HON. KIM S.

JACINTO-HENARES, in her official capacity as COMMISSIONER OF THE BUREAU OF INTERNAL WHEREFORE, in view of all the foregoing, the Court hereby declares BIR RMO No. 20-2013 as UNCONSTITUTIONAL for
REVENUE, Petitioner being violative of Article XIV, Section 4, paragraph 3. Consequently, all Revenue Memorandum Orders subsequently issued to
vs implement BIR RMO No. 20-2013 are declared null and void.
ST. PAUL COLLEGE OF MAKATI, Respondent
The writ of preliminary injunction issued on 03 February 2014 is hereby made permanent.
RESOLUTION
SO ORDERED.11
CARPIO, J.:
On 18 September 2014, the CIR issued RMO No. 34-2014,12 which clarified certain provisions of RMO No. 20-2013, as amended
The Case by RMO No. 28-2013.13

This petition for review1 assails the Decision dated 25 July 20142 and Joint Resolution dated 29 October 20143 of the Regional In a Joint Resolution dated 29 October 2014, the RTC denied the CIR's motion for reconsideration, to wit:
Trial Court, Branch 143, Makati City (RTC), in Civil Case No. 13-1405, declaring Revenue Memorandum Order (RMO) No. 20-
2013 unconstitutional.
WHEREFORE, viewed in the light of the foregoing premises, the Motion for Reconsideration filed by the respondent is hereby
DENIED for lack of merit.
The Facts
Meanwhile, this Court clarifies that the phrase "Revenue Memorandum Order" referred to in the second sentence of its decision
On 22 July 2013, petitioner Kim S. Jacinto-Henares, acting in her capacity as then Commissioner of Internal Revenue (CIR), dated July 25, 2014 refers to "issuance/s" of the respondent which tends to implement RMO 20-2013 for if it is otherwise, said
issued RMO No. 20-2013, "Prescribing the Policies and Guidelines in the Issuance of Tax Exemption Rulings to Qualified Non- decision would be useless and would be rendered nugatory.
Stock, Non-Profit Corporations and Associations under Section 30 of the National Internal Revenue Code of 1997, as Amended."
SO ORDERED.14
On 29 November 2013, respondent St. Paul College of Makati (SPCM), a non-stock, non-profit educational institution organized
and existing under Philippine laws, filed a Civil Action to Declare Unconstitutional [Bureau of Internal Revenue] RMO No. 20-
Hence, this present petition.
2013 with Prayer for Issuance of Temporary Restraining Order and Writ of Preliminary Injunction4 before the RTC. SPCM
alleged that "RMO No. 20-2013 imposes as a prerequisite to the enjoyment by non-stock, non-profit educational institutions of
the privilege of tax exemption under Sec. 4(3) of Article XIV of the Constitution both a registration and approval requirement, The Issues
i.e., that they submit an application for tax exemption to the BIR subject to approval by CIR in the form of a Tax[]Exemption
Ruling (TER) which is valid for a period of [three] years and subject to renewal."5 According to SPCM, RMO No. 20-2013 adds
The CIR raises the following issues for resolution:
a prerequisite to the requirement under Department of Finance Order No. 137-87,6 and makes failure to file an annual information
return a ground for a non-stock, nonprofit educational institution to "automatically lose its income tax-exempt status."7
WHETHER THE TRIAL COURT CORRECTLY CONCLUDED THAT RMO [NO.] 20-2013 IMPOSES A PREREQUISITE
8 BEFORE A NONSTOCK, NON-PROFIT EDUCATIONAL INSTITUTION MAY AVAIL OF THE TAX EXEMPTION
In a Resolution dated 27 December 2013, the RTC issued a temporary restraining order against the implementation of RMO No.
20- 2013. It found that failure of SPCM to comply with RMO No. 20-2013 would necessarily result to losing its tax-exempt status UNDER SECTION 4(3), ARTICLE XIV OF THE CONSTITUTION.
and cause irreparable injury.
WHETHER THE TRIAL COURT CORRECTLY CONCLUDED THAT RMO NO. 20-2013 ADDS TO THE REQUIREMENT
In a Resolution dated 22 January 2014,9 the RTC granted the writ of preliminary injunction after finding that RMO No. 20-2013 UNDER DEPARTMENT OF FINANCE ORDER NO. 137-87.15
appears to divest non-stock, non-profit educational institutions of their tax exemption privilege. Thereafter, the RTC denied the
CIR's motion for reconsideration. On 29 April 2014, SPCM filed a Motion for Judgment on the Pleadings under Rule 34 of the The Ruline of the Court
Rules of Court.
We deny the petition on the ground of mootness.
The Ruling of the RTC
We take judicial notice that on 25 July 2016, the present CIR Caesar R. Dulay issued RMO No. 44-2016, which provides that:
In a Decision dated 25 July 2014, the RTC ruled in favor of SPCM and declared RMO No. 20-2013 unconstitutional.1âwphi1It
held that "by imposing the x x x [prerequisites alleged by SPCM,] and if not complied with by nonstock, non-profit educational
institutions, [RMO No. 20-2013 serves] as diminution of the constitutional privilege, which even Congress cannot diminish by SUBJECT: Amending Revenue Memorandum Order No. 20- 2013, as amended (Prescribing the Policies and Guidelines in the
legislation, and thus more so by the [CIR] who merely exercise[s] quasi-legislative function."10 Issuance of Tax Exemption Rulings to Qualified Non-Stock, Non-Profit Corporations and Associations under Section 30 of the
National Internal Revenue Code of 1997, as Amended)

The dispositive portion of the Decision reads:

In line with the Bureau's commitment to put in proper context the nature and tax status of non-profit, non-stock educational
institutions, this Order is being issued to exclude non-stock, non-profit educational institutions from the coverage of Revenue
Memorandum Order No. 20-2013, as amended.

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SECTION 1. Nature of Tax Exemption. --- The tax exemption of non-stock, non-profit educational institutions is directly SECTION 4. Request for Additional Documents. --- In the course of review of the application for tax exemption, the Bureau may
conferred by paragraph 3, Section 4, Article XIV of the 1987 Constitution, the pertinent portion of which reads: require additional information or documents as the circumstances may warrant.

"All revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively (or educational SECTION 5. Validity of the Tax Exemption Ruling. --- Tax Exemption Rulings or Certificates of Tax Exemption of non-stock,
purposes shall be exempt from taxes and duties." nonprofit educational institutions shall remain valid and effective, unless recalled for valid grounds. They are not required to
renew or revalidate the Tax exemption rulings previously issued to them.
This constitutional exemption is reiterated in Section 30 (H) of the 1997 Tax Code, as amended, which provides as follows:
The Tax Exemption Ruling shall be subject to revocation if there are material changes in the character, purpose or method of
operation of the corporation which are inconsistent with the basis for its income tax exemption.
"Sec. 30. Exempt from Tax on Corporations. - The following organizations shall not be taxed under this Title in respect to income
received by them as such:
SECTION 6. Transitory Provisions. --- To update the records of the Bureau and for purposes of a better system of monitoring,
non-stock, nonprofit educational institutions with Tax Exemption Rulings or Certificates of Exemption issued prior to June 30,
xxx xxx xxx
2012 are required to apply for new Tax Exemption Rulings.

(H) A non-stock and non-profit educational institution; x x x."

It is clear and unmistakable from the aforequoted constitutional provision that non-stock, non-profit educational institutions are
constitutionally exempt from tax on all revenues derived in pursuance of its purpose as an educational institution and used
actually, directly and exclusively for educational purposes. This constitutional exemption gives the non-stock, non-profit
educational institutions a distinct character. And for the constitutional exemption to be enjoyed, jurisprudence and tax rulings
affirm the doctrinal rule that there are only two requisites: (1) The school must be non-stock and non-profit; and (2) The income
is actually, directly and exclusively used for educational purposes. There are no other conditions and limitations.
In this light, the constitutional conferral of tax exemption upon non-stock and non-profit educational institutions should not be
implemented or interpreted in such a manner that will defeat or diminish the intent and language of the Constitution.
SECTION 2. Application for Tax Exemption. --- Non-stock, nonprofit educational institutions shall file their respective
Applications for Tax Exemption with the Office of the Assistant Commissioner, Legal Service, Attention: Law Division.
SECTION 3. Documentary Requirements. --- The non-stock, nonprofit educational institution shall submit the following
documents:
a. Original copy of the application letter for issuance of Tax Exemption Ruling;
SECTION 7. Repealing Clause. --- Any revenue issuance which is inconsistent with this Order is deemed revoked, repealed, or
modified accordingly.
SECTION 8. Effectivity. --- This Order shall take effect immediately. (Emphases supplied)
A moot and academic case is one that ceases to present a justiciable controversy by virtue of supervening events, so that an
adjudication of the case or a declaration on the issue would be of no practical value or use.16 Courts generally decline jurisdiction
over such case or dismiss it on the ground of mootness.17
With the issuance of RMO No. 44-2016, a supervening event has transpired that rendered this petition moot and academic, and
subject to denial.1âwphi1 The CIR, in her petition, assails the RTC Decision finding RMO No. 20-2013 unconstitutional because
it violated the non-stock, non-profit educational institutions' tax exemption privilege under the Constitution. However,
subsequently, RMO No. 44-2016 clarified that non-stock, nonprofit educational institutions are excluded from the coverage of
RMO No. 20-2013. Consequently, the RTC Decision no longer stands, and there is no longer any practical value in resolving the
issues raised in this petition.
WHEREFORE, we DENY the petition on the ground of mootness. We SET ASIDE the Decision dated 25 July 2014 and Joint
Resolution dated 29 October 2014 of the Regional Trial Court, Branch 143, Makati City, declaring Revenue Memorandum Order
No. 20-2013 unconstitutional. The writ of preliminary injunction is superseded by this Resolution.

b. Certified true copy of the Certificate of Good Standing issued by the Securities and Exchange Commission; SO ORDERED.

c. Original copy of the Certification under Oath of the Treasurer as to the amount of the income, compensation, salaries or any
emoluments paid to its trustees, officers and other executive officers;

d. Certified true copy of the Financial Statements of the corporation for the last three (3) years;

e. Certified true copy of government recognition/permit/accreditation to operate as an educational institution issued by the
Commission on Higher Education (CHED), Department of Education (DepEd), or Technical Education and Skills Development
Authority (TESDA); Provided, that if the government recognition/permit/accreditation to operate as an educational institution
was issued five (5) years prior to the application for tax exemption, an original copy of a current Certificate of Operation/Good
Standing, or other equivalent document issued by the appropriate government agency (i.e., CHED, DepEd, or TESDA) shall be
submitted as proof that the non-stock and non-profit education is currently operating as such; and

f. Original copy of the Certificate of utilization of annual revenues and assets by the Treasurer or his equivalent of the non-stock
and nonprofit educational institution.

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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
₱4,554,860 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
petitioner’s 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-LBAA’s 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.
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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 hospital’s 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 petitioner’s 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 ₱20,000 a month, when the
monthly rental should be ₱357,000 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 ₱24,000. 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 pay-patient 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 Court’s 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 d’etre 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;
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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 and alleviate the lung or pulmonary afflictions and maladies of the people in any and all walks of
life, including those who are poor and needy, all without regard to or discrimination, because of race, creed, color or political
belief of the persons helped; and to enable them to obtain treatment when such disorders occur;
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
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:

Under P.D. No. 1823, the petitioner is entitled to receive donations. The petitioner does not lose its character as a charitable It is a settled rule of statutory construction that the express mention of one person, thing, or consequence implies the exclusion
institution simply because the gift or donation is in the form of subsidies granted by the government. As held by the State Supreme of all others. The rule is expressed in the familiar maxim, expressio unius est exclusio alterius.
Court of Utah in Yorgason v. County Board of Equalization of Salt Lake County:24
The rule of expressio unius est exclusio alterius is formulated in a number of ways. One variation of the rule is the principle that
Second, the … government subsidy payments are provided to the project. Thus, those payments are like a gift or donation of any what is expressed puts an end to that which is implied. Expressium facit cessare tacitum. Thus, where a statute, by its terms, is
other kind except they come from the government. In both Intermountain Health Careand the present case, the crux is the expressly limited to certain matters, it may not, by interpretation or construction, be extended to other matters.
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. Mark’s 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.
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 one’s own voluntary act and not upon that
Therefore, the fact that subsidization of part of the cost of furnishing such housing is by the government rather than private
of others. They proceed from the premise that the legislature would not have made specified enumeration in a statute had the
charitable contributions does not dictate the denial of a charitable exemption if the facts otherwise support such an exemption, as
intention been not to restrict its meaning and confine its terms to those expressly mentioned.30
they do here.25

The exemption must not be so enlarged by construction since the reasonable presumption is that the State has granted in express
In this case, the petitioner adduced substantial evidence that it spent its income, including the subsidies from the government for
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
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.
intended beyond what was meant.31

Even as we find that the petitioner is a charitable institution, we hold, anent the second issue, that those portions of its real property
Section 28(3), Article VI of the 1987 Philippine Constitution provides, thus:
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.
(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
The settled rule in this jurisdiction is that laws granting exemption from tax are construed strictissimi juris against the taxpayer
be exempt from taxation.32
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 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
An intention on the part of the legislature to grant an exemption from the taxing power of the state will never be implied from
educational purposes."34
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 Consequently, the constitutional provision is implemented by Section 234(b) of Republic Act No. 7160 (otherwise known as the
owner and in favor of the public. This principle applies with peculiar force to a claim of exemption from taxation . …28 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:

5 of 34
... SO ORDERED.

(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, non-profit or religious cemeteries and
all lands, buildings, and improvements actually, directly, and exclusivelyused 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 petitioner’s evidence shows that it collected ₱1,136,483.45 as rentals in 1991
and ₱1,679,999.28 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.

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COMMISSIONER OF INTERNAL REVENUE, Petitioner
vs. Less: Deductions
ST. LUKE’S MEDICAL CENTER, INC., Respondent
Net Income Subject to Tax
DECISION
XTaxRate

DEL CASTILLO, J.:

Tax Due

The doctrine of stare decisis dictates that "absent any powerful countervailing considerations, like cases ought to be decided Less: Tax Credits
alike."1
Deficiency Income Tax
This Petition for Review on Certiorari2 under Rule 45 of the Rules of Court assails the May 9, 2012 Decision3 and the September
17, 2012 Resolution4 of the Court of Tax Appeals (CTA) in CTA EB Case No. 716. Add: Increments

Factual Antecedents 25% Surcharge

On December 14, 2007, respondent St. Luke’s Medical Center, Inc. (SLMC) received from the Large Taxpayers Service- 20% Interest Per Annum (4115/06-4/15/08)
Documents Processing and Quality Assurance Division of the Bureau of Internal Revenue (BIR) Audit Results/Assessment
Notice Nos. QA-07-0000965 and QA-07-000097,6 assessing respondent SLMC deficiency income tax under Section 27(B)7 of
Compromise Penalty for Late Payment
the 1997 National Internal Revenue Code (NIRC), as amended, for taxable year 2005 in the amount of ₱78,617,434.54 and for
taxable year 2006 in the amount of ₱57,119,867.33.
Total increments
8
On January 14, 2008, SLMC filed with petitioner Commissioner of Internal Revenue (CIR) an administrative protest assailing
Total Amount Due
the assessments. SLMC claimed that as a non-stock, non-profit charitable and social welfare organization under Section 30(E)
and (G)9 of the 1997 NIRC, as amended, it is exempt from paying income tax.

On April 25, 2008, SLMC received petitioner CIR's Final Decision on the Disputed Assessment10 dated April 9, 2008 increasing For Taxable Year 2006:
the deficiency income for the taxable year 2005 tax to ₱82,419,522.21 and for the taxable year 2006 to ₱60,259,885.94, computed
as follows:
ASSESSMENT NO. QA-07-000097
For Taxable Year 2005:

ASSESSMENT NO. QA-07-000096 PARTICULARS

PARTICULARS AMOUNT
Sales/Revenues/Receipts/Fees

Sales/Revenues/Receipts/Fees Less: Cost of Sales/Services ?3,623,511,616.00

Less: Cost of Sales/Services 2,643,049, 769.00

Gross Income From Operation
Gross Income From Operation 980,461,847.00
Add: Non-Operating & Other Income
Add: Non-Operating & Other Income -

Total Gross Income Total Gross Income 980,461,847.00

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 This prompted CIR to file a Petition for Review16 before the CTA En Banc.
Less: Deductions 640,147,719.00
Ruling of the Court of Tax Appeals En Banc

Net Income Subject to Tax 415,256,084.00

On May 9, 2012, the CTA En Banc affirmed the cancellation and setting aside of the Audit Results/Assessment Notices issued
against SLMC. It sustained the findings of the CTA Division that SLMC complies with all the requisites under Section 30(E) and
XTaxRate (G) of the 1997 NIRC and thus, entitled to the tax exemption provided therein.17 10%

On September 17, 2012, the CTA En Banc denied CIR's Motion for Reconsideration.
Tax.Due 41,525,608.40

Issue
Less: Tax Credits -
Hence, CIR filed the instant Petition under Rule 45 of the Rules of Court contending that the CTA erred in exempting SLMC
from the payment of income tax.
Deficiency Income Tax 41,525,608.40

Meanwhile, on September 26, 2012, the Court rendered a Decision in G.R. Nos. 195909 and 195960, entitled Commissioner of
Add: Increments Internal Revenue v. St. Luke's Medical Center, Inc.,18 finding SLMC not entitled to the tax exemption under Section 30(E) and-
(G) of the NIRC of 1997 as it does not operate exclusively for charitable or social welfare purposes insofar as its revenues from
paying patients are concerned. Thus, the Court disposed of the case in this manner:
25% Surcharge 10,381,402.10
WHEREFORE, the petition of the Commissioner of Internal Revenue in G.R. No. 195909is PARTLY GRANTED. The Decision
20% Interest Per Annum (4/15/07-4/15/08) of the Court of Tax Appeals En Banc dated 19 November 2010 and its Resolution dated 1 March 2011 in CTA Case No. 6746
8,327,875.44
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
Compromise Penalty for Late Payment and interest on such deficiency income tax under Sections 248 and 249 of the National Internal Revenue Code. All other parts of
25,000.00
the Decision and Resolution of the Court of Tax Appeals are AFFIRMED.

Total increments The petition of St. Luke's Medical Center, Inc. in G.R. No. 195960 is DENIED for violating Section I, Rule 45 of18,734,277.54
the Rules of
Court.
11
Total Amount Due
19
SO ORDERED.

Aggrieved, SLMC elevated the matter to the CTA via a Petition for Review,12 docketed as CTA Case No. 7789.
Ruling of the Court of Tax Appeals Division
On August 26, 2010, the CTA Division rendered a Decision13 finding SLMC not liable for deficiency income tax under Section
27(B) of the 1997 NIRC, as amended, since it is exempt from paying income tax under Section 30(E) and (G) of the same Code.
Thus:
Considering the foregoing, SLMC then filed a Manifestation and Motion20 informing the Court that on April 30, 2013, it paid the
BIR the amount of basic taxes due for taxable years 1998, 2000-2002, and 2004-2007, as evidenced by the payment
confirmation21 from the BIR, and that it did not pay any surcharge, interest, and compromise penalty in accordance with the
above-mentioned Decision of the Court. In view of the payment it made, SLMC moved for the dismissal of the instant case on
the ground of mootness.
CIR opposed the motion claiming that the payment confirmation submitted by SLMC is not a competent proof of payment as it
is a mere photocopy and does not even indicate the quarter/sand/or year/s said payment covers.22

WHEREFORE, premises considered, the Petition for Review is hereby GRANTED. Accordingly, Audit Results/Assessment
Notice Nos. QA-07-000096 and QA-07-000097, assessing petitioner for alleged deficiency income taxes for the taxable years
2005 and 2006, respectively, are hereby CANCELLED and SET ASIDE.
SO ORDERED.14
In reply,23 SLMC submitted a copy of the Certification24 issued by the Large Taxpayers Service of the BIR dated May 27, 2013,
certifying that, "[a]s far as the basic deficiency income tax for taxable years 2000, 2001, 2002, 2004, 2005, 2006, 2007 are
concen1ed, this Office considers the cases closed due to the payment made on April 30, 2013." SLMC likewise submitted a
letter25 from the BIR dated November 26, 2013 with attached Certification of Payment26and application for abatement,27 which
it earlier submitted to the Court in a related case, G.R. No. 200688, entitled Commissioner of Internal Revenue v. St. Luke's
Medical Center, Inc.28

CIR moved for reconsideration but the CTA Division denied the same in its December 28, 2010 Resolution.15 Thereafter, the parties submitted their respective memorandum.

8 of 34
CIR 's Arguments
CIR argues that under the doctrine of stare decisis SLMC is subject to 10% income tax under Section 27(B) of the 1997 NIRC.29 It
likewise asserts that SLMC is liable to pay compromise penalty pursuant to Section 248(A)30 of the 1997 NIRC for failing to file
its quarterly income tax returns.31
As to the alleged payment of the basic tax, CIR contends that this does not render the instant case moot as the payment
confirmation submitted by SLMC is not a competent proof of payment of its tax liabilities.32
SLMC's Arguments
SLMC, on the other hand, begs the indulgence of the Court to revisit its ruling in G.R. Nos. 195909 and 195960 (Commissioner
of Internal Revenue v. St. Luke's Medical Center, Inc.)33 positing that earning a profit by a charitable, benevolent hospital or
educational institution does not result in the withdrawal of its tax exempt privilege.34 SLMC further claims that the income it
derives from operating a hospital is not income from "activities conducted for profit."35 Also, it maintains that in accordance with
the ruling of the Court in G.R. Nos. 195909 and 195960 (Commissioner of Internal Revenue v. St. Luke's Medical Center,
Inc.),36 it is not liable for compromise penalties.37
In any case, SLMC insists that the instant case should be dismissed in view of its payment of the basic taxes due for taxable years
1998, 2000-2002, and 2004-2007 to the BIR on April 30, 2013.38
Our Ruling
SLMC is liable for income tax under
Section 27(B) of the 1997 NIRC insofar
as its revenues from paying patients are
concerned
The issue of whether SLMC is liable for income tax under Section 27(B) of the 1997 NIRC insofar as its revenues from paying
patients are concerned has been settled in G.R. Nos. 195909 and 195960 (Commissioner of Internal Revenue v. St. Luke's Medical
Center, Inc.),39 where the Court ruled that:
x x x 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 non-profit educational institutions 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)(l).
Section 27(B) of the NIRC imposes a 10% preferential tax rate on the income of (1) proprietary non-profit 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, 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. The club was non-profit because of its purpose and there was no evidence that it was engaged in a profit-making enterprise.
9 of 34
The sports club in Club Filipino, Inc. de Cebu may be non-profit, but it was not charitable. Tue Court defined 'charity' in Lung
Center of the Philippines v. Quezon City 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.' A nonprofit 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.
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.' The requirements for a tax exemption are strictly construed against the taxpayer 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 and Jesus Sacred Heart College 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 outpatient, 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.
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.' The test of exemption is not strictly a requirement on the intrinsic nature or
character of the institution. The test requires that the institution use 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 to its 'Free Services' expenditure of ₱218,187,498. 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.
(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. x x xx

Thus, both the organization and operations of the charitable institution must be devoted 'exclusively' for charitable purposes. The In Lung Center, this Court declared:
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
'[e]xclusive' is defined as possessed and enjoyed to the exclusion of others; debarred from participation or enjoyment; and
the Corporation Code as 'one where no part of its income is distributable as dividends to its members, trustees, or officers' and
'exclusively' is defined, 'in a manner to exclude; as enjoying a privilege exclusively.' . . . The words 'dominant use' or 'principal
that any profit 'obtain[ed] as an incident to its operations shall, whenever necessary or proper, be used for the furtherance of the
use' cannot be substituted for the words 'used exclusively' without doing violence to the Constitution and thelaw. Solely is
purpose or purposes for which the corporation was organized.' However, under Lung Center, any profit by a charitable institution
synonymous with exclusively.
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.'
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 operations of the charitable institution generally refer to its regular activities. Section 30(E) of the NIRC requires that these
the cost' of services. The ₱l.73 billion total revenues from paying patients is not even incidental to St. Luke's charity expenditure
operations be exclusive to charity. There is also a specific requirement that 'no part of [the] net income or asset shall belong to or
of ₱2l8,187,498 for non-paying patients.
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.
St. Luke's claims that its charity expenditure of ₱218,187,498 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
There is no dispute that St. Luke's is organized as a non-stock and non-profit charitable institution. However, this does not
non-paying patients, then it cannot be said that the income is 'devoted or used altogether to the charitable object which it is
automatically exempt St. Luke's from paying taxes. This only refers to the organization of St. Luke's. Even if St. Luke's meets
intended to achieve.' The income is plowed back to the corporation not entirely for charitable purposes, but for profit as well. In
the test of charity, a charitable institution is not ipso facto tax exempt. To be exempt from real property taxes, Section 28(3),
any case, the last paragraph of Section 30 of the NIRC expressly qualifies that income from activities for profit is taxable
Article VI of the Constitution requires that a charitable institution use the property 'actually, directly and exclusively' for charitable
'regardless of the disposition made of such income.'
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. 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.'
However, the last paragraph of Section 30 of the NIRC qualifies the words 'organized and operated exclusively' by providing
that:
P. Cuando ha hablado de la Universidad de Santo Tomas que tiene un hospital, no cree V d que es una actividad esencial dicho
hospital para el funcionamiento def colegio de medicina
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. de dicha universidad?

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 . . . charitable . .
. purposes . . . . ' 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%.
x x x x x x xxx
R. Si el hospital se limita a recibir enformos pobres, mi contestacion seria afirmativa; pero considerando que el hospital tiene
cuartos de pago, y a los mismos generalmente van enfermos de buena posicion social economica, 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.'
The question was whether having a hospital is essential to an educational institution like the College of Medicine of the University
of Santo Tomas.1awp++i1 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.'

In 1998, St. Luke's had total revenues of ₱l,730,367,965 from services to paying patients. It cannot be disputed that a hospital
which receives approximately ₱l.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.' Indeed, St. Luke's admits that
it derived profits from its paying patients. St. Luke's declared ₱l,730,367,965 as 'Revenues from Services to Patients' in contrast
The question in Jesus Sacred Heart College involves an educational institution. 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.

10 of 34
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).
While the Court agrees with the CIR that the payment confirmation from the BIR presented by SLMC is not a competent proof
of payment as it does not indicate the specific taxable period the said payment covers, the Court finds that the Certification issued
by the Large Taxpayers Service of the BIR dated May 27, 2013, and the letter from the BIR dated November 26, 2013 with
attached Certification of Payment and application for abatement are sufficient to prove payment especially since CIR never
questioned the authenticity of these documents. In fact, in a related case, G.R. No. 200688, entitled Commissioner of Internal
Revenue v. St. Luke's Medical Center, lnc.,45 the Court dismissed the petition based on a letter issued by CIR confirming SLMC's
payment of taxes, which is the same letter submitted by SLMC in the instant case.

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 lin1ited 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.
In fine, the Court resolves to dismiss the instant Petition as the same has been rendered moot by the payment made by SLMC of
the basic taxes for the taxable years 2005 and 2006, in the amounts of ₱49,919,496.40 and ₱4 l,525,608.40, respectively.46
WHEREFORE, the Petition is hereby DISMISSED.

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
SO ORDERED.
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' and thus exempt from income tax. In Michael J Lhuillier, Inc. v. Commissioner of Internal Revenue, 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.'40

A careful review of the pleadings reveals that there is no countervailing consideration for the Court to revisit its aforequoted
ruling in G.R. Nos. 195909 and 195960 (Commissioner of Internal Revenue v. St. Luke's Medical Center, Inc.). Thus, under the
doctrine of stare decisis, which states that "[o]nce a case has been decided in one way, any other case involving exactly the same
point at issue x x x should be decided in the same manner,"41 the Court finds that SLMC is subject to 10% income tax insofar as
its revenues from paying patients are concerned.

To be clear, for an institution to be completely exempt from income tax, Section 30(E) and (G) of the 1997 NIRC requires said
institution to operate exclusively for charitable or social welfare purpose. But in case an exempt institution under Section 30(E)
or (G) of the said Code earns income from its for-profit activities, it will not lose its tax exemption. However, its income from
for-profit activities will be subject to income tax at the preferential 10% rate pursuant to Section 27(B) thereof.

SLMC is not liable for Compromise

Penalty.

As to whether SLMC is liable for compromise penalty under Section 248(A) of the 1997 NIRC for its alleged failure to file its
quarterly income tax returns, this has also been resolved in G.R Nos. 195909 and 195960 (Commissioner of Internal Revenue v.
St. Luke's Medical Center, Inc.),42 where the imposition of surcharges and interest under Sections 24843 and 24944 of the 1997
NIRC were deleted on the basis of good faith and honest belief on the part of SLMC that it is not subject to tax. Thus, following
the ruling of the Court in the said case, SLMC is not liable to pay compromise penalty under Section 248(A) of the 1997 NIRC.

The Petition is rendered moot by the

payment made by SLMC on April 30,
2013.

However, in view of the payment of the basic taxes made by SLMC on April 30, 2013, the instant Petition has become
moot.1avvphi1

11 of 34
COMMISSIONER OF INTERNAL REVENUE, petitioner, Republic Act No. 6110 took effect on September 1, 1969. By this virtue, petitioners assessed the club fixed taxes as operators of
vs. golf links and restaurants, and also percentage tax (caterer's tax) for its sale of foods and fermented liquors/wines for the period
HON. COURT OF TAX APPEALS and MANILA GOLF & COUNTRY CLUB, INC., respondents. 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:
Bito, Misa & Lozada for private respondent.
MALACAÑANG
Manila
MEDIALDEA, J.:
August 4, 1969
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. Gentlemen of the House
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:
of Representatives:

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
I have the honor to inform you that I have this day signed H.B. No. 17839, entitled:
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 AN ACT AMENDING CERTAIN
Internal Revenue v. Manila Hotel Corporation and the Court of Tax Appeals, G.R. No. 83250, September 26, 1989)
PROVISIONS OF THE NATIONAL INTERNAL
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
REVENUE CODE, AS AMENDED
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. Pursuant to the provisions of Section 20-(3), Article VI, of the Constitution, however, I have vetoed the following items in this
bill:
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 xxx xxx xxx
accompanied guests, and it charges on cost-plus-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: 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
Sec. 191-A. Caterer. — A caterer's tax is hereby imposed as follows: 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
(1) On proprietors or operators of restaurants, refreshment parlors and other eating places, including clubs, and caterers, three per other eating places maintained within the premises or compound of a hotel, motel, resthouse, cockpit, race track, jai-alai, cabaret,
cent of their gross receipts. night or day club, or which are accessible to patrons of said establishments by means of a connecting door or passage.

(2) On proprietors or operators of restaurants, bars, cafes and other eating places, including clubs, where distilled spirits, The burden of petition will be shifted to the consuming public.
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 The development of hotels, essential to our tourist industry, may be restrained considering that a big portion of hotel earnings
serially numbered in duplicate shall be separately prepared and issued, one for sale of refreshments served, and another for each comes from food sale. . . .
sale of distilled spirits, fermented liquors or wines served, the originals of the invoices or receipts to be issued to the purchaser
or customer.
This bill, H.B. No. 17839, has become Republic Act No. 6110.

(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 Respectfully,
connecting door or passage twenty per cent of their gross receipts.
(SGD.) FERDINAND E. MARCOS
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 [Emphasis ours]
corresponding tax at the rate fixed above. (Emphasis supplied)

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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:
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.

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

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SOUTHERN CROSS CEMENT CORPORATION, petitioner,
vs.
THE PHILIPPINE CEMENT MANUFACTURERS CORP., THE SECRETARY OF THE DEPARTMENT OF
TRADE & INDUSTRY, THE SECRETARY OF THE DEPARTMENT OF FINANCE, and THE COMMISSIONER
OF THE BUREAU OF CUSTOMS, respondents.
DECISION
TINGA, J.:
"Good fences make good neighbors," so observed Robert Frost, the archetype of traditional New England detachment.
The Frost ethos has been heeded by nations adjusting to the effects of the liberalized global market.1The Philippines, for one,
enacted Republic Act (Rep. Act) No. 8751 (on the imposition of countervailing duties), Rep. Act No. 8752 (on the imposition of
anti-dumping duties) and, finally, Rep. Act No. 8800, also known as the Safeguard Measures Act ("SMA")2 soon after it joined
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 The wisdom of the policies
behind the SMA, however, is not put into question by the petition at bar. The questions submitted to the Court relate to the means
and the procedures ordained in the law to ensure that the determination of the imposition or non-imposition of a safeguard measure
is proper.
Antecedent Facts
Petitioner Southern Cross Cement Corporation ("Southern Cross") is a domestic corporation engaged in the business of cement
manufacturing, production, importation and exportation. Its principal stockholders are Taiheiyo Cement Corporation and
Tokuyama Corporation, purportedly the largest cement manufacturers in Japan.5
Private respondent Philippine Cement Manufacturers Corporation6 ("Philcemcor") is an association of domestic cement
manufacturers. It has eighteen (18) members,7 per Record. While Philcemcor heralds itself to be an association of domestic
cement manufacturers, it appears that considerable equity holdings, if not controlling interests in at least twelve (12) of its
member-corporations, were acquired by the three largest cement manufacturers in the world, namely Financiere Lafarge S.A. of
France, Cemex S.A. de C.V. of Mexico, and Holcim Ltd. of Switzerland (formerly Holderbank Financiere Glaris, Ltd., then
Holderfin B.V.).8
On 22 May 2001, respondent Department of Trade and Industry ("DTI") accepted an application from Philcemcor, alleging that
the importation of gray Portland cement9 in increased quantities has caused declines in domestic production, capacity utilization,
market share, sales and employment; as well as caused depressed local prices. Accordingly, Philcemcor sought the imposition at
first of provisional, then later, definitive safeguard measures on the import of cement pursuant to the SMA. Philcemcor filed the
application in behalf of twelve (12) of its member-companies.10
After preliminary investigation, the Bureau of Import Services of the DTI, determined that critical circumstances existed
justifying the imposition of provisional measures.11 On 7 November 2001, the DTI issued an Order, imposing a provisional
measure equivalent to Twenty Pesos and Sixty Centavos (P20.60) per forty (40) kilogram bag on all importations of gray Portland
cement for a period not exceeding two hundred (200) days from the date of issuance by the Bureau of Customs (BOC) of the
implementing Customs Memorandum Order.12 The corresponding Customs Memorandum Order was issued on 10 December
2001, to take effect that same day and to remain in force for two hundred (200) days.13
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In the meantime, the Tariff Commission, on 19 November 2001, received a request from the DTI for a formal investigation to
determine whether or not to impose a definitive safeguard measure on imports of gray Portland cement, pursuant to Section 9 of
the SMA and its Implementing Rules and Regulations. A notice of commencement of formal investigation was published in the
newspapers on 21 November 2001. Individual notices were likewise sent to concerned parties, such as Philcemcor, various
importers and exporters, the Embassies of Indonesia, Japan and Taiwan, contractors/builders associations, industry associations,
cement workers' groups, consumer groups, non-government organizations and concerned government agencies.14 A preliminary
conference was held on 27 November 2001, attended by several concerned parties, including Southern Cross.15 Subsequently, the
Tariff Commission received several position papers both in support and against Philcemcor's application.16 The Tariff
Commission also visited the corporate offices and manufacturing facilities of each of the applicant companies, as well as that of
Southern Cross and two other cement importers.17
On 13 March 2002, the Tariff Commission issued its Formal Investigation Report ("Report"). Among the factors studied by the
Tariff Commission in its Report were the market share of the domestic industry,18 production and sales,19 capacity
utilization,20 financial performance and profitability,21 and return on sales.22 The Tariff Commission arrived at the following
conclusions:
1. The circumstances provided in Article XIX of GATT 1994 need not be demonstrated since the product under consideration
(gray Portland cement) is not the subject of any Philippine obligation or tariff concession under the WTO Agreement.
Nonetheless, such inquiry is governed by the national legislation (R.A. 8800) and the terms and conditions of the Agreement on
Safeguards.
2. The collective output of the twelve (12) applicant companies constitutes a major proportion of the total domestic production
of gray Portland cement and blended Portland cement.
3. Locally produced gray Portland cement and blended Portland cement (Pozzolan) are "like" to imported gray Portland cement.
4. Gray Portland cement is being imported into the Philippines in increased quantities, both in absolute terms and relative to
domestic production, starting in 2000. The increase in volume of imports is recent, sudden, sharp and significant.
5. The industry has not suffered and is not suffering significant overall impairment in its condition, i.e., serious injury.
6. There is no threat of serious injury that is imminent from imports of gray Portland cement.
7. Causation has become moot and academic in view of the negative determination of the elements of serious injury and imminent
threat of serious injury.23
Accordingly, the Tariff Commission made the following recommendation, to wit:
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.24
The DTI received the Report on 14 March 2002. After reviewing the report, then DTI Secretary Manuel Roxas II ("DTI
Secretary") disagreed with the conclusion of the Tariff Commission that there was no serious injury to the local cement industry
caused by the surge of imports.25 In view of this disagreement, the DTI requested an opinion from the Department of Justice
("DOJ") on the DTI Secretary's scope of options in acting on the Commission's recommendations. Subsequently, then DOJ
Secretary Hernando Perez rendered an opinion stating that Section 13 of the SMA precluded a review by the DTI Secretary of
the Tariff Commission's negative finding, or finding that a definitive safeguard measure should not be imposed.26
On 5 April 2002, the DTI Secretary promulgated a Decision. After quoting the conclusions of the Tariff Commission, the DTI
Secretary noted the DTI's disagreement with the conclusions. However, he also cited the DOJ Opinion advising the DTI that it
was bound by the negative finding of the Tariff Commission. Thus, he ruled as follows:
The DTI has no alternative but to abide by the [Tariff] Commission's recommendations.
IN VIEW OF THE FOREGOING, and in accordance with Section 13 of RA 8800 which states:
"In the event of a negative final determination; or if the cash bond is in excess of the definitive safeguard duty assessed, the
Secretary shall immediately issue, through the Secretary of Finance, a written instruction to the Commissioner of Customs,
authorizing the return of the cash bond or the remainder thereof, as the case may be, previously collected as provisional
general safeguard measure within ten (10) days from the date a final decision has been made; Provided, that the government
shall not be liable for any interest on the amount to be returned. The Secretary shall not accept for consideration another
petition from the same industry, with respect to the same imports of the product under consideration within one (1) year after
the date of rendering such a decision."
The DTI hereby issues the following:
The application for safeguard measures against the importation of gray Portland cement filed by PHILCEMCOR (Case No. 02-
2001) is hereby denied.27 (Emphasis in the original)
Philcemcor received a copy of the DTI Decision on 12 April 2002. Ten days later, it filed with the Court of Appeals a Petition
for Certiorari, Prohibition and Mandamus28 seeking to set aside the DTI Decision, as well as the Tariff Commission's Report.
Philcemcor likewise applied for a Temporary Restraining Order/Injunction to enjoin the DTI and the BOC from implementing
the questioned Decision and 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.29
On 10 June 2002, Southern Cross filed its Comment.30 It argued that the Court of Appeals had no jurisdiction over
Philcemcor's Petition, for it is on the Court of Tax Appeals ("CTA") that the SMA conferred jurisdiction to review rulings of the
Secretary in connection with the imposition of a safeguard measure. It likewise argued that Philcemcor's resort to the special civil
action of certiorari is improper, considering that what Philcemcor sought to rectify is an error of judgment and not an error of
jurisdiction or grave abuse of discretion, and that a petition for review with the CTA was available as a plain, speedy and adequate
remedy. Finally, Southern Cross echoed the DOJ Opinion that Section 13 of the SMA precludes a review by the DTI Secretary
of a negative finding of the Tariff Commission.
After conducting a hearing on 19 June 2002 on Philcemcor's application for preliminary injunction, the Court of Appeals' Twelfth
Division31 granted the writ sought in its Resolution dated 21 June 2002.32 Seven days later, on 28 June 2002, the two-hundred
(200)-day period for the imposition of the provisional measure expired. Despite the lapse of the period, the BOC continued to
impose the provisional measure on all importations of Portland cement made by Southern Cross. The uninterrupted assessment
of the tariff, according to Southern Cross, worked to its detriment to the point that the continued imposition would eventually
lead to its closure.33
Southern Cross timely filed a Motion for Reconsideration of the Resolution on 9 September 2002. Alleging that Philcemcor was
not entitled to provisional relief, Southern Cross likewise sought a clarificatory order as to whether the grant of the writ of
preliminary injunction could extend the earlier imposition of the provisional measure beyond the two hundred (200)-day limit
imposed by law. The appeals' court failed to take immediate action on Southern Cross's motion despite the four (4) motions for
early resolution the latter filed between September of 2002 and February of 2003. After six (6) months, on 19 February 2003, the
Court of Appeals directed Philcemcor to comment on Southern Cross's Motion for Reconsideration.34 After Philcemcor filed
its Opposition35 on 13 March 2003, Southern Cross filed another set of four (4) motions for early resolution.
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Despite the efforts of Southern Cross, the Court of Appeals failed to directly resolve the Motion for Reconsideration. Instead, on
5 June 2003, it rendered a Decision,36 granting in part Philcemcor's petition. The appellate court ruled that it had jurisdiction over
the petition for certiorari since it alleged grave abuse of discretion. It refused to annul the findings of the Tariff Commission,
citing the rule that factual findings of administrative agencies are binding upon the courts and its corollary, that courts should not
interfere in matters addressed to the sound discretion and coming under the special technical knowledge and training of such
agencies.37 Nevertheless, it held that the DTI Secretary is not bound by the factual findings of the Tariff Commission since such
findings are merely recommendatory and they fall within the ambit of the Secretary's discretionary review. It determined that the
legislative intent is to grant the DTI Secretary the power to make a final decision on the Tariff Commission's
recommendation.38 The dispositive portion of the Decision reads:
WHEREFORE, based on the foregoing premises, petitioner's prayer to set aside the findings of the Tariff Commission in its
assailed Report dated March 13, 2002 is DENIED. On the other hand, the assailed April 5, 2002 Decision of the Secretary of the
Department of Trade and Industry is hereby SET ASIDE. Consequently, the case is REMANDED to the public respondent
Secretary of Department of Trade and Industry for a final decision in accordance with RA 8800 and its Implementing Rules and
Regulations.
SO ORDERED.39
On 23 June 2003, Southern Cross filed the present petition, assailing the appellate court's Decision for departing from the accepted
and usual course of judicial proceedings, and not deciding the substantial questions in accordance with law and jurisprudence.
The petition argues in the main that the Court of Appeals has no jurisdiction over Philcemcor's petition, the proper remedy being
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 conditions warranting the imposition of general safeguard measures are binding upon the DTI
Secretary.
The timely filing of Southern Cross's petition before this Court necessarily prevented the Court of Appeals Decisionfrom
becoming final.40 Yet on 25 June 2003, the DTI Secretary issued a new Decision, ruling this time that that in light of the appellate
court's Decision there was no longer any legal impediment to his deciding Philcemcor's application for definitive safeguard
measures.41 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.42 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.43
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 his Decision 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 Secretary's 25 June
2003 Decision which imposed the definite safeguard measure. Prescinding from this action, Philcemcor filed with this Court
a Manifestation and Motion to Dismiss in regard to Southern Cross's petition, alleging that it deliberately and willfully resorted
to forum-shopping. It points out that Southern Cross's TRO Application seeks to enjoin the DTI Secretary's second decision,
while its Petition before the CTA prays for the annulment of the same decision.44
Reiterating its Comment on Southern Cross's Petition for Review, Philcemcor also argues 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.45
After giving due course to Southern Cross's Petition, the Court called the case for oral argument on 18 February 2004.46 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 its Decision is in accordance with law; and, (iii) whether
a Temporary Restraining Order is warranted.47
During the oral arguments, counsel for Southern Cross manifested that due to the imposition of the general safeguard measures,
Southern Cross was forced to cease operations in the Philippines in November of 2003.48
Propriety of the Temporary Restraining Order
Before the merits of the Petition, a brief comment on Southern Cross's application for provisional relief. It sought to enjoin the
DTI Secretary from enforcing the definitive safeguard measure he imposed in his 25 June 2003 Decision. The Court did not grant
the provisional relief for it would be tantamount to enjoining the collection of taxes, a peremptory judicial act which is
traditionally frowned upon,49 unless there is a clear statutory basis for it.50 In that regard, Section 218 of the Tax Reform Act of
1997 prohibits any court from granting an injunction to restrain the collection of any national internal revenue tax, fee or charge
imposed by the internal revenue code.51 A similar philosophy is expressed by Section 29 of the SMA, which states that the filing
of a petition for review before the CTA does not stop, suspend, or otherwise toll the imposition or collection of the appropriate
tariff duties or the adoption of other appropriate safeguard measures.52 This evinces a clear legislative intent that the imposition
of safeguard measures, despite the availability of judicial review, should not be enjoined notwithstanding any timely appeal of
the imposition.
The Forum-Shopping Issue
In the same breath, we are not convinced that the allegation of forum-shopping has been duly proven, or that sanction should
befall upon Southern Cross and its counsel. The standard by Section 5, Rule 7 of the 1997 Rules of Civil Procedure in order that
sanction may be had is that "the acts of the party or his counsel clearly constitute willful and deliberate forum shopping."53 The
standard implies a malicious intent to subvert procedural rules, and such state of mind is not evident in this case.
The Jurisdictional Issue
On to the merits of the present petition.
In its assailed Decision, the Court of Appeals, after asserting only in brief that it had jurisdiction over Philcemcor's Petition,
discussed the issue of whether or not the DTI Secretary is bound to adopt the negative recommendation of the Tariff Commission
on the application for safeguard measure. The Court of Appeals maintained that it had jurisdiction over the petition, as it alleged
grave abuse of discretion on the part of the DTI Secretary, thus:
A perusal of the instant petition reveals allegations of grave abuse of discretion on the part of the DTI Secretary in rendering the
assailed April 5, 2002 Decision wherein it was ruled that he had no alternative but to abide by the findings of the Commission on
the matter of safeguard measures for the local cement industry. Abuse of discretion is admittedly within the ambit of certiorari.
Grave abuse of discretion implies such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction. It
is alleged that, in the assailed Decision, the DTI Secretary gravely abused his discretion in wantonly evading to discharge his
duty to render an independent determination or decision in imposing a definitive safeguard measure.54
We do not doubt that the Court of Appeals' certiorari powers extend to correcting grave abuse of discretion on the part of an
officer exercising judicial or quasi-judicial functions.55 However, the special civil action of certiorari is available only when there
is no plain, speedy and adequate remedy in the ordinary course of law.56 Southern Cross relies on this limitation, stressing that
Section 29 of the SMA is a plain, speedy and adequate remedy in the ordinary course of law which Philcemcor did not avail of.
The Section 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.
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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.57 (Emphasis
supplied)
It is not difficult to divine why the legislature singled out the CTA as the court with jurisdiction to review the ruling of the DTI
Secretary in connection with the imposition of a safeguard measure. The Court has long recognized the legislative determination
to vest sole and exclusive jurisdiction on matters involving internal revenue and customs duties to such a specialized court.58 By
the very nature of its function, the CTA is dedicated exclusively to the study and consideration of tax problems and has necessarily
developed an expertise on the subject.59
At the same time, since the CTA is a court of limited jurisdiction, its jurisdiction to take cognizance of a case should be clearly
conferred and should not be deemed to exist on mere implication.60 Concededly, Rep. Act No. 1125, the statute creating the CTA,
does not extend to it the power to review decisions of the DTI Secretary in connection with the imposition of safeguard
measures.61 Of course, at that time which was before the advent of trade liberalization the notion of safeguard measures or safety
nets was not yet in vogue.
Undeniably, however, the SMA expanded the jurisdiction of the CTA by including review of the rulings of the DTI Secretary in
connection with the imposition of safeguard measures. However, Philcemcor and the public respondents agree that the CTA has
appellate jurisdiction over a decision of the DTI Secretary imposing a safeguard measure, but not when his ruling is not to impose
such measure.
In a related development, Rep. Act No. 9282, enacted 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 xxx involving
xxx safeguard measures under Republic Act No. 8800, where either party may appeal the decision to impose or not to
impose said duties."62 Had Rep. Act No. 9282 already been in force at the beginning of the incidents subject of this case, there
would have been no need to make any deeper inquiry as to the extent of the CTA's jurisdiction. But as Rep. Act No. 9282 cannot
be applied retroactively to the present case, the question of whether such jurisdiction extends to a decision not to impose a
safeguard measure will have to be settled principally on the basis of the SMA.
Under Section 29 of the SMA, 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. The first two
requisites are clearly present. The third requisite deserves closer scrutiny.
Contrary to the stance of the public respondents and Philcemcor, in this case where the DTI Secretary decides not to impose a
safeguard measure, it is the CTA which has jurisdiction to review his decision. The reasons are as follows:
First. Split jurisdiction is abhorred.
Essentially, respondents' position is that judicial review of the DTI Secretary's ruling is exercised by two different courts,
depending on whether or not it imposes a safeguard measure, and in either case the court exercising jurisdiction does so to the
exclusion of the other. Thus, if the DTI decision involves the imposition of a safeguard measure it is the CTA which has appellate
jurisdiction; otherwise, it is the Court of Appeals. Such setup is as novel and unusual as it is cumbersome and unwise. Essentially,
respondents advocate that Section 29 of the SMA has established split appellate jurisdiction over rulings of the DTI Secretary on
the imposition of safeguard measure.
This interpretation cannot be favored, as the Court has consistently refused to sanction split jurisdiction.63 The power of the DTI
Secretary to adopt or withhold a safeguard measure emanates from the same statutory source, and it boggles the mind why the
appeal modality would be such that one appellate court is qualified if what is to be reviewed is a positive determination, and it is
not if what is appealed is a negative determination. In deciding whether or not to impose a safeguard measure, provisional or
general, the DTI Secretary would be evaluating only one body of facts and applying them to one set of laws. The reviewing
tribunal will be called upon to examine the same facts and the same laws, whether or not the determination is positive or negative.
In short, if we were to rule for respondents we would be confirming the exercise by two judicial bodies of jurisdiction over
basically the same subject matter¾precisely the split-jurisdiction situation which is anathema to the orderly administration of
justice.64 The Court cannot accept that such was the legislative motive especially considering that the law expressly confers on
the CTA, the tribunal with the specialized competence over tax and tariff matters, the role of judicial review without mention of
any other court that may exercise corollary or ancillary jurisdiction in relation to the SMA. The provision refers to the Court of
Appeals but only in regard to procedural rules and dispositions of appeals from the CTA to the Court of Appeals.65
The principle enunciated in Tejada v. Homestead Property Corporation66 is applicable to the case at bar:
The Court agrees with the observation of the [that] when an administrative agency or body is conferred quasi-judicial
functions, all controversies relating to the subject matter pertaining to its specialization are deemed to be included within
the jurisdiction of said administrative agency or body. Split jurisdiction is not favored.67
Second. The interpretation of the provisions of the SMA favors vesting untrammeled appellate jurisdiction on the CTA.
A plain reading of Section 29 of the SMA reveals that Congress did not expressly bar the CTA from reviewing a negative
determination by the DTI Secretary nor conferred on the Court of Appeals such review authority. Respondents note, on the other
hand, that neither did the law expressly grant to the CTA the power to review a negative determination. However, under the clear
text of the law, the CTA is vested with jurisdiction to review the ruling of the DTI Secretary "in connection with the imposition
of a safeguard measure." Had the law been couched instead to incorporate the phrase "the ruling imposing a safeguard measure,"
then respondent's claim would have indisputable merit. Undoubtedly, the phrase "in connection with" not only qualifies but
clarifies the succeeding phrase "imposition of a safeguard measure." As expounded later, the phrase also encompasses the
opposite or converse ruling which is the non-imposition of a safeguard measure.
In the American case of Shaw v. Delta Air Lines, Inc.,68 the United States Supreme Court, in interpreting a key provision of the
Employee Retirement Security Act of 1974, construed the phrase "relates to" in its normal sense which is the same as "if it has
connection with or reference to."69 There is no serious dispute that the phrase "in connection with" is synonymous to "relates to"
or "reference to," and that all three phrases are broadly expansive. This is affirmed not just by jurisprudential fiat, but also the
acquired connotative meaning of "in connection with" in common parlance. Consequently, with the use of the phrase "in
connection with," Section 29 allows the CTA to review not only the ruling imposing a safeguard measure, but all other rulings
related or have reference to the application for such measure.
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 US Supreme Court in New York State Blue Cross Plans v. Travelers
Ins.70 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.71 Thus, in the case the US 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."72 A similar inquiry into the other provisions of the SMA is in order to determine the scope of review
accorded therein to the CTA.73
The authority to decide on the safeguard measure is vested in the DTI Secretary in the case of non-agricultural products, and in
the Secretary of the Department of Agriculture in the case of agricultural products.74 Section 29 is likewise explicit that only the
rulings of the DTI Secretary or the Agriculture Secretary may be reviewed by the CTA.75 Thus, the acts of other bodies that were
granted some powers by the SMA, such as the Tariff Commission, are not subject to direct review by the CTA.
Under the SMA, the Department Secretary concerned is authorized to decide on several matters. Within thirty (30) days from
receipt of a petition seeking the imposition of a safeguard measure, or from the date he made motu proprio initiation, the Secretary
shall make a preliminary determination on whether the increased imports of the product under consideration substantially cause
or threaten to cause serious injury to the domestic industry.76 Such ruling is crucial since only upon the Secretary's positive
preliminary determination that a threat to the domestic industry exists shall the matter be referred to the Tariff Commission for
formal investigation, this time, to determine whether the general safeguard measure should be imposed or not.77 Pursuant to a
positive preliminary determination, the Secretary may also decide that the imposition of a provisional safeguard measure would
be warranted under Section 8 of the SMA.78 The Secretary is also authorized to decide, after receipt of the report of the Tariff
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Commission, whether or not to impose the general safeguard measure, and if in the affirmative, what general safeguard measures
should be applied.79 Even after the general safeguard measure is imposed, the Secretary is empowered to extend the safeguard
measure,80 or terminate, reduce or modify his previous rulings on the general safeguard measure.81
With the explicit grant of certain powers involving safeguard measures by the SMA on the DTI Secretary, it follows that he is
empowered to rule on several issues. These are the issues which arise in connection with, or in relation to, the imposition of a
safeguard measure. They may arise at different stages – the preliminary investigation stage, the post-formal investigation stage,
or the post-safeguard measure stage – yet all these issues do become ripe for resolution because an initiatory action has been
taken seeking the imposition of a safeguard measure. It is the initiatory action for the imposition of a safeguard measure that sets
the wheels in motion, allowing the Secretary to make successive rulings, beginning with the preliminary determination.
Clearly, therefore, the scope and reach of the phrase "in connection with," as intended by Congress, pertain to all rulings of the
DTI Secretary or Agriculture Secretary which arise from the time an application or motu proprioinitiation for the imposition of
a safeguard measure is taken. Indeed, the incidents which require resolution come to the fore only because there is an initial
application or action seeking the imposition of a safeguard measure. From the legislative standpoint, it was a matter of sense and
practicality to lump up the questions related to the initiatory application or action for safeguard measure and to assign only one
court and; that is the CTA to initially review all the rulings related to such initiatory application or action. Both directions
Congress put in place by employing the phrase "in connection with" in the law.
Given the relative expanse of decisions subject to judicial review by the CTA under Section 29, we do not doubt that a negative
ruling refusing to impose a safeguard measure falls within the scope of its jurisdiction. On a literal level, such negative ruling is
"a ruling of the Secretary in connection with the imposition of a safeguard measure," as it is one of the possible outcomes that
may result from the initial application or action for a safeguard measure. On a more critical level, the rulings of the DTI Secretary
in connection with a safeguard measure, however diverse the outcome may be, arise from the same grant of jurisdiction on the
DTI Secretary by the SMA.82 The refusal by the DTI Secretary to grant a safeguard measure involves the same grant of authority,
the same statutory prescriptions, and the same degree of discretion as the imposition by the DTI Secretary of a safeguard measure.
The position of the respondents is one of "uncritical literalism"83 incongruent with the animus of the law. Moreover, a
fundamentalist approach to Section 29 is not warranted, considering the absurdity of the consequences.
Third. Interpretatio Talis In Ambiguis Semper Fienda Est, Ut Evitur Inconveniens Et Absurdum.84
Even assuming arguendo that Section 29 has not expressly granted the CTA jurisdiction to review a negative ruling of the DTI
Secretary, the Court is precluded from favoring an interpretation that would cause inconvenience and absurdity.85 Adopting the
respondents' position favoring the CTA's minimal jurisdiction would unnecessarily lead to illogical and onerous results.
Indeed, it is illiberal to assume that Congress had intended to provide appellate relief to rulings imposing a safeguard measure
but not to those declining to impose the measure. Respondents might argue that the right to relief from a negative ruling is not
lost since the applicant could, as Philcemcor did, question such ruling through a special civil action for certiorari under Rule 65
of the 1997 Rules of Civil Procedure, in lieu of an appeal to the CTA. Yet these two reliefs are of differing natures and gravamen.
While an appeal may be predicated on errors of fact or errors of law, a special civil action for certiorari is grounded on grave
abuse of discretion or lack of or excess of jurisdiction on the part of the decider. For a special civil action for certiorari to succeed,
it is not enough that the questioned act of the respondent is wrong. As the Court clarified in Sempio v. Court of Appeals:
A tribunal, board or officer acts without jurisdiction if it/he does not have the legal power to determine the case. There is excess
of jurisdiction where, being clothed with the power to determine the case, the tribunal, board or officer oversteps its/his authority
as determined by law. And there is grave abuse of discretion where the tribunal, board or officer acts in a capricious, whimsical,
arbitrary or despotic manner in the exercise of his judgment as to be said to be equivalent to lack of jurisdiction. Certiorari is
often resorted to in order to correct errors of jurisdiction. Where the error is one of law or of fact, which is a mistake of judgment,
appeal is the remedy.86
It is very conceivable that the DTI Secretary, after deliberate thought and careful evaluation of the evidence, may either make a The plain meaning of Section 5 shows that it is the Tariff Commission that has the power to make a "positive final determination."
negative preliminary determination as he is so empowered under Section 7 of the SMA, or refuse to adopt the definitive safeguard This power lodged in the Tariff Commission, must be distinguished from the power to impose the general safeguard measure
measure under Section 13 of the same law. Adopting the respondents' theory, this negative ruling is susceptible to reversal only which is properly vested on the DTI Secretary.88
through a special civil action for certiorari, thus depriving the affected party the chance to elevate the ruling on appeal on the
rudimentary grounds of errors in fact or in law. Instead, and despite whatever indications that the DTI Secretary acted with
All in all, there are two condition precedents that must be satisfied before the DTI Secretary may impose a general safeguard
measure and within the bounds of his jurisdiction are, the aggrieved party will be forced to resort to a gymnastic exercise,
measure on grey Portland cement. First, there must be a positive final determination by the Tariff Commission that a product is
contorting the straight and narrow in an effort to discombobulate the courts into believing that what was within was actually
being imported into the country in increased quantities (whether absolute or relative to domestic production), as to be a substantial
beyond and what was studied and deliberate actually whimsical and capricious. What then would be the remedy of the party
cause of serious injury or threat to the domestic industry. Second, in the case of non-agricultural products the Secretary must
aggrieved by a negative ruling that simply erred in interpreting the facts or the law? It certainly cannot be the special civil action
establish that the application of such safeguard measures is in the public interest.89 As Southern Cross argues, Section 5 is quite
for certiorari, for as the Court held in Silverio v. Court of Appeals: "Certiorari is a remedy narrow in its scope and inflexible in
clear-cut, and it is impossible to finagle a different conclusion even through overarching methods of statutory construction. There
its character. It is not a general utility tool in the legal workshop."87
is no safer nor better settled canon of interpretation that when language is clear and unambiguous it must be held to mean what it
plainly expresses:90 In the quotable words of an illustrious member of this Court, thus:
Fortunately, this theoretical quandary need not come to pass. Section 29 of the SMA is worded in such a way that it places under
the CTA's judicial review all rulings of the DTI Secretary, which are connected with the imposition of a safeguard measure. This
[I]f a statute is clear, plain and free from ambiguity, it must be given its literal meaning and applied without attempted
is sound and proper in light of the specialized jurisdiction of the CTA over tax matters. In the same way that a question of whether
interpretation. The verba legis or plain meaning rule rests on the valid presumption that the words employed by the legislature in
to tax or not to tax is properly a tax matter, so is the question of whether to impose or not to impose a definitive safeguard measure.
a statute correctly express its intent or will and preclude the court from construing it differently. The legislature is presumed to
know the meaning of the words, to have used words advisedly, and to have expressed its intent by the use of such words as are
On another note, the second paragraph of Section 29 similarly reveals the legislative intent that rulings of the DTI Secretary over found in the statute.91
safeguard measures should first be reviewed by the CTA and not the Court of Appeals. It reads:
Moreover, Rule 5 of the Implementing Rules and Regulations of the SMA,92 which interprets Section 5 of the law, likewise
The petition for review shall comply with the same requirements and shall follow the same rules of procedure and shall be subject requires a positive final determination on the part of the Tariff Commission before the application of the general safeguard
to the same disposition as in appeals in connection with adverse rulings on tax matters to the Court of Appeals. measure.

This is the only passage in the SMA in which the Court of Appeals is mentioned. The express wish of Congress is that the petition The SMA establishes a distinct allocation of functions between the Tariff Commission and the DTI Secretary. The plain meaning
conform to the requirements and procedure under Rule 43 of the Rules of Civil Procedure. Since Congress mandated that the of Section 5 shows that it is the Tariff Commission that has the power to make a "positive final determination." This power, which
form and procedure adopted be analogous to a review of a CTA ruling by the Court of Appeals, the legislative contemplation belongs to the Tariff Commission, must be distinguished from the power to impose general safeguard measure properly vested
could not have been that the appeal be directly taken to the Court of Appeals. on the DTI Secretary. The distinction is vital, as a "positive final determination" clearly antecedes, as a condition precedent, the
imposition of a general safeguard measure. At the same time, a positive final determination does not necessarily result in the
imposition of a general safeguard measure. Under Section 5, notwithstanding the positive final determination of the Tariff
Issue of Binding Effect of Tariff
Commission, the DTI Secretary is tasked to decide whether or not that the application of the safeguard measures is in the public
Commission's Factual Determination
interest.
on DTI Secretary.

It is also clear from Section 5 of the SMA that the positive final determination to be undertaken by the Tariff Commission does
The next issue for resolution is whether the factual determination made by the Tariff Commission under the SMA is binding on
not entail a mere gathering of statistical data. In order to arrive at such determination, it has to establish causal linkages from the
the DTI Secretary. Otherwise stated, the question is whether the DTI Secretary may impose general safeguard measures in the
statistics that it compiles and evaluates: after finding there is an importation in increased quantities of the product in question,
absence of a positive final determination by the Tariff Commission.
that such importation is a substantial cause of serious threat or injury to the domestic industry.

The Court of Appeals relied upon Section 13 of the SMA in ruling that the findings of the Tariff Commission do not necessarily
The Court of Appeals relies heavily on the legislative record of a congressional debate during deliberations on the SMA to assert
constitute a final decision. Section 13 details the procedure for the adoption of a safeguard measure, as well as the steps to be
a purported legislative intent that the findings of the Tariff Commission do not bind the DTI Secretary.93 Yet as explained earlier,
taken in case there is a negative final determination. The implication of the Court of Appeals' holding is that the DTI Secretary
the plain meaning of Section 5 emphasizes that only if the Tariff Commission renders a positive determination could the DTI
may adopt a definitive safeguard measure, notwithstanding a negative determination made by the Tariff Commission.
Secretary impose a safeguard measure. Resort to the congressional records to ascertain legislative intent is not warranted if a
statute is clear, plain and free from ambiguity. The legislature is presumed to know the meaning of the words, to have used words
Undoubtedly, Section 13 prescribes certain limitations and restrictions before general safeguard measures may be imposed. advisedly, and to have expressed its intent by the use of such words as are found in the statute.94
However, the most fundamental restriction on the DTI Secretary's power in that respect is contained in Section 5 of the
SMA¾that there should first be a positive final determination of the Tariff Commission¾which the Court of Appeals
Indeed, the legislative record, if at all to be availed of, should be approached with extreme caution, as legislative debates and
curiously all but ignored. Section 5 reads:
proceedings are powerless to vary the terms of the statute when the meaning is clear.95 Our holding in Civil Liberties Union v.
Executive Secretary96 on the resort to deliberations of the constitutional convention to interpret the Constitution is likewise
Sec. 5. Conditions for the Application of General Safeguard Measures. – The Secretary shall apply a general safeguard appropriate in ascertaining statutory intent:
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
While it is permissible in this jurisdiction to consult the debates and proceedings of the constitutional convention in order to arrive
threat thereof to the domestic industry; however, in the case of non-agricultural products, the Secretary shall first establish that
at the reason and purpose of the resulting Constitution, resort thereto may be had only when other guides fail as said proceedings
the application of such safeguard measures will be in the public interest. (emphasis supplied)
are powerless to vary the terms of the Constitution when the meaning is clear. Debates in the constitutional convention "are of
value as showing the views of the individual members, and as indicating the reasons for their votes, but they give us no light as

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to the views of the large majority who did not talk xxx. We think it safer to construe the constitution from what appears upon its
face."97
Moreover, it is easy to selectively cite passages, sometimes out of their proper context, in order to assert a misleading
interpretation. The effect can be dangerous. Minority or solitary views, anecdotal ruminations, or even the occasional crude
witticisms, may improperly acquire the mantle of legislative intent by the sole virtue of their publication in the authoritative
congressional record. Hence, resort to legislative deliberations is allowable when the statute is crafted in such a manner as to
leave room for doubt on the real intent of the legislature.
Section 5 plainly evinces legislative intent to restrict the DTI Secretary's power to impose a general safeguard measure by
preconditioning such imposition on a positive determination by the Tariff Commission. Such legislative intent should be given
full force and effect, as the executive power to impose definitive safeguard measures is but a delegated power¾the power of
taxation, by nature and by command of the fundamental law, being a preserve of the legislature.98 Section 28(2), Article VI of the
1987 Constitution confirms the delegation of legislative power, yet ensures that the prerogative of Congress to impose limitations
and restrictions on the executive exercise of this power:
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.99
power of the Commission on Human Rights (CHR) to investigate human rights' violations did not extend to adjudicating claims
on the merits.108 Philcemcor claims that the functions of the Tariff Commission being "only investigatory," it could neither decide
nor adjudicate.109
The applicable law governing the issue in Cariño is Section 18, Article XIII of the Constitution, which delineates the powers and
functions of the CHR. The provision does not vest on the CHR the power to adjudicate cases, but only to investigate all forms of
human rights violations.110 Yet, without modifying the thorough disquisition of the Court in Cariño on the general limitations on
the investigatory power, the precedent is inapplicable because of the difference in the involved statutory frameworks. The
Constitution does not repose binding effect on the results of the CHR's investigation.111 On the other hand, through Section 5 of
the SMA and under the authority of Section 28(2), Article VI of the Constitution, Congress did intend to bind the DTI Secretary
to the determination made by the Tariff Commission.112 It is of no consequence that such determination results from the exercise
of investigatory powers by the Tariff Commission since Congress is well within its constitutional mandate to limit the authority
of the DTI Secretary to impose safeguard measures in the manner that it sees fit.
The Court of Appeals and Philcemcor also rely on Section 13 of the SMA and Rule 13 of the SMA's Implementing Rules in
support of the view that the DTI Secretary may decide independently of the determination made by the Tariff Commission.
Admittedly, there are certain infelicities in the language of Section 13 and Rule 13. But reliance should not be placed on the
textual imprecisions. Rather, Section 13 and Rule 13 must be viewed in light of the fundamental prescription imposed by Section
5. 113

Section 13 of the SMA lays down the procedure to be followed after the Tariff Commission renders its report. The provision
The safeguard measures which the DTI Secretary may impose under the SMA may take the following variations, to wit: (a) an
reads in full:
increase in, or imposition of any duty on the imported product; (b) a decrease in or the imposition of a tariff-rate quota on the
product; (c) a modification or imposition of any quantitative restriction on the importation of the product into the Philippines; (d)
one or more appropriate adjustment measures, including the provision of trade adjustment assistance; and (e) any combination of SEC. 13. Adoption of Definitive Measures. — Upon its positive determination, the Commission shall recommend to the Secretary
the above-described actions. Except for the provision of trade adjustment assistance, the measures enumerated by the SMA are an appropriate definitive measure, in the form of:
essentially imposts, which precisely are the subject of delegation under Section 28(2), Article VI of the 1987 Constitution.100
(a) An increase in, or imposition of, any duty on the imported product;
This delegation of the taxation power by the legislative to the executive is authorized by the Constitution itself.101 At the same
time, the Constitution also grants the delegating authority (Congress) the right to impose restrictions and limitations on the
(b) A decrease in or the imposition of a tariff-rate quota (MAV) on the product;
taxation power delegated to the President.102 The restrictions and limitations imposed by Congress take on the mantle of a
constitutional command, which the executive branch is obliged to observe.
(c) A modification or imposition of any quantitative restriction on the importation of the product into the Philippines;
103
The SMA empowered the DTI Secretary, as alter ego of the President, to impose definitive general safeguard measures, which
basically are tariff imposts of the type spoken of in the Constitution. However, the law did not grant him full, uninhibited (d) One or more appropriate adjustment measures, including the provision of trade adjustment assistance;
discretion to impose such measures. The DTI Secretary authority is derived from the SMA; it does not flow from any inherent
executive power. Thus, the limitations imposed by Section 5 are absolute, warranted as they are by a constitutional fiat.104
(e) Any combination of actions described in subparagraphs (a) to (d).
105
Philcemcor cites our 1912 ruling in Lamb v. Phipps to assert that the DTI Secretary, having the final decision on the safeguard
measure, has the power to evaluate the findings of the Tariff Commission and make an independent judgment thereon. Given the The Commission may also recommend other actions, including the initiation of international negotiations to address the
underlying cause of the increase of imports of the product, to alleviate the injury or threat thereof to the domestic industry, and
constitutional and statutory limitations governing the present case, the citation is misplaced. Lamb pertained to the discretion of
the Insular Auditor of the Philippine Islands, whom, as the Court recognized, "[t]he statutes of the United States require[d] xxx to facilitate positive adjustment to import competition.
to exercise his judgment upon the legality xxx [of] provisions of law and resolutions of Congress providing for the payment of
money, the means of procuring testimony upon which he may act."106 The general safeguard measure shall be limited to the extent of redressing or preventing the injury and to facilitate adjustment by
the domestic industry from the adverse effects directly attributed to the increased imports: Provided, however, That when
Thus in Lamb, while the Court recognized the wide latitude of discretion that may have been vested on the Insular Auditor, it quantitative import restrictions are used, such measures shall not reduce the quantity of imports below the average imports for
the three (3) preceding representative years, unless clear justification is given that a different level is necessary to prevent or
also recognized that such latitude flowed from, and is consequently limited by, statutory grant. However, in this case, the provision
of the Constitution in point expressly recognizes the authority of Congress to prescribe limitations in the case of tariffs, remedy a serious injury.
export/import quotas and other such safeguard measures. Thus, the broad discretion granted to the Insular Auditor of the
Philippine Islands cannot be analogous to the discretion of the DTI Secretary which is circumscribed by Section 5 of the SMA. A general safeguard measure shall not be applied to a product originating from a developing country if its share of total imports
of the product is less than three percent (3%): Provided, however, That developing countries with less than three percent (3%)
For that matter, Cariño v. Commissioner on Human Rights,107 likewise cited by Philcemcor, is also inapplicable owing to the share collectively account for not more than nine percent (9%) of the total imports.
different statutory regimes prevailing over that case and the present petition. In Cariño, the Court ruled that the constitutional

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The decision imposing a general safeguard measure, the duration of which is more than one (1) year, shall be reviewed at regular
intervals for purposes of liberalizing or reducing its intensity. The industry benefiting from the application of a general safeguard
measure shall be required to show positive adjustment within the allowable period. A general safeguard measure shall be
terminated where the benefiting industry fails to show any improvement, as may be determined by the Secretary.
The Secretary shall issue a written instruction to the heads of the concerned government agencies to implement the appropriate
general safeguard measure as determined by the Secretary within fifteen (15) days from receipt of the report.
In the event of a negative final determination, or if the cash bond is in excess of the definitive safeguard duty assessed, the
Secretary shall immediately issue, through the Secretary of Finance, a written instruction to the Commissioner of Customs,
authorizing the return of the cash bond or the remainder thereof, as the case may be, previously collected as provisional general
safeguard measure within ten (10) days from the date a final decision has been made: Provided, That the government shall not
be liable for any interest on the amount to be returned. The Secretary shall not accept for consideration another petition from the
same industry, with respect to the same imports of the product under consideration within one (1) year after the date of rendering
such a decision.
When the definitive safeguard measure is in the form of a tariff increase, such increase shall not be subject or limited to the
maximum levels of tariff as set forth in Section 401(a) of the Tariff and Customs Code of the Philippines.
To better comprehend Section 13, note must be taken of the distinction between the investigatory and recommendatory functions
of the Tariff Commission under the SMA.
The word "determination," as used in the SMA, pertains to the factual findings on whether there are increased imports into the
country of the product under consideration, and on whether such increased imports are a substantial cause of serious injury or
threaten to substantially cause serious injury to the domestic industry.114 The SMA explicitly authorizes the DTI Secretary to
make a preliminary determination,115 and the Tariff Commission to make the final determination.116 The distinction is
fundamental, as these functions are not interchangeable. The Tariff Commission makes its determination only after a formal
investigation process, with such investigation initiated only if there is a positive preliminary determination by the DTI Secretary
under Section 7 of the SMA.117 On the other hand, the DTI Secretary may impose definitive safeguard measure only if there is a
positive final determination made by the Tariff Commission.118
In contrast, a "recommendation" is a suggested remedial measure submitted by the Tariff Commission under Section 13 after
making a positive final determination in accordance with Section 5. The Tariff Commission is not empowered to make a
recommendation absent a positive final determination on its part.119 Under Section 13, the Tariff Commission is required to
recommend to the [DTI] Secretary an "appropriate definitive measure."120 The Tariff Commission "may also recommend other
actions, including the initiation of international negotiations to address the underlying cause of the increase of imports of the
products, to alleviate the injury or threat thereof to the domestic industry and to facilitate positive adjustment to import
competition."121
The recommendations of the Tariff Commission, as rendered under Section 13, are not obligatory on the DTI Secretary. Nothing
in the SMA mandates 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 Commission's recommendation on the appropriate safeguard measure based on its positive final determination.122 The non-
binding force of the Tariff Commission's recommendations is congruent with the command of Section 28(2), Article VI of the
1987 Constitution that only the President may be empowered by the Congress to impose appropriate tariff rates, import/export
quotas and other similar measures.123 It is the DTI Secretary, as alter ego of the President, who under the SMA may impose such
safeguard measures subject to the limitations imposed therein. A contrary conclusion would in essence unduly arrogate to the
Tariff Commission the executive power to impose the appropriate tariff measures. That is why the SMA empowers the DTI
Secretary to adopt safeguard measures other than those recommended by the Tariff Commission.
Unlike the recommendations of the Tariff Commission, its determination has a different effect on the DTI Secretary. Only on the
basis of a positive final determination made by the Tariff Commission under Section 5 can the DTI Secretary impose a general
safeguard measure. Clearly, then the DTI Secretary is bound by the determinationmade by the Tariff Commission.
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Some confusion may arise because the sixth paragraph of Section 13124 uses the variant word "determined" in a different context,
as it contemplates "the appropriate general safeguard measure as determined by the Secretary within fifteen (15) days from receipt
of the report." Quite plainly, the word "determined" in this context pertains to the DTI Secretary's power of choice of the
appropriate safeguard measure, as opposed to the Tariff Commission's power to determine the existence of conditions necessary
for the imposition of any safeguard measure. In relation to Section 5, such choice also relates to the mandate of the DTI Secretary
to establish that the application of safeguard measures is in the public interest, also within the fifteen (15) day period. Nothing in
Section 13 contradicts the instruction in Section 5 that the DTI Secretary is allowed to impose the general safeguard measures
only if there is a positive determination made by the Tariff Commission.
Unfortunately, Rule 13.2 of the Implementing Rules of the SMA is captioned "Final Determination by the Secretary." The
assailed Decision and Philcemcor latch on this phraseology to imply that the factual determination rendered by the Tariff
Commission under Section 5 may be amended or reversed by the DTI Secretary. Of course, implementing rules should conform,
not clash, with the law that they seek to implement, for a regulation which operates to create a rule out of harmony with the statute
is a nullity.125 Yet imperfect draftsmanship aside, nothing in Rule 13.2 implies that the DTI Secretary can set aside the
determination made by the Tariff Commission under the aegis of Section 5. This can be seen by examining the specific provisions
of Rule 13.2, thus:
RULE 13.2. Final Determination by the Secretary
RULE 13.2.a. Within fifteen (15) calendar days from receipt of the Report of the Commission, the Secretary shall make a decision,
taking into consideration the measures recommended by the Commission.
RULE 13.2.b. If the determination is affirmative, the Secretary shall issue, within two (2) calendar days after making his decision,
a written instruction to the heads of the concerned government agencies to immediately implement the appropriate general
safeguard measure as determined by him. Provided, however, that in the case of non-agricultural products, the Secretary shall
first establish that the imposition of the safeguard measure will be in the public interest.
RULE 13.2.c. Within two (2) calendar days after making his decision, the Secretary shall also order its publication in two (2)
newspapers of general circulation. He shall also furnish a copy of his Order to the petitioner and other interested parties, whether
affirmative or negative. (Emphasis supplied.)
Moreover, the DTI Secretary does not have the power to review the findings of the Tariff Commission for it is not subordinate
to the Department of Trade and Industry ("DTI"). It falls under the supervision, not of the DTI nor of the Department of Finance
(as mistakenly asserted by Southern Cross),126 but of the National Economic Development Authority, an independent
planning agency of the government of co-equal rank as the DTI.127 As the supervision and control of a Department Secretary
is limited to the bureaus, offices, and agencies under him,128 the DTI Secretary generally cannot exercise review authority over
actions of the Tariff Commission. Neither does the SMA specifically authorize the DTI Secretary to alter, amend or modify in
any way the determination made by the Tariff Commission. The most that the DTI Secretary could do to express displeasure over
the Tariff Commission's actions is to ignore its recommendation, but not its determination.
The word "determination" as used in Rule 13.2 of the Implementing Rules is dissonant with the same word as employed in the
SMA, which in the latter case is undeviatingly in reference to the determination made by the Tariff Commission. Beyond the
resulting confusion, however, the divergent use in Rule 13.2 is explicable as the Rule textually pertains to the power of the DTI
Secretary to review the recommendations of the Tariff Commission, not the latter's determination. Indeed, an examination of the
specific provisions show that there is no real conflict to reconcile. Rule 13.2 respects the logical order imposed by the SMA. The
Rule does not remove the essential requirement under Section 5 that a positive final determination be made by the Tariff
Commission before a definitive safeguard measure may be imposed by the DTI Secretary.
The assailed Decision characterizes the findings of the Tariff Commission as merely recommendatory and points to the DTI
Secretary as the authority who renders the final decision.129 At the same time, Philcemcor asserts that the Tariff Commission's
functions are merely investigatory, and as such do not include the power to decide or adjudicate. These contentions, viewed in
the context of the fundamental requisite set forth by Section 5, are untenable. They run counter to the statutory prescription that
a positive final determination made by the Tariff Commission should first be obtained before the definitive safeguard measures 2. When his preliminary determination is positive, the Secretary immediately transmits the records covering the application to
may be laid down. the Tariff Commission for immediate formal investigation.137

Was it anomalous for Congress to have provided for a system whereby the Tariff Commission may preclude the DTI, an office
of higher rank, from imposing a safeguard measure? Of course, this Court does not inquire into the wisdom of the legislature but
only charts the boundaries of powers and functions set in its enactments. But then, it is not difficult to see the internal logic of
this statutory framework.
For one, as earlier stated, the DTI cannot exercise review powers over the Tariff Commission which is not its subordinate office.
3. The Tariff Commission conducts its formal investigation, keyed towards making a final determination. In the process, it holds
public hearings, providing interested parties the opportunity to present evidence or otherwise be heard.138 To repeat, Section 5
enumerates what the Tariff Commission is tasked to determine: (a) whether a product is being imported into the country in
increased quantities, irrespective of whether the product is absolute or relative to the domestic production; and (b) whether the
importation in increased quantities is such that it causes serious injury or threat to the domestic industry.139 The findings of the
Tariff Commission as to these matters constitute the final determination, which may be either positive or negative.

4. Under Section 13 of the SMA, if the Tariff Commission makes a positive determination, the Tariff Commission "recommends
Moreover, the mechanism established by Congress establishes a measure of check and balance involving two different
to the [DTI] Secretary an appropriate definitive measure." The Tariff Commission "may also recommend other actions, including
governmental agencies with disparate specializations. The matter of safeguard measures is of such national importance that a
the initiation of international negotiations to address the underlying cause of the increase of imports of the products, to alleviate
decision either to impose or not to impose then could have ruinous effects on companies doing business in the Philippines. Thus,
the injury or threat thereof to the domestic industry, and to facilitate positive adjustment to import competition."140
it is ideal to put in place a system which affords all due deliberation and calls to fore various governmental agencies exercising
their particular specializations.
5. If the Tariff Commission makes a positive final determination, the DTI Secretary is then to decide, within fifteen (15) days
from receipt of the report, as to what appropriate safeguard measures should he impose.
Finally, if this arrangement drawn up by Congress makes it difficult to obtain a general safeguard measure, it is because such
safeguard measure is the exception, rather than the rule. The Philippines is obliged to observe its obligations under the GATT,
under whose framework trade liberalization, not protectionism, is laid down. Verily, the GATT actually prescribes conditions 6. However, if the Tariff Commission makes a negative final determination, the DTI Secretary cannot impose any definitive
before a member-country may impose a safeguard measure. The pertinent portion of the GATT Agreement on Safeguards reads: safeguard measure. Under Section 13, he is instructed instead to return whatever cash bond was paid by the applicant upon the
initiation of the action for safeguard measure.
2. A Member may only apply a safeguard measure to a product only if that member has determined, pursuant to the provisions
set out below, that such product is being imported into its territory in such increased quantities, absolute or relative to domestic The Effect of the Court's Decision
production, and under such conditions as to cause or threaten to cause serious injury to the domestic industry that produces like
or directly competitive products.130
The Court of Appeals erred in remanding the case back to the DTI Secretary, with the instruction that the DTI Secretary may
impose a general safeguard measure even if there is no positive final determination from the Tariff Commission. More crucially,
3. (a) A Member may apply a safeguard measure only following an investigation by the competent authorities of that Member the Court of Appeals could not have acquired jurisdiction over Philcemcor's petition for certiorari in the first place, as Section 29
pursuant to procedures previously established and made public in consonance with Article X of the GATT 1994. This of the SMA properly vests jurisdiction on the CTA. Consequently, the assailed Decision is an absolute nullity, and we declare it
investigation shall include reasonable public notice to all interested parties and public hearings or other appropriate means in as such.
which importers, exporters and other interested parties could present evidence and their views, including the opportunity to
respond to the presentations of other parties and to submit their views, inter alia, as to whether or not the application of a safeguard
What is the effect of the nullity of the assailed Decision on the 5 June 2003 Decision of the DTI Secretary imposing the general
measure would be in the public interest. The competent authorities shall publish a report setting forth their findings and reasoned
safeguard measure? We have recognized that any initial judicial review of a DTI ruling in connection with the imposition of a
conclusions reached on all pertinent issues of fact and law.131
safeguard measure belongs to the CTA. At the same time, the Court also recognizes the fundamental principle that a null and
void judgment cannot produce any legal effect. There is sufficient cause to establish that the 5 June 2003 Decision of the DTI
The SMA was designed not to contradict the GATT, but to complement it. The two requisites laid down in Section 5 for a positive Secretary resulted from the assailed Court of Appeals Decision, even if the latter had not yet become final. Conversely, it can be
final determination are the same conditions provided under the GATT Agreement on Safeguards for the application of safeguard concluded that it was because of the putative imprimatur of the Court of Appeals' Decision that the DTI Secretary issued his
measures by a member country. Moreover, the investigatory procedure laid down by the SMA conforms to the procedure required ruling imposing the safeguard measure. Since the 5 June 2003 Decision derives its legal effect from the void Decision of the
by the GATT Agreement on Safeguards. Congress has chosen the Tariff Commission as the competent authority to conduct such Court of Appeals, this ruling of the DTI Secretary is consequently void. The spring cannot rise higher than the source.
investigation. Southern Cross stresses that applying the provision of the GATT Agreement on Safeguards, the Tariff Commission
is clearly empowered to arrive at binding conclusions.132 We agree: binding on the DTI Secretary is the Tariff Commission's
The DTI Secretary himself acknowledged that he drew stimulating force from the appellate court's Decision for in his own 5 June
determinations on whether a product is imported in increased quantities, absolute or relative to domestic production and whether
2003 Decision, he declared:
any such increase is a substantial cause of serious injury or threat thereof to the domestic industry.133

From the aforementioned ruling, the CA has remanded the case to the DTI Secretary for a final decision. Thus, there is no legal
Satisfied as we are with the proper statutory paradigm within which the SMA should be analyzed, the flaws in the reasoning of
impediment for the Secretary to decide on the application.141
the Court of Appeals and in the arguments of the respondents become apparent. To better understand the dynamics of the
procedure set up by the law leading to the imposition of definitive safeguard measures, a brief step-by-step recount thereof is in
order. The inescapable conclusion is that the DTI Secretary needed the assailed Decision of the Court of Appeals to justify his rendering
a second Decision. He explicitly invoked the Court of Appeals' Decision as basis for rendering his 5 June 2003 ruling, and
implicitly recognized that without such Decision he would not have the authority to revoke his previous ruling and render a new,
1. After the initiation of an action involving a general safeguard measure,134 the DTI Secretary makes a preliminary determination
obverse ruling.
whether the increased imports of the product under consideration substantially cause or threaten to substantially cause serious
injury to the domestic industry,135 and whether the imposition of a provisional measure is warranted under Section 8 of the
SMA.136 If the preliminary determination is negative, it is implied that no further action will be taken on the application.

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It is clear then that the 25 June 2003 Decision of the DTI Secretary is a product of the void Decision, it being an attempt to carry
out such null judgment. There is therefore no choice but to declare it void as well, lest we sanction the perverse existence of a
fruit from a non-existent tree. It does not even matter what the disposition of the 25 June 2003 Decision was, its nullity would be
warranted even if the DTI Secretary chose to uphold his earlier ruling denying the application for safeguard measures.

It is also an unfortunate spectacle to behold the DTI Secretary, seeking to enforce a judicial decision which is not yet final and
actually pending review on appeal. Had it been a judge who attempted to enforce a decision that is not yet final and executory,
he or she would have readily been subjected to sanction by this Court. The DTI Secretary may be beyond the ambit of
administrative review by this Court, but we are capacitated to allocate the boundaries set by the law of the land and to exact fealty
to the legal order, especially from the instrumentalities and officials of government.

WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals is DECLARED NULL AND VOID
and SET ASIDE. The Decision of the DTI Secretary dated 25 June 2003 is also DECLARED NULL AND VOID and SET
ASIDE. No Costs.

SO ORDERED.

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ANTONIO Z. REYES, ELISEO P. OCAMPO and EDITHA ARCIAGA-SANTOS, petitioners, WHEREFORE, the instant appeal, having been filed out of time, is hereby DISMISSED.3
vs.
COURT OF APPEALS, HON. SECRETARY OF JUSTICE FRANKLIN DRILON and MAYOR JINGGOY ESTRADA
Undaunted, petitioners filed with the Court of Appeals a petition for certiorari and prohibition (CA-G.R. SP No. 32473). But
(JOSE EJERCITO) OF THE MUNICIPALITY OF SAN JUAN, METRO MANILA, respondents.
respondent court affirmed the decision of the Secretary. On December 8, 1994, the motion for reconsideration filed by the
petitioners was denied for lack of merit.
RESOLUTION
Hence, the present petition for review, raising the following questions:

QUISUMBING, J.:
For review is the decision 1 of the Court of Appeals, dated August 3, 1994 and its resolution2 dated December 8, 1994 in CA-
G.R. SP No. 32473. Said decision dismissed the prohibition case brought by the petitioner against respondent officials of the
Municipality of San Juan to stop the enforcement of Tax Ordinance Nos. 87, 91, 95, 100 and 101.
The factual antecedents are as follows:
1. Whether or not the questioned tax ordinances are violative of the Constitution, considering the undisputed fact that no public
hearings were ever held on the ordinances before they were passed and approved as required by the Local Government Code of
1991, thereby constituting as they do a deprivation of property without due process;
2. Whether or not the wording of the law under Section 187 of the Local Government Code of 1991 that "any question on the
constitutionality . . . of tax ordinance . . . may be raised on appeal within thirty (30) days from the effectivity thereof . . ." is
a reductio as absurdum, since if the tax ordinance is found to be unconstitutional, it will be considered as never having become
effective at all from the very beginning, for which reason the thirty-day appeal period cannot be reckoned and cannot be enforced;

3. Whether or not the constitutionality of a tax ordinance, or any law for that matter, can be questioned at any time despite the
The Sangguniang Bayan of San Juan, Metro Manila implemented several tax ordinances as follows:
prescription of a limited period within which to question it, as in case at bar; and

Ordinance No. Title

87 An ordinance imposing a municipal tax of fifty percent (50%) of one percent (1%) of the gross receipt on business of printing
and publication
91 An ordinance imposing a transfer tax equivalent to fifty percent (50%) of one percent (1%) of the total consideration on the
sale, donation, barter or any other mode of transferring ownership or title of real property situated in San Juan, Metro Manila, or
its fair market value, whichever is higher
4. Whether or not the constitutionality of an ordinance or a law may be questioned even if the question of constitutionality may
not have been originally or initially raised, or is not the lis mota of the case, if it appears that a determination of the question of
constitutionality is necessary to a decision of the case.4
In our view, the pertinent issues for our resolution now are:
1. Whether or not the Court of Appeals erred in affirming the decision of the Secretary of Justice who dismissed the prohibition
suit, on the ground that it was filed out of time?

95 An ordinance imposing fifty percent (50%) of one percent (1%) for social housing tax on the assessed value of all real estate
2. Whether or not lack of mandatory public hearings prior to enacting Municipal Ordinance Nos. 87, 91, 95, 100 and 101 render
property in San Juan, Metro Manila in excess of P50,000.00 value as provided in the New Urban Land Reform Law, also known
them void on the ground of deprivation of property without due process?
as R.A. 7279.

3. Whether or not the constitutional validity of Sec. 187 of the Local Government Code could be raised for the first time on
100 An ordinance imposing new rates of business taxes of the Municipality of San Juan Metro Manila
appeal?

101 An ordinance levying an annual "Ad Valorem" tax on real property and an additional tax accruing to the special education
According to petitioners, respondent Secretary erred in declaring that they failed to file their appeal on time. Also, they assail
fund (SEF)
Municipal Ordinance Nos. 87, 91, 95, 100 and 101, for alleged failure of the Municipal Council of San Juan to conduct mandatory
public hearings. Because of this, they claim the ordinances are inoperative, as through they were never passed. Consequently, no
On May 21, 1993, petitioners filed an appeal with the Department of Justice assailing the constitutionality of these tax ordinances prescriptive thirty-day period to question the validity of the ordinance could toll to bar their appeal to the Department of Justice.
allegedly because they were promulgated without previous public hearings thereby constituting deprivation of property without
due process of law.
Sec. 187 of R.A. 7160, cited by respondent Secretary, provides as follows:

On June 10, 1993, respondent Secretary of Justice dismissed the appeal for having been filed out of time. Citing Section 187,
R.A. No. 7160, he said:
It appears that the tax ordinances in question took effect on September 24, 1992, in the case of Tax Ordinance No. 87, until
October 22, 1992, in the case of Tax Ordinance Nos. 91 and 95, and until October 29, 1992, in the case of Tax Ordinance Nos.
100 and 101, or more than thirty (30) days from the effectivity thereof when the appeal was filed and received by this Department
on May 21, 1993 and therefore not in accordance with the requirements provided for under Section 187 of the Local Government
Code of 1991.
Sec. 187 — Procedure for Approval and Effectivity of Tax Ordinances and Revenue Measures; Mandatory Public Hearings. —
The procedure for approval of local tax ordinances and revenue measures shall be in accordance with the provisions of this
Code: Provided, That public hearings shall be conducted for the purpose prior to the enactment thereof: Provided further, That
any question on the constitutionality or legality of tax ordinances or revenue measures may be raised on appeal within thirty (30)
days from the effectivity thereof to the Secretary of Justice who shall render a decision within sixty (60) days from the date of
receipt of the appeal: Provided, however, That such appeal not have the effect of suspending the effectivity of the ordinance and
the accrual and payment of the tax, fee, or charge levied therein: Provided, finally, That within thirty (30) days after receipt of

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the decision or the lapse of the sixty-day period without the Secretary of Justice acting upon the appeal, the aggrieved party may
file appropriate proceedings with a court of competent jurisdiction.
Clearly, the law requires that the dissatisfied taxpayer who questions the validity or legality of a tax ordinance must file his appeal
to the Secretary of Justice, within 30 days from effectivity thereof. In case the Secretary decides the appeals, a period also of 30
days is allowed for an aggrieved party to go to court. But if the Secretary does not act thereon, after the lapse of 60 days, a party
could already proceed to seek relief in court. These three separate periods are clearly given for compliance as a prerequisite before
seeking redress in a competent court. Such statutory periods are set to prevent delays as well as enhance the orderly and speedy
discharge of judicial functions.5 For this reason the courts construct these provisions of statutes as mandatory.6
Finally, on the validity of Section 187 of R.A. 7160, the Local Government Code, we must stress that the constitutionality of an
act of Congress will not be passed upon by the Court unless at the first opportunity that question is properly raised and presented
in an appropriate case, and is necessary to a determination of the case, particularly where the issue of constitutionality is the
very lis mota presented. 12 The constitutional validity of a statutory provision should not be entertained by the Court where it was
not specifically raised below, insisted upon, and adequately argued. 13 Moreover, given the circumstances in this case, we find no
genuine necessity to dwell on the issue of constitutional invalidity of Section 187 in relation to issue of valid enactment of the
subject ordinances, as shown in the foregoing discussion. Suffice it now to say that, having resolved the first and second issues,
we find no grave abuse of discretion nor reversible error in the decision of respondent appellate court. Further constitutional
scrutiny of Section 187 is unwarranted.

WHEREFORE, the present petition is DISMISSED for lack of merit and the assailed decision of the Court of Appeals is
A municipal tax ordinance empowers a local government unit to impose taxes. The power to tax is the most effective instrument
AFFIRMED. No pronouncement as to costs.
to raise needed revenues to finance and support the myriad activities of local government units for the delivery of basic services
essential to the promotion of the general welfare and enhancement of peace, progress, and prosperity of the
people. 7 Consequently, any delay in implementing tax measures would be to the detriment of the public. It is for this reason that SO ORDERED.
protests over tax ordinances are required to be done within certain time frames. In the instant case, it is our view that the failure
of petitioners to appeal to the Secretary of Justice within 30 days as required by Sec. 187 of R.A. 7160 is fatal to their cause.

On the second issue, petitioners allege that the Sangguniang Bayan of San Juan did not comply with the prescribed procedure for
enacting an ordinance because they failed to conduct public hearings.

In Figurres vs. Court of Appeals,8 where the municipality failed to conduct public hearings prior to enacting the revisions on the
schedule of fair market values and assessment level of classes of real estate properties, the Court said:

Petitioner is right in contending that public hearings are required to be conducted prior to the enactment of an ordinance imposing
real property taxes. R.A. No. 7160, Sec. 186, provides that an ordinance levying taxes, fees, or charges "shall not be enacted
without any prior public hearing conducted for the purpose."

However, it is noteworthy that part from her bare assertions, petitioner Figuerres has not presented any evidence to show that no
public hearings were conducted prior not the enactment of the ordinances in question. On the other hand, the Municipality of
Mandaluyong claims the public hearings were indeed conducted before the subject ordinances were adopted, although it likewise
failed to submit any evidence to establish this allegation. However, in accordance with the presumption of validity in favor of an
ordinance, their constitutionality or legality should be upheld in the absence of evidences showing that procedure prescribed by
law was not observed in their enactment . . . .

Furthermore, the lack of a public hearings is a negative allegation essential to petitioner's cause of action in the present case.
Hence, as petitioner is the party asserting it, she has the burden of proof. Since petitioner failed to rebut the presumption of
validity in favor of the subject ordinances and to discharge the burden of proving that no public hearings were conducted prior to
the enactment thereof, we are constrained to uphold their constitutionality or legality.9

We find Figuerres instructive. Petitioners have not proved in the case before us that the Sangguniang Bayan of San Juan failed to
conduct the required public hearings before the enactment of Ordinance Nos. 87, 91, 95, 100 and 101. Although the Sanggunian
had the control of records or the better means of proof regarding the facts alleged, petitioner as not relieved from the burden of
proving their averments. 10 Proof that public hearings were not held falls on petitioner' shoulders. For failing to discharge that
burden, their petition was properly dismissed.

In any event, for the purpose of securing certainty where doubt would be intolerable, it is a general rules that the regularity of the
enactment of an officially promulgated statute or ordinance may not be impeached by parol evidence or oral testimony either of
individual officers and members, or of strangers who may be interested in nullifying legislative action. 11 This rules supplements
the presumption in favor of the regularity of official conduct which we have upheld repeatedly, absent a clear showing to the
contrary.

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MANILA ELECTRIC COMPANY, petitioner,
vs.
PROVINCE OF LAGUNA and BENITO R. BALAZO, in his capacity as Provincial Treasurer of Laguna, respondents.
VITUG, J.:
On various dates, certain municipalities of the Province of Laguna, including, Biñan, Sta. Rosa, San Pedro, Luisiana, Calauan
and Cabuyao, by virtue of existing laws then in effect, issued resolutions through their respective municipal councils granting
franchise in favor of petitioner Manila Electric Company ("MERALCO") for the supply of electric light, heat and power within
their concerned areas. On 19 January 1983, MERALCO was likewise granted a franchise by the National Electrification
Administration to operate an electric light and power service in the Municipality of Calamba, Laguna.
On 12 September 1991, Republic Act No. 7160, otherwise known as the "Local Government Code of 1991," was enacted to take
effect on 01 January 1992 enjoining local government units to create their own sources of revenue and to levy taxes, fees and
charges, subject to the limitations expressed therein, consistent with the basic policy of local autonomy. Pursuant to the provisions
of the Code, respondent province enacted Laguna Provincial Ordinance No. 01-92, effective 01 January 1993, providing, in part,
as follows:
Sec. 2.09. Franchise Tax. — There is hereby imposed a tax on businesses enjoying a franchise, at a rate of fifty percent (50%) of
one percent (1%) of the gross annual receipts, which shall include both cash sales and sales on account realized during the
preceding calendar year within this province, including the territorial limits on any city located in the province.
On the basis of the above ordinance, respondent Provincial Treasurer sent a demand letter to MERALCO for the corresponding
tax payment. Petitioner MERALCO paid the tax, which then amounted to P19,520.628.42, under protest. A formal claim for
refund was thereafter sent by MERALCO to the Provincial Treasurer of Laguna claiming that the franchise tax it had paid and
continued to pay to the National Government pursuant to P.D. 551 already included the franchise tax imposed by the Provincial
Tax Ordinance. MERALCO, contended that the imposition of a franchise tax under Section 2.09 of Laguna Provincial Ordinance
No. 01-92, insofar as it concerned MERALCO, contravened the provisions of Section 1 of P.D. 551 which read:
Any provision of law or local ordinance to the contrary notwithstanding, the franchise tax payable by all grantees of franchises
to generate, distribute and sell electric current for light, heat and power shall be two per cent (2%) of their gross receipts received
from the sale of electric current and from transactions incident to the generation, distribution and sale of electric current.
Such franchise tax shall be payable to the Commissioner of Internal Revenue or his duly authorized representative on or before
the twentieth day of the month following the end of each calendar quarter or month, as may be provided in the respective franchise
or pertinent municipal regulation and shall, any provision of the Local Tax Code or any other law to the contrary notwithstanding,
be in lieu of all taxes and assessments of whatever nature imposed by any national or local authority on earnings, receipts, income
and privilege of generation, distribution and sale of electric current.
On 28 August 1995, the claim for refund of petitioner was denied in a letter signed by Governor Jose D. Lina relied on a more
recent law, i.e. Republic Act No. 7160 or the Local Government Code of 1991, than the old decree invoked by petitioner.
On 14 February 1996, petitioner MERALCO filed with the Regional Trial Court of Sta. Cruz, Laguna, a complaint for refund,
with a prayer for the issuance of a writ of preliminary injunction and/or temporary restraining order, against the Province of
Laguna and also Benito R. Balazo in his capacity as the Provincial Treasurer of Laguna. Aside from the amount of P19,520,628.42
for which petitioner MERALCO had priorly made a formal request for refund, petitioner thereafter likewise made additional
payments under protest on various dates totaling P27,669,566.91.
The trial court, in its assailed decision of 30 September 1997, dismissed the complaint and concluded:
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WHEREFORE, IN THE LIGHT OF ALL THE FOREGOING CONSIDERATIONS, JUDGMENT is hereby rendered in favor
of the defendants and against the plaintiff, by:
1. Ordering the dismissal of the Complaint; and
2. Declaring Laguna Provincial Tax Ordinance No. 01-92 as valid, binding, reasonable and enforceable. 2
In the instant petition, MERALCO assails the above ruling and brings up the following issues; viz:
1. Whether the imposition of a franchise tax under Section 2.09 of Laguna Provincial Ordinance No. 01-92, insofar as petitioner
is concerned, is violative of the non-impairment clause of the Constitution and Section 1 of Presidential Decree No. 551.
2. Whether Republic Act No. 7160, otherwise known Local Government Code of 1991, has repealed, amended or modified
Presidential Decree No. 551.
3. Whether the doctrine of administrative remedies is applicable in this case. 3
The petition lacks merit.
Prefatorily, it might be well to recall that local governments do not have the inherent power to tax 4 except to the extent that such
power might be delegated to them either by the basic law or by statute. Presently, under Article X of the 1987 Constitution, a
general delegation of that power has been given in favor of local government units. Thus:
Sec. 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.
xxx xxx xxx
Sec. 5. Each local government unit shall have the power to create its own sources of revenues and 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.
The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a similar delegation of
revenue making powers to local governments. 5
Under regime of the 1935 Constitution no similar delegation of tax powers was provided, and local government units instead
derived their tax powers under a limited statutory authority. Whereas, then, the delegation of tax powers granted at that time by
statute to local governments was confined and defined (outside of which the power was deemed withheld), the present
constitutional rule (starting with the 1973 Constitution), however, would broadly confer such tax powers subject only to specific
exceptions that the law might prescribe.
Under the now prevailing Constitution, where there is neither a grant nor a prohibition by statute, the tax power must be deemed
to exist although Congress may provide statutory limitations and guidelines. The basic rationale for the current rule is to safeguard
the viability and self-sufficiency of local government units by directly granting them general and broad tax powers. Nevertheless,
the fundamental law did not intend the delegation to be absolute and unconditional; the constitutional objective obviously is to
ensure that, while the local government units are being strengthened and made more autonomous, 6 the legislature must still see
to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions; (b) each local In an earlier case, the phrase "shall be in lieu of all taxes and at any time levied, established by, or collected by any authority"
government unit will have its fair share of available resources; (c) the resources of the national government will not be unduly found in the franchise of the Visayan Electric Company was held to exempt the company from payment of the 5% tax on corporate
disturbed; and (d) local taxation will be fair, uniform, and just. franchise provided in Section 259 of the Internal Revenue Code (Visayan Electric Co. vs. David, 49 O.G. [No. 4] 1385)

The Local Government Code of 1991 has incorporated and adopted, by and large, the provisions of the now repealed Local Tax
Code, which had been in effect since 01 July 1973, promulgated into law by Presidential Decree
No. 2317 pursuant to the then provisions of Section 2, Article XI, of the 1973 Constitution. The 1991 Code explicitly authorizes
provincial governments, notwithstanding "any exemption granted by any law or other special law, . . . (to) impose a tax on
businesses enjoying a franchise." Section 137 thereof provides:
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. (Underscoring supplied for emphasis)
Similarly, we ruled that the provision: "shall be in lieu of all taxes of every name and nature" in the franchise of the Manila
Railroad (Subsection 12, Section 1, Act No. 1510) exempts the Manila Railroad from payment of internal revenue tax for its
importations of coal and oil under Act No. 2432 and the Amendatory Acts of the Philippine Legislature (Manila Railroad vs.
Rafferty, 40 Phil. 224).
The same phrase found in the franchise of the Philippine Railway Co. (Sec. 13, Act No. 1497) justified the exemption of the
Philippine Railway Company from payment of the tax on its corporate franchise under Section 259 of the Internal Revenue Code,
as amended by R.A. No. 39 (Philippine Railway Co vs. Collector of Internal Revenue, 91 Phil. 35).
Those magic words, "shall be in lieu of all taxes" also excused the Cotabato Light and Ice Plant Company from the payment of
the tax imposed by Ordinance No. 7 of the City of Cotabato (Cotabato Light and Power Co. vs. City of Cotabato, 32 SCRA 231).

So was the exemption upheld in favor of the Carcar Electric and Ice Plant Company when it was required to pay the corporate
Indicative of the legislative intent to carry out the Constitutional mandate of vesting broad tax powers to local government units,
franchise tax under Section 259 of the Internal Revenue Code, as amended by R.A. No. 39 (Carcar Electric & Ice Plant vs.
the Local Government Code has effectively withdrawn under Section 193 thereof, tax exemptions or incentives theretofore
Collector of Internal Revenue, 53 O.G. [No. 4]. 1068). This Court pointed out that such exemption is part of the inducement for
enjoyed by certain entities. This law states:
the acceptance of the franchise and the rendition of public service by the grantee. 2

Sec. 193. Withdrawal of Tax Exemption Privileges — Unless otherwise provided in this Code, tax exemptions or incentives
In the recent case of the City Government of San Pablo, etc., et al. vs. Hon. Bienvenido V. Reyes, et al., 13 the Court has held that
granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled
the phrase in lieu of all taxes "have to give way to the peremptory language of the Local Government Code specifically providing
corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals
for the withdrawal of such exemptions, privileges," and that "upon the effectivity of the Local Government Code all exemptions
and educational institutions, are hereby withdrawn upon the effectivity of this Code. (Underscoring supplied for emphasis)
except only as provided therein can no longer be invoked by MERALCO to disclaim liability for the local tax." In fine, the Court
has viewed its previous rulings as laying stress more on the legislative intent of the amendatory law — whether the tax exemption
The Code, in addition, contains a general repealing clause in its Section 534; thus: privilege is to be withdrawn or not — rather than on whether the law can withdraw, without violating the Constitution, the tax
exemption or not.
Sec. 534. Repealing Clause. — . . .
While the Court has, not too infrequently, referred to tax exemptions contained in special franchises as being in the nature of
contracts and a part of the inducement for carrying on the franchise, these exemptions, nevertheless, are far from being strictly
(f) All general and special laws, acts, city charters, decrees, executive orders, proclamations and administrative regulations, or
contractual in nature. Contractual tax exemptions, in the real sense of the term and where the non-impairment clause of the
part or parts thereof which are inconsistent with any of the provisions of this Code are hereby repealed or modified accordingly.
Constitution can rightly be invoked, are those agreed to by the taxing authority in contracts, such as those contained in government
(Underscoring supplied for emphasis) 8
bonds or debentures, lawfully entered into by them under enabling laws in which the government, acting in its private capacity,
sheds its cloak of authority and waives its governmental immunity. Truly, tax exemptions of this kind may not be revoked without
To exemplify, in Mactan Cebu International Airport Authority vs. Marcos, 9 the Court upheld the withdrawal of the real estate impairing the obligations of contracts. 14 These contractual tax exemptions, however, are not to be confused with tax exemptions
tax exemption previously enjoyed by Mactan Cebu International Airport Authority. The Court ratiocinated: granted under franchises. A franchise partakes the nature of a grant which is beyond the purview of the non-impairment clause
of the Constitution.15 Indeed, Article XII, Section 11, of the 1987 Constitution, like its precursor provisions in the 1935 and the
1973 Constitutions, is explicit that no franchise for the operation of a public utility shall be granted except under the condition
. . . These policy considerations are consistent with the State policy to ensure autonomy to local governments and the objective
that such privilege shall be subject to amendment, alteration or repeal by Congress as and when the common good so requires.
of the LGC that they enjoy genuine and meaningful local autonomy to enable them to attain their fullest development as self-
reliant communities and make them effective partners in the attainment of national goals. The power to tax is the most effective
instrument to raise needed revenues to finance and support myriad activities if local government units for the delivery of basic WHEREFORE, the instant petition is hereby DISMISSED. No costs.1âwphi1.nêt
services essential to the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people.
It may also be relevant to recall that the original reasons for the withdrawal of tax exemption privileges granted to government-
SO ORDERED.
owned and 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 similarity situated enterprises, and there was a need for these entities to share in the
requirements of development, fiscal or otherwise, by paying the taxes and other charges due from them. 10

Petitioner in its complaint before the Regional Trial Court cited the ruling of this Court in Province of Misamis
Oriental vs. Cagayan Electric Power and Light Company, Inc.; 11 thus:

26 of 34
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 Reconsideration1 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 relief3 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 Smart’s 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. 79254 (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 Smart’s 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
27 of 34
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-à-vis Section 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 Digitel’s 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 PLDT’s 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 grantee’s 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 so-called "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.

28 of 34
COMMISSIONER OF INTERNAL REVENUE, petitioner, 20% int. p.a.fr. 7-15-85 to 8-15-86
vs.
MARUBENI CORPORATION, respondent.
TOTAL AMOUNT DUE
PUNO, J.:

In this petition for review, the Commissioner of Internal Revenue assails the decision dated January 15, 1999 of the Court of II. DEFICIENCY BRANCH PROFIT REMITTANCE TAX
Appeals in CA-G.R. SP No. 42518 which affirmed the decision dated July 29, 1996 of the Court of Tax Appeals in CTA Case
No. 4109. The tax court ordered the Commissioner of Internal Revenue to desist from collecting the 1985 deficiency income,
branch profit remittance and contractor's taxes from Marubeni Corporation after finding the latter to have properly availed of the FY ended March 31, 1985
tax amnesty under Executive Orders Nos. 41 and 64, as amended.

Respondent Marubeni Corporation is a foreign corporation organized and existing under the laws of Japan. It is engaged in Undeclared gross income from Philphos and NDC construction projects
general import and export trading, financing and the construction business. It is duly registered to engage in such business in the
Philippines and maintains a branch office in Manila.
Less: Income tax thereon
Sometime in November 1985, petitioner Commissioner of Internal Revenue issued a letter of authority to examine the books of
accounts of the Manila branch office of respondent corporation for the fiscal year ending March 1985. In the course of the
Amount subject to Tax
examination, petitioner found respondent to have undeclared income from two (2) contracts in the Philippines, both of which
were completed in 1984. One of the contracts was with the National Development Company (NDC) in connection with the
construction and installation of a wharf/port complex at the Leyte Industrial Development Estate in the municipality of Isabel,
province of Leyte. The other contract was with the Philippine Phosphate Fertilizer Corporation (Philphos) for the construction of Tax due thereon
an ammonia storage complex also at the Leyte Industrial Development Estate.

Add: 50% surcharge

On March 1, 1986, petitioner's revenue examiners recommended an assessment for deficiency income, branch profit remittance,
contractor's and commercial broker's taxes. Respondent questioned this assessment in a letter dated June 5, 1986.
20% int. p.a.fr. 4-26-85 to 8-15-86
On August 27, 1986, respondent corporation received a letter dated August 15, 1986 from petitioner assessing respondent several
deficiency taxes. The assessed deficiency internal revenue taxes, inclusive of surcharge and interest, were as follows:
TOTAL AMOUNT DUE
I. DEFICIENCY INCOME TAX
III. DEFICIENCY CONTRACTOR'S TAX
FY ended March 31, 1985
FY ended March 31, 1985
Undeclared gross income (Philphos and NDC construction projects) P967,269,811.14
Undeclared gross receipts/gross income from Philphos and NDC construction projects
Less: Cost and expenses (50%) 483,634,905.57
Contractor's tax due thereon (4%)
Net undeclared income 483,634,905.57
Add: 50% surcharge for non-declaration
Income tax due thereon 169,272,217.00
20% surcharge for late payment
Add: 50% surcharge 84,636,108.50

29 of 34
 Sub-total On September 26, 1986, respondent filed two (2) petitions for review with the Court of Tax Appeals. The first petition, CTA
67,708,886.00
Case No. 4109, questioned the deficiency income, branch profit remittance and contractor's tax assessments in petitioner's
assessment letter. The second, CTA Case No. 4110, questioned the deficiency commercial broker's assessment in the same letter.
Add: 20% int. p.a.fr. 4-21-85 to 8-15-86 17,854,739.46
Earlier, on August 2, 1986, Executive Order (E.O.) No. 412 declaring a one-time amnesty covering unpaid income taxes for the
years 1981 to 1985 was issued. Under this E.O., a taxpayer who wished to avail of the income tax amnesty should, on or before
TOTAL AMOUNT DUE October 31, 1986: (a) file a sworn statement declaring his net worth as of December 31, 1985; (b) file a certified true copy of his
P85,563,625.46
statement declaring his net worth as of December 31, 1980 on record with the Bureau of Internal Revenue (BIR), or if no such
record exists, file a statement of said net worth subject to verification by the BIR; and (c) file a return and pay a tax equivalent to
IV. DEFICIENCY COMMERCIAL BROKER'S TAX ten per cent (10%) of the increase in net worth from December 31, 1980 to December 31, 1985.

In accordance with the terms of E.O. No. 41, respondent filed its tax amnesty return dated October 30, 1986 and attached thereto
FY ended March 31, 1985 its sworn statement of assets and liabilities and net worth as of Fiscal Year (FY) 1981 and FY 1986. The return was received by
the BIR on November 3, 1986 and respondent paid the amount of P2,891,273.00 equivalent to ten percent (10%) of its net worth
increase between 1981 and 1986.
Undeclared share from commission income
(denominated as "subsidy from Home Office") P24,683,114.50
The period of the amnesty in E.O. No. 41 was later extended from October 31, 1986 to December 5, 1986 by E.O. No. 54 dated
November 4, 1986.

Tax due thereon 1,628,569.00

On November 17, 1986, the scope and coverage of E.O. No. 41 was expanded by Executive Order (E.O.) No. 64. In addition to
the income tax amnesty granted by E.O. No. 41 for the years 1981 to 1985, E.O. No. 64 3 included estate and donor's taxes under
Title III and the tax on business under Chapter II, Title V of the National Internal Revenue Code, also covering the years 1981 to
Add: 50% surcharge for non-declaration 1985. E.O. No. 64 further provided that the immunities and privileges under E.O. No. 41 were extended to the foregoing 814,284.50
tax
liabilities, and the period within which the taxpayer could avail of the amnesty was extended to December 15, 1986. Those
taxpayers who already filed their amnesty return under E.O. No. 41, as amended, could avail themselves of the benefits,
20% surcharge for late payment immunities and privileges under the new E.O. by filing an amended return and paying an additional 5% on the increase 407,142.25
in net
worth to cover business, estate and donor's tax liabilities.

Sub-total 2,849,995.75
The period of amnesty under E.O. No. 64 was extended to January 31, 1987 by E.O No. 95 dated December 17, 1986.

Add: 20% int. p.a.fr. 4-21-85 to 8-15-86 On December 15, 1986, respondent filed a supplemental tax amnesty return under the benefit of E.O. No. 64 and paid751,539.98
a further
amount of P1,445,637.00 to the BIR equivalent to five percent (5%) of the increase of its net worth between 1981 and 1986.

TOTAL AMOUNT DUE P3,600,535.68

On July 29, 1996, almost ten (10) years after filing of the case, the Court of Tax Appeals rendered a decision in CTA Case No.
4109. The tax court found that respondent had properly availed of the tax amnesty under E.O. Nos. 41 and 64 and declared the
deficiency taxes subject of said case as deemed cancelled and withdrawn. The Court of Tax Appeals disposed of as follows:

"WHEREFORE, the respondent Commissioner of Internal Revenue is hereby ORDERED to DESIST from collecting the 1985
The 50% surcharge was imposed for your client's failure to report for tax purposes the aforesaid taxable revenues while the 25% deficiency taxes it had assessed against petitioner and the same are deemed considered [sic] CANCELLED and WITHDRAWN
surcharge was imposed because of your client's failure to pay on time the above deficiency percentage taxes. by reason of the proper availment by petitioner of the amnesty under Executive Order No. 41, as amended."4

xxx xxx xxx"1 Petitioner challenged the decision of the tax court by filing CA-G.R. SP No. 42518 with the Court of Appeals.

Petitioner found that the NDC and Philphos contracts were made on a "turn-key" basis and that the gross income from the two On January 15, 1999, the Court of Appeals dismissed the petition and affirmed the decision of the Court of Tax Appeals. Hence,
projects amounted to P967,269,811.14. Each contract was for a piece of work and since the projects called for the construction this recourse.
and installation of facilities in the Philippines, the entire income therefrom constituted income from Philippine sources, hence,
subject to internal revenue taxes. The assessment letter further stated that the same was petitioner's final decision and that if
respondent disagreed with it, respondent may file an appeal with the Court of Tax Appeals within thirty (30) days from receipt Before us, petitioner raises the following issues:
of the assessment.

30 of 34
"(1) Whether or not the Court of Appeals erred in affirming the Decision of the Court of Tax Appeals which ruled that herein
respondent's deficiency tax liabilities were extinguished upon respondent's availment of tax amnesty under Executive Orders
Nos. 41 and 64.
(2) Whether or not respondent is liable to pay the income, branch profit remittance, and contractor's taxes assessed by petitioner."5
The main controversy in this case lies in the interpretation of the exception to the amnesty coverage of E.O. Nos. 41 and 64.
There are three (3) types of taxes involved herein — income tax, branch profit remittance tax and contractor's tax. These taxes
are covered by the amnesties granted by E.O. Nos. 41 and 64. Petitioner claims, however, that respondent is disqualified from
availing of the said amnesties because the latter falls under the exception in Section 4 (b) of E.O. No. 41.
Section 4 of E.O. No. 41 enumerates which taxpayers cannot avail of the amnesty granted thereunder, viz:
"Sec. 4. Exceptions. — The following taxpayers may not avail themselves of the amnesty herein granted:
a) Those falling under the provisions of Executive Order Nos. 1, 2 and 14;
b) Those with income tax cases already filed in Court as of the effectivity hereof;
c) Those with criminal cases involving violations of the income tax law already filed in court as of the effectivity hereof;
d) Those that have withholding tax liabilities under the National Internal Revenue Code, as amended, insofar as the said liabilities
are concerned;
e) Those with tax cases pending investigation by the Bureau of Internal Revenue as of the effectivity hereof as a result of
information furnished under Section 316 of the National Internal Revenue Code, as amended;
f) Those with pending cases involving unexplained or unlawfully acquired wealth before the Sandiganbayan;
g) Those liable under Title Seven, Chapter Three (Frauds, Illegal Exactions and Transactions) and Chapter Four (Malversation
of Public Funds and Property) of the Revised Penal Code, as amended."
Petitioner argues that at the time respondent filed for income tax amnesty on October 30, 1986, CTA Case No. 4109 had already
been filed and was pending; before the Court of Tax Appeals. Respondent therefore fell under the exception in Section 4 (b) of
E.O. No. 41.
Petitioner's claim cannot be sustained. Section 4 (b) of E.O. No. 41 is very clear and unambiguous. It excepts from income tax
amnesty those taxpayers "with income tax cases already filed in court as of the effectivity hereof." The point of reference is the
date of effectivity of E.O. No. 41. The filing of income tax cases in court must have been made before and as of the date
of effectivity of E.O. No. 41. Thus, for a taxpayer not to be disqualified under Section 4 (b) there must have been no income tax
cases filed in court against him when E.O. No. 41 took effect. This is regardless of when the taxpayer filed for income tax
amnesty, provided of course he files it on or before the deadline for filing.
E.O. No. 41 took effect on August 22, 1986. CTA Case No. 4109 questioning the 1985 deficiency income, branch profit
remittance and contractor's tax assessments was filed by respondent with the Court of Tax Appeals on September 26, 1986. When
E.O. No. 41 became effective on August 22, 1986, CTA Case No. 4109 had not yet been filed in court. Respondent corporation
did not fall under the said exception in Section 4 (b), hence, respondent was not disqualified from availing of the amnesty for
income tax under E.O. No. 41.
31 of 34
The same ruling also applies to the deficiency branch profit remittance tax assessment. A branch profit remittance tax is defined
and imposed in Section 24 (b) (2) (ii), Title II, Chapter III of the National Internal Revenue Code.6 In the tax code, this tax falls
under Title II on Income Tax. It is a tax on income. Respondent therefore did not fall under the exception in Section 4 (b) when
it filed for amnesty of its deficiency branch profit remittance tax assessment.
The difficulty herein is with respect to the contractor's tax assessment and respondent's availment of the amnesty under E.O. No.
64. E.O. No. 64 expanded the coverage of E.O. No. 41 by including estate and donor's taxes and tax on business. Estate and
donor's taxes fall under Title III of the Tax Code while business taxes fall under Chapter II, Title V of the same. The contractor's
tax is provided in Section 205, Chapter II, Title V of the Tax Code; it is defined and imposed under the title on business taxes,
and is therefore a tax on business.7
When E.O. No. 64 took effect on November 17, 1986, it did not provide for exceptions to the coverage of the amnesty for
business, estate and donor's taxes. Instead, Section 8 of E.O. No. 64 provided that:
"Section 8. The provisions of Executive Orders Nos. 41 and 54 which are not contrary to or inconsistent with this amendatory
Executive Order shall remain in full force and effect."
By virtue of Section 8 as afore-quoted, the provisions of E.O. No. 41 not contrary to or inconsistent with the amendatory act were
reenacted in E.O. No. 64. Thus, Section 4 of E.O. No. 41 on the exceptions to amnesty coverage also applied to E.O. No. 64.
With respect to Section 4 (b) in particular, this provision excepts from tax amnesty coverage a taxpayer who has "income tax
cases already filed in court as of the effectivity hereof." As to what Executive Order the exception refers to, respondent argues
that because of the words "income" and "hereof," they refer to Executive Order No. 41.8
In view of the amendment introduced by E.O. No. 64, Section 4 (b) cannot be construed to refer to E.O. No. 41 and its date of
effectivity. The general rule is that an amendatory act operates prospectively.9 While an amendment is generally construed as
becoming a part of the original act as if it had always been contained therein,10 it may not be given a retroactive effect unless it
is so provided expressly or by necessary implication and no vested right or obligations of contract are thereby impaired.11
There is nothing in E.O. No. 64 that provides that it should retroact to the date of effectivity of E.O. No. 41, the original issuance.
Neither is it necessarily implied from E.O. No. 64 that it or any of its provisions should apply retroactively. Executive Order No.
64 is a substantive amendment of E.O. No. 41. It does not merely change provisions in E.O. No. 41. It supplements the original
act by adding other taxes not covered in the first.12 It has been held that where a statute amending a tax law is silent as to whether
it operates retroactively, the amendment will not be given a retroactive effect so as to subject to tax past transactions not subject
to tax under the original act.13 In an amendatory act, every case of doubt must be resolved against its retroactive effect.14
Moreover, E.O. Nos. 41 and 64 are tax amnesty issuances. A tax amnesty is a general pardon or intentional overlooking by the
State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law.15 It partakes
of an absolute forgiveness or waiver by the government of its right to collect what is due it and to give tax evaders who wish to
relent a chance to start with a clean slate.16 A tax amnesty, much like a tax exemption, is never favored nor presumed in law.17 If
granted, the terms of the amnesty, like that of a tax exemption, must be construed strictly against the taxpayer and liberally in
favor of the taxing authority.18 For the right of taxation is inherent in government. The State cannot strip itself of the most essential
power of taxation by doubtful words. He who claims an exemption (or an amnesty) from the common burden must justify his
claim by the clearest grant of organic or state law. It cannot be allowed to exist upon a vague implication. If a doubt arises as to
the intent of the legislature, that doubt must be resolved in favor of the state.19
In the instant case, the vagueness in Section 4 (b) brought about by E.O. No. 64 should therefore be construed strictly against the
taxpayer. The term "income tax cases" should be read as to refer to estate and donor's taxes and taxes on business while the word
"hereof," to E.O. No. 64. Since Executive Order No. 64 took effect on November 17, 1986, consequently, insofar as the taxes in
E.O. No. 64 are concerned, the date of effectivity referred to in Section 4 (b) of E.O. No. 41 should be November 17, 1986.
Respondent filed CTA Case No. 4109 on September 26, 1986. When E.O. No. 64 took effect on November 17, 1986, CTA Case
No. 4109 was already filed and pending in court. By the time respondent filed its supplementary tax amnesty return on December
15, 1986, respondent already fell under the exception in Section 4 (b) of E.O. Nos. 41 and 64 and was disqualified from availing
of the business tax amnesty granted therein.
It is respondent's other argument that assuming it did not validly avail of the amnesty under the two Executive Orders, it is still
not liable for the deficiency contractor's tax because the income from the projects came from the "Offshore Portion" of the
contracts. The two contracts were divided into two parts, i.e., the Onshore Portion and the Offshore Portion. All materials and
equipment in the contract under the "Offshore Portion" were manufactured and completed in Japan, not in the Philippines, and
are therefore not subject to Philippine taxes.
Before going into respondent's arguments, it is necessary to discuss the background of the two contracts, examine their pertinent
provisions and implementation.
The NDC and Philphos are two government corporations. In 1980, the NDC, as the corporate investment arm of the Philippine
Government, established the Philphos to engage in the large-scale manufacture of phosphatic fertilizer for the local and foreign
markets.20 The Philphos plant complex which was envisioned to be the largest phosphatic fertilizer operation in Asia, and among
the largest in the world, covered an area of 180 hectares within the 435-hectare Leyte Industrial Development Estate in the
municipality of Isabel, province of Leyte.
In 1982, the NDC opened for public bidding a project to construct and install a modern, reliable, efficient and integrated
wharf/port complex at the Leyte Industrial Development Estate. The wharf/port complex was intended to be one of the major
facilities for the industrial plants at the Leyte Industrial Development Estate. It was to be specifically adapted to the site for the
handling of phosphate rock, bagged or bulk fertilizer products, liquid materials and other products of Philphos, the Philippine
Associated Smelting and Refining Corporation (Pasar),21 and other industrial plants within the Estate. The bidding was
participated in by Marubeni Head Office in Japan.
Marubeni, Japan pre-qualified and on March 22, 1982, the NDC and respondent entered into an agreement entitled "Turn-Key
Contract for Leyte Industrial Estate Port Development Project Between National Development Company and Marubeni
Corporation."22 The Port Development Project would consist of a wharf, berths, causeways, mechanical and liquids unloading
and loading systems, fuel oil depot, utilities systems, storage and service buildings, offsite facilities, harbor service vessels,
navigational aid system, fire-fighting system, area lighting, mobile equipment, spare parts and other related facilities.23 The scope
of the works under the contract covered turn-key supply, which included grants of licenses and the transfer of technology and
know-how,24 and:
". . . the design and engineering, supply and delivery, construction, erection and installation, supervision, direction and control of
testing and commissioning of the Wharf-Port Complex as set forth in Annex I of this Contract, as well as the coordination of tie-
ins at boundaries and schedule of the use of a part or the whole of the Wharf/Port Complex through the Owner, with the design
and construction of other facilities around the site. The scope of works shall also include any activity, work and supply necessary
for, incidental to or appropriate under present international industrial port practice, for the timely and successful implementation
of the object of this Contract, whether or not expressly referred to in the abovementioned Annex I."25
The contract price for the wharf/port complex was ¥12,790,389,000.00 and P44,327,940.00. In the contract, the price in Japanese
currency was broken down into two portions: (1) the Japanese Yen Portion I; (2) the Japanese Yen Portion II, while the price in
Philippine currency was referred to as the Philippine Pesos Portion. The Japanese Yen Portions I and II were financed in two (2)
ways: (a) by yen credit loan provided by the Overseas Economic Cooperation Fund (OECF); and (b) by supplier's credit in favor
of Marubeni from the Export-Import Bank of Japan. The OECF is a Fund under the Ministry of Finance of Japan extended by
the Japanese government as assistance to foreign governments to promote economic development.26 The OECF extended to the
Philippine Government a loan of ¥7,560,000,000.00 for the Leyte Industrial Estate Port Development Project and authorized the
NDC to implement the same.27 The other type of financing is an indirect type where the supplier, i.e., Marubeni, obtained a loan
from the Export-Import Bank of Japan to advance payment to its sub-contractors.28
Under the financing schemes, the Japanese Yen Portions I and II and the Philippine Pesos Portion were further broken down and
subdivided according to the materials, equipment and services rendered on the project. The price breakdown and the
corresponding materials, equipment and services were contained in a list attached as Annex III to the contract.29
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A few months after execution of the NDC contract, Philphos opened for public bidding a project to construct and install two
ammonia storage tanks in Isabel. Like the NDC contract, it was Marubeni Head Office in Japan that participated in and won the
bidding. Thus, on May 2, 1982, Philphos and respondent corporation entered into an agreement entitled "Turn-Key Contract for
Ammonia Storage Complex Between Philippine Phosphate Fertilizer Corporation and Marubeni Corporation."30 The object of
the contract was to establish and place in operating condition a modern, reliable, efficient and integrated ammonia storage
complex adapted to the site for the receipt and storage of liquid anhydrous ammonia31 and for the delivery of ammonia to an
integrated fertilizer plant adjacent to the storage complex and to vessels at the dock.32 The storage complex was to consist of
ammonia storage tanks, refrigeration system, ship unloading system, transfer pumps, ammonia heating system, fire-fighting
system, area lighting, spare parts, and other related facilities.33 The scope of the works required for the completion of the ammonia
storage complex covered the supply, including grants of licenses and transfer of technology and know-how,34 and:
". . . the design and engineering, supply and delivery, construction, erection and installation, supervision, direction and control of
testing and commissioning of the Ammonia Storage Complex as set forth in Annex I of this Contract, as well as the coordination
of tie-ins at boundaries and schedule of the use of a part or the whole of the Ammonia Storage Complex through the Owner with
the design and construction of other facilities at and around the Site. The scope of works shall also include any activity, work and
supply necessary for, incidental to or appropriate under present international industrial practice, for the timely and successful
implementation of the object of this Contract, whether or not expressly referred to in the abovementioned Annex I."35
The contract price for the project was ¥3,255,751,000.00 and P17,406,000.00. Like the NDC contract, the price was divided into
three portions. The price in Japanese currency was broken down into the Japanese Yen Portion I and Japanese Yen Portion II
while the price in Philippine currency was classified as the Philippine Pesos Portion. Both Japanese Yen Portions I and II were
financed by supplier's credit from the Export-Import Bank of Japan. The price stated in the three portions were further broken
down into the corresponding materials, equipment and services required for the project and their individual prices. Like the NDC
contract, the breakdown in the Philphos contract is contained in a list attached to the latter as Annex III.36
The division of the price into Japanese Yen Portions I and II and the Philippine Pesos Portion under the two contracts corresponds
to the two parts into which the contracts were classified — the Foreign Offshore Portion and the Philippine Onshore Portion. In
both contracts, the Japanese Yen Portion I corresponds to the Foreign Offshore Portion.37 Japanese Yen Portion II and the
Philippine Pesos Portion correspond to the Philippine Onshore Portion.38
Under the Philippine Onshore Portion, respondent does not deny its liability for the contractor's tax on the income from the two
projects. In fact respondent claims, which petitioner has not denied, that the income it derived from the Onshore Portion of the
two projects had been declared for tax purposes and the taxes thereon already paid to the Philippine government.39 It is with
regard to the gross receipts from the Foreign Offshore Portion of the two contracts that the liabilities involved in the assessments
subject of this case arose. Petitioner argues that since the two agreements are turn-key,40 they call for the supply of both materials
and services to the client, they are contracts for a piece of work and are indivisible. The situs of the two projects is in the
Philippines, and the materials provided and services rendered were all done and completed within the territorial jurisdiction of
the Philippines.41Accordingly, respondent's entire receipts from the contracts, including its receipts from the Offshore Portion,
constitute income from Philippine sources. The total gross receipts covering both labor and materials should be subjected to
contractor's tax in accordance with the ruling in Commissioner of Internal Revenue v. Engineering Equipment & Supply Co.42
A contractor's tax is imposed in the National Internal Revenue Code (NIRC) as follows:
"Sec. 205. Contractors, proprietors or operators of dockyards, and others. —A contractor's tax of four percent of the gross
receipts is hereby imposed on proprietors or operators of the following business establishments and/or persons engaged in the
business of selling or rendering the following services for a fee or compensation:
(a) General engineering, general building and specialty contractors, as defined in Republic Act No. 4566;
xxx xxx xxx
(q) Other independent contractors. The term "independent contractors" includes persons (juridical or natural) not enumerated
above (but not including individuals subject to the occupation tax under the Local Tax Code) whose activity consists essentially
of the sale of all kinds of services for a fee regardless of whether or not the performance of the service calls for the exercise or
use of the physical or mental faculties of such contractors or their employees. It does not include regional or area headquarters
established in the Philippines by multinational corporations, including their alien executives, and which headquarters do not earn
or derive income from the Philippines and which act as supervisory, communications and coordinating centers for their affiliates,
subsidiaries or branches in the Asia-Pacific Region.
xxx xxx xxx43
Under the afore-quoted provision, an independent contractor is a person whose activity consists essentially of the sale of all kinds
of services for a fee, regardless of whether or not the performance of the service calls for the exercise or use of the physical or
mental faculties of such contractors or their employees. The word "contractor" refers to a person who, in the pursuit of
independent business, undertakes to do a specific job or piece of work for other persons, using his own means and methods
without submitting himself to control as to the petty details.44
A contractor's tax is a tax imposed upon the privilege of engaging in business.45 It is generally in the nature of an excise tax on
the exercise of a privilege of selling services or labor rather than a sale on products;46 and is directly collectible from the person
exercising the privilege.47 Being an excise tax, it can be levied by the taxing authority only when the acts, privileges or business
are done or performed within the jurisdiction of said authority.48 Like property taxes, it cannot be imposed on an occupation or
privilege outside the taxing district.49
In the case at bar, it is undisputed that respondent was an independent contractor under the terms of the two subject contracts.
Respondent, however, argues that the work therein were not all performed in the Philippines because some of them were
completed in Japan in accordance with the provisions of the contracts.
An examination of Annex III to the two contracts reveals that the materials and equipment to be made and the works and services
to be performed by respondent are indeed classified into two. The first part, entitled "Breakdown of Japanese Yen Portion I"
provides:
"Japanese Yen Portion I of the Contract Price has been subdivided according to discrete portions of materials and equipment
which will be shipped to Leyte as units and lots. This subdivision of price is to be used by owner to verify invoice for Progress
Payments under Article 19.2.1 of the Contract. The agreed subdivision of Japanese Yen Portion I is as follows:
xxx xxx xxx50
The subdivision of Japanese Yen Portion I covers materials and equipment while Japanese Yen Portion II and the Philippine
Pesos Portion enumerate other materials and equipment and the construction and installation work on the project. In other words,
the supplies for the project are listed under Portion I while labor and other supplies are listed under Portion II and the Philippine
Pesos Portion. Mr. Takeshi Hojo, then General Manager of the Industrial Plant Section II of the Industrial Plant Department of
Marubeni Corporation in Japan who supervised the implementation of the two projects, testified that all the machines and
equipment listed under Japanese Yen Portion I in Annex III were manufactured in Japan.51 The machines and equipment were
designed, engineered and fabricated by Japanese firms sub-contracted by Marubeni from the list of sub-contractors in the technical
appendices to each contract.52 Marubeni sub-contracted a majority of the equipment and supplies to Kawasaki Steel Corporation
which did the design, fabrication, engineering and manufacture thereof;53 Yashima & Co. Ltd. which manufactured the mobile
equipment; Bridgestone which provided the rubber fenders of the mobile equipment;54 and B.S. Japan for the supply of radio
equipment.55 The engineering and design works made by Kawasaki Steel Corporation included the lay-out of the plant facility
and calculation of the design in accordance with the specifications given by respondent.56 All sub-contractors and manufacturers
are Japanese corporations and are based in Japan and all engineering and design works were performed in that country.57
The materials and equipment under Portion I of the NDC Port Project is primarily composed of two (2) sets of ship unloader and
loader; several boats and mobile equipment.58 The ship unloader unloads bags or bulk products from the ship to the port while
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the ship loader loads products from the port to the ship. The unloader and loader are big steel structures on top of each is a large
crane and a compartment for operation of the crane. Two sets of these equipment were completely manufactured in Japan
according to the specifications of the project. After manufacture, they were rolled on to a barge and transported to Isabel,
Leyte.59 Upon reaching Isabel, the unloader and loader were rolled off the barge and pulled to the pier to the spot where they were
installed.60 Their installation simply consisted of bolting them onto the pier.61
Like the ship unloader and loader, the three tugboats and a line boat were completely manufactured in Japan. The boats sailed to
Isabel on their own power. The mobile equipment, consisting of three to four sets of tractors, cranes and dozers, trailers and
forklifts, were also manufactured and completed in Japan. They were loaded on to a shipping vessel and unloaded at the Isabel
Port. These pieces of equipment were all on wheels and self-propelled. Once unloaded at the port, they were ready to be driven
and perform what they were designed to do.62
In addition to the foregoing, there are other items listed in Japanese Yen Portion I in Annex III to the NDC contract. These other
items consist of supplies and materials for five (5) berths, two (2) roads, a causeway, a warehouse, a transit shed, an administration
building and a security building. Most of the materials consist of steel sheets, steel pipes, channels and beams and other steel
structures, navigational and communication as well as electrical equipment.63
In connection with the Philphos contract, the major pieces of equipment supplied by respondent were the ammonia storage tanks
and refrigeration units.64 The steel plates for the tank were manufactured and cut in Japan according to drawings and specifications
and then shipped to Isabel. Once there, respondent's employees put the steel plates together to form the storage tank. As to the
refrigeration units, they were completed and assembled in Japan and thereafter shipped to Isabel. The units were simply installed
there. 65 Annex III to the Philphos contract lists down under the Japanese Yen Portion I the materials for the ammonia storage
tank, incidental equipment, piping facilities, electrical and instrumental apparatus, foundation material and spare parts.
All the materials and equipment transported to the Philippines were inspected and tested in Japan prior to shipment in accordance
with the terms of the contracts.66 The inspection was made by representatives of respondent corporation, of NDC and Philphos.
NDC, in fact, contracted the services of a private consultancy firm to verify the correctness of the tests on the machines and
equipment67 while Philphos sent a representative to Japan to inspect the storage equipment.68
The sub-contractors of the materials and equipment under Japanese Yen Portion I were all paid by respondent in Japan. In his
deposition upon oral examination, Kenjiro Yamakawa, formerly the Assistant General Manager and Manager of the Steel Plant
Marketing Department, Engineering & Construction Division, Kawasaki Steel Corporation, testified that the equipment and
supplies for the two projects provided by Kawasaki under Japanese Yen Portion I were paid by Marubeni in Japan. Receipts for
such payments were duly issued by Kawasaki in Japanese and English.69 Yashima & Co. Ltd. and B.S. Japan were likewise paid
by Marubeni in Japan.70
Between Marubeni and the two Philippine corporations, payments for all materials and equipment under Japanese Yen Portion I
were made to Marubeni by NDC and Philphos also in Japan. The NDC, through the Philippine National Bank, established letters
of credit in favor of respondent through the Bank of Tokyo. The letters of credit were financed by letters of commitment issued
by the OECF with the Bank of Tokyo. The Bank of Tokyo, upon respondent's submission of pertinent documents, released the
amount in the letters of credit in favor of respondent and credited the amount therein to respondent's account within the same
bank.71
Clearly, the service of "design and engineering, supply and delivery, construction, erection and installation, supervision, direction
and control of testing and commissioning, coordination. . . "72 of the two projects involved two taxing jurisdictions. These acts
occurred in two countries — Japan and the Philippines. While the construction and installation work were completed within the
Philippines, the evidence is clear that some pieces of equipment and supplies were completely designed and engineered in Japan.
The two sets of ship unloader and loader, the boats and mobile equipment for the NDC project and the ammonia storage tanks
and refrigeration units were made and completed in Japan. They were already finished products when shipped to the Philippines.
The other construction supplies listed under the Offshore Portion such as the steel sheets, pipes and structures, electrical and
instrumental apparatus, these were not finished products when shipped to the Philippines. They, however, were likewise
fabricated and manufactured by the sub-contractors in Japan. All services for the design, fabrication, engineering and manufacture
of the materials and equipment under Japanese Yen Portion I were made and completed in Japan. These services were rendered
outside the taxing jurisdiction of the Philippines and are therefore not subject to contractor's tax.

Contrary to petitioner's claim, the case of Commissioner of Internal Revenue v. Engineering Equipment & Supply Co73 is not in
point. In that case, the Court found that Engineering Equipment, although an independent contractor, was not engaged in the
manufacture of air conditioning units in the Philippines. Engineering Equipment designed, supplied and installed centralized air-
conditioning systems for clients who contracted its services. Engineering, however, did not manufacture all the materials for the
air-conditioning system. It imported some items for the system it designed and installed.74 The issues in that case dealt with
services performed within the local taxing jurisdiction. There was no foreign element involved in the supply of materials and
services.

With the foregoing discussion, it is unnecessary to discuss the other issues raised by the parties.

IN VIEW WHEREOF, the petition is denied. The decision in CA-G.R. SP No. 42518 is affirmed.

SO ORDERED.

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