Eight and one/tenth (288.1) hectares, more or less, of
the total of Six Hundred Seventy-Seven (677) hectares of the John Hay Reservation, more or less,
which have been surveyed and verified by the Department of Environment and Natural Resources
(DENR) as defined by the following technical description:
A parcel of land, situated in the City of Baguio, Province of Benguet, Island of Luzon, and particularly
described in survey plans Psd-131102-002639 and Ccs-131102-000030 as approved on 16 August
1993 and 26 August 1993, respectively, by the Department of Environment and Natural Resources, in
detail containing:
Lot 1, Lot 2, Lot 3, Lot 4, Lot 5, Lot 6, Lot 7, Lot 13, Lot 14, Lot 15, and Lot 20 of Ccs-131102-000030
-andLot 3, Lot 4, Lot 5, Lot 6, Lot 7, Lot 8, Lot 9, Lot 10, Lot 11, Lot 14, Lot 15, Lot 16, Lot 17, and Lot 18 of
Psd-131102-002639 being portions of TCT No. T-3812, LRC Rec. No. 87.
With a combined area of TWO HUNDRED EIGHTY EIGHT AND ONE/TENTH HECTARES (288.1 hectares);
Provided that the area consisting of approximately Six and two/tenth (6.2) hectares, more or less,
presently occupied by the VOA and the residence of the Ambassador of the United States, shall be
considered as part of the SEZ only upon turnover of the properties to the government of the Republic
of the Philippines.

Sec. 2. Governing Body of the John Hay Special Economic Zone. - Pursuant to Section 15 of R.A. No.
7227, the Bases Conversion and Development Authority is hereby established as the governing body
of the John Hay Special Economic Zone and, as such, authorized to determine the utilization and
disposition of the lands comprising it, subject to private rights, if any, and in consultation and
coordination with the City Government of Baguio after consultation with its inhabitants, and to
promulgate the necessary policies, rules, and regulations to govern and regulate the zone thru the
John Hay Poro Point Development Corporation, which is its implementing arm for its economic
development and optimum utilization.
Sec. 3. Investment Climate in John Hay Special Economic Zone. - Pursuant to Section 5(m) and Section
15 of R.A. No. 7227, the John Hay Poro Point Development Corporation shall implement all necessary
policies, rules, and regulations governing the zone, including investment incentives, in consultation
with pertinent government departments. Among others, the zone shall have all the applicable
incentives of the Special Economic Zone under Section 12 of R.A. No. 7227 and those applicable
incentives granted in the Export Processing Zones, the Omnibus Investment Code of 1987, the Foreign
Investment Act of 1991, and new investment laws that may hereinafter be enacted.
Sec. 4. Role of Departments, Bureaus, Offices, Agencies and Instrumentalities. - All Heads of
departments, bureaus, offices, agencies, and instrumentalities of the government are hereby directed
to give full support to Bases Conversion and Development Authority and/or its implementing subsidiary
or joint venture to facilitate the necessary approvals to expedite the implementation of various
projects of the conversion program.
Sec. 5. Local Authority. - Except as herein provided, the affected local government units shall retain
their basic autonomy and identity.
Sec. 6. Repealing Clause. - All orders, rules, and regulations, or parts thereof, which are inconsistent
with the provisions of this Proclamation, are hereby repealed, amended, or modified accordingly.
Sec. 7. Effectivity. This proclamation shall take effect immediately.
Done in the City of Manila, this 5th day of July, in the year of Our Lord, nineteen hundred and ninetyfour.
The issuance of Proclamation No. 420 spawned the present petition 17 for prohibition, mandamus and
declaratory relief which was filed on April 25, 1995 challenging, in the main, its constitutionality or
validity as well as the legality of the Memorandum of Agreement and Joint Venture Agreement between
public respondent BCDA and private respondents Tuntex and AsiaWorld.
Petitioners allege as grounds for the allowance of the petition the following:
I. PRESIDENTIAL PROCLAMATION NO. 420, SERIES OF 1990 (sic) IN SO FAR AS IT GRANTS TAX
EXEMPTIONS IS INVALID AND ILLEGAL AS IT IS AN UNCONSTITUTIONAL EXERCISE BY THE PRESIDENT
OF A POWER GRANTED ONLY TO THE LEGISLATURE.
II .PRESIDENTIAL PROCLAMATION NO. 420, IN SO FAR AS IT LIMITS THE POWERS AND INTERFERES WITH
THE AUTONOMY OF THE CITY OF BAGUIO IS INVALID, ILLEGAL AND UNCONSTITUTIONAL.
III. PRESIDENTIAL PROCLAMATION NO. 420, SERIES OF 1994 IS UNCONSTITUTIONAL IN THAT IT
VIOLATES THE RULE THAT ALL TAXES SHOULD BE UNIFORM AND EQUITABLE.
IV. THE MEMORANDUM OF AGREEMENT ENTERED INTO BY AND BETWEEN PRIVATE AND PUBLIC
RESPONDENTS BASES CONVERSION DEVELOPMENT AUTHORITY HAVING BEEN ENTERED INTO ONLY BY
DIRECT NEGOTIATION IS ILLEGAL.

V. THE TERMS AND CONDITIONS OF THE MEMORANDUM OF AGREEMENT ENTERED INTO BY AND
BETWEEN PRIVATE AND PUBLIC RESPONDENT BASES CONVERSION DEVELOPMENT AUTHORITY IS (sic)
ILLEGAL.
VI. THE CONCEPTUAL DEVELOPMENT PLAN OF RESPONDENTS NOT HAVING UNDERGONE
ENVIRONMENTAL IMPACT ASSESSMENT IS BEING ILLEGALLY CONSIDERED WITHOUT A VALID
ENVIRONMENTAL IMPACT ASSESSMENT.
A temporary restraining order and/or writ of preliminary injunction was prayed for to enjoin BCDA, John
Hay Poro Point Development Corporation and the city government from implementing Proclamation No.
420, and Tuntex and AsiaWorld from proceeding with their plan respecting Camp John Hay's
development pursuant to their Joint Venture Agreement with BCDA. 18
Public respondents, by their separate Comments, allege as moot and academic the issues raised by
the petition, the questioned Memorandum of Agreement and Joint Venture Agreement having already
been deemed abandoned by the inaction of the parties thereto prior to the filing of the petition as in
fact, by letter of November 21, 1995, BCDA formally notified Tuntex and AsiaWorld of the revocation of
their said agreements.19
In maintaining the validity of Proclamation No. 420, respondents contend that by extending to the John
Hay SEZ economic incentives similar to those enjoyed by the Subic SEZ which was established under
R.A. No. 7227, the proclamation is merely implementing the legislative intent of said law to turn the US
military bases into hubs of business activity or investment. They underscore the point that the
government's policy of bases conversion can not be achieved without extending the same tax
exemptions granted by R.A. No. 7227 to Subic SEZ to other SEZs.
Denying that Proclamation No. 420 is in derogation of the local autonomy of Baguio City or that it is
violative of the constitutional guarantee of equal protection, respondents assail petitioners' lack of
standing to bring the present suit even as taxpayers and in the absence of any actual case or
controversy to warrant this Court's exercise of its power of judicial review over the proclamation.
Finally, respondents seek the outright dismissal of the petition for having been filed in disregard of the
hierarchy of courts and of the doctrine of exhaustion of administrative remedies.
Replying,20 petitioners aver that the doctrine of exhaustion of administrative remedies finds no
application herein since they are invoking the exclusive authority of this Court under Section 21 of R.A.
No. 7227 to enjoin or restrain implementation of projects for conversion of the base areas; that the
established exceptions to the aforesaid doctrine obtain in the present petition; and that they possess
the standing to bring the petition which is a taxpayer's suit.
Public respondents have filed their Rejoinder21 and the parties have filed their respective memoranda.
Before dwelling on the core issues, this Court shall first address the preliminary procedural questions
confronting the petition.
The judicial policy is and has always been that this Court will not entertain direct resort to it except
when the redress sought cannot be obtained in the proper courts, or when exceptional and compelling
circumstances warrant availment of a remedy within and calling for the exercise of this Court's primary
jurisdiction.22 Neither will it entertain an action for declaratory relief, which is partly the nature of this
petition, over which it has no original jurisdiction.
Nonetheless, as it is only this Court which has the power under Section 21 23 of R.A. No. 7227 to
enjoin implementation of projects for the development of the former US military reservations, the
issuance of which injunction petitioners pray for, petitioners' direct filing of the present petition with it
is allowed. Over and above this procedural objection to the present suit, this Court retains full
discretionary power to take cognizance of a petition filed directly to it if compelling reasons, or the
nature and importance of the issues raised, warrant. 24 Besides, remanding the case to the lower courts
now would just unduly prolong adjudication of the issues.

The transformation of a portion of the area covered by Camp John Hay into a SEZ is not simply a reclassification of an area, a mere ascription of a status to a place. It involves turning the former US
military reservation into a focal point for investments by both local and foreign entities. It is to be
made a site of vigorous business activity, ultimately serving as a spur to the country's long awaited
economic growth. For, as R.A. No. 7227 unequivocally declares, it is the government's policy to
enhance the benefits to be derived from the base areas in order to promote the economic and social
development of Central Luzon in particular and the country in general. 25 Like the Subic SEZ, the John
Hay SEZ should also be turned into a "self-sustaining, industrial, commercial, financial and investment
center."26
More than the economic interests at stake, the development of Camp John Hay as well as of the other
base areas unquestionably has critical links to a host of environmental and social concerns. Whatever
use to which these lands will be devoted will set a chain of events that can affect one way or another
the social and economic way of life of the communities where the bases are located, and ultimately the
nation in general.
Underscoring the fragility of Baguio City's ecology with its problem on the scarcity of its water supply,
petitioners point out that the local and national government are faced with the challenge of how to
provide for an ecologically sustainable, environmentally sound, equitable transition for the city in the
wake of Camp John Hay's reversion to the mass of government property. 27 But that is why R.A. No.
7227 emphasizes the "sound and balanced conversion of the Clark and Subic military reservations and
their extensions consistent with ecological andenvironmental standards."28 It cannot thus be gainsaid
that the matter of conversion of the US bases into SEZs, in this case Camp John Hay, assumes
importance of a national magnitude.
Convinced then that the present petition embodies crucial issues, this Court assumes jurisdiction over
the petition.
As far as the questioned agreements between BCDA and Tuntex and AsiaWorld are concerned, the
legal questions being raised thereon by petitioners have indeed been rendered moot and academic by
the revocation of such agreements. There are, however, other issues posed by the petition, those
which center on the constitutionality of Proclamation No. 420, which have not been mooted by the said
supervening event upon application of the rules for the judicial scrutiny of constitutional cases. The
issues boil down to:

(1)

Whether the present petition complies with the requirements for this Court's exercise of
jurisdiction over constitutional issues;

(2)

Whether Proclamation No. 420 is constitutional by providing for national and local tax exemption
within and granting other economic incentives to the John Hay Special Economic Zone; and

(3)

Whether Proclamation No. 420 is constitutional for limiting or interfering with the local autonomy
of Baguio City;

It is settled that when questions of constitutional significance are raised, the court can exercise its
power of judicial review only if the following requisites are present: (1) the existence of an actual and
appropriate case; (2) a personal and substantial interest of the party raising the constitutional
question; (3) the exercise of judicial review is pleaded at the earliest opportunity; and (4) the
constitutional question is the lis mota of the case.29
An actual case or controversy refers to an existing case or controversy that is appropriate or ripe for
determination, not conjectural or anticipatory.30 The controversy needs to be definite and concrete,
bearing upon the legal relations of parties who are pitted against each other due to their adverse legal
interests.31 There is in the present case a real clash of interests and rights between petitioners and
respondents arising from the issuance of a presidential proclamation that converts a portion of the
area covered by Camp John Hay into a SEZ, the former insisting that such proclamation contains
unconstitutional provisions, the latter claiming otherwise.
R.A. No. 7227 expressly requires the concurrence of the affected local government units to the
creation of SEZs out of all the base areas in the country. 32 The grant by the law on local government
units of the right of concurrence on the bases' conversion is equivalent to vesting a legal standing on
them, for it is in effect a recognition of the real interests that communities nearby or surrounding a
particular base area have in its utilization. Thus, the interest of petitioners, being inhabitants of Baguio,
in assailing the legality of Proclamation No. 420, is personal and substantial such that they have
sustained or will sustain direct injury as a result of the government act being challenged. 33 Theirs is a
material interest, an interest in issue affected by the proclamation and not merely an interest in the
question involved or an incidental interest,34 for what is at stake in the enforcement of Proclamation
No. 420 is the very economic and social existence of the people of Baguio City.
Petitioners' locus standi parallels that of the petitioner and other residents of Bataan, specially of the
town of Limay, in Garcia v. Board of Investments 35 where this Court characterized their interest in the
establishment of a petrochemical plant in their place as actual, real, vital and legal, for it would affect
not only their economic life but even the air they breathe.
Moreover, petitioners Edilberto T. Claravall and Lilia G. Yaranon were duly elected councilors of Baguio
at the time, engaged in the local governance of Baguio City and whose duties included deciding for
and on behalf of their constituents the question of whether to concur with the declaration of a portion
of the area covered by Camp John Hay as a SEZ. Certainly then, petitioners Claravall and Yaranon, as
city officials who voted against36 thesanggunian Resolution No. 255 (Series of 1994) supporting the
issuance of the now challenged Proclamation No. 420, have legal standing to bring the present
petition.
That there is herein a dispute on legal rights and interests is thus beyond doubt. The mootness of the
issues concerning the questioned agreements between public and private respondents is of no
moment.
"By the mere enactment of the questioned law or the approval of the challenged act, the dispute is
deemed to have ripened into a judicial controversy even without any other overt act. Indeed, even a
singular violation of the Constitution and/or the law is enough to awaken judicial duty." 37
As to the third and fourth requisites of a judicial inquiry, there is likewise no question that they have
been complied with in the case at bar. This is an action filed purposely to bring forth constitutional
issues, ruling on which this Court must take up. Besides, respondents never raised issues with respect
to these requisites, hence, they are deemed waived.
Having cleared the way for judicial review, the constitutionality of Proclamation No. 420, as framed in
the second and third issues above, must now be addressed squarely.
The second issue refers to petitioners' objection against the creation by Proclamation No. 420 of a
regime of tax exemption within the John Hay SEZ. Petitioners argue that nowhere in R. A. No. 7227 is
there a grant of tax exemption to SEZs yet to be established in base areas, unlike the grant under
Section 12 thereof of tax exemption and investment incentives to the therein established Subic SEZ.

The grant of tax exemption to the John Hay SEZ, petitioners conclude, thus contravenes Article VI,
Section 28 (4) of the Constitution which provides that "No law granting any tax exemption shall be
passed without the concurrence of a majority of all the members of Congress."
Section 3 of Proclamation No. 420, the challenged provision, reads:
Sec. 3. Investment Climate in John Hay Special Economic Zone. - Pursuant to Section 5(m) and Section
15 of R.A. No. 7227, the John Hay Poro Point Development Corporation shall implement all necessary
policies, rules, and regulations governing the zone, including investment incentives, in consultation
with pertinent government departments. Among others, the zone shall have all the applicable
incentives of the Special Economic Zone under Section 12 of R.A. No. 7227 and those
applicable incentives granted in the Export Processing Zones, the Omnibus Investment
Code of 1987, the Foreign Investment Act of 1991, and new investment laws that may
hereinafter be enacted. (Emphasis and underscoring supplied)
Upon the other hand, Section 12 of R.A. No. 7227 provides:
xxx
(a) Within the framework and subject to the mandate and limitations of the Constitution and the
pertinent provisions of the Local Government Code, the Subic Special Economic Zone shall be
developed into a self-sustaining, industrial, commercial, financial and investment center to generate
employment opportunities in and around the zone and to attract and promote productive foreign
investments;
b) The Subic Special Economic Zone shall be operated and managed as a separate customs
territory ensuring free flow or movement of goods and capital within, into and exported out of the
Subic Special Economic Zone, as well as provide incentives such as tax and duty free importations of
raw materials, capital and equipment. However, exportation or removal of goods from the territory of
the Subic Special Economic Zone to the other parts of the Philippine territory shall be subject to
customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the
Philippines;
(c) The provisions of existing laws, rules and regulations to the contrary notwithstanding, no taxes,
local and national, shall be imposed within the Subic Special Economic Zone. In lieu of paying taxes,
three percent (3%) of the gross income earned by all businesses and enterprises within the Subic
Special Economic Zone shall be remitted to the National Government, one percent (1%) each to the
local government units affected by the declaration of the zone in proportion to their population area,
and other factors. In addition, there is hereby established a development fund of one percent (1%) of
the gross income earned by all businesses and enterprises within the Subic Special Economic Zone to
be utilized for the Municipality of Subic, and other municipalities contiguous to be base areas. In case
of conflict between national and local laws with respect to tax exemption privileges in the Subic Special
Economic Zone, the same shall be resolved in favor of the latter;
(d) No exchange control policy shall be applied and free markets for foreign exchange, gold, securities
and futures shall be allowed and maintained in the Subic Special Economic Zone;
(e) The Central Bank, through the Monetary Board, shall supervise and regulate the operations of
banks and other financial institutions within the Subic Special Economic Zone;
(f) Banking and Finance shall be liberalized with the establishment of foreign currency depository units
of local commercial banks and offshore banking units of foreign banks with minimum Central Bank
regulation;
(g) Any investor within the Subic Special Economic Zone whose continuing investment shall not be
less than Two Hundred fifty thousand dollars ($250,000), his/her spouse and dependent children under
twenty-one (21) years of age, shall be granted permanent resident status within the Subic Special
Economic Zone. They shall have freedom of ingress and egress to and from the Subic Special Economic

Zone without any need of special authorization from the Bureau of Immigration and Deportation. The
Subic Bay Metropolitan Authority referred to in Section 13 of this Act may also issue working visas
renewable every two (2) years to foreign executives and other aliens possessing highly-technical skills
which no Filipino within the Subic Special Economic Zone possesses, as certified by the Department of
Labor and Employment. The names of aliens granted permanent residence status and working visas by
the Subic Bay Metropolitan Authority shall be reported to the Bureau of Immigration and Deportation
within thirty (30) days after issuance thereof;
x x x (Emphasis supplied)
It is clear that under Section 12 of R.A. No. 7227 it is only the Subic SEZ which was granted by
Congress with tax exemption, investment incentives and the like. There is no express extension of the
aforesaid benefits to other SEZs still to be created at the time via presidential proclamation.
The deliberations of the Senate confirm the exclusivity to Subic SEZ of the tax and investment
privileges accorded it under the law, as the following exchanges between our lawmakers show during
the second reading of the precursor bill of R.A. No. 7227 with respect to the investment policies that
would govern Subic SEZ which are now embodied in the aforesaid Section 12 thereof:
xxx
Senator Maceda: This is what I was talking about. We get into problems here because all of these
following policies are centered around the concept of free port. And in the main paragraph above, we
have declared both Clark and Subic as special economic zones, subject to these policies which are, in
effect, a free-port arrangement.
Senator Angara: The Gentleman is absolutely correct, Mr. President. So we must confine these
policies only to Subic.
May I withdraw then my amendment, and instead provide that "THE SPECIAL ECONOMIC ZONE OF
SUBIC SHALL BE ESTABLISHED IN ACCORDANCE WITH THE FOLLOWING POLICIES." Subject to style, Mr.
President.
Thus, it is very clear that these principles and policies are applicable only to Subic as a free port.
Senator Paterno: Mr. President.
The President: Senator Paterno is recognized.
Senator Paterno: I take it that the amendment suggested by Senator Angara would then prevent the
establishment of other special economic zones observing these policies.
Senator Angara: No, Mr. President, because during our short caucus, Senator Laurel raised the point
that if we give this delegation to the President to establish other economic zones, that may be an
unwarranted delegation.
So we agreed that we will simply limit the definition of powers and description of the zone to Subic, but
that does not exclude the possibility of creating other economic zones within the baselands.
Senator Paterno: But if that amendment is followed, no other special economic zone may be created
under authority of this particular bill. Is that correct, Mr. President?
Senator Angara: Under this specific provision, yes, Mr. President. This provision now will be confined
only to Subic.38
x x x (Underscoring supplied).

As gathered from the earlier-quoted Section 12 of R.A. No. 7227, the privileges given to Subic SEZ
consist principally of exemption from tariff or customs duties, national and local taxes of business
entities therein (paragraphs (b) and (c)), free market and trade of specified goods or properties
(paragraph d), liberalized banking and finance (paragraph f), and relaxed immigration rules for foreign
investors (paragraph g). Yet, apart from these, Proclamation No. 420 also makes available to the John
Hay SEZ benefits existing in other laws such as the privilege of export processing zone-based
businesses of importing capital equipment and raw materials free from taxes, duties and other
restrictions;39 tax and duty exemptions, tax holiday, tax credit, and other incentives under the Omnibus
Investments Code of 1987; 40 and the applicability to the subject zone of rules governing foreign
investments in the Philippines.41
While the grant of economic incentives may be essential to the creation and success of SEZs, free
trade zones and the like, the grant thereof to the John Hay SEZ cannot be sustained. The incentives
under R.A. No. 7227 areexclusive only to the Subic SEZ, hence, the extension of the same to the John
Hay SEZ finds no support therein. Neither does the same grant of privileges to the John Hay SEZ find
support in the other laws specified under Section 3 of Proclamation No. 420, which laws were already
extant before the issuance of the proclamation or the enactment of R.A. No. 7227.
More importantly, the nature of most of the assailed privileges is one of tax exemption. It is the
legislature, unless limited by a provision of the state constitution, that has full power to exempt any
person or corporation or class of property from taxation, its power to exempt being as broad as its
power to tax.42 Other than Congress, the Constitution may itself provide for specific tax
exemptions,43 or local governments may pass ordinances on exemption only from local taxes. 44
The challenged grant of tax exemption would circumvent the Constitution's imposition that a law
granting any tax exemption must have the concurrence of a majority of all the members of
Congress.45 In the same vein, the other kinds of privileges extended to the John Hay SEZ are by
tradition and usage for Congress to legislate upon.
Contrary to public respondents' suggestions, the claimed statutory exemption of the John Hay SEZ
from taxation should be manifest and unmistakable from the language of the law on which it is based;
it must be expressly granted in a statute stated in a language too clear to be mistaken. 46 Tax
exemption cannot be implied as it must be categorically and unmistakably expressed. 47
If it were the intent of the legislature to grant to the John Hay SEZ the same tax exemption and
incentives given to the Subic SEZ, it would have so expressly provided in the R.A. No. 7227.
This Court no doubt can void an act or policy of the political departments of the government on either
of two grounds-infringement of the Constitution or grave abuse of discretion. 48
This Court then declares that the grant by Proclamation No. 420 of tax exemption and other privileges
to the John Hay SEZ is void for being violative of the Constitution. This renders it unnecessary to still
dwell on petitioners' claim that the same grant violates the equal protection guarantee.
With respect to the final issue raised by petitioners -- that Proclamation No. 420 is unconstitutional for
being in derogation of Baguio City's local autonomy, objection is specifically mounted against Section 2
thereof in which BCDA is set up as the governing body of the John Hay SEZ. 49
Petitioners argue that there is no authority of the President to subject the John Hay SEZ to the
governance of BCDA which has just oversight functions over SEZ; and that to do so is to diminish the
city government's power over an area within its jurisdiction, hence, Proclamation No. 420 unlawfully
gives the President power of control over the local government instead of just mere supervision.
Petitioners' arguments are bereft of merit. Under R.A. No. 7227, the BCDA is entrusted with, among
other things, the following purpose:50
xxx

(a) To own, hold and/or administer the military reservations of John Hay Air Station, Wallace Air Station,
O'Donnell Transmitter Station, San Miguel Naval Communications Station, Mt. Sta. Rita Station
(Hermosa, Bataan) and those portions of Metro Manila Camps which may be transferred to it by the
President;
x x x (Underscoring supplied)
With such broad rights of ownership and administration vested in BCDA over Camp John Hay, BCDA
virtually has control over it, subject to certain limitations provided for by law. By designating BCDA as
the governing agency of the John Hay SEZ, the law merely emphasizes or reiterates the statutory role
or functions it has been granted.
The unconstitutionality of the grant of tax immunity and financial incentives as contained in the
second sentence of Section 3 of Proclamation No. 420 notwithstanding, the entire assailed
proclamation cannot be declared unconstitutional, the other parts thereof not being repugnant to law
or the Constitution. The delineation and declaration of a portion of the area covered by Camp John Hay
as a SEZ was well within the powers of the President to do so by means of a proclamation. 51 The
requisite prior concurrence by the Baguio City government to such proclamation appears to have been
given in the form of a duly enacted resolution by the sanggunian. The other provisions of the
proclamation had been proven to be consistent with R.A. No. 7227.
Where part of a statute is void as contrary to the Constitution, while another part is valid, the valid
portion, if separable from the invalid, may stand and be enforced. 52 This Court finds that the other
provisions in Proclamation No. 420 converting a delineated portion of Camp John Hay into the John Hay
SEZ are separable from the invalid second sentence of Section 3 thereof, hence they stand.
WHEREFORE, the second sentence of Section 3 of Proclamation No. 420 is hereby declared NULL AND
VOID and is accordingly declared of no legal force and effect. Public respondents are hereby enjoined
from implementing the aforesaid void provision.
Proclamation No. 420, without the invalidated portion, remains valid and effective.
SO ORDERED.
9. G.R. No. L-47421 May 14, 1990 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.
HON. COURT OF TAX APPEALS and MANILA GOLF & COUNTRY CLUB, INC., respondents.
MEDIALDEA, J.:
In Commissioner of Internal Revenue v. Manila Hotel Corporation, et al., G.R. No. 83250, September 26,
1989, We overruled a decision of the Court of Tax Appeals which declared the collection of caterer's tax
under Section 191-A of Republic Act No. 6110 illegal because Sec. 42 of House Bill No. 17839, which
carries that proviso, was vetoed by then President Ferdinand E. Marcos when the bill was presented to
him and Congress had not taken any step to override the presidential veto. We held thus:
The power of the State to impose the 3% caterer's tax is not debatable. The Court of
Tax Appeals erred, however, in holding that the tax was abolished as a result of the
presidential veto of August 4, 1969. It failed to examine the law then, and up to now,
existing on the subject which has always imposed a 3% caterer's tax on operators of
restaurants. Since the Manila Hotel operates restaurants in its premises, it is liable to
pay the tax provided in paragraph (1), Section 206 of the Tax Code. (Commissioner of
Internal Revenue v. Manila Hotel Corporation and the Court of Tax Appeals, G.R. No.
83250, September 26, 1989)
The petition now before Us presents an identical question: whether the presidential veto referred to the
entire section or merely to the imposition of 20% tax on gross receipts of operators or proprietors of

restaurants, refreshment parlors, bars and other eating places which are maintained within the
premises or compound of a hotel, motel or resthouses. Reference to the Manila Hotel case, therefore,
might have been sufficient to dispose of this petition were it not for the position of the CTA that a chief
executive has no power to veto part of an item in a bill; either he vetoes an entire section or approves
it but not a fraction thereof.
Herein private respondent, Manila Golf & Country Club, Inc. is a non-stock corporation. True, it
maintains a golf course and operates a clubhouse with a lounge, bar and dining room, but these
facilities are for the exclusive use of its members and accompanied guests, and it charges on costplus-expense basis. As such, it claims it should have been exempt from payment of privilege taxes
were it not for the last paragraph of Section 191-A of R.A. No. 6110, otherwise known as the "Omnibus
Tax Law." Section 191-A reads:
Sec. 191-A. Caterer. A caterer's tax is hereby imposed as follows:
(1) On proprietors or operators of restaurants, refreshment parlors and other eating
places, including clubs, and caterers, three per cent of their gross receipts.
(2) On proprietors or operators of restaurants, bars, cafes and other eating places,
including clubs, where distilled spirits, fermented liquors, or wines are served, three
per cent of their gross receipts from sale of food or refreshments and seven per cent of
their gross receipts from sale of distilled spirits, fermented liquors or wines. Two sets of
commercial invoices or receipts serially numbered in duplicate shall be separately
prepared and issued, one for sale of refreshments served, and another for each sale of
distilled spirits, fermented liquors or wines served, the originals of the invoices or
receipts to be issued to the purchaser or customer.
(3) On proprietors or operators of restaurants, refreshment parlors, bars, cafes and
other eating places which are maintained within the preferences or compound of
a hotel, motel, resthouse, cockpit, race track, jai-alai, cabaret, night or day club by
means of a connecting door or passage twenty per cent of their gross receipts.
Where the establishments are operated or maintained by clubs of any kind or nature
(irrespective of the disposition of their net income and whether or not they cater
exclusively to members or their guests) the keepers of the establishments shall pay
the corresponding tax at the rate fixed above. (Emphasis supplied)
Republic Act No. 6110 took effect on September 1, 1969. By this virtue, petitioners assessed the club
fixed taxes as operators of golf links and restaurants, and also percentage tax (caterer's tax) for its
sale of foods and fermented liquors/wines for the period covering September 1969 to December 1970
in the amount of P32,504.96. The club protested claiming the assessment to be without basis because
Section 42 was vetoed by then President Marcos. The veto message reads:
MALACAANG
Manila

Gentlemen of the House of Representatives:

I have the honor to inform you that I have this day signed H.B. No. 17839, entitled:
AN ACT AMENDING CERTAIN

PROVISIONS OF THE NATIONAL INTERNAL

REVENUE CODE, AS AMENDED
Pursuant to the provisions of Section 20-(3), Article VI, of the Constitution, however, I
have vetoed the following items in this bill:
xxx xxx xxx
pp. 44, SEC. 42. Inserting a new Section 191-A which imposes a caterer's tax of three
percent of the gross receipts of proprietors or operators of restaurants, refreshment
parlors and other eating places; three percent of gross receipts from sale of food or
refreshment and seven percent on gross receipts from the sale of distilled spirits,
fermented liquors or wines, on proprietors or operators of restaurants, bars, cafes and
other eating places, including clubs, where distilled spirits, fermented liquors, or wines
are served; and twenty percent of gross receipts on proprietor or operators of
restaurants, refreshment parlors, bars, cafes and other eating places maintained within
the premises or compound of a hotel, motel, resthouse, cockpit, race track, jai-alai,
cabaret, night or day club, or which are accessible to patrons of said establishments by
means of a connecting door or passage.
The burden of petition will be shifted to the consuming public.
The development of hotels, essential to our tourist industry, may be
restrained considering that a big portion of hotel earnings comes from
food sale. . . .
This bill, H.B. No. 17839, has become Republic Act No. 6110.
Respectfully,
(SGD.) FERDINAND E. MARCOS
[Emphasis ours]
The protestation of the club was denied by the petitioner who maintains that Section 42 was not
entirely vetoed but merely the words "hotels, motels, resthouses" on the ground that it might restrain
the development of hotels which is essential to the tourism industry. This in fact was the position of the
House Ways and Means Committee which reported, to wit:
When Congress decided to split Section 191 into two parts, one dealing with
contractors, and the other dealing with those who serve food and drinks, the intention
was to classify and to improve. While the Congress expanded the coverage of both 191
and 191-A, it also provided for certain exemptions. The veto message seems to object
to certain additions to 191-A. What additions are objectionables can be gleaned from
the reasons given: a general reason that this sort of tax is passed on to the consuming
public, and a particular reason that hotel developments, so essential to the tourist
industry, may be restrained. These reasons have been taken together in the
interpretations of the veto message and the deletions of such enterprises as are
connected with the tourist industry has therefore been recommended.
To interpret the veto. message otherwise would result in the exemption of entities
already subject of tax. This would be absurd. Where the Congress wanted to exempt, it
was so provided in the bill. While the President may veto any item or items in a

revenue bill the constitution does not give him the power to repeal an existing tax.
(2nd Indorsement dated December 9, 1969, Chairman on Ways and Means, Sixth
Congress of the Republic of the Phil.) (Exhs. 14, p. 85, B.I.R. rec.). (pp. 20-21, Rollo)
It was by reason of this interpretation of the Committee that R.A. No. 6110 was published in Volume
66, No. 18, p. 4531 of the Official Gazette (May 4, 1970) in such a way that Section 191-A was included
in the text save for the words "hotels, motels, resthouses."
As already mentioned, the Court of Tax Appeals, upon petition by the club, sustained the latter's
position reasoning that the veto message was clear and unqualified, as in fact it was confirmed three
years later, after much controversy, by the Office of the President, thus:
Mr. Antero M. Sison, Jr.
San Martin Building, 1564,
A. Mabini, P.O. Box 2288
Manila, Philippines
Dear Sir:
With reference to your letter dated July 14, 1972, we wish to inform you that Section
42 (which contains Sec. 191-A) of House Bill No. 17839, now R.A. 6110 was one of the
Sections vetoed by the President in his veto message dated August 4, 1969, vetoing
certain sections of the said revenue bill.
Very Truly Yours,
(SGD.) IRINEO T. AGUIRRE, JR.
Presidential Staff Assistant
(p. 49, Rollo)
As mentioned earlier, We have already ruled that the presidential veto referred merely to the inclusion
of hotels, motels and resthouses in the 20% caterer's tax bracket but not to the whole section. But, as
mentioned earlier also, the CTA opined that the President could not veto words or phrases in a bill but
only an entire item. Obviously, what the CTA meant by "item" was an entire section. We do not agree.
But even assuming it to be so, it would also be to petitioner's favor. The ineffectual veto by the
President rendered the whole section 191-A as not having been vetoed at all and it, therefore, became
law as an unconstitutional veto has no effect, whatsoever. (See Bolinao Electronics Corp. v. Valeria No.
L-20740, June 30, 1964, 11 SCRA 486).
However, We agree with then Solicitor General Estelito Mendoza and his associates that inclusion of
hotels, motels and resthouses in the 20% caterer's tax bracket are "items" in themselves within the
meaning of Sec. 20(3), Art. VI of the 1935 Constitution which, therefore, the President has the power to
veto. An "item" in a revenue bill does not refer to an entire section imposing a particular kind of tax,
but rather to the subject of the tax and the tax rate. In the portion of a revenue bill which actually
imposes a tax, a section identifies the tax and enumerates the persons liable therefor with the
corresponding tax rate. To construe the word "item" as referring to the whole section would tie the
President's hand in choosing either to approve the whole section at the expense of also approving a
provision therein which he deems unacceptable or veto the entire section at the expense of foregoing
the collection of the kind of tax altogether. The evil which was sought to be prevented in giving the

President the power to disapprove items in a revenue bill would be perpetrated rendering that power
inutile (See Commonwealth ex rel. Elkin v. Barnett, 199 Pa. 161, 55 LRA 882 [1901]).
ACCORDINGLY, the petition is GRANTED and the decision of the Court of Tax Appeals in CTA Case No.
2630 is set aside. Section 191-A of RA No. 6110 is valid and enforceable and, hence, the Manila Golf &
Country Club Inc. is liable for the amount assessed against it.
SO ORDERED.
10. G.R.
No.
158540.
August
3,
2005
SOUTHERN
CROSS
CEMENT
CORPORATION, Petitioners, vs. CEMENT MANUFACTURERS ASSOCIATION OF THE
PHILIPPINES, THE SECRETARY OF THE DEPARTMENT OF TRADE AND INDUSTRY, THE
SECRETARY OF THE DEPARTMENT OF FINANCE and THE COMMISSIONER OF THE
BUREAU OF CUSTOMS, Respondent.
RESOLUTION
TINGA, J.:
Cement is hardly an exciting subject for litigation. Still, the parties in this case have done their best to
put up a spirited advocacy of their respective positions, throwing in everything including the proverbial
kitchen sink. At present, the burden of passion, if not proof, has shifted to public respondents
Department of Trade and Industry (DTI) and private respondent Philippine Cement Manufacturers
Corporation (Philcemcor),1 who now seek reconsideration of our Decision dated 8 July 2004 (Decision),
which granted the petition of petitioner Southern Cross Cement Corporation (Southern Cross).
This case, of course, is ultimately not just about cement. For respondents, it is about love of country
and the future of the domestic industry in the face of foreign competition. For this Court, it is about
elementary statutory construction, constitutional limitations on the executive power to impose tariffs
and similar measures, and obedience to the law. Just as much was asserted in the Decision, and the
same holds true with this presentResolution.
An extensive narration of facts can be found in the Decision.2 As can well be recalled, the case centers
on the interpretation of provisions of Republic Act No. 8800, the Safeguard Measures Act ("SMA"),
which was one of the laws enacted by Congress soon after the Philippines ratified the General
Agreement on Tariff and Trade (GATT) and the World Trade Organization (WTO) Agreement. 3 The SMA
provides the structure and mechanics for the imposition of emergency measures, including tariffs, to
protect domestic industries and producers from increased imports which inflict or could inflict serious
injury on them.4
A brief summary as to how the present petition came to be filed by Southern Cross. Philcemcor, an
association of at least eighteen (18) domestic cement manufacturers filed with the DTI a petition
seeking the imposition of safeguard measures on gray Portland cement, 5 in accordance with the SMA.
After the DTI issued a provisional safeguard measure, 6 the application was referred to the Tariff
Commission for a formal investigation pursuant to Section 9 of the SMA and its Implementing Rules
and Regulations, in order to determine whether or not to impose a definitive safeguard measure on
imports of gray Portland cement. The Tariff Commission held public hearings and conducted its own
investigation, then on 13 March 2002, issued its Formal Investigation Report ("Report"). The Report
determined as follows:
The elements of serious injury and imminent threat of serious injury not having been established, it is
hereby recommended that no definitive general safeguard measure be imposed on the importation of
gray Portland cement.7
The DTI sought the opinion of the Secretary of Justice whether it could still impose a definitive
safeguard measure notwithstanding the negative finding of the Tariff Commission. After the Secretary
of Justice opined that the DTI could not do so under the SMA, 8 the DTI Secretary then promulgated

a Decision9 wherein he expressed the DTIs disagreement with the conclusions of the Tariff
Commission, but at the same time, ultimately denying Philcemcors application for safeguard
measures on the ground that the he was bound to do so in light of the Tariff Commissions negative
findings.10
Philcemcor challenged this Decision of the DTI Secretary by filing with the Court of Appeals a Petition
for Certiorari, Prohibition and Mandamus11 seeking to set aside the DTI Decision, as well as the Tariff
Commissions Report. It prayed that the Court of Appeals direct the DTI Secretary to disregard the
Report and to render judgment independently of the Report. Philcemcor argued that the DTI Secretary,
vested as he is under the law with the power of review, is not bound to adopt the recommendations of
the Tariff Commission; and, that the Report is void, as it is predicated on a flawed framework,
inconsistent inferences and erroneous methodology.12
The Court of Appeals Twelfth Division, in a Decision13 penned by Court of Appeals Associate Justice Elvi
John Asuncion,14 partially granted Philcemcors petition. The appellate court ruled that it had
jurisdiction over the petition for certiorari since it alleged grave abuse of discretion. While it refused to
annul the findings of the Tariff Commission,15 it also held that the DTI Secretary was not bound by the
factual findings of the Tariff Commission since such findings are merely recommendatory and they fall
within the ambit of the Secretarys discretionary review. It determined that the legislative intent is to
grant the DTI Secretary the power to make a final decision on the Tariff Commissions
recommendation.16
On 23 June 2003, Southern Cross filed the present petition, arguing that the Court of Appeals has no
jurisdiction over Philcemcors petition, as the proper remedy is a petition for review with the CTA
conformably with the SMA, and; that the factual findings of the Tariff Commission on the existence or
non-existence of conditions warranting the imposition of general safeguard measures are binding upon
the DTI Secretary.
Despite the fact that the Court of Appeals Decision had not yet become final, its binding force was
cited by the DTI Secretary when he issued a new Decision on 25 June 2003, wherein he ruled that that
in light of the appellate courts Decision, there was no longer any legal impediment to his deciding
Philcemcors application for definitive safeguard measures. 17 He made a determination that, contrary
to the findings of the Tariff Commission, the local cement industry had suffered serious injury as a
result of the import surges. 18 Accordingly, he imposed a definitive safeguard measure on the
importation of gray Portland cement, in the form of a definitive safeguard duty in the amount
of P20.60/40 kg. bag for three years on imported gray Portland Cement. 19
On 7 July 2003, Southern Cross filed with the Court a "Very Urgent Application for a Temporary
Restraining Order and/or A Writ of Preliminary Injunction" ("TRO Application"), seeking to enjoin the DTI
Secretary from enforcing hisDecision of 25 June 2003 in view of the pending petition before this Court.
Philcemcor filed an opposition, claiming, among others, that it is not this Court but the CTA that has
jurisdiction over the application under the law.
On 1 August 2003, Southern Cross filed with the CTA a Petition for Review, assailing the DTI
Secretarys 25 June 2003 Decision which imposed the definite safeguard measure. Yet Southern Cross
did not promptly inform this Court about this filing. The first time the Court would learn about
this Petition with the CTA was when Southern Cross mentioned such fact in a pleading dated 11 August
2003 and filed the next day with this Court.20
Philcemcor argued before this Court that Southern Cross had deliberately and willfully resorted to
forum-shopping; that the CTA, being a special court of limited jurisdiction, could only review the ruling
of the DTI Secretary when a safeguard measure is imposed; and that the factual findings of the Tariff
Commission are not binding on the DTI Secretary.21
After giving due course to Southern Crosss Petition, the Court called the case for oral argument on 18
February 2004.22 At the oral argument, attended by the counsel for Philcemcor and Southern Cross and
the Office of the Solicitor General, the Court simplified the issues in this wise: (i) whether
the Decision of the DTI Secretary is appealable to the CTA or the Court of Appeals; (ii) assuming that

the Court of Appeals has jurisdiction, whether itsDecision is in accordance with law; and, whether
a Temporary Restraining Order is warranted.23
After the parties had filed their respective memoranda, the Courts Second Division, to which the case
had been assigned, promulgated its Decision granting Southern Crosss Petition.24The Decision was
unanimous, without any separate or concurring opinion.
The Court ruled that the Court of Appeals had no jurisdiction over Philcemcors Petition, the proper
remedy under Section 29 of the SMA being a petition for review with the CTA; and that the Court of
Appeals erred in ruling that the DTI Secretary was not bound by the negative determination of the
Tariff Commission and could therefore impose the general safeguard measures, since Section 5 of the
SMA precisely required that the Tariff Commission make a positive final determination before the DTI
Secretary could impose these measures. Anent the argument that Southern Cross had committed
forum-shopping, the Court concluded that there was no evident malicious intent to subvert procedural
rules so as to match the standard under Section 5, Rule 7 of the Rules of Court of willful and deliberate
forum shopping. Accordingly, the Decision of the Court of Appeals dated 5 June 2003 was declared null
and void.
The Court likewise found it necessary to nullify the Decision of the DTI Secretary dated 25 June 2003,
rendered after the filing of this present Petition. This Decision by the DTI Secretary had cited the
obligatory force of the null and void Court of Appeals Decision, notwithstanding the fact that the
decision of the appellate court was not yet final and executory. Considering that the decision of the
Court of Appeals was a nullity to begin with, the inescapable conclusion was that the new decision of
the DTI Secretary, prescinding as it did from the imprimatur of the decision of the Court of Appeals,
was a nullity as well.
After the Decision was reported in the media, there was a flurry of newspaper articles citing alleged
negative reactions to the ruling by the counsel for Philcemcor, the DTI Secretary, and others. 25 Both
respondents promptly filed their respective motions for reconsideration.
On 21 September 2004, the Court En Banc resolved, upon motion of respondents, to accept the
petition and resolve the Motions for Reconsideration.26 The case was then reheard 27 on oral argument
on 1 March 2005. During the hearing, the Court elicited from the parties their arguments on the two
central issues as discussed in the assailed Decision, pertaining to the jurisdictional aspect and to the
substantive aspect of whether the DTI Secretary may impose a general safeguard measure despite a
negative determination by the Tariff Commission. The Court chose not to hear argumentation on the
peripheral issue of forum-shopping, 28 although this question shall be tackled herein shortly. Another
point of concern emerged during oral arguments on the exercise of quasi-judicial powers by the Tariff
Commission, and the parties were required by the Court to discuss in their respective memoranda
whether the Tariff Commission could validly exercise quasi-judicial powers in the exercise of its
mandate under the SMA.
The Court has likewise been notified that subsequent to the rendition of the Courts Decision,
Philcemcor filed aPetition for Extension of the Safeguard Measure with the DTI, which has been
referred to the Tariff Commission. 29In an Urgent Motion dated 21 December 2004, Southern Cross
prayed that Philcemcor, the DTI, the Bureau of Customs, and the Tariff Commission be directed to
"cease and desist from taking any and all actions pursuant to or under the null and void CA Decision
and DTI Decision, including proceedings to extend the safeguard measure. 30 In a Manifestation and
Motion dated 23 June 2004, the Tariff Commission informed the Court that since no prohibitory
injunction or order of such nature had been issued by any court against the Tariff Commission, the
Commission proceeded to complete its investigation on the petition for extension, pursuant to Section
9 of the SMA, but opted to defer transmittal of its report to the DTI Secretary pending "guidance" from
this Court on the propriety of such a step considering this pending Motion for Reconsideration. In
a Resolution dated 5 July 2005, the Court directed the parties to maintain the status quo effective of
even date, and until further orders from this Court. The denial of the pending motions for
reconsideration will obviously render the pending petition for extension academic.
I. Jurisdiction of the Court of Tax Appeals

Under Section 29 of the SMA

The first core issue resolved in the assailed Decision was whether the Court of Appeals had jurisdiction
over the special civil action for certiorari filed by Philcemcor assailing the 5 April 2002 Decision of the
DTI Secretary. The general jurisdiction of the Court of Appeals over special civil actions for certiorari is
beyond doubt. The Constitution itself assures that judicial review avails to determine whether or not
there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of
any branch or instrumentality of the Government. At the same time, the special civil action of certiorari
is available only when there is no plain, speedy and adequate remedy in the ordinary course of
law.31 Philcemcors recourse of special civil action before the Court of Appeals to challenge
the Decision of the DTI Secretary not to impose the general safeguard measures is not based on the
SMA, but on the general rule on certiorari. Thus, the Court proceeded to inquire whether indeed there
was no other plain, speedy and adequate remedy in the ordinary course of law that would warrant the
allowance of Philcemcors special civil action.
The answer hinged on the proper interpretation of Section 29 of the SMA, which reads:
Section 29. Judicial Review. Any interested party who is adversely affected by the ruling of the
Secretary in connection with the imposition of a safeguard measure may file with the CTA, a
petition for review of such ruling within thirty (30) days from receipt thereof. Provided, however, that
the filing of such petition for review shall not in any way stop, suspend or otherwise toll the imposition
or collection of the appropriate tariff duties or the adoption of other appropriate safeguard measures,
as the case may be.
The petition for review shall comply with the same requirements and shall follow the same rules of
procedure and shall be subject to the same disposition as in appeals in connection with adverse rulings
on tax matters to the Court of Appeals.32 (Emphasis supplied)
The matter is crucial for if the CTA properly had jurisdiction over the petition challenging the DTI
Secretarys ruling not to impose a safeguard measure, then the special civil action of certiorari
resorted to instead by Philcemcor would not avail, owing to the existence of a plain, speedy and
adequate remedy in the ordinary course of law. 33The Court of Appeals, in asserting that it had
jurisdiction, merely cited the general rule on certiorari jurisdiction without bothering to refer to, or
possibly even study, the import of Section 29. In contrast, this Court duly considered the meaning and
ramifications of Section 29, concluding that it provided for a plain, speedy and adequate remedy that
Philcemcor could have resorted to instead of filing the special civil action before the Court of Appeals.
Philcemcor still holds on to its hypothesis that the petition for review allowed under Section 29 lies only
if the DTI Secretarys ruling imposes a safeguard measure. If, on the other hand, the DTI Secretarys
ruling is not to impose a safeguard measure, judicial review under Section 29 could not be resorted to
since the provision refers to rulings "in connection with the imposition" of the safeguard measure, as
opposed to the non-imposition. Since the Decision dated 5 April 2002 resolved against imposing a
safeguard measure, Philcemcor claims that the proper remedial recourse is a petition for certiorari with
the Court of Appeals.
Interestingly, Republic Act No. 9282, promulgated on 30 March 2004, expressly vests unto the CTA
jurisdiction over "[d]ecisions of the Secretary of Trade and Industry, in case of nonagricultural product,
commodity or article . . . involving . . . safeguard measures under Republic Act No. 8800, where
either party may appeal the decision to impose or not to impose said duties."34 It is clear that
any future attempts to advance the literalist position of the respondents would consequently fail.
However, since Republic Act No. 9282 has no retroactive effect, this Court had to decide whether
Section 29 vests jurisdiction on the CTA over rulings of the DTI Secretary not to impose a safeguard
measure. And the Court, in its assailed Decision, ruled that the CTA is endowed with such jurisdiction.
Both respondents reiterate their fundamentalist reading that Section 29 authorizes the petition for
review before the CTA only when the DTI Secretary decides to impose a safeguard measure, but not
when he decides not to. In doing so, they fail to address what the Court earlier pointed out would be
the absurd consequences if their interpretation is followed to its logical end. But in affirming, as the
Court now does, its previous holding that the CTA has jurisdiction over petitions for review questioning

the non-imposition of safeguard measures by the DTI Secretary, the Court relies on the plain reading
that Section 29 explicitly vests jurisdiction over such petitions on the CTA.
Under Section 29, there are three requisites to enable the CTA to acquire jurisdiction over the petition
for review contemplated therein: (i) there must be a ruling by the DTI Secretary; (ii) the petition must
be filed by an interested party adversely affected by the ruling; and (iii) such ruling must be "in
connection with the imposition of a safeguard measure." Obviously, there are differences between "a
ruling for the imposition of a safeguard measure," and one issued "in connection with the imposition of
a safeguard measure." The first adverts to a singular type of ruling, namely one that imposes a
safeguard measure. The second does not contemplate only one kind of ruling, but a myriad of rulings
issued "in connection with the imposition of a safeguard measure."
Respondents argue that the Court has given an expansive interpretation to Section 29, contrary to the
established rule requiring strict construction against the existence of jurisdiction in specialized
courts.35 But it is the express provision of Section 29, and not this Court, that mandates CTA
jurisdiction to be broad enough to encompass more than just a ruling imposing the
safeguard measure.
The key phrase remains "in connection with." It has connotations that are obvious even to the layman.
A ruling issued "in connection with" the imposition of a safeguard measure would be one that bears
some relation to the imposition of a safeguard measure. Obviously, a ruling imposing a safeguard
measure is covered by the phrase "in connection with," but such ruling is by no means exclusive.
Rulings which modify, suspend or terminate a safeguard measure are necessarily in connection with
the imposition of a safeguard measure. So does a ruling allowing for a provisional safeguard measure.
So too, a ruling by the DTI Secretary refusing to refer the application for a safeguard measure to the
Tariff Commission. It is clear that there is an entire subset of rulings that the DTI Secretary may issue in
connection with the imposition of a safeguard measure, including those that are provisional,
interlocutory, or dispositive in character. 36 By the same token, a ruling not to impose a safeguard
measure is also issued in connection with the imposition of a safeguard measure.
In arriving at the proper interpretation of "in connection with," the Court referred to the U.S. Supreme
Court cases of Shaw v. Delta Air Lines, Inc. 37 and New York State Blue Cross Plans v. Travelers
Ins.38 Both cases considered the interpretation of the phrase "relates to" as used in a federal statute,
the Employee Retirement Security Act of 1974. Respondents criticize the citations on the premise that
the cases are not binding in our jurisdiction and do not involve safeguard measures. The criticisms are
off-tangent considering that our ruling did not call for the application of the Employee Retirement
Security Act of 1974 in the Philippine milieu. The American cases are not relied upon as precedents,
but as guides of interpretation. Certainly, if there are applicable local precedents pertaining to the
interpretation of the phrase "in connection with," then these certainly would have some binding force.
But none avail, and neither do the respondents demonstrate a countervailing holding in Philippine
jurisprudence.
Yet we should consider the claim that an "expansive interpretation" was favored in Shaw because the
law in question was an employees benefit law that had to be given an interpretation favorable to its
intended beneficiaries.39 In the next breath, Philcemcor notes that the U.S. Supreme Court itself was
alarmed by the expansive interpretation in Shaw and thus in Blue Cross, the Shaw ruling was reversed
and a more restrictive interpretation was applied based on congressional intent. 40
Respondents would like to make it appear that the Court acted rashly in applying a discarded
precedent in Shaw, a non-binding foreign precedent nonetheless. But the Court did make the following
observation in its Decisionpertaining to Blue Cross:
Now, let us determine the maximum scope and reach of the phrase "in connection with" as used in
Section 29 of the SMA. A literalist reading or linguistic survey may not satisfy. Even the U.S. Supreme
Court in New York State Blue Cross Plans v. Travelers Ins.41 conceded that the phrases "relate to" or "in
connection with" may be extended to the farthest stretch of indeterminacy for, universally, relations or
connections are infinite and stop nowhere. 42Thus, in the case the U.S. High Court, examining the
same phrase of the same provision of law involved in Shaw, resorted to looking at the
statute and its objectives as the alternative to an "uncritical literalism." A similar inquiry

into the other provisions of the SMA is in order to determine the scope of review accorded
therein to the CTA.43
In the next four paragraphs of the Decision, encompassing four pages, the Court proceeded to inquire
into the SMA and its objectives as a means to determine the scope of rulings to be deemed as "in
connection with the imposition of a safeguard measure." Certainly, this Court did not resort to the
broadest interpretation possible of the phrase "in connection with," but instead sought to bring it into
the context of the scope and objectives of the SMA. The ultimate conclusion of the Court was that the
phrase includes all rulings of the DTI Secretary which arise from the time an application or motu
proprio initiation for the imposition of a safeguard measure is taken. 44 This conclusion was derived from
the observation that the imposition of a general safeguard measure is a process, initiated motu
proprio or through application, which undergoes several stages upon which the DTI Secretary is
obliged or may be called upon to issue a ruling.
It should be emphasized again that by utilizing the phrase "in connection with," it is the SMA that
expressly vests jurisdiction on the CTA over petitions questioning the non-imposition by the DTI
Secretary of safeguard measures. The Court is simply asserting, as it should, the clear intent of the
legislature in enacting the SMA. Without "in connection with" or a synonymous phrase, the Court would
be compelled to favor the respondents position that only rulings imposing safeguard measures may
be elevated on appeal to the CTA. But considering that the statute does make use of the phrase, there
is little sense in delving into alternate scenarios.
Respondents fail to convincingly address the absurd consequences pointed out by the Decision had
their proposed interpretation been adopted. Indeed, suffocated beneath the respondents legalistic
tinsel is the elemental questionwhat sense is there in vesting jurisdiction on the CTA over a decision
to impose a safeguard measure, but not on one choosing not to impose. Of course, it is not for the
Court to inquire into the wisdom of legislative acts, hence the rule that jurisdiction must be expressly
vested and not presumed. Yet ultimately, respondents muddle the issue by making it appear that
the Decision has uniquely expanded the jurisdictional rules. For the respondents, the proper statutory
interpretation of the crucial phrase "in connection with" is to pretend that the phrase did not exist at all
in the statute. The Court, in taking the effort to examine the meaning and extent of the phrase, is
merely giving breath to the legislative will.
The Court likewise stated that the respondents position calls for split jurisdiction, which is judicially
abhorred. In rebuttal, the public respondents cite Sections 2313 and 2402 of the Tariff and Customs
Code (TCC), which allegedly provide for a splitting of jurisdiction of the CTA. According to public
respondents, under Section 2313 of the TCC, a decision of the Commissioner of Customs affirming a
decision of the Collector of Customs adverse to the government is elevated for review to the Secretary
of Finance. However, under Section 2402 of the TCC, a ruling of the Commissioner of the Bureau of
Customs against a taxpayer must be appealed to the Court of Tax Appeals, and not to the Secretary of
Finance.
Strictly speaking, the review by the Secretary of Finance of the decision of the Commissioner of
Customs is not judicial review, since the Secretary of Finance holds an executive and not a judicial
office. The contrast is apparent with the situation in this case, wherein the interpretation favored by
the respondents calls for the exercise of judicial review by two different courts over essentially the
same questionwhether the DTI Secretary should impose general safeguard measures. Moreover, as
petitioner points out, the executive department cannot appeal against itself. The Collector of Customs,
the Commissioner of Customs and the Secretary of Finance are all part of the executive branch. If the
Collector of Customs rules against the government, the executive cannot very well bring suit in courts
against itself. On the other hand, if a private person is aggrieved by the decision of the Collector of
Customs, he can have proper recourse before the courts, which now would be called upon to exercise
judicial review over the action of the executive branch.
More fundamentally, the situation involving split review of the decision of the Collector of Customs
under the TCC is not apropos to the case at bar. The TCC in that instance is quite explicit on the
divergent reviewing body or official depending on which party prevailed at the Collector of Customs
level. On the other hand, there is no such explicit expression of bifurcated appeals in Section 29 of the
SMA.

Public respondents likewise cite Fabian v. Ombudsman45 as another instance wherein the Court
purportedly allowed split jurisdiction. It is argued that the Court, in ruling that it was the Court of
Appeals which possessed appellate authority to review decisions of the Ombudsman in administrative
cases while the Court retaining appellate jurisdiction of decisions of the Ombudsman in nonadministrative cases, effectively sanctioned split jurisdiction between the Court and the Court of
Appeals.46
Nonetheless, this argument is successfully undercut by Southern Cross, which points out the essential
differences in the power exercised by the Ombudsman in administrative cases and non-administrative
cases relating to criminal complaints. In the former, the Ombudsman may impose an administrative
penalty, while in acting upon a criminal complaint what the Ombudsman undertakes is a preliminary
investigation. Clearly, the capacity in which the Ombudsman takes on in deciding an administrative
complaint is wholly different from that in conducting a preliminary investigation. In contrast, in ruling
upon a safeguard measure, the DTI Secretary acts in one and the same role. The variance between an
order granting or denying an application for a safeguard measure is polar though emanating from the
same equator, and does not arise from the distinct character of the putative actions involved.
Philcemcor imputes intelligent design behind the alleged intent of Congress to limit CTA review only to
impositions of the general safeguard measures. It claims that there is a necessary tax implication in
case of an imposition of a tariff where the CTAs expertise is necessary, but there is no such tax
implication, hence no need for the assumption of jurisdiction by a specialized agency, when the ruling
rejects the imposition of a safeguard measure. But of course, whether the ruling under review calls for
the imposition or non-imposition of the safeguard measure, the common question for resolution still is
whether or not the tariff should be imposed an issue definitely fraught with a tax dimension. The
determination of the question will call upon the same kind of expertise that a specialized body as the
CTA presumably possesses.
In response to the Courts observation that the setup proposed by respondents was novel, unusual,
cumbersome and unwise, public respondents invoke the maxim that courts should not be concerned
with the wisdom and efficacy of legislation. 47 But this prescinds from the bogus claim that the CTA may
not exercise judicial review over a decision not to impose a safeguard measure, a prohibition that finds
no statutory support. It is likewise settled in statutory construction that an interpretation that would
cause inconvenience and absurdity is not favored. Respondents do not address the particular illogic
that the Court pointed out would ensue if their position on judicial review were adopted. According to
the respondents, while a ruling by the DTI Secretary imposing a safeguard measure may be elevated
on review to the CTA and assailed on the ground of errors in fact and in law, a ruling denying the
imposition of safeguard measures may be assailed only on the ground that the DTI Secretary
committed grave abuse of discretion. As stressed in the Decision, "[c]ertiorari is a remedy narrow in its
scope and inflexible in its character. It is not a general utility tool in the legal workshop." 48
It is incorrect to say that the Decision bars any effective remedy should the Tariff Commission act or
conclude erroneously in making its determination whether the factual conditions exist which
necessitate the imposition of the general safeguard measure. If the Tariff Commission makes a
negative final determination, the DTI Secretary, bound as he is by this negative determination, has to
render a decision denying the application for safeguard measures citing the Tariff Commissions
findings as basis. Necessarily then, such negative determination of the Tariff Commission being an
integral part of the DTI Secretarys ruling would be open for review before the CTA, which again is
especially qualified by reason of its expertise to examine the findings of the Tariff Commission.
Moreover, considering that the Tariff Commission is an instrumentality of the government, its actions
(as opposed to those undertaken by the DTI Secretary under the SMA) are not beyond the pale of
certiorari jurisdiction. Unfortunately for Philcemcor, it hinged its cause on the claim that the DTI
Secretarys actions may be annulled on certiorari, notwithstanding the explicit grant of judicial review
over that cabinet members actions under the SMA to the CTA.
Finally on this point, Philcemcor argues that assuming this Courts interpretation of Section 29 is
correct, such ruling should not be given retroactive effect, otherwise, a gross violation of the right to
due process would be had. This erroneously presumes that it was this Court, and not Congress, which
vested jurisdiction on the CTA over rulings of non-imposition rendered by the DTI Secretary. We have
repeatedly stressed that Section 29 expressly confers CTA jurisdiction over rulings in connection with
the imposition of the safeguard measure, and the reassertion of this point in the Decision was a matter

of emphasis, not of contrivance. The due process protection does not shield those who remain
purposely blind to the express rules that ensure the sporting play of procedural law.
Besides, respondents claim would also apply every time this Court is compelled to settle a novel
question of law, or to reverse precedent. In such cases, there would always be litigants whose causes
of action might be vitiated by the application of newly formulated judicial doctrines. Adopting their
claim would unwisely force this Court to treat its dispositions in unprecedented, sometimes landmark
decisions not as resolutions to the live cases or controversies, but as legal doctrine applicable only to
future litigations.
II. Positive Final Determination By the Tariff Commission an Indispensable Requisite to the Imposition
of General Safeguard Measures
The second core ruling in the Decision was that contrary to the holding of the Court of Appeals, the DTI
Secretary was barred from imposing a general safeguard measure absent a positive final
determination rendered by the Tariff Commission. The fundamental premise rooted in this ruling is
based on the acknowledgment that the required positive final determination of the Tariff Commission
exists as a properly enacted constitutional limitation imposed on the delegation of the legislative
power to impose tariffs and imposts to the President under Section 28(2), Article VI of the Constitution.
Congressional Limitations Pursuant To Constitutional Authority on the Delegated Power to Impose
Safeguard Measures
The safeguard measures imposable under the SMA generally involve duties on imported products,
tariff rate quotas, or quantitative restrictions on the importation of a product into the country.
Concerning as they do the foreign importation of products into the Philippines, these safeguard
measures fall within the ambit of Section 28(2), Article VI of the Constitution, which states:
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.49
The Court acknowledges the basic postulates ingrained in the provision, and, hence, governing in this
case. They are:
(1) It is Congress which authorizes the President to impose tariff rates, import and export
quotas, tonnage and wharfage dues, and other duties or imposts. Thus, the authority cannot
come from the Finance Department, the National Economic Development Authority, or the World Trade
Organization, no matter how insistent or persistent these bodies may be.
(2) The authorization granted to the President must be embodied in a law. Hence, the
justification cannot be supplied simply by inherent executive powers. It cannot arise from
administrative or executive orders promulgated by the executive branch or from the wisdom or whim
of the President.
(3) The authorization to the President can be exercised only within the specified limits set
in the law and is further subject to limitations and restrictions which Congress may
impose. Consequently, if Congress specifies that the tariff rates should not exceed a given amount,
the President cannot impose a tariff rate that exceeds such amount. If Congress stipulates that no
duties may be imposed on the importation of corn, the President cannot impose duties on corn, no
matter how actively the local corn producers lobby the President. Even the most picayune of limits or
restrictions imposed by Congress must be observed by the President.
There is one fundamental principle that animates these constitutional postulates. These impositions
under Section 28(2), Article VI fall within the realm of the power of taxation, a power which
is within the sole province of the legislature under the Constitution.

Without Section 28(2), Article VI, the executive branch has no authority to impose tariffs
and other similar tax levies involving the importation of foreign goods. Assuming that Section
28(2) Article VI did not exist, the enactment of the SMA by Congress would be voided on the ground
that it would constitute an undue delegation of the legislative power to tax. The constitutional
provision shields such delegation from constitutional infirmity, and should be recognized as an
exceptional grant of legislative power to the President, rather than the affirmation of an inherent
executive power.
This being the case, the qualifiers mandated by the Constitution on this presidential authority attain
primordial consideration. First, there must be a law, such as the SMA. Second, there must be specified
limits, a detail which would be filled in by the law. And further, Congress is further empowered to
impose limitations and restrictions on this presidential authority. On this last power, the provision does
not provide for specified conditions, such as that the limitations and restrictions must conform to prior
statutes, internationally accepted practices, accepted jurisprudence, or the considered opinion of
members of the executive branch.
The Court recognizes that the authority delegated to the President under Section 28(2), Article VI may
be exercised, in accordance with legislative sanction, by the alter egos of the President, such as
department secretaries. Indeed, for purposes of the Presidents exercise of power to impose tariffs
under Article VI, Section 28(2), it is generally the Secretary of Finance who acts as alter ego of the
President. The SMA provides an exceptional instance wherein it is the DTI or Agriculture Secretary who
is tasked by Congress, in their capacities asalter egos of the President, to impose such measures.
Certainly, the DTI Secretary has no inherent power, even as alter ego of the President, to levy tariffs
and imports.
Concurrently, the tasking of the Tariff Commission under the SMA should be likewise construed within
the same context as part and parcel of the legislative delegation of its inherent power to impose tariffs
and imposts to the executive branch, subject to limitations and restrictions. In that regard, both the
Tariff Commission and the DTI Secretary may be regarded as agents of Congress within their limited
respective spheres, as ordained in the SMA, in the implementation of the said law which significantly
draws its strength from the plenary legislative power of taxation. Indeed, even the President may
be considered as an agent of Congress for the purpose of imposing safeguard measures. It
is Congress, not the President, which possesses inherent powers to impose tariffs and
imposts. Without legislative authorization through statute, the President has no power,
authority or right to impose such safeguard measures because taxation is inherently
legislative, not executive.
When Congress tasks the President or his/her alter egos to impose safeguard measures
under the delineated conditions, the President or the alter egos may be properly deemed
as agents of Congress to perform an act that inherently belongs as a matter of right to the
legislature. It is basic agency law that the agent may not act beyond the specifically delegated
powers or disregard the restrictions imposed by the principal. In short, Congress may establish the
procedural framework under which such safeguard measures may be imposed, and assign the various
offices in the government bureaucracy respective tasks pursuant to the imposition of such measures,
the task assignment including the factual determination of whether the necessary conditions exists to
warrant such impositions. Under the SMA, Congress assigned the DTI Secretary and the Tariff
Commission their respective functions 50 in the legislatures scheme of things.
There is only one viable ground for challenging the legality of the limitations and restrictions imposed
by Congress under Section 28(2) Article VI, and that is such limitations and restrictions are themselves
violative of the Constitution. Thus, no matter how distasteful or noxious these limitations and
restrictions may seem, the Court has no choice but to uphold their validity unless their constitutional
infirmity can be demonstrated.
What are these limitations and restrictions that are material to the present case? The entire SMA
provides for a limited framework under which the President, through the DTI and Agriculture
Secretaries, may impose safeguard measures in the form of tariffs and similar imposts. The limitation
most relevant to this case is contained in Section 5 of the SMA, captioned "Conditions for the
Application of General Safeguard Measures," and stating:

The Secretary shall apply a general safeguard measure upon a positive final determination
of the [Tariff] Commission that a product is being imported into the country in increased quantities,
whether absolute or relative to the domestic production, as to be a substantial cause of serious injury
or threat thereof to the domestic industry; however, in the case of non-agricultural products, the
Secretary shall first establish that the application of such safeguard measures will be in the public
interest.51
Positive Final Determination By Tariff Commission Plainly Required by Section 5 of SMA
There is no question that Section 5 of the SMA operates as a limitation validly imposed by Congress on
the presidential52 authority under the SMA to impose tariffs and imposts. That the positive final
determination operates as an indispensable requisite to the imposition of the safeguard measure, and
that it is the Tariff Commission which makes such determination, are legal propositions plainly
expressed in Section 5 for the easy comprehension for everyone but respondents.
Philcemcor attributes this Courts conclusion on the indispensability of the positive final determination
to flawed syllogism in that we read the proposition "if A then B" as if it stated "if A, and only A, then
B."53 Translated in practical terms, our conclusion, according to Philcemcor, would have only been
justified had Section 5 read "shall apply a general safeguard measure upon, and only upon, a positive
final determination of the Tariff Commission."
Statutes are not designed for the easy comprehension of the five-year old child. Certainly, general
propositions laid down in statutes need not be expressly qualified by clauses denoting exclusivity in
order that they gain efficacy. Indeed, applying this argument, the President would, under the
Constitution, be authorized to declare martial law despite the absence of the invasion, rebellion or
public safety requirement just because the first paragraph of Section 18, Article VII fails to state the
magic word "only."54
But let us for the nonce pursue Philcemcors logic further. It claims that since Section 5 does not
allegedly limit the circumstances upon which the DTI Secretary may impose general safeguard
measures, it is a worthy pursuit to determine whether the entire context of the SMA, as discerned by
all the other familiar indicators of legislative intent supplied by norms of statutory interpretation, would
justify safeguard measures absent a positive final determination by the Tariff Commission.
The first line of attack employed is on Section 5 itself, it allegedly not being as clear as it sounds. It is
advanced that Section 5 does not relate to the legal ability of either the Tariff Commission or the DTI
Secretary to bind or foreclose review and reversal by one or the other. Such relationship should instead
be governed by domestic administrative law and remedial law. Philcemcor thus would like to cast the
proposition in this manner: Does it run contrary to our legal order to assert, as the Court did in
its Decision, that a body of relative junior competence as the Tariff Commission can bind an
administrative superior and cabinet officer, the DTI Secretary? It is easy to see why Philcemcor would
like to divorce this DTI Secretary-Tariff Commission interaction from the confines of the SMA. Shorn of
context, the notion would seem radical and unjustifiable that the lowly Tariff Commission can bind the
hands and feet of the DTI Secretary.
It can be surmised at once that respondents preferred interpretation is based not on the express
language of the SMA, but from implications derived in a roundabout manner. Certainly, no provision in
the SMA expressly authorizes the DTI Secretary to impose a general safeguard measure despite the
absence of a positive final recommendation of the Tariff Commission. On the other hand, Section 5
expressly states that the DTI Secretary "shall apply a general safeguard measure upon a positive final
determination of the [Tariff] Commission." The causal connection in Section 5 between the imposition
by the DTI Secretary of the general safeguard measure and the positive final determination of the Tariff
Commission is patent, and even respondents do not dispute such connection.
As stated earlier, the Court in its Decision found Section 5 to be clear, plain and free from ambiguity so
as to render unnecessary resort to the congressional records to ascertain legislative intent. Yet
respondents, on the dubitable premise that Section 5 is not as express as it seems, again latch on to
the record of legislative deliberations in asserting that there was no legislative intent to bar the DTI

Secretary from imposing the general safeguard measure anyway despite the absence of a positive final
determination by the Tariff Commission.
Let us take the bait for a moment, and examine respondents commonly cited portion of the legislative
record. One would presume, given the intense advocacy for the efficacy of these citations, that they
contain a "smoking gun" express declarations from the legislators that the DTI Secretary may
impose a general safeguard measure even if the Tariff Commission refuses to render a positive final
determination. Such "smoking gun," if it exists, would characterize our Decision as disingenuous for
ignoring such contrary expression of intent from the legislators who enacted the SMA. But as with
many things, the anticipation is more dramatic than the truth.
The excerpts cited by respondents are derived from the interpellation of the late Congressman Marcial
Punzalan Jr., by then (and still is) Congressman Simeon Datumanong. 55 Nowhere in these records is the
view expressed that the DTI Secretary may impose the general safeguard measures if the Tariff
Commission issues a negative final determination or otherwise is unable to make a positive final
determination. Instead, respondents hitch on the observations of Congressman Punzalan Jr., that "the
results of the [Tariff] Commissions findings . . . is subsequently submitted to [the DTI Secretary] for the
[DTI Secretary] to impose or not to impose;" and that "the [DTI Secretary] here iswho would make
the final decision on the recommendation that is made by a more technical body [such as the Tariff
Commission]."56
There is nothing in the remarks of Congressman Punzalan which contradict our Decision. His
observations fall in accord with the respective roles of the Tariff Commission and the DTI Secretary
under the SMA. Under the SMA, it is the Tariff Commission that conducts an investigation as to whether
the conditions exist to warrant the imposition of the safeguard measures. These conditions are
enumerated in Section 5, namely; that a product is being imported into the country in increased
quantities, whether absolute or relative to the domestic production, as to be a substantial cause of
serious injury or threat thereof to the domestic industry. After the investigation of the Tariff
Commission, it submits a report to the DTI Secretary which states, among others, whether the abovestated conditions for the imposition of the general safeguard measures exist. Upon a positive final
determination that these conditions are present, the Tariff Commission then is mandated to
recommend what appropriate safeguard measures should be undertaken by the DTI Secretary. Section
13 of the SMA gives five (5) specific options on the type of safeguard measures the Tariff Commission
recommends to the DTI Secretary.
At the same time, nothing in the SMA obliges the DTI Secretary to adopt the recommendations made
by the Tariff Commission. In fact, the SMA requires that the DTI Secretary establish that the application
of such safeguard measures is in the public interest, notwithstanding the Tariff Commissions
recommendation on the appropriate safeguard measure upon its positive final determination. Thus,
even if the Tariff Commission makes a positive final determination, the DTI Secretary may opt not to
impose a general safeguard measure, or choose a different type of safeguard measure other than that
recommended by the Tariff Commission.
Congressman Punzalan was cited as saying that the DTI Secretary makes the decision "to impose or
not to impose," which is correct since the DTI Secretary may choose not to impose a safeguard
measure in spite of a positive final determination by the Tariff Commission. Congressman Punzalan also
correctly stated that it is the DTI Secretary who makes the final decision "on the recommendation that
is made [by the Tariff Commission]," since the DTI Secretary may choose to impose a general
safeguard measure different from that recommended by the Tariff Commission or not to impose a
safeguard measure at all. Nowhere in these cited deliberations was Congressman Punzalan, or any
other member of Congress for that matter, quoted as saying that the DTI Secretary may ignore a
negative determination by the Tariff Commission as to the existence of the conditions warranting the
imposition of general safeguard measures, and thereafter proceed to impose these measures
nonetheless. It is too late in the day to ascertain from the late Congressman Punzalan himself whether
he had made these remarks in order to assure the other legislators that the DTI Secretary may impose
the general safeguard measures notwithstanding a negative determination by the Tariff Commission.
But certainly, the language of Section 5 is more resolutory to that question than the recorded remarks
of Congressman Punzalan.

Respondents employed considerable effort to becloud Section 5 with undeserved ambiguity in order
that a proper resort to the legislative deliberations may be had. Yet assuming that Section 5 deserves
to be clarified through an inquiry into the legislative record, the excerpts cited by the respondents are
far more ambiguous than the language of the assailed provision regarding the key question of whether
the DTI Secretary may impose safeguard measures in the face of a negative determination by the Tariff
Commission. Moreover, even Southern Cross counters with its own excerpts of the legislative record in
support of their own view.57
It will not be difficult, especially as to heavily-debated legislation, for two sides with contrapuntal
interpretations of a statute to highlight their respective citations from the legislative debate in support
of their particular views.58 A futile exercise of second-guessing is happily avoided if the meaning of the
statute is clear on its face. It is evident from the text of Section 5 that there must be a
positive final determination by the Tariff Commission that a product is being imported into
the country in increased quantities (whether absolute or relative to domestic production),
as to be a substantial cause of serious injury or threat to the domestic industry . Any
disputation to the contrary is, at best, the product of wishful thinking.
For the same reason that Section 5 is explicit as regards the essentiality of a positive final
determination by the Tariff Commission, there is no need to refer to the Implementing Rules of the SMA
to ascertain a contrary intent. If there is indeed a provision in the Implementing Rules that allows the
DTI Secretary to impose a general safeguard measure even without the positive final determination by
the Tariff Commission, said rule is void as it cannot supplant the express language of the legislature.
Respondents essentially rehash their previous arguments on this point, and there is no reason to
consider them anew. The Decision made it clear that nothing in Rule 13.2 of the Implementing Rules,
even though captioned "Final Determination by the Secretary," authorizes the DTI Secretary to impose
a general safeguard measure in the absence of a positive final determination by the Tariff
Commission.59 Similarly, the "Rules and Regulations to Govern the Conduct of Investigation by the Tariff
Commission Pursuant to Republic Act No. 8800" now cited by the respondent does not contain any
provision that the DTI Secretary may impose the general safeguard measures in the absence of a
positive final determination by the Tariff Commission.
Section 13 of the SMA further bolsters the interpretation as argued by Southern Cross and upheld by
theDecision. The first paragraph thereof states that "[u]pon its positive determination, the [Tariff]
Commission shall recommend to the Secretary an appropriate definitive measure", clearly referring
to the Tariff Commission as the entity that makes the positive determination. On the other hand, the
penultimate paragraph of the same provision states that "[i]n the event of a negative final
determination", the DTI Secretary is to immediately issue through the Secretary of Finance, a written
instruction to the Commissioner of Customs authorizing the return of the cash bonds previously
collected as a provisional safeguard measure. Since the first paragraph of the same provision states
that it is the Tariff Commission which makes the positive determination, it necessarily follows that it,
and not the DTI Secretary, makes the negative final determination as referred to in the penultimate
paragraph of Section 13.60
The Separate Opinion considers as highly persuasive of former Tariff Commission Chairman Abon, who
stated that the Commissions findings are merely recommendatory. 61 Again, the considered opinion of
Chairman Abon is of no operative effect if the statute plainly states otherwise, and Section 5 bluntly
does require a positive final determination by the Tariff Commission before the DTI Secretary may
impose a general safeguard measure. 62Certainly, the Court cannot give controlling effect to the
statements of any public officer in serious denial of his duties if the law otherwise imposes the duty on
the public office or officer.
Nonetheless, if we are to render persuasive effect on the considered opinion of the members of the
Executive Branch, it bears noting that the Secretary of the Department of Justice rendered an Opinion
wherein he concluded that the DTI Secretary could not impose a general safeguard measure if the
Tariff Commission made a negative final determination. 63 Unlike Chairman Abons impromptu remarks
made during a hearing, the DOJ Opinion was rendered only after a thorough study of the question after
referral to it by the DTI. The DOJ Secretary is the alter ego of the President with a stated mandate as
the head of the principal law agency of the government. 64 As the DOJ Secretary has no denominated
role in the SMA, he was able to render his Opinion from the vantage of judicious distance. Should not
his Opinion, studied and direct to the point as it is, carry greater weight than the spontaneous remarks

of the Tariff Commissions Chairman which do not even expressly disavow the binding power of the
Commissions positive final determination?
III. DTI Secretary has No Power of Review Over Final Determination of the Tariff Commission
We should reemphasize that it is only because of the SMA, a legislative enactment, that the executive
branch has the power to impose safeguard measures. At the same time, by constitutional fiat, the
exercise of such power is subjected to the limitations and restrictions similarly enforced by the SMA. In
examining the relationship of the DTI and the Tariff Commission as established in the SMA, it is
essential to acknowledge and consider these predicates.
It is necessary to clarify the paradigm established by the SMA and affirmed by the Constitution under
which the Tariff Commission and the DTI operate, especially in light of the suggestions that the Courts
rulings on the functions of quasi-judicial power find application in this case. Perhaps the reflexive
application of the quasi-judicial doctrine in this case, rooted as it is in jurisprudence, might allow for
some convenience in ruling, yet doing so ultimately betrays ignorance of the fundamental power of
Congress to reorganize the administrative structure of governance in ways it sees fit.
The Separate Opinion operates from wholly different premises which are incomplete. Its main stance,
similar to that of respondents, is that the DTI Secretary, acting as alter ego of the President, may
modify and alter the findings of the Tariff Commission, including the latters negative final
determination by substituting it with his own negative final determination to pave the way for his
imposition of a safeguard measure.65 Fatally, this conclusion is arrived at without considering the
fundamental constitutional precept under Section 28(2), Article VI, on the ability of Congress to impose
restrictions and limitations in its delegation to the President to impose tariffs and imposts, as well as
the express condition of Section 5 of the SMA requiring a positive final determination of the Tariff
Commission.
Absent Section 5 of the SMA, the President has no inherent, constitutional, or statutory
power to impose a general safeguard measure. Tellingly, the Separate Opinion does not directly
confront the inevitable question as to how the DTI Secretary may get away with imposing a general
safeguard measure absent a positive final determination from the Tariff Commission without violating
Section 5 of the SMA, which along with Section 13 of the same law, stands as the only direct legal
authority for the DTI Secretary to impose such measures. This is a constitutionally guaranteed
limitation of the highest order, considering that the presidential authority exercised under the SMA is
inherently legislative.
Nonetheless, the Separate Opinion brings to fore the issue of whether the DTI Secretary, acting either
as alter egoof the President or in his capacity as head of an executive department, may review, modify
or otherwise alter the final determination of the Tariff Commission under the SMA. The succeeding
discussion shall focus on that question.
Preliminarily, we should note that none of the parties question the designation of the DTI or Agriculture
secretaries under the SMA as the imposing authorities of the safeguard measures, even though Section
28(2) Article VI states that it is the President to whom the power to impose tariffs and imposts may be
delegated by Congress. The validity of such designation under the SMA should not be in doubt. We
recognize that the authorization made by Congress in the SMA to the DTI and Agriculture Secretaries
was made in contemplation of their capacities as alter egos of the President.
Indeed, in Marc Donnelly & Associates v. Agregado 66 the Court upheld the validity of a Cabinet
resolution fixing the schedule of royalty rates on metal exports and providing for their collection even
though Congress, under Commonwealth Act No. 728, had specifically empowered the President and
not any other official of the executive branch, to regulate and curtail the export of metals. In so ruling,
the Court held that the members of the Cabinet were acting as alter egos of the President. 67 In this
case, Congress itself authorized the DTI Secretary as alter ego of the President to impose the
safeguard measures. If the Court was previously willing to uphold the alter egos tariff authority
despite the absence of explicit legislative grant of such authority on the alter ego, all the more reason
now when Congress itself expressly authorized the alter ego to exercise these powers to impose
safeguard measures.

Notwithstanding, Congress in enacting the SMA and prescribing the roles to be played therein by the
Tariff Commission and the DTI Secretary did not envision that the President, or his/her alter ego, could
exercise supervisory powers over the Tariff Commission. If truly Congress intended to allow the
traditional "alter ego" principle to come to fore in the peculiar setup established by the SMA, it would
have assigned the role now played by the DTI Secretary under the law instead to the NEDA. The Tariff
Commission is an attached agency of the National Economic Development Authority, 68 which in turn is
the independent planning agency of the government.69
The Tariff Commission does not fall under the administrative supervision of the DTI. 70 On the other
hand, the administrative relationship between the NEDA and the Tariff Commission is established not
only by the Administrative Code, but similarly affirmed by the Tariff and Customs Code.
Justice Florentino Feliciano, in his ponencia in Garcia v. Executive Secretary71, acknowledged the
interplay between the NEDA and the Tariff Commission under the Tariff and Customs Code when he
cited the relevant provisions of that law evidencing such setup. Indeed, under Section 104 of the Tariff
and Customs Code, the rates of duty fixed therein are subject to periodic investigation by the Tariff
Commission and may be revised by the President upon recommendation of the NEDA. 72 Moreover,
under Section 401 of the same law, it is upon periodic investigations by the Tariff Commission and
recommendation of the NEDA that the President may cause a gradual reduction of protection levels
granted under the law.73
At the same time, under the Tariff and Customs Code, no similar role or influence is allocated to the DTI
in the matter of imposing tariff duties. In fact, the long-standing tradition has been for the Tariff
Commission and the DTI to proceed independently in the exercise of their respective functions. Only
very recently have our statutes directed any significant interplay between the Tariff Commission and
the DTI, with the enactment in 1999 of Republic Act No. 8751 on the imposition of countervailing
duties and Republic Act No. 8752 on the imposition of anti-dumping duties, and of course the
promulgation a year later of the SMA. In all these three laws, the Tariff Commission is tasked, upon
referral of the matter by the DTI, to determine whether the factual conditions exist to warrant the
imposition by the DTI of a countervailing duty, an anti-dumping duty, or a general safeguard measure,
respectively. In all three laws, the determination by the Tariff Commission that these required factual
conditions exist is necessary before the DTI Secretary may impose the corresponding duty or
safeguard measure. And in all three laws, there is no express provision authorizing the DTI Secretary to
reverse the factual determination of the Tariff Commission. 74
In fact, the SMA indubitably establishes that the Tariff Commission is no mere flunky of the DTI
Secretary when it mandates that the positive final recommendation of the former be indispensable to
the latters imposition of a general safeguard measure. What the law indicates instead is a relationship
of interdependence between two bodies independent of each other under the Administrative Code and
the SMA alike. Indeed, even the ability of the DTI Secretary to disregard the Tariff Commissions
recommendations as to the particular safeguard measures to be imposed evinces the independence
from each other of these two bodies. This is properly so for two reasons the DTI and the Tariff
Commission are independent of each other under the Administrative Code; and impropriety is avoided
in cases wherein the DTI itself is the one seeking the imposition of the general safeguard measures,
pursuant to Section 6 of the SMA.
Thus, in ascertaining the appropriate legal milieu governing the relationship between the DTI and the
Tariff Commission, it is imperative to apply foremost, if not exclusively, the provisions of the SMA. The
argument that the usual rules on administrative control and supervision apply between the Tariff
Commission and the DTI as regards safeguard measures is severely undercut by the plain fact that
there is no long-standing tradition of administrative interplay between these two entities.
Within the administrative apparatus, the Tariff Commission appears to be a lower rank relative to the
DTI. But does this necessarily mean that the DTI has the intrinsic right, absent statutory authority, to
reverse the findings of the Tariff Commission? To insist that it does, one would have to concede for
instance that, applying the same doctrinal guide, the Secretary of the Department of Science and
Technology (DOST) has the right to reverse the rulings of the Civil Aeronautics Board (CAB) or the
issuances of the Philippine Coconut Authority (PCA). As with the Tariff Commission-DTI, there is no
statutory authority granting the DOST Secretary the right to overrule the CAB or the PCA, such right

presumably arising only from the position of subordinacy of these bodies to the DOST. To insist on such
a right would be to invite department secretaries to interfere in the exercise of functions by
administrative agencies, even in areas wherein such secretaries are bereft of specialized
competencies.
The Separate Opinion notes that notwithstanding above, the Secretary of Department of
Transportation and Communication may review the findings of the CAB, the Agriculture Secretary may
review those of the PCA, and that the Secretary of the Department of Environment and Natural
Resources may pass upon decisions of the Mines and Geosciences Board. 75 These three officers may
be alter egos of the President, yet their authority to review is limited to those agencies or bureaus
which are, pursuant to statutes such as the Administrative Code of 1987, under the administrative
control and supervision of their respective departments. Thus, under the express provision of the
Administrative Code expressly provides that the CAB is an attached agency of the DOTC 76, and that the
PCA is an attached agency of the Department of Agriculture. 77 The same law establishes the Mines and
Geo-Sciences Bureau as one of the Sectoral Staff Bureaus 78 that forms part of the organizational
structure of the DENR.79
As repeatedly stated, the Tariff Commission does not fall under the administrative control of the DTI,
but under the NEDA, pursuant to the Administrative Code. The reliance made by the Separate
Opinion to those three examples are thus misplaced.
Nonetheless, the Separate Opinion asserts that the SMA created a functional relationship between the
Tariff Commission and the DTI Secretary, sufficient to allow the DTI Secretary to exercise alter
ego powers to reverse the determination of the Tariff Commission. Again, considering that the power to
impose tariffs in the first place is not inherent in the President but arises only from congressional grant,
we should affirm the congressional prerogative to impose limitations and restrictions on such powers
which do not normally belong to the executive in the first place. Nowhere in the SMA does it state that
the DTI Secretary may impose general safeguard measures without a positive final determination by
the Tariff Commission, or that the DTI Secretary may reverse or even review the factual determination
made by the Tariff Commission.
Congress in enacting the SMA and prescribing the roles to be played therein by the Tariff Commission
and the DTI Secretary did not envision that the President, or his/her alter ego could exercise
supervisory powers over the Tariff Commission. If truly Congress intended to allow the traditional alter
ego principle to come to fore in the peculiar setup established by the SMA, it would have assigned the
role now played by the DTI Secretary under the law instead to the NEDA, the body to which the Tariff
Commission is attached under the Administrative Code.
The Court has no issue with upholding administrative control and supervision exercised by the head of
an executive department, but only over those subordinate offices that are attached to the department,
or which are, under statute, relegated under its supervision and control. To declare that a department
secretary, even if acting as alter ego of the President, may exercise such control or supervision over all
executive offices below cabinet rank would lead to absurd results such as those adverted to above. As
applied to this case, there is no legal justification for the DTI Secretary to exercise control, supervision,
review or amendatory powers over the Tariff Commission and its positive final determination. In
passing, we note that there is, admittedly, a feasible mode by which administrative review of the Tariff
Commissions final determination could be had, but it is not the procedure adopted by respondents
and now suggested for affirmation. This mode shall be discussed in a forthcoming section.
The Separate Opinion asserts that the President, or his/her alter ego cannot be made a mere rubber
stamp of the Tariff Commission since Section 17, Article VII of the Constitution denominates the Chief
Executive exercises control over all executive departments, bureaus and offices. 80 But let us be clear
that such "executive control" is not absolute. The definition of the structure of the executive branch of
government, and the corresponding degrees of administrative control and supervision, is not the
exclusive preserve of the executive. It may be effectively be limited by the Constitution, by law, or by
judicial decisions.
The Separate Opinion cites the respected constitutional law authority Fr. Joaquin Bernas, in support of
the proposition that such plenary power of executive control of the President cannot be restricted by a

mere statute passed by Congress. However, the cited passage from Fr. Bernas actually states, "Since
the Constitution has given the President the power of control, with all its awesome implications, it is
the Constitution alone which can curtail such power." 81 Does the President have such tariff powers
under the Constitution in the first place which may be curtailed by the executive power of control? At
the risk of redundancy, we quote Section 28(2), Article VI: "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." Clearly the
power to impose tariffs belongs to Congress and not to the President.
It is within reason to assume the framers of the Constitution deemed it too onerous to spell out all the
possible limitations and restrictions on this presidential authority to impose tariffs. Hence, the
Constitution especially allowed Congress itself to prescribe such limitations and restrictions itself, a
prudent move considering that such authority inherently belongs to Congress and not the President.
Since Congress has no power to amend the Constitution, it should be taken to mean that such
limitations and restrictions should be provided "by mere statute". Then again, even the presidential
authority to impose tariffs arises only "by mere statute." Indeed, this presidential privilege is
both contingent in nature and legislative in origin. These characteristics, when weighed
against the aspect of executive control and supervision, cannot militate against Congresss
exercise of its inherent power to tax.
The bare fact is that the administrative superstructure, for all its unwieldiness, is mere putty in the
hands of Congress. The functions and mandates of the particular executive departments and bureaus
are not created by the President, but by the legislative branch through the Administrative Code. 82 The
President is the administrative head of the executive department, as such obliged to see that every
government office is managed and maintained properly by the persons in charge of it in accordance
with pertinent laws and regulations, and empowered to promulgate rules and issuances that would
ensure a more efficient management of the executive branch, for so long as such issuances are not
contrary to law.83 Yet the legislature has the concurrent power to reclassify or redefine the executive
bureaucracy, including the relationship between various administrative agencies, bureaus and
departments, and ultimately, even the power to abolish executive departments and their components,
hamstrung only by constitutional limitations. The DTI itself can be abolished with ease by Congress
through deleting Title X, Book IV of the Administrative Code. The Tariff Commission can similarly be
abolished through legislative enactment. 84
At the same time, Congress can enact additional tasks or responsibilities on either the Tariff
Commission or the DTI Secretary, such as their respective roles on the imposition of general safeguard
measures under the SMA. In doing so, the same Congress, which has the putative authority to
abolish the Tariff Commission or the DTI, is similarly empowered to alter or expand its
functions through modalities which do not align with established norms in the bureaucratic
structure. The Court is bound to recognize the legislative prerogative to prescribe such modalities, no
matter how atypical they may be, in affirmation of the legislative power to restructure the executive
branch of government.
There are further limitations on the "executive control" adverted to by the Separate Opinion. The
President, in the exercise of executive control, cannot order a subordinate to disobey a final decision of
this Court or any courts. If the subordinate chooses to disobey, invoking sole allegiance to the
President, the judicial processes can be utilized to compel obeisance. Indeed, when public officers of
the executive department take their oath of office, they swear allegiance and obedience not to the
President, but to the Constitution and the laws of the land. The invocation of executive control must
yield when under its subsumption includes an act that violates the law.
The Separate Opinion concedes that the exercise of executive control and supervision by the President
is bound by the Constitution and law. 85 Still, just three sentences after asserting that the exercise of
executive control must be within the bounds of the Constitution and law, the Separate Opinion asserts,
"the control power of the Chief Executive emanates from the Constitution; no act of Congress may
validly curtail it."86 Laws are acts of Congress, hence valid confusion arises whether the Separate
Opinion truly believes the first proposition that executive control is bound by law. This is a quagmire for
the Separate Opinion to resolve for itself

The Separate Opinion unduly considers executive control as the ne plus ultra constitutional standard
which must govern in this case. But while the President may generally have the power to control,
modify or set aside the actions of a subordinate, such powers may be constricted by the Constitution,
the legislature, and the judiciary. This is one of the essences of the check-and-balance system in our
tri-partite constitutional democracy. Not one head of a branch of government may operate as a Caesar
within his/her particular fiefdom.
Assuming there is a conflict between the specific limitation in Section 28 (2), Article VI of the
Constitution and the general executive power of control and supervision, the former prevails in the
specific instance of safeguard measures such as tariffs and imposts, and would thus serve to qualify
the general grant to the President of the power to exercise control and supervision over his/her
subalterns.
Thus, if the Congress enacted the law so that the DTI Secretary is "bound" by the Tariff Commission in
the sense the former cannot impose general safeguard measures absent a final positive determination
from the latter the Court is obliged to respect such legislative prerogative, no matter how such
arrangement deviates from traditional norms as may have been enshrined in jurisprudence. The only
ground under which such legislative determination as expressed in statute may be successfully
challenged is if such legislation contravenes the Constitution. No such argument is posed by the
respondents, who do not challenge the validity or constitutionality of the SMA.
Given these premises, it is utterly reckless to examine the interrelationship between the Tariff
Commission and the DTI Secretary beyond the context of the SMA, applying instead traditional
precepts on administrative control, review and supervision. For that reason, the Decision deemed
inapplicable respondents previous citations ofCario v. Commissioner on Human Rights and Lamb v.
Phipps, since the executive power adverted to in those cases had not been limited by constitutional
restrictions such as those imposed under Section 28(2), Article VI. 87
A similar observation can be made on the case of Sharp International Marketing v. Court of
Appeals,88 now cited by Philcemcor, wherein the Court asserted that the Land Bank of the Philippines
was required to exercise independent judgment and not merely rubber-stamp deeds of sale entered
into by the Department of Agrarian Reform in connection with the agrarian reform program. Philcemcor
attempts to demonstrate that the DTI Secretary, as with the Land Bank of the Philippines, is required to
exercise independent discretion and is not expected to just merely accede to DAR-approved
compensation packages. Yet again, such grant of independent discretion is expressly called for by
statute, particularly Section 18 of Rep. Act No. 6657 which specifically requires the joint concurrence of
"the landowner and the DAR and the [Land Bank of the Philippines]" on the amount of compensation.
Such power of review by the Land Bank is a consequence of clear statutory language, as is our holding
in the Decision that Section 5 explicitly requires a positive final determination by the Tariff Commission
before a general safeguard measure may be imposed. Moreover, such limitations under the SMA are
coated by the constitutional authority of Section 28(2), Article VI of the Constitution.
Nonetheless, is this administrative setup, as envisioned by Congress and enshrined into the SMA, truly
noxious to existing legal standards? The Decision acknowledged the internal logic of the statutory
framework, considering that the DTI cannot exercise review powers over an agency such as the Tariff
Commission which is not within its administrative jurisdiction; that the mechanism employed
establishes a measure of check and balance involving two government offices with different
specializations; and that safeguard measures are the exception rather than the rule, pursuant to our
treaty obligations.89
We see no reason to deviate from these observations, and indeed can add similarly oriented
comments. Corollary to the legislative power to decree policies through legislation is the ability of the
legislature to provide for means in the statute itself to ensure that the said policy is strictly
implemented by the body or office tasked so tasked with the duty. As earlier stated, our treaty
obligations dissuade the State for now from implementing default protectionist trade measures such as
tariffs, and allow the same only under specified conditions. 90The conditions enumerated under the
GATT Agreement on Safeguards for the application of safeguard measures by a member country are
the same as the requisites laid down in Section 5 of the SMA. 91 To insulate the factual determination
from political pressure, and to assure that it be conducted by an entity especially qualified by reason of

its general functions to undertake such investigation, Congress deemed it necessary to delegate to the
Tariff Commission the function of ascertaining whether or not the those factual conditions exist to
warrant the atypical imposition of safeguard measures. After all, the Tariff Commission retains a degree
of relative independence by virtue of its attachment to the National Economic Development Authority,
"an independent planning agency of the government," 92 and also owing to its vaunted expertise and
specialization.
The matter of imposing a safeguard measure almost always involves not just one industry, but the
national interest as it encompasses other industries as well. Yet in all candor, any decision to impose a
safeguard measure is susceptible to all sorts of external pressures, especially if the domestic industry
concerned is well-organized. Unwarranted impositions of safeguard measures may similarly be
detrimental to the national interest. Congress could not be blamed if it desired to insulate the
investigatory process by assigning it to a body with a putative degree of independence and traditional
expertise in ascertaining factual conditions. Affected industries would have cause to lobby for or
against the safeguard measures. The decision-maker is in the unenviable position of having to bend an
ear to listen to all concerned voices, including those which may speak softly but carry a big stick. Had
the law mandated that the decision be made on the sole discretion of an executive officer, such as the
DTI Secretary, it would be markedly easier for safeguard measures to be imposed or withheld based
solely on political considerations and not on the factual conditions that are supposed to predicate the
decision.
Reference of the binding positive final determination to the Tariff Commission is of course, not a failsafe means to ensure a bias-free determination. But at least the legislated involvement of the
Commission in the process assures some measure of measure of check and balance involving two
different governmental agencies with disparate specializations. There is no legal or constitutional
demand for such a setup, but its wisdom as policy should be acknowledged. As prescribed by
Congress, both the Tariff Commission and the DTI Secretary operate within limited frameworks, under
which nobody acquires an undue advantage over the other.
We recognize that Congress deemed it necessary to insulate the process in requiring that the factual
determination to be made by an ostensibly independent body of specialized competence, the Tariff
Commission. This prescribed framework, constitutionally sanctioned, is intended to prevent the
baseless, whimsical, or consideration-induced imposition of safeguard measures. It removes from the
DTI Secretary jurisdiction over a matter beyond his putative specialized aptitude, the compilation and
analysis of picayune facts and determination of their limited causal relations, and instead vests in the
Secretary the broad choice on a matter within his unquestionable competence, the selection of what
particular safeguard measure would assist the duly beleaguered local industry yet at the same time
conform to national trade policy. Indeed, the SMA recognizes, and places primary importance on the
DTI Secretarys mandate to formulate trade policy, in his capacity as the Presidents alter ego on trade,
industry and investment-related matters.
At the same time, the statutory limitations on this authorized power of the DTI Secretary must prevail
since the Constitution itself demands the enforceability of those limitations and restrictions as imposed
by Congress. Policy wisdom will not save a law from infirmity if the statutory provisions violate the
Constitution. But since the Constitution itself provides that the President shall be constrained by the
limits and restrictions imposed by Congress and since these limits and restrictions are so clear and
categorical, then the Court has no choice but to uphold the reins.
Even assuming that this prescribed setup made little sense, or seemed "uncommonly silly," 93 the Court
is bound by propriety not to dispute the wisdom of the legislature as long as its acts do not violate the
Constitution. Since there is no convincing demonstration that the SMA contravenes the Constitution,
the Court is wont to respect the administrative regimen propounded by the law, even if it allots the
Tariff Commission a higher degree of puissance than normally expected. It is for this reason that the
traditional conceptions of administrative review or quasi-judicial power cannot control in this case.
Indeed, to apply the latter concept would cause the Court to fall into a linguistic trap owing to the
multi-faceted denotations the term "quasi-judicial" has come to acquire.

Under the SMA, the Tariff Commission undertakes formal hearings, 94 receives and evaluates testimony
and evidence by interested parties, 95 and renders a decision is rendered on the basis of the evidence
presented, in the form of the final determination. The final determination requires a conclusion
whether the importation of the product under consideration is causing serious injury or threat to a
domestic industry producing like products or directly competitive products, while evaluating all
relevant factors having a bearing on the situation of the domestic industry. 96 This process aligns
conformably with definition provided by Blacks Law Dictionary of "quasi-judicial" as the "action,
discretion, etc., of public administrative officers or bodies, who are required to investigate facts, or
ascertain the existence of facts, hold hearings, weigh evidence, and draw conclusions from them, as a
basis for their official action, and to exercise discretion of a judicial nature." 97
However, the Tariff Commission is not empowered to hear actual cases or controversies lodged directly
before it by private parties. It does not have the power to issue writs of injunction or enforcement of its
determination. These considerations militate against a finding of quasi-judicial powers attributable to
the Tariff Commission, considering the pronouncement that "quasi-judicial adjudication would mean a
determination of rights privileges and duties resulting in a decision or order which applies to a specific
situation."98
Indeed, a declaration that the Tariff Commission possesses quasi-judicial powers, even if ascertained
for the limited purpose of exercising its functions under the SMA, may have the unfortunate effect of
expanding the Commissions powers beyond that contemplated by law. After all, the Tariff Commission
is by convention, a fact-finding body, and its role under the SMA, burdened as it is with factual
determination, is but a mere continuance of this tradition. However, Congress through the SMA offers a
significant deviation from this traditional role by tying the decision by the DTI Secretary to impose a
safeguard measure to the required positive factual determination by the Tariff Commission. Congress is
not bound by past traditions, or even by the jurisprudence of this Court, in enacting legislation it may
deem as suited for the times. The sole benchmark for judicial substitution of congressional wisdom is
constitutional transgression, a standard which the respondents do not even attempt to match.
Respondents Suggested Interpretation Of the SMA Transgresses Fair Play
Respondents have belabored the argument that the Decisions interpretation of the SMA, particularly
of the role of the Tariff Commission vis--vis the DTI Secretary, is noxious to traditional notions of
administrative control and supervision. But in doing so, they have failed to acknowledge the
congressional prerogative to redefine administrative relationships, a license which falls within the
plenary province of Congress under our representative system of democracy. Moreover, respondents
own suggested interpretation falls wayward of expectations of practical fair play.
Adopting respondents suggestion that the DTI Secretary may disregard the factual findings of the
Tariff Commission and investigatory process that preceded it, it would seem that the elaborate
procedure undertaken by the Commission under the SMA, with all the attendant guarantees of due
process, is but an inutile spectacle. As Justice Garcia noted during the oral arguments, why would the
DTI Secretary bother with the Tariff Commission and instead conduct the investigation himself. 99
Certainly, nothing in the SMA authorizes the DTI Secretary, after making the preliminary determination,
to personally oversee the investigation, hear out the interested parties, or receive evidence. 100 In fact,
the SMA does not even require the Tariff Commission, which is tasked with the custody of the
submitted evidence,101 to turn over to the DTI Secretary such evidence it had evaluated in order to
make its factual determination.102Clearly, as Congress tasked it to be, it is the Tariff Commission and
not the DTI Secretary which acquires the necessary intimate acquaintance with the factual conditions
and evidence necessary for the imposition of the general safeguard measure. Why then favor an
interpretation of the SMA that leaves the findings of the Tariff Commission bereft of operative effect
and makes them subservient to the wishes of the DTI Secretary, a personage with lesser working
familiarity with the relevant factual milieu? In fact, the bare theory of the respondents would
effectively allow the DTI Secretary to adopt, under the subterfuge of his "discretion", the factual
determination of a private investigative group hired by the industry concerned, and reject the
investigative findings of the Tariff Commission as mandated by the SMA. It would be highly irregular to
substitute what the law clearly provides for a dubious setup of no statutory basis that would be readily
susceptible to rank chicanery.

Moreover, the SMA guarantees the right of all concerned parties to be heard, an elemental
requirement of due process, by the Tariff Commission in the context of its investigation. The DTI
Secretary is not similarly empowered or tasked to hear out the concerns of other interested parties,
and if he/she does so, it arises purely out of volition and not compulsion under law.
Indeed, in this case, it is essential that the position of other than that of the local cement industry
should be given due consideration, cement being an indispensable need for the operation of other
industries such as housing and construction. While the general safeguard measures may operate to
the better interests of the domestic cement industries, its deprivation of cheaper cement imports may
similarly work to the detriment of these other domestic industries and correspondingly, the national
interest. Notably, the Tariff Commission in this case heard the views on the application of
representatives of other allied industries such as the housing, construction, and cement-bag industries,
and other interested parties such as consumer groups and foreign governments. 103 It is only before the
Tariff Commission that their views had been heard, and this is because it is only the Tariff Commission
which is empowered to hear their positions. Since due process requires a judicious consideration of all
relevant factors, the Tariff Commission, which is in a better position to hear these parties than the DTI
Secretary, is similarly more capable to render a determination conformably with the due process
requirements than the DTI Secretary.
In a similar vein, Southern Cross aptly notes that in instances when it is the DTI Secretary who
initiates motu proprio the application for the safeguard measure pursuant to Section 6 of the SMA,
respondents suggested interpretation would result in the awkward situation wherein the DTI Secretary
would rule upon his own application after it had been evaluated by the Tariff Commission. Pertinently
cited is our ruling in Corona v. Court of Appeals 104 that "no man can be at once a litigant and
judge."105 Certainly, this anomalous situation is avoided if it is the Tariff Commission which is tasked
with arriving at the final determination whether the conditions exist to warrant the general safeguard
measures. This is the setup provided for by the express provisions of the SMA, and the problem would
arise only if we adopt the interpretation urged upon by respondents.
The Possibility for Administrative Review Of the Tariff Commissions Determination
The Court has been emphatic that a positive final determination from the Tariff Commission is required
in order that the DTI Secretary may impose a general safeguard measure, and that the DTI Secretary
has no power to exercise control and supervision over the Tariff Commission and its final
determination. These conclusions are the necessary consequences of the applicable provisions of the
Constitution, the SMA, and laws such as the Administrative Code. However, the law is silent though on
whether this positive final determination may otherwise be subjected to administrative review.
There is no evident legislative intent by the authors of the SMA to provide for a procedure of
administrative review. If ever there is a procedure for administrative review over the final
determination of the Tariff Commission, such procedure must be done in a manner that does not
contravene or disregard legislative prerogatives as expressed in the SMA or the Administrative Code,
or fundamental constitutional limitations.
In order that such procedure of administrative review would not contravene the law and the
constitutional scheme provided by Section 28(2), Article VI, it is essential to assert that the positive
final determination by the Tariff Commission is indispensable as a requisite for the imposition of a
general safeguard measure. The submissions of private respondents and the Separate Opinion cannot
be sustained insofar as they hold that the DTI Secretary can peremptorily ignore or disregard the
determinations made by the Tariff Commission. However, if the mode of administrative review were in
such a manner that the administrative superior of the Tariff Commission were to modify or alter its
determination, then such "reversal" may still be valid within the confines of Section 5 of the SMA, for
technically it is still the Tariff Commissions determination, administratively revised as it may be, that
would serve as the basis for the DTI Secretarys action.
However, and fatally for the present petitions, such administrative review cannot be conducted by the
DTI Secretary. Even if conceding that the Tariff Commissions findings may be administratively
reviewed, the DTI Secretary has no authority to review or modify the same. We have been emphatic on
the reasons such as that there is no traditional or statutory basis placing the Commission under the

control and supervision of the DTI; that to allow such would contravene due process, especially if the
DTI itself were to apply for the safeguard measuresmotu proprio. To hold otherwise would destroy the
administrative hierarchy, contravene constitutional due process, and disregard the limitations or
restrictions provided in the SMA.
Instead, assuming administrative review were available, it is the NEDA that may conduct such review
following the principles of administrative law, and the NEDAs decision in turn is reviewable by the
Office of the President. The decision of the Office of the President then effectively substitutes as the
determination of the Tariff Commission, which now forms the basis of the DTI Secretarys decision,
which now would be ripe for judicial review by the CTA under Section 29 of the SMA. This is the only
way that administrative review of the Tariff Commissions determination may be sustained without
violating the SMA and its constitutional restrictions and limitations, as well as administrative law.
In bare theory, the NEDA may review, alter or modify the Tariff Commissions final determination, the
Commission being an attached agency of the NEDA. Admittedly, there is nothing in the SMA or any
other statute that would prevent the NEDA to exercise such administrative review, and successively,
for the President to exercise in turn review over the NEDAs decision.
Nonetheless, in acknowledging this possibility, the Court, without denigrating the bare principle that
administrative officers may exercise control and supervision over the acts of the bodies under its
jurisdiction, realizes that this comes at the expense of a speedy resolution to an application for a
safeguard measure, an application dependent on fluctuating factual conditions. The further delay
would foster uncertainty and insecurity within the industry concerned, as well as with all other allied
industries, which in turn may lead to some measure of economic damage. Delay is certain, since
judicial review authorized by law and not administrative review would have the final say. The fact that
the SMA did not expressly prohibit administrative review of the final determination of the Tariff
Commission does not negate the supreme advantages of engendering exclusive judicial review over
questions arising from the imposition of a general safeguard measure.
In any event, even if we conceded the possibility of administrative review of the Tariff Commissions
final determination by the NEDA, such would not deny merit to the present petition. It does not change
the fact that the Court of Appeals erred in ruling that the DTI Secretary was not bound by the negative
final determination of the Tariff Commission, or that the DTI Secretary acted without jurisdiction when
he imposed general safeguard measures despite the absence of the statutory positive final
determination of the Commission.
IV. Courts Interpretation of SMA In Harmony with Other Constitutional Provisions
In response to our citation of Section 28(2), Article VI, respondents elevate two arguments grounded in
constitutional law. One is based on another constitutional provision, Section 12, Article XIII, which
mandates that "[t]he State shall promote the preferential use of Filipino labor, domestic materials and
locally produced goods and adopt measures that help make them competitive." By no means does this
provision dictate that the Court favor the domestic industry in all competing claims that it may bring
before this Court. If it were so, judicial proceedings in this country would be rendered a mockery,
resolved as they would be, on the basis of the personalities of the litigants and not their legal
positions.
Moreover, the duty imposed on by Section 12, Article XIII falls primarily with Congress, which in that
regard enacted the SMA, a law designed to protect domestic industries from the possible ill-effects of
our accession to the global trade order. Inconveniently perhaps for respondents, the SMA also happens
to provide for a procedure under which such protective measures may be enacted. The Court cannot
just impose what it deems as the spirit of the law without giving due regard to its letter.
In like-minded manner, the Separate Opinion loosely states that the purpose of the SMA is to protect or
safeguard local industries from increased importation of foreign products. 106 This inaccurately leaves
the impression that the SMA ipso facto unravels a protective cloak that shelters all local industries and
producers, no matter the conditions. Indeed, our country has knowingly chosen to accede to the world
trade regime, as expressed in the GATT and WTO Agreements, despite the understanding that local
industries might suffer ill-effects, especially with the easier entry of competing foreign products. At the

same time, these international agreements were designed to constrict protectionist trade policies by
its member-countries. Hence, the median, as expressed by the SMA, does allow for the application of
protectionist measures such as tariffs, but only after an elaborate process of investigation that ensures
factual basis and indispensable need for such measures. More accurately, the purpose of the SMA is to
provide a process for the protection or safeguarding of domestic industries that have duly established
that there is substantial injury or threat thereof directly caused by the increased imports. In short,
domestic industries are not entitled to safeguard measures as a matter of right or influence.
Respondents also make the astounding argument that the imposition of general safeguard measures
should not be seen as a taxation measure, but instead as an exercise of police power. The vain hope of
respondents in divorcing the safeguard measures from the concept of taxation is to exclude from
consideration Section 28(2), Article VI of the Constitution.
This argument can be debunked at length, but it deserves little attention. The motivation behind many
taxation measures is the implementation of police power goals. Progressive income taxes alleviate the
margin between rich and poor; the so-called "sin taxes" on alcohol and tobacco manufacturers help
dissuade the consumers from excessive intake of these potentially harmful products. Taxation is
distinguishable from police power as to the means employed to implement these public good goals.
Those doctrines that are unique to taxation arose from peculiar considerations such as those especially
punitive effects of taxation,107 and the belief that taxes are the lifeblood of the state. 108 These
considerations necessitated the evolution of taxation as a distinct legal concept from police power. Yet
at the same time, it has been recognized that taxation may be made the implement of the states
police power.109
Even assuming that the SMA should be construed exclusively as a police power measure, the Court
recognizes that police power is lodged primarily in the national legislature, though it may also be
exercised by the executive branch by virtue of a valid delegation of legislative power. 110 Considering
these premises, it is clear that police power, however "illimitable" in theory, is still exercised within the
confines of implementing legislation. To declare otherwise is to sanction rule by whim instead of rule of
law. The Congress, in enacting the SMA, has delegated the power to impose general safeguard
measures to the executive branch, but at the same time subjected such imposition to limitations, such
as the requirement of a positive final determination by the Tariff Commission under Section 5. For the
executive branch to ignore these boundaries imposed by Congress is to set up an ignoble clash
between the two co-equal branches of government. Considering that the exercise of police power
emanates from legislative authority, there is little question that the prerogative of the legislative
branch shall prevail in such a clash.
V. Assailed Decision Consistent With Ruling in Taada v. Angara
Public respondents allege that the Decision is contrary to our holding in Taada v. Angara,111 since the
Court noted therein that the GATT itself provides built-in protection from unfair foreign competition and
trade practices, which according to the public respondents, was a reason "why the Honorable [Court]
ruled the way it did." On the other hand, the Decision "eliminates safeguard measures as a mode of
defense."
This is balderdash, as with any and all claims that the Decision allows foreign industries to ride
roughshod over our domestic enterprises. The Decision does not prohibit the imposition of general
safeguard measures to protect domestic industries in need of protection. All it affirms is that the
positive final determination of the Tariff Commission is first required before the general safeguard
measures are imposed and implemented, a neutral proposition that gives no regard to the nationalities
of the parties involved. A positive determination by the Tariff Commission is hardly the elusive Shangrila of administrative law. If a particular industry finds it difficult to obtain a positive final determination
from the Tariff Commission, it may be simply because the industry is still sufficiently competitive even
in the face of foreign competition. These safeguard measures are designed to ensure salvation, not
avarice.
Respondents well have the right to drape themselves in the colors of the flag. Yet these postures
hardly advance legal claims, or nationalism for that matter. The fineries of the costume pageant are no
better measure of patriotism than simple obedience to the laws of the Fatherland. And even assuming

that respondents are motivated by genuine patriotic impulses, it must be remembered that under the
setup provided by the SMA, it is the facts, and not impulse, that determine whether the protective
safeguard measures should be imposed. As once orated, facts are stubborn things; and whatever may
be our wishes, our inclinations, or the dictates of our passions, they cannot alter the state of facts and
evidence.112
It is our goal as judges to enforce the law, and not what we might deem as correct economic policy.
Towards this end, we should not construe the SMA to unduly favor or disfavor domestic industries,
simply because the law itself provides for a mechanism by virtue of which the claims of these
industries are thoroughly evaluated before they are favored or disfavored. What we must do is to
simply uphold what the law says. Section 5 says that the DTI Secretary shall impose the general
safeguard measures upon the positive final determination of the Tariff Commission. Nothing in the
whereas clauses or the invisible ink provisions of the SMA can magically delete the words "positive
final determination" and "Tariff Commission" from Section 5.
VI. On Forum-Shopping
We remain convinced that there was no willful and deliberate forum-shopping in this case by Southern
Cross. The causes of action that animate this present petition for review and the petition for review
with the CTA are distinct from each other, even though they relate to similar factual antecedents. Yet it
also appears that contrary to the undertaking signed by the President of Southern Cross, Hironobu Ryu,
to inform this Court of any similar action or proceeding pending before any court, tribunal or agency
within five (5) days from knowledge thereof, Southern Cross informed this Court only on 12 August
2003 of the petition it had filed with the CTA eleven days earlier. An appropriate sanction is warranted
for such failure, but not the dismissal of the petition.
VII. Effects of Courts Resolution
Philcemcor argues that the granting of Southern Crosss Petition should not necessarily lead to the
voiding of theDecision of the DTI Secretary dated 5 August 2003 imposing the general safeguard
measures. For Philcemcor, the availability of appeal to the CTA as an available and adequate remedy
would have made the Court of AppealsDecision merely erroneous or irregular, but not void. Moreover,
the said Decision merely required the DTI Secretary to render a decision, which could have very well
been a decision not to impose a safeguard measure; thus, it could not be said that the annulled
decision resulted from the judgment of the Court of Appeals.
The Court of Appeals Decision was annulled precisely because the appellate court did not have the
power to rule on the petition in the first place. Jurisdiction is necessarily the power to decide a case,
and a court which does not have the power to adjudicate a case is one that is bereft of jurisdiction. We
find no reason to disturb our earlier finding that the Court of Appeals Decision is null and void.
At the same time, the Court in its Decision paid particular heed to the peculiarities attaching to the 5
August 2003Decision of the DTI Secretary. In the DTI Secretarys Decision, he expressly stated that as
a result of the Court of Appeals Decision, "there is no legal impediment for the Secretary to decide on
the application." Yet the truth remained that there was a legal impediment, namely, that the decision
of the appellate court was not yet final and executory. Moreover, it was declared null and void, and
since the DTI Secretary expressly denominated the Court of Appeals Decision as his basis for deciding
to impose the safeguard measures, the latter decision must be voided as well. Otherwise put, without
the Court of Appeals Decision, the DTI Secretarys Decision of 5 August 2003 would not have been
rendered as well.
Accordingly, the Court reaffirms as a nullity the DTI Secretarys Decision dated 5 August 2003. As a
necessary consequence, no further action can be taken on Philcemcors Petition for Extension of the
Safeguard Measure. Obviously, if the imposition of the general safeguard measure is void as we
declared it to be, any extension thereof should likewise be fruitless. The proper remedy instead is to
file a new application for the imposition of safeguard measures, subject to the conditions prescribed by
the SMA. Should this step be eventually availed of, it is only hoped that the parties involved would
content themselves in observing the proper procedure, instead of making a mockery of the rule of law.

WHEREFORE, respondents Motions for Reconsideration are DENIED WITH FINALITY.

Respondent DTI Secretary is hereby ENJOINED from taking any further action on the pending Petition
for Extension of the Safeguard Measure.
Hironobu Ryu, President of petitioner Southern Cross Cement Corporation, and Angara Abello
Concepcion Regala & Cruz, counsel petitioner, are hereby given FIVE (5) days from receipt of
this Resolution to EXPLAIN why they should not be meted disciplinary sanction for failing to timely
inform the Court of the filing of Southern CrosssPetition for Review with the Court of Tax Appeals, as
adverted to earlier in this Resolution.
SO ORDERED.
11. G.R. No. L-9637
April 30, 1957 AMERICAN BIBLE SOCIETY, plaintiff-appellant, vs.
CITY OF MANILA, defendant- Appellee.
City Fiscal Eugenio Angeles and Juan Nabong for appellant.
Assistant City Fiscal Arsenio Naawa for appellee.
FELIX, J.:
Plaintiff-appellant is a foreign, non-stock, non-profit, religious, missionary corporation duly registered
and doing business in the Philippines through its Philippine agency established in Manila in November,
1898, with its principal office at 636 Isaac Peral in said City. The defendant appellee is a municipal
corporation with powers that are to be exercised in conformity with the provisions of Republic Act No.
409, known as the Revised Charter of the City of Manila.
In the course of its ministry, plaintiff's Philippine agency has been distributing and selling bibles and/or
gospel portions thereof (except during the Japanese occupation) throughout the Philippines and
translating the same into several Philippine dialects. On May 29 1953, the acting City Treasurer of the
City of Manila informed plaintiff that it was conducting the business of general merchandise since
November, 1945, without providing itself with the necessary Mayor's permit and municipal license, in
violation of Ordinance No. 3000, as amended, and Ordinances Nos. 2529, 3028 and 3364, and required
plaintiff to secure, within three days, the corresponding permit and license fees, together with
compromise covering the period from the 4th quarter of 1945 to the 2nd quarter of 1953, in the total
sum of P5,821.45 (Annex A).
Plaintiff protested against this requirement, but the City Treasurer demanded that plaintiff deposit and
pay under protest the sum of P5,891.45, if suit was to be taken in court regarding the same (Annex B).
To avoid the closing of its business as well as further fines and penalties in the premises on October 24,
1953, plaintiff paid to the defendant under protest the said permit and license fees in the
aforementioned amount, giving at the same time notice to the City Treasurer that suit would be taken
in court to question the legality of the ordinances under which, the said fees were being collected
(Annex C), which was done on the same date by filing the complaint that gave rise to this action. In its
complaint plaintiff prays that judgment be rendered declaring the said Municipal Ordinance No. 3000,
as amended, and Ordinances Nos. 2529, 3028 and 3364 illegal and unconstitutional, and that the
defendant be ordered to refund to the plaintiff the sum of P5,891.45 paid under protest, together with
legal interest thereon, and the costs, plaintiff further praying for such other relief and remedy as the
court may deem just equitable.
Defendant answered the complaint, maintaining in turn that said ordinances were enacted by the
Municipal Board of the City of Manila by virtue of the power granted to it by section 2444, subsection
(m-2) of the Revised Administrative Code, superseded on June 18, 1949, by section 18, subsection (1)
of Republic Act No. 409, known as the Revised Charter of the City of Manila, and praying that the
complaint be dismissed, with costs against plaintiff. This answer was replied by the plaintiff reiterating
the unconstitutionality of the often-repeated ordinances.
Before trial the parties submitted the following stipulation of facts:

COME NOW the parties in the above-entitled case, thru their undersigned attorneys and
respectfully submit the following stipulation of facts:
1. That the plaintiff sold for the use of the purchasers at its principal office at 636 Isaac Peral,
Manila, Bibles, New Testaments, bible portions and bible concordance in English and other
foreign languages imported by it from the United States as well as Bibles, New Testaments and
bible portions in the local dialects imported and/or purchased locally; that from the fourth
quarter of 1945 to the first quarter of 1953 inclusive the sales made by the plaintiff were as
follows:

Quarter

Amount of Sales

4th quarter 1945

P1,244.21

1st quarter 1946

2,206.85

2nd quarter 1946

1,950.38

3rd quarter 1946

2,235.99

4th quarter 1946

3,256.04

1st quarter 1947

13,241.07

2nd quarter 1947

15,774.55

3rd quarter 1947

14,654.13

4th quarter 1947

12,590.94

1st quarter 1948

11,143.90

2nd quarter 1948

14,715.26

3rd quarter 1948

38,333.83

4th quarter 1948

16,179.90

1st quarter 1949

23,975.10

2nd quarter 1949

17,802.08

3rd quarter 1949

16,640.79

4th quarter 1949

15,961.38

1st quarter 1950

18,562.46

2nd quarter 1950

21,816.32

3rd quarter 1950

25,004.55

4th quarter 1950

45,287.92

1st quarter 1951

37,841.21

2nd quarter 1951

29,103.98

3rd quarter 1951

20,181.10

4th quarter 1951

22,968.91

1st quarter 1952

23,002.65

2nd quarter 1952

17,626.96

3rd quarter 1952

17,921.01

4th quarter 1952

24,180.72

1st quarter 1953

29,516.21

2. That the parties hereby reserve the right to present evidence of other facts not herein
stipulated.
WHEREFORE, it is respectfully prayed that this case be set for hearing so that the parties may
present further evidence on their behalf. (Record on Appeal, pp. 15-16).
When the case was set for hearing, plaintiff proved, among other things, that it has been in existence
in the Philippines since 1899, and that its parent society is in New York, United States of America; that
its, contiguous real properties located at Isaac Peral are exempt from real estate taxes; and that it was
never required to pay any municipal license fee or tax before the war, nor does the American Bible
Society in the United States pay any license fee or sales tax for the sale of bible therein. Plaintiff
further tried to establish that it never made any profit from the sale of its bibles, which are disposed of
for as low as one third of the cost, and that in order to maintain its operating cost it obtains substantial
remittances from its New York office and voluntary contributions and gifts from certain churches, both
in the United States and in the Philippines, which are interested in its missionary work. Regarding
plaintiff's contention of lack of profit in the sale of bibles, defendant retorts that the admissions of
plaintiff-appellant's lone witness who testified on cross-examination that bibles bearing the price of 70
cents each from plaintiff-appellant's New York office are sold here by plaintiff-appellant at P1.30 each;
those bearing the price of $4.50 each are sold here at P10 each; those bearing the price of $7 each are
sold here at P15 each; and those bearing the price of $11 each are sold here at P22 each, clearly show
that plaintiff's contention that it never makes any profit from the sale of its bible, is evidently
untenable.

After hearing the Court rendered judgment, the last part of which is as follows:
As may be seen from the repealed section (m-2) of the Revised Administrative Code and the
repealing portions (o) of section 18 of Republic Act No. 409, although they seemingly differ in
the way the legislative intent is expressed, yet their meaning is practically the same for the
purpose of taxing the merchandise mentioned in said legal provisions, and that the taxes to be
levied by said ordinances is in the nature of percentage graduated taxes (Sec. 3 of Ordinance
No. 3000, as amended, and Sec. 1, Group 2, of Ordinance No. 2529, as amended by Ordinance
No. 3364).
IN VIEW OF THE FOREGOING CONSIDERATIONS, this Court is of the opinion and so holds that
this case should be dismissed, as it is hereby dismissed, for lack of merits, with costs against
the plaintiff.
Not satisfied with this verdict plaintiff took up the matter to the Court of Appeals which certified the
case to Us for the reason that the errors assigned to the lower Court involved only questions of law.
Appellant contends that the lower Court erred:
1. In holding that Ordinances Nos. 2529 and 3000, as respectively amended, are not
unconstitutional;
2. In holding that subsection m-2 of Section 2444 of the Revised Administrative Code under
which Ordinances Nos. 2592 and 3000 were promulgated, was not repealed by Section 18 of
Republic Act No. 409;
3. In not holding that an ordinance providing for taxes based on gross sales or receipts, in
order to be valid under the new Charter of the City of Manila, must first be approved by the
President of the Philippines; and
4. In holding that, as the sales made by the plaintiff-appellant have assumed commercial
proportions, it cannot escape from the operation of said municipal ordinances under the cloak
of religious privilege.
The issues. As may be seen from the proceeding statement of the case, the issues involved in the
present controversy may be reduced to the following: (1) whether or not the ordinances of the City of
Manila, Nos. 3000, as amended, and 2529, 3028 and 3364, are constitutional and valid; and (2)
whether the provisions of said ordinances are applicable or not to the case at bar.
Section 1, subsection (7) of Article III of the Constitution of the Republic of the Philippines, provides
that:
(7) No law shall be made respecting an establishment of religion, or prohibiting the free
exercise thereof, and the free exercise and enjoyment of religious profession and worship,
without discrimination or preference, shall forever be allowed. No religion test shall be required
for the exercise of civil or political rights.
Predicated on this constitutional mandate, plaintiff-appellant contends that Ordinances Nos. 2529 and
3000, as respectively amended, are unconstitutional and illegal in so far as its society is concerned,
because they provide for religious censorship and restrain the free exercise and enjoyment of its
religious profession, to wit: the distribution and sale of bibles and other religious literature to the
people of the Philippines.
Before entering into a discussion of the constitutional aspect of the case, We shall first consider the
provisions of the questioned ordinances in relation to their application to the sale of bibles, etc. by
appellant. The records, show that by letter of May 29, 1953 (Annex A), the City Treasurer required
plaintiff to secure a Mayor's permit in connection with the society's alleged business of distributing and

selling bibles, etc. and to pay permit dues in the sum of P35 for the period covered in this litigation,
plus the sum of P35 for compromise on account of plaintiff's failure to secure the permit required by
Ordinance No. 3000 of the City of Manila, as amended. This Ordinance is of general application and not
particularly directed against institutions like the plaintiff, and it does not contain any provisions
whatever prescribing religious censorship nor restraining the free exercise and enjoyment of any
religious profession. Section 1 of Ordinance No. 3000 reads as follows:
SEC. 1. PERMITS NECESSARY. It shall be unlawful for any person or entity to conduct or
engage in any of the businesses, trades, or occupations enumerated in Section 3 of this
Ordinance or other businesses, trades, or occupations for which a permit is required for the
proper supervision and enforcement of existing laws and ordinances governing the sanitation,
security, and welfare of the public and the health of the employees engaged in the business
specified in said section 3 hereof, WITHOUT FIRST HAVING OBTAINED A PERMIT THEREFOR
FROM THE MAYOR AND THE NECESSARY LICENSE FROM THE CITY TREASURER.
The business, trade or occupation of the plaintiff involved in this case is not particularly mentioned in
Section 3 of the Ordinance, and the record does not show that a permit is required therefor under
existing laws and ordinances for the proper supervision and enforcement of their provisions governing
the sanitation, security and welfare of the public and the health of the employees engaged in the
business of the plaintiff. However, sections 3 of Ordinance 3000 contains item No. 79, which reads as
follows:
79.
All
other
businesses,
trades
mentioned
in
this
Ordinance,
except
City is not empowered to license or to tax P5.00

or
those

occupations
upon
which

not
the

Therefore, the necessity of the permit is made to depend upon the power of the City to license or tax
said business, trade or occupation.
As to the license fees that the Treasurer of the City of Manila required the society to pay from the 4th
quarter of 1945 to the 1st quarter of 1953 in the sum of P5,821.45, including the sum of P50 as
compromise, Ordinance No. 2529, as amended by Ordinances Nos. 2779, 2821 and 3028 prescribes
the following:
SEC. 1. FEES. Subject to the provisions of section 578 of the Revised Ordinances of the City
of Manila, as amended, there shall be paid to the City Treasurer for engaging in any of the
businesses or occupations below enumerated, quarterly, license fees based on gross sales or
receipts realized during the preceding quarter in accordance with the rates herein prescribed:
PROVIDED, HOWEVER, That a person engaged in any businesses or occupation for the first
time shall pay the initial license fee based on the probable gross sales or receipts for the first
quarter beginning from the date of the opening of the business as indicated herein for the
corresponding business or occupation.
xxx

xxx

xxx

GROUP 2. Retail dealers in new (not yet used) merchandise, which dealers are not yet
subject to the payment of any municipal tax, such as (1) retail dealers in general merchandise;
(2) retail dealers exclusively engaged in the sale of . . . books, including stationery.
xxx

xxx

xxx

As may be seen, the license fees required to be paid quarterly in Section 1 of said Ordinance No. 2529,
as amended, are not imposed directly upon any religious institution but upon those engaged in any of
the business or occupations therein enumerated, such as retail "dealers in general merchandise"
which, it is alleged, cover the business or occupation of selling bibles, books, etc.

Chapter 60 of the Revised Administrative Code which includes section 2444, subsection (m-2) of said
legal body, as amended by Act No. 3659, approved on December 8, 1929, empowers the Municipal
Board of the City of Manila:
(M-2) To tax and fix the license fee on (a) dealers in new automobiles or accessories or both,
and (b) retail dealers in new (not yet used) merchandise, which dealers are not yet subject to
the payment of any municipal tax.
For the purpose of taxation, these retail dealers shall be classified as (1) retail dealers in
general merchandise, and (2) retail dealers exclusively engaged in the sale of (a) textiles . . .
(e) books, including stationery, paper and office supplies, . . .: PROVIDED, HOWEVER, That the
combined total tax of any debtor or manufacturer, or both, enumerated under these
subsections (m-1) and (m-2), whether dealing in one or all of the articles mentioned herein,
SHALL NOT BE IN EXCESS OF FIVE HUNDRED PESOS PER ANNUM.
and appellee's counsel maintains that City Ordinances Nos. 2529 and 3000, as amended, were enacted
in virtue of the power that said Act No. 3669 conferred upon the City of Manila. Appellant, however,
contends that said ordinances are longer in force and effect as the law under which they were
promulgated has been expressly repealed by Section 102 of Republic Act No. 409 passed on June 18,
1949, known as the Revised Manila Charter.
Passing upon this point the lower Court categorically stated that Republic Act No. 409 expressly
repealed the provisions of Chapter 60 of the Revised Administrative Code but in the opinion of the trial
Judge, although Section 2444 (m-2) of the former Manila Charter and section 18 (o) of the new
seemingly differ in the way the legislative intent was expressed, yet their meaning is practically the
same for the purpose of taxing the merchandise mentioned in both legal provisions and, consequently,
Ordinances Nos. 2529 and 3000, as amended, are to be considered as still in full force and effect
uninterruptedly up to the present.
Often the legislature, instead of simply amending the pre-existing statute, will repeal the old
statute in its entirety and by the same enactment re-enact all or certain portions of the
preexisting law. Of course, the problem created by this sort of legislative action involves mainly
the effect of the repeal upon rights and liabilities which accrued under the original statute. Are
those rights and liabilities destroyed or preserved? The authorities are divided as to the effect
of simultaneous repeals and re-enactments. Some adhere to the view that the rights and
liabilities accrued under the repealed act are destroyed, since the statutes from which they
sprang are actually terminated, even though for only a very short period of time. Others, and
they seem to be in the majority, refuse to accept this view of the situation, and consequently
maintain that all rights an liabilities which have accrued under the original statute are
preserved and may be enforced, since the re-enactment neutralizes the repeal, therefore,
continuing the law in force without interruption. (Crawford-Statutory Construction, Sec. 322).
Appellant's counsel states that section 18 (o) of Republic Act No, 409 introduces a new and wider
concept of taxation and is different from the provisions of Section 2444(m-2) that the former cannot be
considered as a substantial re-enactment of the provisions of the latter. We have quoted above the
provisions of section 2444(m-2) of the Revised Administrative Code and We shall now copy hereunder
the provisions of Section 18, subdivision (o) of Republic Act No. 409, which reads as follows:
(o) To tax and fix the license fee on dealers in general merchandise, including importers and
indentors, except those dealers who may be expressly subject to the payment of some other
municipal tax under the provisions of this section.
Dealers in general merchandise shall be classified as (a) wholesale dealers and (b) retail
dealers. For purposes of the tax on retail dealers, general merchandise shall be classified into
four main classes: namely (1) luxury articles, (2) semi-luxury articles, (3) essential
commodities, and (4) miscellaneous articles. A separate license shall be prescribed for each
class but where commodities of different classes are sold in the same establishment, it shall
not be compulsory for the owner to secure more than one license if he pays the higher or

highest rate of tax prescribed by ordinance. Wholesale dealers shall pay the license tax as
such, as may be provided by ordinance.
For purposes of this section, the term "General merchandise" shall include poultry and
livestock, agricultural products, fish and other allied products.
The only essential difference that We find between these two provisions that may have any bearing on
the case at bar, is that, while subsection (m-2) prescribes that the combined total tax of any dealer or
manufacturer, or both, enumerated under subsections (m-1) and (m-2), whether dealing in one or all of
the articles mentioned therein,shall not be in excess of P500 per annum, the corresponding section 18,
subsection (o) of Republic Act No. 409, does not contain any limitation as to the amount of tax or
license fee that the retail dealer has to pay per annum. Hence, and in accordance with the weight of
the authorities above referred to that maintain that "all rights and liabilities which have accrued under
the original statute are preserved and may be enforced, since the reenactment neutralizes the repeal,
therefore continuing the law in force without interruption", We hold that the questioned ordinances of
the City of Manila are still in force and effect.
Plaintiff, however, argues that the questioned ordinances, to be valid, must first be approved by the
President of the Philippines as per section 18, subsection (ii) of Republic Act No. 409, which reads as
follows:
(ii) To tax, license and regulate any business, trade or occupation being conducted within the
City of Manila,not otherwise enumerated in the preceding subsections, including percentage
taxes based on gross sales or receipts, subject to the approval of the PRESIDENT, except
amusement taxes.
but this requirement of the President's approval was not contained in section 2444 of the former
Charter of the City of Manila under which Ordinance No. 2529 was promulgated. Anyway, as stated by
appellee's counsel, the business of "retail dealers in general merchandise" is expressly enumerated in
subsection (o), section 18 of Republic Act No. 409; hence, an ordinance prescribing a municipal tax on
said business does not have to be approved by the President to be effective, as it is not among those
referred to in said subsection (ii). Moreover, the questioned ordinances are still in force, having been
promulgated by the Municipal Board of the City of Manila under the authority granted to it by law.
The question that now remains to be determined is whether said ordinances are inapplicable, invalid or
unconstitutional if applied to the alleged business of distribution and sale of bibles to the people of the
Philippines by a religious corporation like the American Bible Society, plaintiff herein.
With regard to Ordinance No. 2529, as amended by Ordinances Nos. 2779, 2821 and 3028, appellant
contends that it is unconstitutional and illegal because it restrains the free exercise and enjoyment of
the religious profession and worship of appellant.
Article III, section 1, clause (7) of the Constitution of the Philippines aforequoted, guarantees the
freedom of religious profession and worship. "Religion has been spoken of as a profession of faith to an
active power that binds and elevates man to its Creator" (Aglipay vs. Ruiz, 64 Phil., 201).It has
reference to one's views of his relations to His Creator and to the obligations they impose of reverence
to His being and character, and obedience to His Will (Davis vs. Beason, 133 U.S., 342). The
constitutional guaranty of the free exercise and enjoyment of religious profession and worship carries
with it the right to disseminate religious information. Any restraints of such right can only be justified
like other restraints of freedom of expression on the grounds that there is a clear and present danger
of any substantive evil which the State has the right to prevent". (Taada and Fernando on the
Constitution of the Philippines, Vol. 1, 4th ed., p. 297). In the case at bar the license fee herein involved
is imposed upon appellant for its distribution and sale of bibles and other religious literature:
In the case of Murdock vs. Pennsylvania, it was held that an ordinance requiring that a license
be obtained before a person could canvass or solicit orders for goods, paintings, pictures,
wares or merchandise cannot be made to apply to members of Jehovah's Witnesses who went
about from door to door distributing literature and soliciting people to "purchase" certain

religious books and pamphlets, all published by the Watch Tower Bible & Tract Society. The
"price" of the books was twenty-five cents each, the "price" of the pamphlets five cents each. It
was shown that in making the solicitations there was a request for additional "contribution" of
twenty-five cents each for the books and five cents each for the pamphlets. Lesser sum were
accepted, however, and books were even donated in case interested persons were without
funds.
On the above facts the Supreme Court held that it could not be said that petitioners were
engaged in commercial rather than a religious venture. Their activities could not be described
as embraced in the occupation of selling books and pamphlets. Then the Court continued:
"We do not mean to say that religious groups and the press are free from all financial burdens
of government. See Grosjean vs. American Press Co., 297 U.S., 233, 250, 80 L. ed. 660, 668,
56 S. Ct. 444. We have here something quite different, for example, from a tax on the income
of one who engages in religious activities or a tax on property used or employed in connection
with activities. It is one thing to impose a tax on the income or property of a preacher. It is
quite another to exact a tax from him for the privilege of delivering a sermon. The tax imposed
by the City of Jeannette is a flat license tax, payment of which is a condition of the exercise of
these constitutional privileges. The power to tax the exercise of a privilege is the power to
control or suppress its enjoyment. . . . Those who can tax the exercise of this religious practice
can make its exercise so costly as to deprive it of the resources necessary for its maintenance.
Those who can tax the privilege of engaging in this form of missionary evangelism can close all
its doors to all those who do not have a full purse. Spreading religious beliefs in this ancient
and honorable manner would thus be denied the needy. . . .
It is contended however that the fact that the license tax can suppress or control this activity is
unimportant if it does not do so. But that is to disregard the nature of this tax. It is a license tax
a flat tax imposed on the exercise of a privilege granted by the Bill of Rights . . . The power
to impose a license tax on the exercise of these freedom is indeed as potent as the power of
censorship which this Court has repeatedly struck down. . . . It is not a nominal fee imposed as
a regulatory measure to defray the expenses of policing the activities in question. It is in no
way apportioned. It is flat license tax levied and collected as a condition to the pursuit of
activities whose enjoyment is guaranteed by the constitutional liberties of press and religion
and inevitably tends to suppress their exercise. That is almost uniformly recognized as the
inherent vice and evil of this flat license tax."
Nor could dissemination of religious information be conditioned upon the approval of an official
or manager even if the town were owned by a corporation as held in the case of Marsh vs.
State of Alabama (326 U.S. 501), or by the United States itself as held in the case of Tucker vs.
Texas (326 U.S. 517). In the former case the Supreme Court expressed the opinion that the
right to enjoy freedom of the press and religion occupies a preferred position as against the
constitutional right of property owners.
"When we balance the constitutional rights of owners of property against those of the people
to enjoy freedom of press and religion, as we must here, we remain mindful of the fact that the
latter occupy a preferred position. . . . In our view the circumstance that the property rights to
the premises where the deprivation of property here involved, took place, were held by others
than the public, is not sufficient to justify the State's permitting a corporation to govern a
community of citizens so as to restrict their fundamental liberties and the enforcement of such
restraint by the application of a State statute." (Taada and Fernando on the Constitution of
the Philippines, Vol. 1, 4th ed., p. 304-306).
Section 27 of Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code,
provides:
SEC. 27. EXEMPTIONS FROM TAX ON CORPORATIONS. The following organizations shall not
be taxed under this Title in respect to income received by them as such

(e) Corporations or associations organized and operated exclusively for religious,

charitable, . . . or educational purposes, . . .: Provided, however, That the income of whatever
kind and character from any of its properties, real or personal, or from any activity conducted
for profit, regardless of the disposition made of such income, shall be liable to the tax imposed
under this Code;
Appellant's counsel claims that the Collector of Internal Revenue has exempted the plaintiff from this
tax and says that such exemption clearly indicates that the act of distributing and selling bibles, etc. is
purely religious and does not fall under the above legal provisions.
It may be true that in the case at bar the price asked for the bibles and other religious pamphlets was
in some instances a little bit higher than the actual cost of the same but this cannot mean that
appellant was engaged in the business or occupation of selling said "merchandise" for profit. For this
reason We believe that the provisions of City of Manila Ordinance No. 2529, as amended, cannot be
applied to appellant, for in doing so it would impair its free exercise and enjoyment of its religious
profession and worship as well as its rights of dissemination of religious beliefs.
With respect to Ordinance No. 3000, as amended, which requires the obtention the Mayor's permit
before any person can engage in any of the businesses, trades or occupations enumerated therein, We
do not find that it imposes any charge upon the enjoyment of a right granted by the Constitution, nor
tax the exercise of religious practices. In the case of Coleman vs. City of Griffin, 189 S.E. 427, this point
was elucidated as follows:
An ordinance by the City of Griffin, declaring that the practice of distributing either by hand or
otherwise, circulars, handbooks, advertising, or literature of any kind, whether said articles are
being delivered free, or whether same are being sold within the city limits of the City of Griffin,
without first obtaining written permission from the city manager of the City of Griffin, shall be
deemed a nuisance and punishable as an offense against the City of Griffin, does not deprive
defendant of his constitutional right of the free exercise and enjoyment of religious profession
and worship, even though it prohibits him from introducing and carrying out a scheme or
purpose which he sees fit to claim as a part of his religious system.
It seems clear, therefore, that Ordinance No. 3000 cannot be considered unconstitutional, even if
applied to plaintiff Society. But as Ordinance No. 2529 of the City of Manila, as amended, is not
applicable to plaintiff-appellant and defendant-appellee is powerless to license or tax the business of
plaintiff Society involved herein for, as stated before, it would impair plaintiff's right to the free exercise
and enjoyment of its religious profession and worship, as well as its rights of dissemination of religious
beliefs, We find that Ordinance No. 3000, as amended is also inapplicable to said business, trade or
occupation of the plaintiff.
Wherefore, and on the strength of the foregoing considerations, We hereby reverse the decision
appealed from, sentencing defendant return to plaintiff the sum of P5,891.45 unduly collected from it.
Without pronouncement as to costs. It is so ordered.
Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion and Endencia, JJ., concur.
12. 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 VINZONS-CHATO, 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 ValueAdded 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 rewrite 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

LEGISLATURES: A COMPARATIVE ANALYSIS 163 (J. D. LEES AND M. SHAW, eds.)).

AND

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 special use tax on the cost of paper and ink which made these
items "the only items subject to the use tax that were component of goods to be sold at retail." The
U.S. Supreme Court held that the differential treatment of the press "suggests that the goal of
regulation is not related to suppression of expression, and such goal is presumptively
unconstitutional." It would therefore appear that even a law that favors the press is constitutionally
suspect. (See the dissent of Rehnquist, J. in that case)
Nor is it true that only two exemptions previously granted by E.O. No. 273 are withdrawn "absolutely
and unqualifiedly" by R.A. No. 7716. Other exemptions from the VAT, such as those previously granted
to PAL, petroleum concessionaires, enterprises registered with the Export Processing Zone Authority,
and many more are likewise totally withdrawn, in addition to exemptions which are partially withdrawn,
in an effort to broaden the base of the tax.
The PPI says that the discriminatory treatment of the press is highlighted by the fact that transactions,
which are profit oriented, continue to enjoy exemption under R.A. No. 7716. An enumeration of some of
these transactions will suffice to show that by and large this is not so and that the exemptions are
granted for a purpose. As the Solicitor General says, such exemptions are granted, in some cases, to
encourage agricultural production and, in other cases, for the personal benefit of the end-user rather
than for profit. The exempt transactions are:
(a) Goods for consumption or use which are in their original state (agricultural, marine
and forest products, cotton seeds in their original state, fertilizers, seeds, seedlings,
fingerlings, fish, prawn livestock and poultry feeds) and goods or services to enhance
agriculture (milling of palay, corn, sugar cane and raw sugar, livestock, poultry feeds,
fertilizer, ingredients used for the manufacture of feeds).
(b) Goods used for personal consumption or use (household and personal effects of
citizens returning to the Philippines) or for professional use, like professional
instruments and implements, by persons coming to the Philippines to settle here.
(c) Goods subject to excise tax such as petroleum products or to be used for
manufacture of petroleum products subject to excise tax and services subject to
percentage tax.
(d) Educational services, medical, dental, hospital and veterinary services, and
services rendered under employer-employee relationship.
(e) Works of art and similar creations sold by the artist himself.
(f) Transactions exempted under special laws, or international agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.
(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-60)

The PPI asserts that it does not really matter that the law does not discriminate against the press
because "even nondiscriminatory taxation on constitutionally guaranteed freedom is unconstitutional."
PPI cites in support of this assertion the following statement in Murdock v. Pennsylvania, 319 U.S. 105,
87 L. Ed. 1292 (1943):
The fact that the ordinance is "nondiscriminatory" is immaterial. The protection
afforded by the First Amendment is not so restricted. A license tax certainly does not
acquire constitutional validity because it classifies the privileges protected by the First
Amendment along with the wares and merchandise of hucksters and peddlers and
treats them all alike. Such equality in treatment does not save the ordinance. Freedom
of press, freedom of speech, freedom of religion are in preferred position.
The Court was speaking in that case of a license tax, which, unlike an ordinary tax, is mainly for
regulation. Its imposition on the press is unconstitutional because it lays a prior restraint on the
exercise of its right. Hence, although its application to others, such those selling goods, is valid, its
application to the press or to religious groups, such as the Jehovah's Witnesses, in connection with the
latter's sale of religious books and pamphlets, is unconstitutional. As the U.S. Supreme Court put it, "it
is one thing to impose a tax on income or property of a preacher. It is quite another thing to exact a
tax on him for delivering a sermon."
A similar ruling was made by this Court in American Bible Society v. City of Manila, 101 Phil. 386
(1957) which invalidated a city ordinance requiring a business license fee on those engaged in the sale
of general merchandise. It was held that the tax could not be imposed on the sale of bibles by the
American Bible Society without restraining the free exercise of its right to propagate.
The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege, much
less a constitutional right. It is imposed on the sale, barter, lease or exchange of goods or properties or
the sale or exchange of services and the lease of properties purely for revenue purposes. To subject
the press to its payment is not to burden the exercise of its right any more than to make the press pay
income tax or subject it to general regulation is not to violate its freedom under the Constitution.
Additionally, the Philippine Bible Society, Inc. claims that although it sells bibles, the proceeds derived
from the sales are used to subsidize the cost of printing copies which are given free to those who
cannot afford to pay so that to tax the sales would be to increase the price, while reducing the volume
of sale. Granting that to be the case, the resulting burden on the exercise of religious freedom is so
incidental as to make it difficult to differentiate it from any other economic imposition that might make
the right to disseminate religious doctrines costly. Otherwise, to follow the petitioner's argument, to
increase the tax on the sale of vestments would be to lay an impermissible burden on the right of the
preacher to make a sermon.
On the other hand the registration fee of P1,000.00 imposed by 107 of the NIRC, as amended by 7 of
R.A. No. 7716, although fixed in amount, is really just to pay for the expenses of registration and
enforcement of provisions such as those relating to accounting in 108 of the NIRC. That the PBS
distributes free bibles and therefore is not liable to pay the VAT does not excuse it from the payment of
this fee because it also sells some copies. At any rate whether the PBS is liable for the VAT must be
decided in concrete cases, in the event it is assessed this tax by the Commissioner of Internal
Revenue.
VII. Alleged violations of the due process, equal protection and contract clauses and the rule on
taxation. CREBA asserts that R.A. No. 7716 (1) impairs the obligations of contracts, (2) classifies
transactions as covered or exempt without reasonable basis and (3) violates the rule that taxes should
be uniform and equitable and that Congress shall "evolve a progressive system of taxation."
With respect to the first contention, it is claimed that the application of the tax to existing contracts of
the sale of real property by installment or on deferred payment basis would result in substantial

increases in the monthly amortizations to be paid because of the 10% VAT. The additional amount, it is
pointed out, is something that the buyer did not anticipate at the time he entered into the contract.
The short answer to this is the one given by this Court in an early case: "Authorities from numerous
sources are cited by the plaintiffs, but none of them show that a lawful tax on a new subject, or an
increased tax on an old one, interferes with a contract or impairs its obligation, within the meaning of
the Constitution. Even though such taxation may affect particular contracts, as it may increase the
debt of one person and lessen the security of another, or may impose additional burdens upon one
class and release the burdens of another, still the tax must be paid unless prohibited by the
Constitution, nor can it be said that it impairs the obligation of any existing contract in its true legal
sense." (La Insular v. Machuca Go-Tauco and Nubla Co-Siong, 39 Phil. 567, 574 (1919)). Indeed not only
existing laws but also "the reservation of the essential attributes of sovereignty, is . . . read into
contracts as a postulate of the legal order." (Philippine-American Life Ins. Co. v. Auditor General, 22
SCRA 135, 147 (1968)) Contracts must be understood as having been made in reference to the
possible exercise of the rightful authority of the government and no obligation of contract can extend
to the defeat of that authority. (Norman v. Baltimore and Ohio R.R., 79 L. Ed. 885 (1935)).
It is next pointed out that while 4 of R.A. No. 7716 exempts such transactions as the sale of
agricultural products, food items, petroleum, and medical and veterinary services, it grants no
exemption on the sale of real property which is equally essential. The sale of real property for
socialized and low-cost housing is exempted from the tax, but CREBA claims that real estate
transactions of "the less poor," i.e., the middle class, who are equally homeless, should likewise be
exempted.
The sale of food items, petroleum, medical and veterinary services, etc., which are essential goods and
services was already exempt under 103, pars. (b) (d) (1) of the NIRC before the enactment of R.A. No.
7716. Petitioner is in error in claiming that R.A. No. 7716 granted exemption to these transactions,
while subjecting those of petitioner to the payment of the VAT. Moreover, there is a difference between
the "homeless poor" and the "homeless less poor" in the example given by petitioner, because the
second group or middle class can afford to rent houses in the meantime that they cannot yet buy their
own homes. The two social classes are thus differently situated in life. "It is inherent in the power to
tax that the State be free to select the subjects of taxation, and it has been repeatedly held that
'inequalities which result from a singling out of one particular class for taxation, or exemption infringe
no constitutional limitation.'" (Lutz v. Araneta, 98 Phil. 148, 153 (1955). Accord, City of Baguio v. De
Leon, 134 Phil. 912 (1968); Sison, Jr. v. Ancheta, 130 SCRA 654, 663 (1984); Kapatiran ng mga
Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 371 (1988)).
Finally, it is contended, for the reasons already noted, that R.A. No. 7716 also violates Art. VI, 28(1)
which provides that "The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation."
Equality and uniformity of taxation means that all taxable articles or kinds of property of the same
class be taxed at the same rate. The taxing power has the authority to make reasonable and natural
classifications for purposes of taxation. To satisfy this requirement it is enough that the statute or
ordinance applies equally to all persons, forms and corporations placed in similar situation. (City of
Baguio v. De Leon, supra; Sison, Jr. v. Ancheta, supra)
Indeed, the VAT was already provided in E.O. No. 273 long before R.A. No. 7716 was enacted. R.A. No.
7716 merely expands the base of the tax. The validity of the original VAT Law was questioned
in Kapatiran ng Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 383 (1988) on grounds
similar to those made in these cases, namely, that the law was "oppressive, discriminatory, unjust and
regressive in violation of Art. VI, 28(1) of the Constitution." (At 382) Rejecting the challenge to the
law, this Court held:

As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is
uniform. . . .
The sales tax adopted in EO 273 is applied similarly on all goods and services sold to
the public, which are not exempt, at the constant rate of 0% or 10%.
The disputed sales tax is also equitable. It is imposed only on sales of goods or
services by persons engaged in business with an aggregate gross annual sales
exceeding P200,000.00. Small corner sari-sari stores are consequently exempt from its
application. Likewise exempt from the tax are sales of farm and marine products, so
that the costs of basic food and other necessities, spared as they are from the
incidence of the VAT, are expected to be relatively lower and within the reach of the
general public.
(At 382-383)
The CREBA claims that the VAT is regressive. A similar claim is made by the Cooperative Union of the
Philippines, Inc. (CUP), while petitioner Juan T. David argues that the law contravenes the mandate of
Congress to provide for a progressive system of taxation because the law imposes a flat rate of 10%
and thus places the tax burden on all taxpayers without regard to their ability to pay.
The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are
regressive. What it simply provides is that Congress shall "evolve a progressive system of taxation."
The constitutional provision has been interpreted to mean simply that "direct taxes are . . . to be
preferred [and] as much as possible, indirect taxes should be minimized." (E. FERNANDO, THE
CONSTITUTION OF THE PHILIPPINES 221 (Second ed. (1977)). Indeed, the mandate to Congress is not
to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes, which perhaps are the
oldest form of indirect taxes, would have been prohibited with the proclamation of Art. VIII, 17(1) of
the 1973 Constitution from which the present Art. VI, 28(1) was taken. Sales taxes are also regressive.
Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not
impossible, to avoid them by imposing such taxes according to the taxpayers' ability to pay. In the
case of the VAT, the law minimizes the regressive effects of this imposition by providing for zero
rating of certain transactions (R.A. No. 7716, 3, amending 102 (b) of the NIRC), while
granting exemptions to other transactions. (R.A. No. 7716, 4, amending 103 of the NIRC).
Thus, the following transactions involving basic and essential goods and services are exempted from
the VAT:
(a) Goods for consumption or use which are in their original state (agricultural, marine
and forest products, cotton seeds in their original state, fertilizers, seeds, seedlings,
fingerlings, fish, prawn livestock and poultry feeds) and goods or services to enhance
agriculture (milling of palay, corn sugar cane and raw sugar, livestock, poultry feeds,
fertilizer, ingredients used for the manufacture of feeds).
(b) Goods used for personal consumption or use (household and personal effects of
citizens returning to the Philippines) and or professional use, like professional
instruments and implements, by persons coming to the Philippines to settle here.
(c) Goods subject to excise tax such as petroleum products or to be used for
manufacture of petroleum products subject to excise tax and services subject to
percentage tax.

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

can plausibly mean is that in the exercise of that jurisdiction we have the judicial power to determine
questions of grave abuse of discretion by any branch or instrumentality of the government.
Put in another way, what is granted in Art. VIII, 1, 2 is "judicial power," which is "the power of a court
to hear and decide cases pending between parties who have the right to sue and be sued in the courts
of law and equity" (Lamb v. Phipps, 22 Phil. 456, 559 (1912)), as distinguished from legislative and
executive power. This power cannot be directly appropriated until it is apportioned among several
courts either by the Constitution, as in the case of Art. VIII, 5, or by statute, as in the case of the
Judiciary Act of 1948 (R.A. No. 296) and the Judiciary Reorganization Act of 1980 (B.P. Blg. 129). The
power thus apportioned constitutes the court's "jurisdiction," defined as "the power conferred by law
upon a court or judge to take cognizance of a case, to the exclusion of all others." (United States v.
Arceo, 6 Phil. 29 (1906)) Without an actual case coming within its jurisdiction, this Court cannot inquire
into any allegation of grave abuse of discretion by the other departments of the government.
VIII. Alleged violation of policy towards cooperatives. On the other hand, the Cooperative Union of the
Philippines (CUP), after briefly surveying the course of legislation, argues that it was to adopt a definite
policy of granting tax exemption to cooperatives that the present Constitution embodies provisions on
cooperatives. To subject cooperatives to the VAT would therefore be to infringe a constitutional policy.
Petitioner claims that in 1973, P.D. No. 175 was promulgated exempting cooperatives from the
payment of income taxes and sales taxes but in 1984, because of the crisis which menaced the
national economy, this exemption was withdrawn by P.D. No. 1955; that in 1986, P.D. No. 2008 again
granted cooperatives exemption from income and sales taxes until December 31, 1991, but, in the
same year, E.O. No. 93 revoked the exemption; and that finally in 1987 the framers of the Constitution
"repudiated the previous actions of the government adverse to the interests of the cooperatives, that
is, the repeated revocation of the tax exemption to cooperatives and instead upheld the policy of
strengthening the cooperatives by way of the grant of tax exemptions," by providing the following in
Art. XII:
1. The goals of the national economy are a more equitable distribution of
opportunities, income, and wealth; a sustained increase in the amount of goods and
services produced by the nation for the benefit of the people; and an expanding
productivity as the key to raising the quality of life for all, especially the
underprivileged.
The State shall promote industrialization and full employment based on sound
agricultural development and agrarian reform, through industries that make full and
efficient use of human and natural resources, and which are competitive in both
domestic and foreign markets. However, the State shall protect Filipino enterprises
against unfair foreign competition and trade practices.
In the pursuit of these goals, all sectors of the economy and all regions of the country
shall be given optimum opportunity to develop. Private enterprises, including
corporations, cooperatives, and similar collective organizations, shall be encouraged to
broaden the base of their ownership.
15. The Congress shall create an agency to promote the viability and growth of
cooperatives as instruments for social justice and economic development.
Petitioner's contention has no merit. In the first place, it is not true that P.D. No. 1955 singled out
cooperatives by withdrawing their exemption from income and sales taxes under P.D. No. 175, 5.
What P.D. No. 1955, 1 did was to withdraw the exemptions and preferential treatments theretofore
granted to private business enterprises in general, in view of the economic crisis which then beset the
nation. It is true that after P.D. No. 2008, 2 had restored the tax exemptions of cooperatives in 1986,
the exemption was again repealed by E.O. No. 93, 1, but then again cooperatives were not the only
ones whose exemptions were withdrawn. The withdrawal of tax incentives applied to all, including

government and private entities. In the second place, the Constitution does not really require that
cooperatives be granted tax exemptions in order to promote their growth and viability. Hence, there is
no basis for petitioner's assertion that the government's policy toward cooperatives had been one of
vacillation, as far as the grant of tax privileges was concerned, and that it was to put an end to this
indecision that the constitutional provisions cited were adopted. Perhaps as a matter of policy
cooperatives should be granted tax exemptions, but that is left to the discretion of Congress. If
Congress does not grant exemption and there is no discrimination to cooperatives, no violation of any
constitutional policy can be charged.
Indeed, petitioner's theory amounts to saying that under the Constitution cooperatives are exempt
from taxation. Such theory is contrary to the Constitution under which only the following are exempt
from taxation: charitable institutions, churches and parsonages, by reason of Art. VI, 28 (3), and nonstock, 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.
13. G.R. No. 155491 July 21, 2009 SMART COMMUNICATIONS, INC., Petitioner, vs.THE CITY
OF DAVAO, represented herein by its Mayor Hon. RODRIGO DUTERTE, and the
SANGGUNIANG PANLUNSOD OF DAVAO CITY, Respondents.
RESOLUTION
NACHURA, J.:
Before the Court is a Motion for Reconsideration 1 filed by Smart Communications, Inc. (Smart) of the
Decision2 of the Court dated September 16, 2008, denying its appeal of the Decision and Order of the
Regional Trial Court (RTC) of Davao City, dated July 19, 2002 and September 26, 2002, respectively.
Briefly, the factual antecedents are as follows:

On February 18, 2002, Smart filed a special civil action for declaratory relief 3 for the ascertainment of
its rights and obligations under the Tax Code of the City of Davao, which imposes a franchise tax on
businesses enjoying a franchise within the territorial jurisdiction of Davao. Smart avers that its
telecenter in Davao City is exempt from payment of franchise tax to the City.
On July 19, 2002, the RTC rendered a Decision denying the petition. Smart filed a motion for
reconsideration, which was denied by the trial court in an Order dated September 26, 2002. Smart filed
an appeal before this Court, but the same was denied in a decision dated September 16, 2008. Hence,
the instant motion for reconsideration raising the following grounds: (1) the "in lieu of all taxes" clause
in Smarts franchise, Republic Act No. 7294 (RA 7294), covers local taxes; the rule of strict construction
against tax exemptions is not applicable; (2) the "in lieu of all taxes" clause is not rendered ineffective
by the Expanded VAT Law; (3) Section 23 of Republic Act No. 7925 4 (RA 7925) includes a tax
exemption; and (4) the imposition of a local franchise tax on Smart would violate the constitutional
prohibition against impairment of the obligation of contracts.
Section 9 of RA 7294 and Section 23 of RA 7925 are once again put in issue. Section 9 of Smarts
legislative franchise contains the contentious "in lieu of all taxes" clause. The Section reads:
Section 9. Tax provisions. The grantee, its successors or assigns shall be liable to pay the same
taxes on their real estate buildings and personal property, exclusive of this franchise, as other persons
or corporations which are now or hereafter may be required by law to pay. In addition thereto, the
grantee, its successors or assigns shall pay a franchise tax equivalent to three percent (3%) of all gross
receipts of the business transacted under this franchise by the grantee, its successors or assigns and
the said percentage shall be in lieu of all taxes on this franchise or earnings thereof: Provided, That the
grantee, its successors or assigns shall continue to be liable for income taxes payable under Title II of
the National Internal Revenue Code pursuant to Section 2 of Executive Order No. 72 unless the latter
enactment is amended or repealed, in which case the amendment or repeal shall be applicable
thereto.
xxx5
Section 23 of RA 7925, otherwise known as the most favored treatment clause or equality clause,
contains the word "exemption," viz.:
SEC. 23. Equality of Treatment in the Telecommunications Industry Any advantage, favor, privilege,
exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso
facto become part of previously granted telecommunications franchises and shall be accorded
immediately and unconditionally to the grantees of such franchises: Provided, however, That the
foregoing shall neither apply to nor affect provisions of telecommunications franchises concerning
territory covered by the franchise, the life span of the franchise, or the type of the service authorized
by the franchise.6
A review of the recent decisions of the Court on the matter of exemptions from local franchise tax and
the interpretation of the word "exemption" found in Section 23 of RA 7925 is imperative in order to
resolve this issue once and for all.
In Digital Telecommunications Philippines, Inc. (Digitel) v. Province of Pangasinan, 7 Digitel used as an
argument the "in lieu of all taxes" clauses/provisos found in the legislative franchises of Globe, 8 Smart
and Bell,9 vis--visSection 23 of RA 7925, in order to claim exemption from the payment of local
franchise tax. Digitel claimed, just like the petitioner in this case, that it was exempt from the payment
of any other taxes except the national franchise and income taxes. Digitel alleged that Smart was
exempted from the payment of local franchise tax.
However, it failed to substantiate its allegation, and, thus, the Court denied Digitels claim for
exemption from provincial franchise tax. Cited was the ruling of the Court in PLDT v. City of

Davao,10 wherein the Court, speaking through Mr. Justice Vicente V. Mendoza, held that in approving
Section 23 of RA No. 7925, Congress did not intend it to operate as a blanket tax exemption to all
telecommunications entities. Section 23 cannot be considered as having amended PLDTs franchise so
as to entitle it to exemption from the imposition of local franchise taxes. The Court further held that tax
exemptions are highly disfavored and that a tax exemption must be expressed in the statute in clear
language that leaves no doubt of the intention of the legislature to grant such exemption. And, even in
the instances when it is granted, the exemption must be interpreted in strictissimi juris against the
taxpayer and liberally in favor of the taxing authority.
The Court also clarified the meaning of the word "exemption" in Section 23 of RA 7925: that the word
"exemption" as used in the statute refers or pertains merely to an exemption from regulatory or
reporting requirements of the Department of Transportation and Communication or the National
Transmission Corporation and not to an exemption from the grantees tax liability.
In Philippine Long Distance Telephone Company (PLDT) v. Province of Laguna, 11 PLDT was a holder of a
legislative franchise under Act No. 3436, as amended. On August 24, 1991, the terms and conditions of
its franchise were consolidated under Republic Act No. 7082, Section 12 of which embodies the socalled "in-lieu-of-all taxes" clause. Under the said Section, PLDT shall pay a franchise tax equivalent to
three percent (3%) of all its gross receipts, which franchise tax shall be "in lieu of all taxes." The issue
that the Court had to resolve was whether PLDT was liable to pay franchise tax to the Province of
Laguna in view of the "in lieu of all taxes" clause in its franchise and Section 23 of RA 7925.lawph!l
Applying the rule of strict construction of laws granting tax exemptions and the rule that doubts are
resolved in favor of municipal corporations in interpreting statutory provisions on municipal taxing
powers, the Court held that Section 23 of RA 7925 could not be considered as having amended
petitioner's franchise so as to entitle it to exemption from the imposition of local franchise taxes.
In ruling against the claim of PLDT, the Court cited the previous decisions in PLDT v. City of
Davao12 and PLDT v. City of Bacolod, 13 in denying the claim for exemption from the payment of local
franchise tax.
In sum, the aforecited jurisprudence suggests that aside from the national franchise tax, the franchisee
is still liable to pay the local franchise tax, unless it is expressly and unequivocally exempted from the
payment thereof under its legislative franchise. The "in lieu of all taxes" clause in a legislative
franchise should categorically state that the exemption applies to both local and national taxes;
otherwise, the exemption claimed should be strictly construed against the taxpayer and liberally in
favor of the taxing authority.
Republic Act No. 7716, otherwise known as the "Expanded VAT Law," did not remove or abolish the
payment of local franchise tax. It merely replaced the national franchise tax that was previously paid
by telecommunications franchise holders and in its stead imposed a ten percent (10%) VAT in
accordance with Section 108 of the Tax Code. VAT replaced the national franchise tax, but it did not
prohibit nor abolish the imposition of local franchise tax by cities or municipaties.
The power to tax by local government units emanates from Section 5, Article X of the Constitution
which empowers them to create their own sources of revenues and to levy taxes, fees and charges
subject to such guidelines and limitations as the Congress may provide. The imposition of local
franchise tax is not inconsistent with the advent of the VAT, which renders functus officio the franchise
tax paid to the national government. VAT inures to the benefit of the national government, while a local
franchise tax is a revenue of the local government unit.
WHEREFORE, the motion for reconsideration is DENIED, and this denial is final.
SO ORDERED.