4 - (1-3) - Full Case Tax

G.R. No.
L-22074 April 30, 1965
THE PHILIPPINE GUARANTY CO., INC., petitioner,

vs.
THE COMMISSIONER OF INTERNAL REVENUE and THE COURT OF TAX APPEALS, respondents.
Josue H. Gustilo and Ramirez and Ortigas for petitioner.

Office of the Solicitor General and Attorney V.G. Saldajena for respondents.
BENGZON, J.P., J.:
The Philippine Guaranty Co., Inc., a domestic insurance company, entered into reinsurance contracts, on
various dates, with foreign insurance companies not doing business in the Philippines namely: Imperio
Compañia de Seguros, La Union y El Fenix Español, Overseas Assurance Corp., Ltd., Socieded Anonima de
Reaseguros Alianza, Tokio Marino & Fire Insurance Co., Ltd., Union Assurance Society Ltd., Swiss
Reinsurance Company and Tariff Reinsurance Limited. Philippine Guaranty Co., Inc., thereby agreed to cede
to the foreign reinsurers a portion of the premiums on insurance it has originally underwritten in the Philippines,
in consideration for the assumption by the latter of liability on an equivalent portion of the risks insured. Said
reinsurrance contracts were signed by Philippine Guaranty Co., Inc. in Manila and by the foreign reinsurers
outside the Philippines, except the contract with Swiss Reinsurance Company, which was signed by both
parties in Switzerland.
The reinsurance contracts made the commencement of the reinsurers' liability simultaneous with that of
Philippine Guaranty Co., Inc. under the original insurance. Philippine Guaranty Co., Inc. was required to keep a
register in Manila where the risks ceded to the foreign reinsurers where entered, and entry therein was binding
upon the reinsurers. A proportionate amount of taxes on insurance premiums not recovered from the original
assured were to be paid for by the foreign reinsurers. The foreign reinsurers further agreed, in consideration for
managing or administering their affairs in the Philippines, to compensate the Philippine Guaranty Co., Inc., in
an amount equal to 5% of the reinsurance premiums. Conflicts and/or differences between the parties under
the reinsurance contracts were to be arbitrated in Manila. Philippine Guaranty Co., Inc. and Swiss Reinsurance
Company stipulated that their contract shall be construed by the laws of the Philippines.
Pursuant to the aforesaid reinsurance contracts, Philippine Guaranty Co., Inc. ceded to the foreign reinsurers
the following premiums:
1953 . . . . . . . . . . . . . . . . . . . . . P842,466.71
1954 . . . . . . . . . . . . . . . . . . . . . 721,471.85
Said premiums were excluded by Philippine Guaranty Co., Inc. from its gross income when it file its income tax
returns for 1953 and 1954. Furthermore, it did not withhold or pay tax on them. Consequently, per letter dated
April 13, 1959, the Commissioner of Internal Revenue assessed against Philippine Guaranty Co., Inc.
withholding tax on the ceded reinsurance premiums, thus:
1953
Gross premium per investigation . . . . . . . . . . P768,580.00
Withholding tax due thereon at 24% . . . . . . . . P184,459.00
25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . . 46,114.00

Compromise for non-filing of withholding
100.00
income tax return . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL AMOUNT DUE & COLLECTIBLE . . . .

P230,673.00
==========
1954
Gross premium per investigation . . . . . . . . . . P780.880.68
Withholding tax due thereon at 24% . . . . . . . . P184,411.00
25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . . P184,411.00

Compromise for non-filing of withholding
100.00
income tax return . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL AMOUNT DUE & COLLECTIBLE . . . . P234,364.00

==========
Philippine Guaranty Co., Inc., protested the assessment on the ground that reinsurance premiums ceded to
foreign reinsurers not doing business in the Philippines are not subject to withholding tax. Its protest was
denied and it appealed to the Court of Tax Appeals.
On July 6, 1963, the Court of Tax Appeals rendered judgment with this dispositive portion:
IN VIEW OF THE FOREGOING CONSIDERATIONS, petitioner Philippine Guaranty Co., Inc. is hereby
ordered to pay to the Commissioner of Internal Revenue the respective sums of P202,192.00 and
P173,153.00 or the total sum of P375,345.00 as withholding income taxes for the years 1953 and 1954,
plus the statutory delinquency penalties thereon. With costs against petitioner.
Philippine Guaranty Co, Inc. has appealed, questioning the legality of the Commissioner of Internal Revenue's
assessment for withholding tax on the reinsurance premiums ceded in 1953 and 1954 to the foreign reinsurers.
Petitioner maintain that the reinsurance premiums in question did not constitute income from sources within the
Philippines because the foreign reinsurers did not engage in business in the Philippines, nor did they have
office here.
The reinsurance contracts, however, show that the transactions or activities that constituted the undertaking to
reinsure Philippine Guaranty Co., Inc. against loses arising from the original insurances in the Philippines were
performed in the Philippines. The liability of the foreign reinsurers commenced simultaneously with the liability
of Philippine Guaranty Co., Inc. under the original insurances. Philippine Guaranty Co., Inc. kept in Manila a
register of the risks ceded to the foreign reinsurers. Entries made in such register bound the foreign
resinsurers, localizing in the Philippines the actual cession of the risks and premiums and assumption of the
reinsurance undertaking by the foreign reinsurers. Taxes on premiums imposed by Section 259 of the Tax
Code for the privilege of doing insurance business in the Philippines were payable by the foreign reinsurers
when the same were not recoverable from the original assured. The foreign reinsurers paid Philippine Guaranty
Co., Inc. an amount equivalent to 5% of the ceded premiums, in consideration for administration and
management by the latter of the affairs of the former in the Philippines in regard to their reinsurance activities
here. Disputes and differences between the parties were subject to arbitration in the City of Manila. All the
reinsurance contracts, except that with Swiss Reinsurance Company, were signed by Philippine Guaranty Co.,
Inc. in the Philippines and later signed by the foreign reinsurers abroad. Although the contract between
Philippine Guaranty Co., Inc. and Swiss Reinsurance Company was signed by both parties in Switzerland, the
same specifically provided that its provision shall be construed according to the laws of the Philippines, thereby
manifesting a clear intention of the parties to subject themselves to Philippine law.
Section 24 of the Tax Code subjects foreign corporations to tax on their income from sources within the
Philippines. The word "sources" has been interpreted as the activity, property or service giving rise to the
income. 1 The reinsurance premiums were income created from the undertaking of the foreign reinsurance
companies to reinsure Philippine Guaranty Co., Inc., against liability for loss under original insurances. Such
undertaking, as explained above, took place in the Philippines. These insurance premiums, therefore, came
from sources within the Philippines and, hence, are subject to corporate income tax.
The foreign insurers' place of business should not be confused with their place of activity. Business should not
be continuity and progression of transactions 2 while activity may consist of only a single transaction. An activity
may occur outside the place of business. Section 24 of the Tax Code does not require a foreign corporation to
engage in business in the Philippines in subjecting its income to tax. It suffices that the activity creating the
income is performed or done in the Philippines. What is controlling, therefore, is not the place of business but
the place of activity that created an income.
Petitioner further contends that the reinsurance premiums are not income from sources within the Philippines
because they are not specifically mentioned in Section 37 of the Tax Code. Section 37 is not an all-inclusive
enumeration, for it merely directs that the kinds of income mentioned therein should be treated as income from
sources within the Philippines but it does not require that other kinds of income should not be considered
likewise.
1äw phï1.ñët
The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a necessary burden
to preserve the State's sovereignty and a means to give the citizenry an army to resist an aggression, a navy to
defend its shores from invasion, a corps of civil servants to serve, public improvement designed for the
enjoyment of the citizenry and those which come within the State's territory, and facilities and protection which
a government is supposed to provide. Considering that the reinsurance premiums in question were afforded
protection by the government and the recipient foreign reinsurers exercised rights and privileges guaranteed by
our laws, such reinsurance premiums and reinsurers should share the burden of maintaining the state.
Petitioner would wish to stress that its reliance in good faith on the rulings of the Commissioner of Internal
Revenue requiring no withholding of the tax due on the reinsurance premiums in question relieved it of the duty
to pay the corresponding withholding tax thereon. This defense of petitioner may free if from the payment of
surcharges or penalties imposed for failure to pay the corresponding withholding tax, but it certainly would not
exculpate if from liability to pay such withholding tax The Government is not estopped from collecting taxes by
the mistakes or errors of its agents.3
In respect to the question of whether or not reinsurance premiums ceded to foreign reinsurers not doing
business in the Philippines are subject to withholding tax under Section 53 and 54 of the Tax Code, suffice it to
state that this question has already been answered in the affirmative in Alexander Howden & Co., Ltd. vs.
Collector of Internal Revenue, L-19393, April 14, 1965.
Finally, petitioner contends that the withholding tax should be computed from the amount actually remitted to
the foreign reinsurers instead of from the total amount ceded. And since it did not remit any amount to its
foreign insurers in 1953 and 1954, no withholding tax was due.
The pertinent section of the Tax Code States:
Sec. 54. Payment of corporation income tax at source. — In the case of foreign corporations subject to
taxation under this Title not engaged in trade or business within the Philippines and not having any
office or place of business therein, there shall be deducted and withheld at the source in the same
manner and upon the same items as is provided in Section fifty-three a tax equal to twenty-four per
centum thereof, and such tax shall be returned and paid in the same manner and subject to the same
conditions as provided in that section.
The applicable portion of Section 53 provides:
(b) Nonresident aliens. — All persons, corporations and general copartnerships (compañias colectivas),
in what ever capacity acting, including lessees or mortgagors of real or personal property, trustees
acting in any trust capacity, executors, administrators, receivers, conservators, fiduciaries, employers,
and all officers and employees of the Government of the Philippines having the control, receipt,
custody, disposal, or payment of interest, dividends, rents, salaries, wages, premiums, annuities,
compensation, remunerations, emoluments, or other fixed or determinable annual or periodical gains,
profits, and income of any nonresident alien individual, not engaged in trade or business within the
Philippines and not having any office or place of business therein, shall (except in the case provided for
in subsection [a] of this section) deduct and withhold from such annual or periodical gains, profits, and
income a tax equal to twelve per centum thereof: Provided That no deductions or withholding shall be
required in the case of dividends paid by a foreign corporation unless (1) such corporation is engaged
in trade or business within the Philippines or has an office or place of business therein, and (2) more
than eighty-five per centum of the gross income of such corporation for the three-year period ending
with the close of its taxable year preceding the declaration of such dividends (or for such part of such
period as the corporation has been in existence)was derived from sources within the Philippines as
determined under the provisions of section thirty-seven: Provided, further, That the Collector of Internal
Revenue may authorize such tax to be deducted and withheld from the interest upon any securities the
owners of which are not known to the withholding agent.
The above-quoted provisions allow no deduction from the income therein enumerated in determining the
amount to be withheld. According, in computing the withholding tax due on the reinsurance premium in
question, no deduction shall be recognized.
WHEREFORE, in affirming the decision appealed from, the Philippine Guaranty Co., Inc. is hereby ordered to
pay to the Commissioner of Internal Revenue the sums of P202,192.00 and P173,153.00, or a total amount of
P375,345.00, as withholding tax for the years 1953 and 1954, respectively. If the amount of P375,345.00 is not
paid within 30 days from the date this judgement becomes final, there shall be collected a surcharged of 5% on
the amount unpaid, plus interest at the rate of 1% a month from the date of delinquency to the date of payment,
provided that the maximum amount that may be collected as interest shall not exceed the amount
corresponding to a period of three (3) years. With costs againsts petitioner.
Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon and Regala, JJ., concur.
Makalintal and Zaldivar, JJ., took no part.
Footnotes
G.R. No. 187631, July 08, 2015
BATANGAS CITY, MARIA TERESA GERON, IN HER CAPACITY AS CITY TREASURER OF BATANGAS CITY AND
TEODULFO A. DEGUITO, IN HIS CAPACITY AS CITY LEGAL OFFICER OF BATANGAS
CITY, Petitioners, v. PILIPINAS SHELL PETROLEUM CORPORATION, Respondent.
DECISION
PERALTA, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the Decision1 dated
January 22, 2009 and Resolution2 dated April 13, 2009 of the Court of Tax Appeals (CTA) En Banc in CTA EB No. 350
which affirmed in toto the Amended Decision3 dated July 31, 2007 and Resolution4 dated November 21, 2007 of the CTA
Second Division in CTA AC Case No. 10.
The facts follow.
Petitioner Batangas City is a local government unit (LGU) with the capacity to sue and be sued under its Charter and
Section 22(a)(2) of the Local Government Code (LGC) of 1991. Petitioners Teodulfo A. Deguito and Benjamin E. Pargas
are the City Legal Officer and City Treasurer, respectively, of Batangas City.
Respondent Pilipinas Shell Petroleum Corporation operates an oil refinery and depot in Tabagao, Batangas City, which
manufactures and produces petroleum products that are distributed nationwide.
In 2002, respondent was only paying the amount of P98,964.71 for fees and other charges which include the amount of
P1,180.34 as Mayor's Permit. However, on February 20, 2001, petitioner Batangas City, through its City Legal Officer,
sent a notice of assessment to respondent demanding the payment of P92,373,720.50 and P312,656,253.04 as
business taxes for its manufacture and distribution of petroleum products. In addition, respondent was also required
and assessed to pay the amount of P4,299,851.00 as Mayor's Permit Fee based on the gross sales of its Tabagao
Refinery. The assessment was allegedly pursuant of Section 134 of the LGC of 1991 and Section 23 of its Batangas City
Tax Code of 2002.
In response, respondent filed a protest on April 17, 2002 contending among others that it is not liable for the payment
of the local business tax either as a manufacturer or distributor of petroleum products. It further argued that the
Mayor's Permit Fees are exorbitant, confiscatory, arbitrary, unreasonable and not commensurable with the cost of
issuing a license.
On May 13, 2002, petitioners denied respondent's protest and declared that under Section 14 of the Batangas City Tax
Code of 2002, they are empowered to withhold the issuance of the Mayor's Permit for failure of respondent to pay the
business taxes on its manufacture and distribution of petroleum products.
On June 17, 2002, respondent filed a Petition for Review pursuant to Section 195 of the LGC of 1991 before the
Regional Trial Court (RTC) of Batangas City.
In its petition, respondent maintained that petitioners have no authority to impose the said taxes and fees, and argued
that the levy of local business taxes on the business of manufacturing and distributing gasoline and other petroleum
products is contrary to law and against national policy. It further contended that the Mayor's Permit Fee levied by
petitioners were unreasonable and confiscatory.
In its Answer, petitioners contended that the City of Batangas can legally impose taxes on the business of
manufacturing and distribution of petroleum products, including the Mayor's Permit Fees upon respondent.
Trial thereafter ensued.
In the interim, respondent paid under protest the Mayor's Permit Fees for the year 2003 amounting to P774,840.50 as
manufacturer and P3,525,010.50 as distributor. When respondent applied for the issuance of the Mayor's Permit in
2004, it offered the amount of PI50,000.00 as compromise Mayor's Permit Fee without prejudice to the outcome of the
case then pending, which was rejected by petitioners.
On October 29, 2004, the RTC of Batangas City rendered a Decision5 sustaining the imposition of business taxes by
petitioners upon the manufacture and distribution of petroleum products by respondent. However, the RTC withheld the
imposition of Mayor's Permit Fee in deference to the provisions of Section 147 of the LGC, in relation to Section 143(h)
of the same Code, which imposed a limit to the power of petitioners to collect the said business taxes. The fallo of said
decision reads:c hanRoblesv irtual Lawlib rary
WHEREFORE, in view of the foregoing premises, this Court hereby renders judgment as follows:
1. The taxes on the privilege of engaging in the business of manufacturing, distribution or dealing
in petroleum products in the amount of P92,373,750.50 and P312,656,253.04,
respectively, imposed by Batangas City on Pilipinas Shell, is VALID.
2. Declaring the Mayor's Permit Fee in the amount of P4,299,851.00 based on gross
receipts/sales as grossly excessive and unreasonable considering the aforesaid business taxes.
ACCORDINGLY, THE PETITIONER, PILIPINAS SHELL PETROLEUM CORPORATION (PSPC), IS HEREBY ORDERED TO PAY
THE AMOUNT OF PHP405,030,003.54 AS TAX ON ITS BUSINESS OF ENGAGING IN THE MANUFACTURE AND
DISTRIBUTION OF PETROLEUM PRODUCTS, WHILE THE ASSESSMENT OF PHP4,299,851.00 AS MAYOR'S PERMIT FEE IS
HEREBY ORDERED REVOKED WITHOUT PREJUDICE TO ITS MODIFICATION BY THE RESPONDENTS, BATANGAS CITY, ET
AL.
SO ORDERED.6
Unsatisfied, respondent filed a "Motion for Partial Reconsideration."
In an Order7 dated February 28, 2005, the RTC denied respondent's motion for lack of merit.
Hence, respondent filed a Petition for Review with Extremely Urgent Application for a Temporary Restraining Order
and/or a Writ of Preliminary Injunction with the CTA Second Division on April 27, 2005.
Considering the urgency of the resolution of respondent's Application for the Issuance of a Writ of Preliminary
Injunction, the CTA Second Division granted the said application and ordered petitioners to hold in abeyance the
collection of the questioned manufacturer and distributor's taxes, conditioned upon the filing of respondent of a surety
bond in the amount of P500,000,000.00.
In a Decision dated June 21, 2007, the CTA Second Division granted respondent's petition. It held that respondent is
not subject to the business taxes on the manufacture and distribution of petroleum products because of the express
limitation provided under Section 133(h) of the LGC. The dispositive portion of said Decision reads: chanRob lesvi rtua lLawl ibra ry
WHEREFORE, premises considered, the judgment/order of the RTC Branch II of Batangas City is hereby MODIFIED. As
to the business taxes on the manufacture and distribution of petroleum products, We find the [respondent] not liable for
the same. As to the Mayor's permit, We find that it is excessive. Accordingly, the [petitioner] is hereby (a) declared
legally proscribed from imposing business taxes on the manufacture and distribution of petroleum products and (b) to
refund in the form of tax credit the excessive mayor's permit in the amount of THREE MILLION FIVE HUDNRED
TWENTY-FIVE THOUSAND TEN PESOS and FIFTY CENTAVOS (P3,525,010.50)
SO ORDERED.8
On July 13, 2007, respondent filed a "Motion for Clarification" on the exact amount to be refunded by petitioners as
regards the Mayor's Permit Fees. After a perusal of the "Motion for Clarification," the CTA Second Division found the
motion partly meritorious. Thus: chanRoblesvi rt ual Lawlib rary
Indeed, there is a discrepancy in the amount to be refunded and to clarify, the amount should be P3,870,860.00 as
written in the body of the decisions as follows: chanRob lesvi rtua lLawl ibra ry
Since [petitioners] failed to modify the computation of the mayor's permit fee and based on justice and equity,
[respondent] should be refunded with the mayor's permit fees ordered revoked by the court a quo.
The details of the additional amount of P4,299,851.00 mayor's permit fees are as follows: chanRoble svirtual Lawlib ra ry
Manufacturer Distributor
Mayor's Permit Fee P704,305.00 P3,166,555.00
License Fee 70,535.50
Prof. Fee Res/Bus 25,000.00 Fire Insp. Fee 1,000.00
Occ./Prof.Tax San Permit & San Insp. Fee 12,000.00
Fire Code Fee 320,455.00
Total Amount P774,840.50 P3,525,010.50
The amount to be refunded is not the full amount of P4,299,851.00 but the excessive mayor's permit for manufacturing
and distributing in the amount of P704,305.00 and P3,166,555.00, respectively, or in the total amount of
P3,870,860.00.
To conform to this aforequoted pronouncement, the dispositive portion of the assailed decision should be amended so
that the exact amount of the Mayor's Permit Fees to be refunded be changed from P3,525,010.50 to P3,870.860.00.
Section 2, Rule 36 of the Rules of Court reads as follows: chanRoble svirtual Lawli bra ry
SEC. 2. Entry of Judgments and final orders.- If no appeal or motion for new trial or reconsideration is filed within the
time provided in these Rules, the judgment or final order shall forthwith be entered by the clerk in the book of entries of
judgments. The date of finality of the judgment or final order shall be deemed to be the date of its entry.
In this case, PSPC received the Decision on June 28, 2007 and it filed its motion for clarification (treated as a motion for
reconsideration) on July 13, 2007 which is within the period allowed by law. In effect, our Decision has not yet become
final and executory. Hence, our Decision may be amended.
Moreover, pursuant to Section 5(g), Rule 135 of the Revised Rules of Court that every court shall have the power to
amend or control its process and orders so as to make them conformable to law and justice, the Second Division of this
Court resolves to amend its Decision dated June 21, 2007 by making the necessary corrections.
WHEREFORE, in view of the foregoing, [respondent] 's Motion for Clarification is partly GRANTED. Accordingly, the
dispositive portion of this Court's Decision dated June 21, 2007 is hereby AMENDED as follows: chanRoble svirtual Lawli bra ry
WHEREFORE, premises considered, the judgment/order of the RTC Branch II of Batangas City is hereby MODIFIED. As
to the business taxes on the manufacture and distribution of petroleum products, We find the [respondent] not liable for
the same. As to the mayor's permit, We find that it is excessive. Accordingly, the [petitioner] is hereby (a) declared
legally proscribed from imposing business taxes on the manufacture and distribution of petroleum products and (b) to
refund in the form of tax credit the excessive mayor's permit in the amount of THREE MILLION EIGHT HUNDRED
SEVENTY THOUSAND EIGHT HUDNRED SIXTY PESOS (P3,870,860.00)
SO ORDERED.
SO ORDERED.9
Petitioners filed a motion for reconsideration against said decision but the same was denied by the CTA Second Division
in a Resolution dated November 21, 2007.
Not satisfied, petitioners filed a Petition for Review praying for the reversal of the Amended Decision and Resolution of
the CTA Second Division.
On January 22, 2009, the CTA En Banc promulgated a Decision affirming in toto the Amended Decision of the CTA
Second Division. The CTA En Banc found no cogent reason to disturb the findings and conclusions of the CTA Second
Division. The dispositive portion of said Decision reads: chanRoble s virtua lLawl ibra ry
WHEREFORE, the instant Petition for Review is hereby DENIED DUE COURSE and DISMISSED for lack of merit.
Accordingly, the July 31, 2007 Amended Decision and November 21, 2007 Resolution of the CTA Second Division in CTA
AC Case No. 10 entitled, "PILIPINAS SFIELL PETROLEUM CORPORATION, petitioner vs. BATANGAS CITY, BENJAMIN E.
PARGAS in his capacity as CITY TREASURER and TEODULFO A. DEGUITO in his capacity as CITY LEGAL OFFICER OF
BATANGAS CITY, [petitioners]," are hereby AFFIRMED in toto.
SO ORDERED.10
Unfazed, petitioners filed a motion for reconsideration.
In a Resolution dated April 13, 2009, the CTA En Bane denied petitioners' motion for reconsideration for lace of merit.
Hence, this petition.
Petitioner raises the following assignment of errors: chanRob lesvi rtual Lawl ibra ry
1. THE COURT OF TAX APPEALS EN BANC ERRED IN NOT RULING THAT THE POWER OF LOCAL
GOVERNMENT UNITS TO TAX BUSINESS IS SOLELY GOVERNED BY SEC. 143 AND 143(h) OF THE
LOCAL GOVENRMENT CODE OF 1991.
2. THE COURT OF TAX APPEALS EN BANC ERRED IN NOT RULING THAT THE WORD "TAXES" IN SEC.
133(h) DOES NOT INCLUDE BUSINESS TAXES.
3. THE COURT OF TAX APPEALS EN BANC ERRED IN DISREGARDING THE DISTINCTION BETWEEN TAXES
ON ARTICLES AND TAXES ON BUSINESS.
4. THE COURT OF TAX APPEALS EN BANC INCORRECTLY CONSTRUED A CLEAR PROVISION OF LAW,
SPECIFICALLY SECTION 133(h) OF THE LOCAL GOVERNMENT CODE OF 1991, AS AN EXPRESS
LIMITATION ON THE POWER OF LOCAL GOVENRMENT UNITS TO IMPOSE TAXES ON THE BUSINESS OF
MANUFACTURE AND DISTRIBUTION OF PETROLEUM PRODUCTS."11
In essence, the issue is whether a LGU is empowered under the LGC to impose business taxes on persons or entities
engaged in the business of manufacturing and distribution of petroleum products.
It its petition, petitioners assert that any activity that involves the production or manufacture and the distribution or
selling of any kind or nature as a means of livelihood or with a view to profit can be taxed by the LGUs. They posit that
the authority granted to them by Section 143(h) of the LGC is so broad that it practically covers any business that
the sanggunian concerned may deem proper to tax, even including businesses which are already subject to excise,
value-added or percentage tax under the National Internal Revenue Code (NIRC) provided that the same shall not
exceed two percent of the gross sales or receipts of the preceding calendar year.
We do not agree.
At the outset, it must be emphasized that although the power to tax is inherent in the State, the same is not true for
LGUs because although the mandate to impose taxes granted to LGUs is categorical and long established in the 1987
Philippine Constitution, the same is not all encompassing as it is subject to limitations as explicitly stated in Section 5,
Article X of the 1987 Constitution, viz.: chanRoble svirtual Lawli bra ry
SECTION 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.
In the consolidated cases of City of Manila, et al. v. Hon. Colet and Malaysian Airline system; Maersk-Filipinas, Inc., et
al. v. City of Manila, et al,; Eastern Shipping Lines, Inc. v. City Council of Manila, et al; William Lines, Inc., et al. v.
Regional Trial Court of Manila, et al.; PNOC Shipping and Transport Corporation v. Hon. Nabong, et al.; Maersk-
Filipinas, Inc., et al. v. City of Manila, et al, and with Intervenors William Lines, Inc., et al; Cosco Container Lines and
HEUNG-A Shipping Co., Ltd., et al. v. City of Manila; Sulpicio Lines, Inc. v. Regional Trial Court of Manila, et al;
Association of International Shipping Lines, Inc. v. City of Manila, et al; Dongnama Shipping Co., Ltd., et al. v. Court of
Appeals, et al.,12 this Court expounded that the LGUs' power to tax is subject to the limitations set forth under Section
133 of the LGC. Thus: chanRoblesvi rtua lLawl ibra ry
It is already well-settled that although the power to tax is inherent in the State, the same is not true for the LGUs to
whom the power must be delegated by Congress and must be exercised within the guidelines and limitations that
Congress may provide. The Court expounded in Pelizloy Realty Corporation v. The Province of Benguet that: chanRoblesvirt ual Lawlib rary
The power to tax "is an attribute of sovereignty," and as such, inheres in the State. Such, however, is not true for
provinces, cities, municipalities and barangays as they are not the sovereign; rather, there are mere "territorial and
political subdivisions of the Republic of the Philippines."
The rule governing the taxing power of provinces, cities, municipalities and barangays is summarized in Icard v. City
Council of Baguio: chanRoblesvirtual Lawli bra ry
It is settled that a municipal corporation unlike a sovereign state is clothed with no inherent power of taxation. The
charter or statute must plainly show an intent to confer that power or the municipality, cannot assume it. And the
power when granted is to be construed in strictissimi juris. Any doubt or ambiguity arising out of the term used in
granting that power must be resolved against the municipality. Inferences, implication, deductions - all these- have no
place in the interpretation of the taxing power of a municipal corporation.
Therefore, the power of a province to tax is limited to the extent that such power is delegated to it either by the
Constitution or by statute. Section 5, Article X of the 1987 Constitution is clear on this point: ChanRoble sVirt ualawli bra ry
xxxx
Per Section 5, Article X of the 1987 Constitution, "the power to tax is no longer vested exclusively on Congress; local
legislative bodies are now given direct authority to levy taxes, fees and other charges." Nevertheless, such authority is
"subject to such guidelines and limitations as the Congress may provide."
In conformity with Section 3, Article X of the 1987 Constitution, Congress enacted Republic Act No. 7160, otherwise
known as the local Government Code of 1991. Book II of the LGC governs local taxation and fiscal matters.
Relevant provisions of Book II of the LGC establish the parameters of the taxing powers of LGUs found below.
First, Section 130 provides for the following fundamental principles governing the taxing powers of LGUs:
1. Taxation shall be uniform in each LGU.

2. Taxes, fees, charges and other impositions shall:
a. be equitable and based as far as practicable on the taxpayer's ability to pay;
b. be levied and collected only for public purposes;
c. not be unjust, excessive, oppressive orconfiscatory;
d. not be contrary to law, public policy, national economic policy, or in the restraint of
trade.
3. The collection of local taxes, fees, charges and other impositions shall in no case be left to any private
person.
4. The revenue collected pursuant to the provisions of the LGC shall inure solely to the benefit of, and be
subject to the disposition by, the LGU levying the tax, fee, charge or other imposition unless otherwise
specifically provided by the LGC.
5. Each LGU shall, as far as practicable, evolve a progressive system of taxation.
Second, Section 133 provides for the common limitations on the taxing powers of LGUs.
Among the common limitations on the taxing powers of LGUs under Section 133 of the LGC is paragraph (h) which
states:chanRoblesvi rtua lLawl ibrary
SECTION 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless otherwise provided
herein, the exercise of taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of
the following: chanRoble svirtual Lawli bra ry
XXXX
(h) Excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and taxes, fees or
charges on petroleum products.;13
From the foregoing, Section 133(h) clearly specifies the two kinds of taxes which cannot be imposed by LGUs: (1)
excise taxes on articles enumerated under the NIRC, as amended; and (2) taxes, fees or charges on petroleum
products.
Indisputably, the power of LGUs to impose business taxes derives from Section 14314 of the LGC. However, the same is
subject to the explicit
statutory impediment provided for under Section 133(h) of the same Code which prohibits LGUs from imposing "taxes,
fees or charges on petroleum products." It can, therefore, be deduced that although petroleum products are subject to
excise tax, the same is specifically excluded from the broad power granted to LGUs under Section 143(h) of the LGC to
impose business taxes.
Additionally, Section 133(h) of the LGC makes plain that the prohibition with respect to petroleum products extends not
only to excise taxes thereon, but all "taxes, fees or charges." The earlier reference in paragraph 143(h) to excise taxes
comprehends a wider range of subject of taxation: all articles already covered by excise taxation under the NIRC, such
as alcohol products, tobacco products, mineral products, automobiles, and such non-essential goods as jewelry, goods
made of precious metals, perfumes, and yachts and other vessels intended for pleasure or sports. In contrast, the later
reference to "taxes, fees and charges" pertains only to one class of articles of the many subjects of excise taxes,
specifically, "petroleum products." While LGUs are authorized to burden all such other class of goods with "taxes, fees
and charges," excepting excise taxes, a specific prohibition is imposed barring the levying of any other type of taxes
with respect to petroleum products.15 chanrob leslaw
It is likewise irrefutable that the specific exemption provided under Section 133 of the LGC prevails over Section 143 of
the same Code.
First, Section 133 of the LGC is a specific provision that explicitly withhold from LGUs the power to impose taxes, fees
and charges on petroleum products.
Strictly speaking, as long as the subject matter of the taxing powers of the LGUs is the petroleum products per se or
even the activity or privilege related to the petroleum products, such as manufacturing and distribution of said
products, it is covered by the said limitation and thus, no levy can be imposed.16chan roble slaw
On the contrary, Section 143 of the LGC defines the general power of LGUs to tax businesses within its jurisdiction.
Thus, the omnibus grant of power to LGUs under Section 143(h) of the LGC cannot overcome the specific exception or
exemption in Section 133(h) of the same Code. This is in accord with the rule on statutory construction that specific
provisions must prevail over general ones. A special and specific provision prevails over a general provision irrespective
of their relative positions in the statute. Generalia specialibus non derogant. Where there is in the same statute a
particular enactment and also a general one which in its most comprehensive sense would include what is embraced in
the former, the particular enactment must be operative, and the general enactment must be taken to affect only such
cases within its general language as are not within the provisions of the particular enactment.17 chanroble slaw
Second, Article 232(h) of the Implementing Rules and Regulations (IRR) of the LGC of 1991 states: chanRoblesvi rtua lLawl ibra ry
ARTICLE 232. Tax on Business. - The Municipality may impose taxes on the following businesses: ChanRobles Vi rtua lawlib rary
xxxx
(h) On any business not otherwise specified in the preceding paragraphs which
the sanggunian concerned may deem proper to tax provided that that on
any business subject to the excise tax. VAT or percentage tax under the
NIRC, as amended, the rate of tax shall not exceed two percent (2%) of
gross sales or receipts of the preceding calendar year and provided
further, that in line with existing national policy, any business
engaged in the production, manufacture, refining, distribution or
sale of oil, gasoline, and other petroleum products shall not be
subject to any local tax imposed in this Article.18
Article 232 defines with more particularity the capacity of a municipality to impose taxes on businesses. However, it
admits of certain exceptions, specifically, that businesses engaged in the production, manufacture, refining, distribution
or sale of oil, gasoline, and other petroleum products, shall not be subject to any local tax imposed by Article 232.
WHEREFORE, in view of the foregoing, the Court hereby resolves to DENY present petition. The Decision dated
January 22, 2009 and Resolution dated April 13, 2009 of the Court of Tax Appeals En Banc in CTAEB No. 350
are AFFIRMED.
SO ORDERED. cralawlawlibra ry
G.R. No. 203754 June 16, 2015
FILM DEVELOPMENT COUNCIL OF THE PHILIPPINES, Petitioner,

vs.
COLON HERITAGE REALTY CORPORATION, operator of Oriente Group Theaters, represented by
ISIDORO A. CANIZARES, Respondent.
x-----------------------x
FILM DEVELOPMENT COUNCIL OF THE PHILIPPINES, Petitioner,

vs.
CITY OF CEBU and SM PRIME HOLDINGS, INC., Respondents.
DECISION
VELASCO, JR., J.:
The Constitution is the basic law to which all laws must conform; no act shall be valid if it conflicts with the
Constitution. In the discharge of their defined functions, the three departments of government have no choice
but to yield obedience to the commands of the Constitution. Whatever limits it imposes must be observed.1
The Case
Once again, We are called upon to resolve a clash between the Inherent taxing power of the legislature and the
constitutionally-delegated power to tax of local governments in these consolidated Petitions for Review on
Certiorari under Rule 45 of the Rules of Court seeking the reversal of the Decision dated September 25, 2012
of the Regional Trial Court (RTC), Branch 5 in Cebu City, in Civil Case No. CEB-35601, entitled Colon Heritage
Realty Corp., represented by Isidoro Canizares v. Film Development Council of the' Philippines, and Decision
dated October 24, 2012 of the RTC, Branch 14 in Cebu City, in Civil Case No. CEB-35529, entitled City of
Cebu v. Film Development Council of the Philippines, collectively declaring Sections 13 and 14 of Republic Act
No. (RA) 9167 invalid and unconstitutional.
The Facts
The facts are simple and undisputed.
Sometime in 1993, respondent City of Cebu, in its exercise of its power to impose amusement taxes under
Section 140 of the Local Government Code2 (LGC) anchored on the constitutional policy on local
autonomy,3 passed City Ordinance No. LXIX otherwise known as the "Revised Omnibus Tax Ordinance of the
City of Cebu (tax ordinance)." Central to the case at bar are Sections 42 and 43, Chapter XI thereof which
require proprietors, lessees or operators of theatres, cinemas, concert halls, circuses, boxing stadia, and other
places of amusement, to pay an amusement tax equivalent to thirty percent (30%) of the gross receipts of
admission fees to the Office of the City Treasurer of Cebu City. Said provisions read:
CHAPTER XI - Amusement Tax
Section 42. Rate of Tax. - There shall be paid to the Office of the City Treasurer by the proprietors, lessees, or
operators of theaters, cinemas, concert halls, circuses, boxing stadia and other places of amusement, an
amusement tax at the rate of thirty percent (30%) of the gross receipts from admission fees.4
Section 43. Manner of Payment. - In the case of theaters or cinemas, the tax shall first be deducted and
withheld by their proprietors, lessees, or operators and paid to the city treasurer before the gross receipts are
divided between said proprietor, lessees, operators, and the distributors of the cinematographic films.
Almost a decade later, or on June 7, 2002, Congress passed RA 9167,5 creating the Film Development Council
qf the Philippines (FDCP) and abolishing the Film Development Foundation of the Philippines, Inc. and the Film
Rating Board. Secs. 13 and 14 of RA 9167 provided for the tax treatment of certain graded films as follows:
Section 13. Privileges of Graded Films. - Films which have obtained an "A" or "B" grading from the Council
pursuant to Sections 11 and 12 of this Act shall be entitled to the following privileges:
a. Amusement tax reward. - A grade "A" or "B" film shall entitle its producer to an incentive equivalent to the
amusement tax imposed and collected on the graded films by cities and municipalities in Metro Manila and
other highly urbanized and independent component cities in the Philippines pursuant to Sections 140 to 151 of
Republic Act No. 7160 at the following rates:
1. For grade "A" films - 100% of the amusement tax collected on such film; and
2. For grade "B" films - 65% of the amusement tax collected on such films. The remaining thirty-
five (35%) shall accrue to the funds of the Council.
Section 14. Amusement Tax Deduction and Remittance. - All revenue from the amusement tax on the graded
film which may otherwise accrue to the cities and municipalities in Metropolitan Manila and highly urbanized
and independent component cities in the Philippines pursuant to Section 140 of Republic Act. No. 7160 during
the period the graded film is exhibited, shall be deducted and withheld by the proprietors, operators or lessees
of theaters or cinemas and remitted within thirty (30) days from the termination of the exhibition to the Council
which shall reward the corresponding amusement tax to the producers of the graded film within fifteen (15)
days from receipt thereof.
Proprietors, operators and lessees of theaters or cinemas who fail to remit the amusement tax proceeds within
the prescribed period shall be liable to a surcharge equivalent to five percent (5%) of the amount due for each
month of delinquency which shall be paid to the Council. (emphasis added)
According to petitioner, from the time RA 9167 took effect up to the present, all the cities and municipalities in
Metro Manila, as well as urbanized and independent component cities, with the sole exception of Cebu City,
have complied with the mandate of said law.
Accordingly, petitioner, through the Office of the Solicitor General, sent on January 2009 demand letters for
unpaid amusement tax reward (with 5% surcharge for each month of delinquency) due to the producers of the
Grade "A" or "B" films to the following cinema proprietors and operators in Cebu City:
Amusement
Cinema Number
Tax Reward Period Covered
Proprietor/Operator of CEB
(with 5%
surcharge for Graded
each moth of Films
delinquency)
SM Prime Holdings Inc. 76,836,807.08 89 Sept. 11, 2003 - Nov. 4, 2008
Ayala Center Cinemas 43,435,718.23 70 May 14, 2003 - Nov. 4, 2008
Colon Heritage Realty 8,071,267.00 50 Aug. 11, 2004-Nov. 4, 2008
Corp.
Eden Theater 428,938.25 4 May 5, 2005 - Sept. 2, 2008
Cinema Theater 3,100,354.80 22 Feb. 18, 2004-Oct. 7, 2008
Visaya Cineplex Corp. 17,582,521.89 86 June 25, 2005 - Oct. 21, 2008
Ultra Vistarama Cinema 68,821.60 2 July 2 - 22, 2008
Cebu Central Realty Corp. 9,853,559.69 48 Jan. 1, 2004 - Oct. 21, 2008
In said letters, the proprietors and cinema operators, including private respondent Colon Heritage Realty Corp.
(Colon Heritage), operator of the Oriente theater, were given ten (10) days from receipt thereof to pay the
aforestated amounts to FDCP. The demand, however, fell on deaf ears.
Meanwhile, on March 25, 2009, petitioner received a letter from Regal Entertainment, Inc., inquiring on the
status of its receivables for tax rebates in Cebu cinemas for all their A and B rate films along with those which it
co-produced with GMA films. This was followed by a letter from
Star Cinema ABS-CBN Film Productions, Inc., requesting the immediate remittance of its amusement tax
rewards for its graded films for the years 2004-2008.
Because of the persistent refusal of the proprietors and cinema operators to remit the said amounts as FDCP
demanded, on one hand, and Cebu City's assertion of a claim on the amounts in question, the city finally filed
on May 18, 2009 before the RTC, Branch 14 a petition for declaratory relief with application for a writ of
preliminary injunction, docketed as Civil Case No. CEB-35529 (City of Cebu v. FDCP). In said petition, Cebu
City sought the declaration of Secs. 13 and 14 of RA 9167 as invalid and unconstitutional.
Similarly, Colon Heritage filed before the RTC, Branch 5 Civil Case No. CEB-35601 (Colon Heritage v. FDCP),
seeking to declare Sec. 14 of RA 9167 as unconstitutional.
On May 25, 2010, the RTC, Branch 14 issued a temporary restraining order (TRO) restraining and enjoining
FDCP, et al. from, inter alia:
(a) Collecting amusement tax incentive award in the City of Cebu and from imposing surcharges
thereon;
(b) Demanding from the owners, proprietors, and lessees of theaters and cinemas located and
operated within Cebu City, payment of said amusement tax incentive award which should have been
deducted, withheld, and remitted to FDCP, etc. by the owners, etc., or being operated within Cebu City
and imposing surcharges on the unpaid amount; and
(c) Filing any suit due to or arising from the failure of the owners, etc., of theaters or cinemas within
Cebu City, to deduct, withhold, and remit the incentive to FDCP.
Meanwhile, on August 13, 2010, SM Prime Holdings, Inc. moved for leave to file and admit attached comment-
in-intervention and was later granted.6
Rulings of the Trial Courts

In City of Cebu v. FDCP, the RTC, Branch 14 issued the challenged Decision7 declaring Secs. 13 and 14 of RA
9167 unconstitutional, disposing as follows:
WHEREFORE, in view of all the disquisitions, judgment is rendered in favor of petitioner City of Cebu against
respondent Film Development Council of the Philippines, as follows:
1. Declaring Sections 13 and 14 of the (sic) Republic Act No. 9167 otherwise known as an Act Creating
the Film Development Council of the Philippines, Defining its Powers and Functions, Appropriating
Funds Therefor and for other purposes, as violative of Section 5 Article X of the 1997 (sic) Philippine
Constitution; Consequently
2. Declaring that defendant Film Development Council of the Philippines (FDCP) cannot collect under
Sections 13 and 14 of R.A. 9167 as of the finality of the decision in G.R. Nos. 203754 and 204418;
3. Declaring that Intervenor SM Cinema Corporation has the obligation to remit the amusement taxes,
withheld on graded cinema films to respondent FDCP under Sections 13 and 14 of R.A. 9167 for taxes
due prior to the finality of the decision in G.R. Nos. 203754 and 204418;
4. Declaring that after the finality of the decision in G.R. Nos. 203 754 and 204418, all amusement
taxes withheld and those which may be collected by Intervenor SM on graded films shown in SM
Cinemas in Cebu City shall be remitted to petitioner Cebu City pursuant to City Ordinance LXIX,
Chapter XI, Section 42.
As to the sum of PhP 76,836,807.08 remitted by the Intervenor SM to petitioner City of Cebu, said amount shall
be remitted by the City of Cebu to petitioner FDCP within thirty (30) days from finality of this decision in G.R.
Nos. 203754 and 204418 without interests and surcharges.
SO ORDERED.
According to the court, what RA 9167 seeks to accomplish is the segregation of the amusement taxes raised
and collected by Cebu City and its subsequent transfer to FDCP. The court concluded that this arrangement
cannot be classified as a tax exemption but is a confiscatory measure where the national government extracts
money from the local government's coffers and transfers it to FDCP, a private agency, which in turn, will award
the money to private persons, the film producers, for having produced graded films.
The court further held that Secs. 13 and 14 of RA 9167 are contrary to the basic policy in local autonomy that
all taxes, fees, and charges imposed by the LGUs shall accrue exclusively to them, as articulated in A1iicle X,.
Sec. 5 of the 1987 Constitution. This edict, according to the court, is a limitation upon the rule-making power of
Congress when it provides guidelines and limitations on the local government unit's (LGU's) power of taxation.
Therefore, when Congress passed this "limitation," if went beyond its legislative authority, rendering the
questioned provisions unconstitutional.
By the same token, in Colon Heritage v. FDCP, the RTC, Branch 5, in its Decision of September 25, 2012, also
ruled against the constitutionality of said Secs. 13 and 14 of RA 9167 for the following reasons: (a) while
Congress, through the enactment of RA 9167, may have amended Secs. 140(a)8 and 1519 of the LGC, in the
exercise of its plenary power to amend laws, such power must be exercised within constitutional parameters;
(b) the assailed provision violates the constitutional directive that taxes should accrue exclusively to the LGU
concerned; (c) the Constitution, through its Art. X, Sec. 5,10 directly conferred LGUs with authority to levy taxes-
the power is no longer delegated by the legislature; (d) In CIR v. SM Prime Holdings,11 the Court ruled that
amusement tax on cinema/theater operators or proprietors remain with the LGU, amusement tax, being, by
nature, a local tax. The fallo of the questioned judgment reads:
WHEREFORE, in view of all the foregoing, Judgment is hereby rendered in favor of petitioner, as follows:
(1) Declaring Republic Act No. 9167 as invalid and unconstitutional;

(2) The obligation to remit amusement taxes for the graded films to respondent is ordered extinguished;
(3) Directing respondent to refund all the amounts paid by petitioner, by way of amusement tax, plus
the legal rate of interest thereof, until the whole amount is paid in full.
Notify parties and counsels of this order.
SO ORDERED.
The Issue
Undeterred by two defeats, petitioner has come directly to this Court, presenting the singular issue: whether or
not the RTC (Branches 5 and 14) gravely erred in declaring Secs. 13 and 14 of RA 9167 invalid for being
unconstitutional.
Anent Sec. 13,12 FDCP concedes that the amusement taxes assessed in RA 9167 are to be given to the
producers of graded films who are private persons. Nevertheless, according to FDCP, this particular tax
arrangement is not a violation of the rule on the use of public funds for RA 9167 was enacted for a public
purpose, that is, the promotion and support of the "development and growth of the local film industry as a
medium for the upliftment of aesthetic, cultural, and social values for the better understanding and appreciation
of the Filipino identity" as well as the "encouragement of the production of quality films that will promote the
growth and development' of the local film industry."13 Moreover, FDCP suggests that "even if the resultant effect
would be a certain loss of revenue, [LGUs] do not feel deprived nor bitter for they realize that the benefits for
the film industry, the fortification of our values system, and the cultural boost for the nation as a whole, far
outweigh the pecuniary cost they would shoulder by backing this law."14 Finally, in support of its stance, FDCP
invites attention to the following words of former Associate Justice Isagani A. Cruz: "[t]he mere fact that the tax
will be directly enjoyed by a private individual does not make it invalid so long as some link to the public welfare
is established."15
As regards Sec. 1416 of RA 9167, FDCP is of the position that Sec. 5, Article X of the Constitution does not
change the doctrine that municipal corporations only possess delegated, not inherent, powers of taxation and
that the power to tax is still primarily vested in the Congress. Thus, wielding its power to impose limitations on
this delegated power, Congress further restricted the LGU's power to impose amusement taxes via Secs. 13
and 14 of RA 9167-an express and real intention of Congress to further contain the LGU's delegated taxing
power. It, therefore, cannot be construed as an undue limitation since it is well within the power of Congress to
make such restriction. Furthermore, the LGC is a mere statute which Congress can amend, which it in fact did
when it enacted RA 916417 and, later, the questioned law, RA 9167.18
This, according to FDCP, evinces the overriding intent of Congress to remove from the LGU' s delegated taxing
power all revenues from amusement taxes on grade "A" or "B" films which would otherwise accrue to the cities
and municipalities in Metropolitan Manila and highly urbanized and independent component cities in the
Philippines pursuant to Secs. 140 and 151 of the LGC.
In fine, it is petitioner's posture that the inclusion in RA 9167 of the questioned provisions was a valid exercise
of the legislature's power to amend laws and an assertion of its constitutional authority to set limitations on the
LGU' s authority to tax.
The Court's Ruling
We find no reason to disturb the assailed rulings.
Local fiscal autonomy and the constitutionally-delegated power to tax
The power of taxation, being an essential and inherent attribute of sovereignty, belongs, as a matter of right, to
every independent government, and needs no express conferment by the people before it can be exercised. It
is purely legislative and, thus, cannot be delegated to the executive and judicial branches of government
without running afoul to the theory of separation of powers. It, however, can be delegated to municipal
corporations, consistent with the principle that legislative powers may be delegated to local governments in
respect of matters of local concern.19 The authority of provinces, cities, and municipalities to create their own
sources of revenue and to levy taxes, therefore, is not inherent and may be exercised only to the extent that
such power might be delegated to them either by the basic law or by statute.20 Under the regime of the 1935
Constitution, there was no constitutional provision on the delegation of the power to tax to municipal
corporations. They only derived such under a limited statutory authority, outside of which, it was deemed
withheld.21 Local governments, thus, had very restricted taxing powers which they derive from numerous tax
laws. This highly-centralized government structure was later seen to have arrested the growth and efficient
operations of LG Us, paving the way for the adoption of a more decentralized system which granted LGUs local
autonomy, both administrative and fiscal autonomy.22
Material to the case at bar is the concept and scope of local fiscal autonomy. In Pimentel v. Aguirre,23 fiscal
autonomy was defined as "the power [of LGUs] to create their own sources of revenue in addition to their
equitable share in the national taxes released by the national government, as well as the power to allocate their
resources in accordance with their own priorities. It extends to the preparation of their budgets, and local
officials in tum have to work within the constraints thereof."
With the adoption of the 1973 Constitution,24 and later the 1987 Constitution, municipal corporations were
granted fiscal autonomy via a general delegation of the power to tax.25 Section 5, Article XI of the 1973
Constitution gave LGUs the "power to create its own sources of revenue and to levy taxes, subject to such
limitations as may be provided by law.'' This authority was further strengthened in the 1987 Constitution,
through the inclusion in Section 5, Article X thereof of the condition that " [s]uch taxes, fees, and charges shall
accrue exclusively to local governments."26
Accordingly, under the present Constitution, where there is neither a grant nor a prohibition by statute, the tax
power of municipal corporations must be deemed to exist although Congress may provide statutory limitations
and guidelines.27 The basic rationale for the current rule on local fiscal autonomy is the strengthening of LGUs
and the safeguarding of their viability and self-sufficiency through a direct grant of general and broad tax
powers. Nevertheless, the fundamental law did not intend the delegation to be absolute and unconditional. 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 LGU will have its fair share of available resources; ( c) the resources of the
national government will not be unduly disturbed; and ( d) local taxation will be fair, uniform, and just.28
In conformity to the dictate of the fundamental law for the legislature to "enact a local government code which
shall provide for a more responsive and accountable local government structure instituted through a system of
decentralization,"29 consistent with the basic policy of local autonomy, Congress enacted the LGC, Book II of
which governs local taxation and fiscal matters and sets forth the guidelines and limitations for the exercise of
this power. In Pelizloy Realty Corporation v. The Province of Benguet,30 the Court alluded to the fundamental
principles governing the taxing powers of LGUs as laid out in Section 130 of the LGC, to wit:
1. Taxation shall be uniform in each LGU.
2. Taxes, fees, charges and other impositions shall:
a. be equitable and based as far as practicable on the taxpayer's ability to pay;
b. be levied and collected only for public purposes;
c. not be unjust, excessive, oppressive, or confiscatory;
d. not be contrary to law, public policy, national economic policy, or in the restraint of trade.
3. The collection of local taxes, fees, charges and other impositions shall in no case be let to any
private person.
4. The revenue collected pursuant to the provisions of the LGC shall inure solely to the benefit of, and
be subject to the disposition by, the LGU levying the tax, fee, charge or other imposition unless
otherwise specifically provided by the LGC.
5. Each LGU shall, as far as practicable, evolve a progressive system of taxation.
It is in the application of the adverted fourth rule, that is-all revenue collected pursuant to the provisions of the
LGC shall inure solely to the benefit of, and be subject to the disposition by, the LGU levying the tax, fee,
charge or other imposition unless otherwise specifically provided by the LGC-upon which the present
controversy grew.
RA 9167 violates local fiscal autonomy
It is beyond cavil that the City of Cebu had the authority to issue its City Ordinance No. LXIX and impose an
amusement tax on cinemas pursuant to Sec. 140 in relation to Sec. 151 of the LGC. Sec. 140 states, among
other things, that a "province may levy an amusement tax to be collected from the proprietors, lessees, or
operators of theaters, cinemas, concert halls, circuses, boxing stadia, and other places of amusement at a rate
of not more than thirty percent (30%) of the gross receipts from admission fees." By operation of said Sec.
151,31 extending to them the authority of provinces and municipalities to levy certain taxes, fees, and charges,
cities, such as respondent city government, may therefore validly levy amusement taxes subject to the
parameters set forth under the law. Based on this authority, the City of Cebu passed, in 1993, its Revised
Omnibus Tax Ordinance,32 Chapter XI, Secs. 42 and 43 of which reads:
CHAPTER XI - Amusement Tax
operators of theaters, cinemas, concert halls, circuses, boxing stadia and other places of amusement, an
amusement tax at the rate of thirty percent (30%) of the gross receipts from admission fees.33
Then, after almost a decade of cities reaping benefits from this imposition, Congress, through RA 9167,
amending Section 140 of the LGC,34 among others, transferred this income from the cities and municipalities in
Metropolitan Manila and highly urbanized and independent component cities, such as respondent City of Cebu,
to petitioner FDCP, which proceeds will ultimately be rewarded to the producers of graded films. We reproduce
anew Secs. 13 and 14 of RA 9167, thus:
Section 13. Privileges of Graded Films. - Films which have obtained an "A" or "B" grading from the Council
pursuant to Sections 11 and 12 of this Act shall be entitled to the following privileges: a. Amusement tax
reward. - A grade "A" or "B" film shall entitle its producer to an incentive equivalent to the amusement tax
imposed and collected on the graded films by cities and municipalities in Metro Manila and other highly
urbanized and independent component cities in the Philippines pursuant to Sections 140 to 151 of Republic Act
No. 7160 at the following rates:
1. For grade "A" films - 100% of the amusement tax collected on such film; and
2. For grade "B" films - 65% of the amusement tax collected on such films. The remaining thirty-five
(35%) shall accrue to the funds of the Council.
Section 14. Amusement Tax Deduction and Remittance. -All revenue from the amusement tax on the graded
Proprietors, operators and lessees of theaters or cinemas who fail to remit the amusement tax proceeds within
the prescribed period shall be liable to a surcharge equivalent to five percent (5%) of the amount due for each
month of delinquency which shall be paid to the Council.
Considering the amendment, the present rule is that ALL amusement taxes levied by covered cities and
municipalities shall be 2iven by proprietors, operators or lessees of theatres and cinemas to FDCP, which shall
then reward said amount to the producers of graded films in this wise:
1. For grade "A" films, ALL amusement taxes collected by ALL covered LGUs on said films shall be
given to the producer thereof. The LGU, therefore, is entitled to NOTHING from its own imposition.
2. For grade "B" films, SIXTY FIVE PERCENT (65%) of ALL amusement taxes derived by ALL covered
LGUs on said film shall be given to the producer thereof. In this case, however, the LGU is still NOT
entitled to any portion of the imposition, in view of Sec. 16 of RA 9167 which provides that the
remaining 35% may be expended for the Council's operational expenses. Thus: Section 16. Funding. -
The Executive Secretary shall immediately include in the Office of the President's program the
implementation of this Act, the funding of which shall be included in the annual General Appropriations
Act.
To augment the operational expenses of the Council, the Council may:
a. Utilize the remaining thirty-five (35%) percent of the amusement tax collected during the period of grade "B"
film is exhibited, as provided under Sections 13 and 14 hereof x x x.
For petitioner, the amendment is a valid legislative manifestation of the intention to remove from the grasp of
the taxing power of the covered LGUs all revenues from amusement taxes on grade "A" or "B" films which
would otherwise accrue to them. An evaluation of the provisions in question, however, compels Us to disagree.
RA 9167, Sec. 14 states:
Section 14. Amusement Tax Deduction and Remittance. - All revenue from the amusement tax on the graded
A reading of the challenged provision reveals that the power to impose amusement taxes was NOT removed
from the covered LGUs, unlike what Congress did for the taxes enumerated in Sec. 133, Article X of the
LGC,35 which lays down the common limitations on the taxing powers of LGUs. Thus:
Section 133. Common Limitations on the Taxing Powers of Local Government Units. -Unless otherwise
provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not
extend to the levy of the following:
(a) Income tax, except when levied on banks and other financial institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa, except as
otherwise provided herein;
(d) Customs duties, registration fees of vessel and wharfage on wharves, tonnage dues, and all other
kinds of customs fees, charges and dues except wharfage on wharves constructed and maintained by
the local government unit concerned;
(e) Taxes, fees, and charges and other impositions upon goods carried into or out of, or passing
through, the territorial jurisdictions of local government units in the guise of charges for wharfage, tolls
for bridges or otherwise, or other taxes, fees, or charges in any form whatsoever upon such goods or
merchandise;
(f) Taxes, fees or charges on agricultural and aquatic products when sold by marginal farmers or
fishermen;
(g) Taxes on business enterprises certified to by the Board of Investments as pioneer or non-pioneer
for a period of six (6) and four (4) years, respectively from the date of registration;
(h) Excise taxes on articles enumerated under the national Internal Revenue Code, as amended, and
taxes, fees or charges on petroleum products;
(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on
goods or services except as otherwise provided herein;
(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation
of passengers or freight by hire and common carriers by air, land or water, except as provided in this
Code;
(k) Taxes on premiums paid by way or reinsurance or retrocession;
(l) Taxes, fees or charges for the registration of motor vehicles and for the issuance of all kinds of
licenses or permits for the driving thereof, except tricycles;
(m) Taxes, fees, or other charges on Philippine products actually exported, except as otherwise
provided herein;
(n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives duly
registered under R.A. No. 6810 and Republic Act Numbered Sixty-nine hundred thirty-eight (R.A. No.
6938) otherwise known as the "Cooperative Code of the Philippines" respectively; and
(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities,
and local government units. (emphasis ours)
From the above, the difference between Sec. 133 and the questioned amendment of Sec. 140 of the LGC by
RA 9167 is readily revealed. In Sec. · 133, what Congress did was to prohibit the levy by LGUs of the
enumerated taxes. For RA 9167, however, the covered LGUs were deprived of the income which they will
otherwise be collecting should they impose amusement taxes, or, in petitioner's own words, "Section 14 of [RA
9167] can be viewed as an express and real intention on the part of Congress to remove from the LGU's
delegated taxing power, all revenues from the amusement taxes on graded films which would otherwise accrue
to [them] pursuant to Section 140 of the [LGC]."36
In other words, per RA 9167, covered LGUs still have the power to levy amusement taxes, albeit at the end of
the day, they will derive no revenue therefrom. The same, however, cannot be said for FDCP and the
producers of graded films since the amounts thus levied by the LGUs which should rightfully accrue to them,
they being the taxing authority-will be going to their coffers. As a matter of fact, it is only through the exercise
by the LGU of said power that the funds to be used for the amusement tax reward can be raised. Without said
imposition, the producers of graded films will receive nothing from the owners, proprietors and lessees of
cinemas operating within the territory of the covered LGU.
Taking the resulting scheme into consideration, it is apparent that what Congress did in this instance was not to
exclude the authority to levy amusement taxes from the taxing power of the covered LGUs, but to earmark, if
not altogether confiscate, the income to be received by the LGU from the taxpayers in favor of and for
transmittal to FDCP, instead of the taxing authority. This, to Our mind, is in clear contravention of the
constitutional command that taxes levied by LGUs shall accrue exclusively to said LGU and is repugnant to the
power of LGUs to apportion their resources in line with their priorities.
It is a basic precept that the inherent legislative powers of Congress, broad as they may be, are limited and
confined within the four walls of the Constitution.37 Accordingly, whenever the legislature exercises its power to
enact, amend, and repeal laws, it should do so without going beyond the parameters wrought by the organic
law.
In the case at bar, through the application and enforcement of Sec. 14 of RA 9167, the income from the
amusement taxes levied by the covered LGUs did not and will under no circumstance accrue to them, not even
partially, despite being the taxing authority therefor. Congress, therefore, clearly overstepped its plenary
legislative power, the amendment being violative of the fundamental law's guarantee on local autonomy, as
echoed in Sec. 130(d) of the LGC, thus: Section 130. Fundamental Principles. - The following fundamental
principles shall govern the exercise of the taxing and other revenue-raising powers of local government units:
xxxx
(d) The revenue collected pursuant to the provisions of this Code shall inure solely to the benefit of, and be
subject to the disposition by, the local government unit levying the tax, fee, charge or other imposition unless
otherwise specifically provided herein x x x.
Moreover, in Pimentel,38 the Court elucidated that local fiscal autonomy includes the power of LGUs to allocate
their resources in accordance with their own priorities. By earmarking the income on amusement taxes
imposed by the LGUs in favor of FDCP and the producers of graded films, the legislature appropriated and
distributed the LGUs' funds-as though it were legally within its control-under the guise of setting a limitation on
the LGUs' exercise of their delegated taxing power. This, undoubtedly, is a usurpation of the latter's exclusive
prerogative to apportion their funds, an impermissible intrusion into the LGUs' constitutionally-protected domain
which puts to naught the guarantee of fiscal autonomy to municipal corporations enshrined in our basic law.
Grant of amusement tax reward incentive:
not a tax exemption
It was argued that subject Sec. 13 is a grant by Congress of an exemption from amusement taxes in favor of
producers of graded films. Without question, this Court has previously upheld the power of Congress to grant
exemptions over the power of LGUs to impose taxes.39 This amusement tax reward, however, is not, as the
lower court posited, a tax exemption. Exempting a person or entity from tax is to relieve or to excuse that
person or entity from the burden of the imposition. Here, however, it cannot be said that an exemption from
amusement taxes was granted by Congress to the producers of graded films. Take note that the burden of
paying the amusement tax in question is on the proprietors, lessors, and operators of the theaters and cinemas
that showed the graded films. Thus, per City Ordinance No. LXIX: CHAPTER XI - Amusement Tax
operators of theaters, cinemas, concert halls,, circuses, boxing stadia and other places of amusement, an
amusement tax at the rate of thirty percent (30%) of the gross receipts from admission fees.
Similarly, the LGC provides as follows:

Section 140. Amusement Tax. –
(a) The province may levy an amusement tax to be collected from the proprietors, lessees, or operators
of theaters, cinemas, concert halls, circuses, boxing stadia, and other places of amusement at a rate of
not more than thirty percent (30%) of the gross receipts from admission fees.
(b) In the case of theaters or cinemas, the tax shall first be deducted and withheld by their proprietors,
lessees, or operators and paid to the provincial treasurer before the gross receipts are divided between
said proprietors, lessees, or operators and the distributors of the cinematographic films.
Simply put, both the burden and incidence of the amusement tax are borne by the proprietors, lessors, and
operators, not by the producers of the graded films. The transfer of the amount to the film producers is actually
a monetary reward given to them for having produced a graded film, the funding for which was taken by the
national government from the coffers of the covered LGUs. Without a doubt, this is not an exemption from
payment of tax.
Declaration by the RTC, Branch 5 of the

entire RA 9167 as unconstitutional
Noticeably, the RTC, Branch 5, in its September 25, 2012 Decision in Colon Heritage v. FDCP, ruled against
the constitutionality of the entire law, not just the assailed Sec. 14. The fallo of the judgment reads:
In this regard, it is well to emphasize that if it appears that the rest of the law is free from the taint of
unconstitutionality, then it should remain in force and effect if said law contains a separability clause. A
separability clause is a legislative expression of intent that the nullity of one provision shall not invalidate the
other provisions of the act. Such a clause is not, however, controlling and the courts, in spite of it, may
invalidate the whole statute where what is left, after the void part, is not complete and workable.40
In this case, not only does RA 9167 have a separability clause, contained in Section 23 thereof which reads:
Section 23. Separability Clause. -If, for any reason, any provision of this Act, or any part thereof, is declared
invalid or unconstitutional, all other sections or provisions not affected thereby shall remain in force and effect.
it is also true that the constitutionality of the entire law was not put m question in any of the said cases.
Moreover, a perusal of RA 9167 easily reveals that even with the removal of Secs. 13 and 14 of the law, the
remaining provisions can survive as they mandate other matters like a cinema evaluation system, an incentive
and reward system, and local and international film festivals and activities that "will promote the growth and
development of the local film industry and promote its participation in both domestic and foreign markets," and
to "enhance the skills and expertise of Filipino talents."41
Where a part of a statute is void as repugnant to the Constitution, while another part is valid, the valid portion, if
separable from the invalid, may stand-and be enforced. The exception to this is when the parts of a statute are
so mutually dependent and connected, as conditions, considerations, inducements, or compensations for each
other, as to warrant a belief that the legislature intended them as a whole, in which case, the nullity of one part
will vitiate the rest.42
Here, the constitutionality of the rest of the provisions of RA 9167 was never put in question. Too, nowhere in
the assailed judgment of the RTC was it explicated why the entire law was being declared as unconstitutional.
It is a basic tenet that courts cannot go beyond the issues in a case,43 which the RTC, Branch 5 did when it
declared RA 9167 unconstitutional. This being the case, and in view of the elementary rule that every statute is
presumed valid,44 the declaration by the R TC, Branch 5 of the entirety of RA 9167 as unconstitutional, is
improper.
Amounts paid by Colon Heritage

need not be returned
Having ruled that the questioned provisions are unconstitutional, the RTC, Branch 5, in Colon Heritage v.
FDCP, ordered the return of all amounts paid by respondent Colon Heritage to FDCP by way of amusement
tax. Thus:
As regards the refund, the Court cannot subscribe to this position.
It is a well-settled rule that an unconstitutional act is not a law; it . confers no rights; it imposes no duties; it
affords no protection; it creates no office; it is inoperative as if it has not been passed at all. Applying this
principle, the logical conclusion would be to order the return of all the amounts remitted to FDCP and given to
the producers of graded films, by all of the covered cities, which actually amounts to hundreds of millions, if not
billions. In fact, just for Cebu City, the aggregate deficiency claimed by FDCP is ONE HUNDRED FIFTY NINE
MILLION THREE HUNDRED SEVENTY SEVEN THOUSAND NINE HUNDRED EIGHTY-EIGHT PESOS AND
FIFTY FOUR CENTAVOS (₱159,377,988.54). Again, this amount represents the unpaid amounts to FDCP by
eight cinema operators or proprietors in only one covered city.
An exception to the above rule, however, is the doctrine of operative fact, which applies as a matter of equity
and fair play. This doctrine nullifies the effects of an unconstitutional law or an executive act by recognizing that
the existence of a statute prior to a determination of unconstitutionality is an operative fact and may have
consequences that cannot always be ignored. It applies when a declaration of unconstitutionality will impose an
undue burden on those who have relied on the invalid law.45
In Hacienda Luisita v. PARC, the Court elucidated the meaning and scope of the operative fact doctrine, viz:
The "operative fact" doctrine is embodied in De Agbayani v. Court of Appeals, wherein it is stated that a
legislative or executive act, prior to its being declared as unconstitutional by the courts, is valid and must be
complied with, thus:
xxx xxx xxx
This doctrine was reiterated in the more recent case of City of Makati v. Civil Service Commission, wherein we
ruled that:
Moreover, we certainly cannot nullify the City Government's order of suspension, as we have no reason to do
so, much less retroactively apply such nullification to deprive private respondent of a compelling and valid
reason for not filing the leave application. For as we have held, a void act though in law a mere scrap of paper
nonetheless confers legitimacy upon past acts or omissions done in reliance thereof. Consequently, the
existence of a statute or executive order prior to its being adjudged void is an operative fact to which legal
consequences are attached. It would indeed be ghastly unfair to prevent private respondent from relying upon
the order of suspension in lieu of a formal leave application.
The applicability of the operative fact doctrine to executive acts was further explicated by this Court in Rieta v.
People, thus:
Petitioner contends that his arrest by virtue of Arrest . Search and Seizure Order (ASSO) No. 4754 was invalid,
as the law upon which it was predicated-General Order No. 60, issued by then President Ferdinand E. Marcos -
was subsequently declared by the Court, in Tanada v. Tuvera, 33 to have no force and effect. Thus, he asserts,
any evidence obtained pursuant thereto is inadmissible in evidence.
We do not agree. In Tanada, the Court addressed the possible effects of its declaration of the invalidity of
various presidential issuances. Discussing therein how such a declaration might affect acts done on a
1a\^/phi 1
presumption of their validity, the Court said:
" ... In similar situations in the past this Court had taken the pragmatic and realistic course set forth in Chicot
County Drainage District vs. Baxter Bank to wit:
'The courts below have proceeded on the theory that the Act of Congress, having been found to be
unconstitutional, was not a law; that it was inoperative, conferring no rights and imposing no duties, and hence
affording no basis for the challenged decree. . . . It is quite clear, however, that such broad statements as to the
effect of a determination of unconstitutionality must be taken with qualifications. The actual existence of a
statute, prior to [the determination of its invalidity], is an operative fact and may have consequences which
cannot justly be ignored. The past cannot always be erased by a new judicial declaration. The effect of the
subsequent ruling as to invalidity may have to be considered in various aspects – with respect to particular
conduct, private and official. Questions of rights claimed to have become vested, of status, of prior
determinations deemed to have finality and acted upon accordingly, of public policy in the light of the nature
both of the statute and of its previous application, demand examination. These questions are among the most
difficult of those which have engaged the attention of courts, state and federal, and it is manifest from
numerous decisions that an all-inclusive statement of a principle of absolute retroactive invalidity cannot be
justified.'
xxx xxx xxx
"Similarly, the implementation/ enforcement of presidential decrees prior to their publication in the Official
Gazette is 'an operative fact which may have consequences which cannot be justly ignored. The past cannot
always be erased by a new judicial declaration ... that an all-inclusive statement of a principle of absolute
retroactive invalidity cannot be justified."
The Chicot doctrine cited in Tanada advocates that, prior to the nullification of a statute, there is an imperative
necessity of taking into account its actual existence as an operative fact negating the acceptance of "a principle
of absolute retroactive invalidity." Whatever was done while the legislative or the executive act was in operation
should be duly recognized and presumed to be valid in all respects. The ASSO that was issued in 1979 under
General Order No. 60 - long before our Deeision n Taiiada and the arrest of petitioner - is an operative fact that
can no longer be disturbed or simply ignored. (citations omitted; emphasis in the original.)
Bearing in mind that PARC Resolution No. 89-12-2-an executive act-was declared invalid in the instant case,
the operative fact doctrine is clearly applicable.46
Here, to order FDCP and the producers of graded films which may have already received the amusement tax
incentive reward pursuant to the questioned provisions of RA 9167, to return the amounts received to the
respective taxing authorities would certainly impose a heavy, and possibly crippling, financial burden upon
them who merely, and presumably in good faith, complied with the legislative fiat subject of this case. For these
reasons, We are of the considered view that the application of the doctrine of operative facts in the case at bar
is proper so as not to penalize FDCP for having complied with the legislative command in RA 9167, and the
producers of graded films who have already received their tax cut prior to this Decision for having produced
top-quality films.
With respect to the amounts retained by the cinema proprietors due to petitioner FDCP, said proprietors are
required under the law to remit the same to petitioner. Obeisance to the rule of law must always be protected
and preserved at all times and the unjustified refusal of said proprietors cannot be tolerated. The operative fact
doctrine equally applies to the non-remittance by said proprietors since the law produced legal effects prior to
the declaration of the nullity of Secs. 13 and 14 in these instant petitions. It can be surmised, however, that the
proprietors were at a loss whether or not to remit said amounts to FDCP considering the position of the City of
Cebu for them to remit the amusement taxes directly to the local government. For this reason, the proprietors
shall not be liable for surcharges.
In view of the declaration of nullity of unconstitutionality of Secs. 13 and 14 of RA 9167, all amusement taxes
remitted to petitioner FDCP prior to the date of the finality of this decision shall remain legal and valid under the
operative fact doctrine. Amusement taxes due to petitioner but unremitted up to the finality of this decision shall
be remitted to petitioner within thirty (30) days from date of finality. Thereafter, amusement taxes previously
covered by RA 9167 shall be remitted to the local governments.
WHEREFORE, premises considered, the consolidated petitions are hereby PARTIALLY GRANTED. The
questioned Decision of the RTC, Branch 5 of Cebu City in Civil Case No. CEB-35601 dated September 25,
2012 and that of the R TC, Branch 14, Cebu City in Civil Case No. CEB-35529 dated October 24, 2012,
collectively declaring Sections 13 and 14 of Republic Act No. 9167 invalid and unconstitutional, are hereby
AFFIRMED with MODIFICATION.
As modified, the decisions of the lower courts shall read:
1. Civil Case No. CEB-35601 entitled Colon Heritage Realty Corp. v. Film Development Council of the
Philippines:
WHEREFORE, in view of all the foregoing, Judgment is hereby rendered in favor of Colon Heritage Realty
Corp. and against the Film Development council of the Philippines, as follows: 1. Declaring Sections 13 and 14
of Republic Act No. 9167 otherwise known as an Act Creating the Film Development Council of the Philippines,
Defining its Powers and Functions, Appropriating Funds therefor arid for other purposes, as invalid and
unconstitutional;
2. Declaring that the Film Development Council of the Philippines cannot collect under Sections 13 and
14 of R.A. 9167 as of the finality of the decision in G.R. Nos. 203754 and 204418;
3. Declaring that Colon Heritage Realty Corp. has the obligation to remit the amusement taxes withheld
on graded cinema films to FDCP under Sections 13 and 14 of R.A. 9167 for taxes due prior to the
finality of this Decision, without surcharges;
4. Declaring that upon the finality of this decision, all amusement taxes withheld and those which may
be collected by Colon Heritage Realty Corp. on graded films shown in its cinemas in Cebu City shall be
remitted to Cebu City pursuant to City Ordinance LXIX, Chapter XI, Section 42.
2. Civil Case No. CEB-35529 entitled City of Cebu v. Film Development Council of the Philippines:
WHEREFORE, in view of all the disquisitions, judgment is rendered in favor of the City of Cebu against the
Film development Council of the Philippines, as follows:
1. Declaring Sections 13 and 14 of Republic Act No. 9167 otherwise known as an Act Creating the Film
Development Council of the Philippines, Defining its Powers and Functions, Appropriating Funds
therefor and for other purposes, void and unconstitutional;
2. Declaring that the Film Development Council of the Philippines cannot collect under Sections 13 and
14 of R.A. 9167 as of the finality of this Decision;
3. Declaring that Intervenor SM Cinema Corporation has the obligation to remit the amusement taxes,
withheld on graded cinema films to respondent FDCP under Sections 13 and 14 of R.A. 9167 for taxes
due prior to the finality of this Decision, without surcharges;
4. Declaring that after the finality of this Decision, all amusement taxes withheld and those which may
be collected by Intervenor SM on graded films shown in SM Cinemas in Cebu City shall be remitted to
petitioner Cebu City pursuant to City Ordinance LXIX, Chapter XI, Section 42.
As to the sum of PhP 76,836,807.08 remitted by the Intervenor SM to petitioner City of Cebu, said amount shall
be remitted by the City of Cebu to petitioner FDCP within thirty (30) days from finality of this decision in G.R.
Nos. 203754 and 204418 without interests and surcharges. Since Sections 13 and 14 of Republic Act No. 9167
were declared void and unconstitutional, all remittances of amusement taxes pursuant to said Sections 13 and
14 of said law prior to the date of finality of this Decision shall remain valid and legal. Cinema proprietors who
failed to remit said amusement taxes to petitioner FDCP prior to the date of finality of this Decision are obliged
to remit the same, without surcharges, to petitioner FDCP under the doctrine of operative fact.
SO ORDERED.
G.R. No. L-31156 February 27, 1976
PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., plaintiff-appellant,

vs.
MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET AL., defendant appellees.
Sabido, Sabido & Associates for appellant.
Provincial Fiscal Zoila M. Redona & Assistant Provincial Fiscal Bonifacio R Matol and Assistant Solicitor
General Conrado T. Limcaoco & Solicitor Enrique M. Reyes for appellees.
MARTIN, J.:
This is an appeal from the decision of the Court of First Instance of Leyte in its Civil Case No. 3294, which was
certified to Us by the Court of Appeals on October 6, 1969, as involving only pure questions of law, challenging
the power of taxation delegated to municipalities under the Local Autonomy Act (Republic Act No. 2264, as
amended, June 19, 1959).
On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company of the Philippines, Inc., commenced
a complaint with preliminary injunction before the Court of First Instance of Leyte for that court to declare
Section 2 of Republic Act No. 2264.1 otherwise known as the Local Autonomy Act, unconstitutional as an undue
delegation of taxing authority as well as to declare Ordinances Nos. 23 and 27, series of 1962, of the
municipality of Tanauan, Leyte, null and void.
On July 23, 1963, the parties entered into a Stipulation of Facts, the material portions of which state that, first,
both Ordinances Nos. 23 and 27 embrace or cover the same subject matter and the production tax rates
imposed therein are practically the same, and second, that on January 17, 1963, the acting Municipal
Treasurer of Tanauan, Leyte, as per his letter addressed to the Manager of the Pepsi-Cola Bottling Plant in
said municipality, sought to enforce compliance by the latter of the provisions of said Ordinance No. 27, series
of 1962.
Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on September 25, 1962, levies and
collects "from soft drinks producers and manufacturers a tai of one-sixteenth (1/16) of a centavo for every bottle
of soft drink corked." 2 For the purpose of computing the taxes due, the person, firm, company or corporation
producing soft drinks shall submit to the Municipal Treasurer a monthly report, of the total number of bottles
produced and corked during the month. 3
On the other hand, Municipal Ordinance No. 27, which was approved on October 28, 1962, levies and collects
"on soft drinks produced or manufactured within the territorial jurisdiction of this municipality a tax of ONE
CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity." 4 For the purpose of computing
the taxes due, the person, fun company, partnership, corporation or plant producing soft drinks shall submit to
the Municipal Treasurer a monthly report of the total number of gallons produced or manufactured during the
month. 5
The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal production tax.'
On October 7, 1963, the Court of First Instance of Leyte rendered judgment "dismissing the complaint and
upholding the constitutionality of [Section 2, Republic Act No. 2264] declaring Ordinance Nos. 23 and 27 legal
and constitutional; ordering the plaintiff to pay the taxes due under the oft the said Ordinances; and to pay the
costs."
From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to the Court of Appeals, which, in turn,
elevated the case to Us pursuant to Section 31 of the Judiciary Act of 1948, as amended.
There are three capital questions raised in this appeal:
1. — Is Section 2, Republic Act No. 2264 an undue delegation of power, confiscatory and
oppressive?
2. — Do Ordinances Nos. 23 and 27 constitute double taxation and impose percentage or

specific taxes?
3. — Are Ordinances Nos. 23 and 27 unjust and unfair?
1. The power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter of right to
every independent government, without being expressly conferred by the people. 6 It is a power that is purely
legislative and which the central legislative body cannot delegate either to the executive or judicial department
of the government without infringing upon the theory of separation of powers. The exception, however, lies in
the case of municipal corporations, to which, said theory does not apply. Legislative powers may be delegated
to local governments in respect of matters of local concern. 7 This is sanctioned by immemorial practice. 8 By
necessary implication, the legislative power to create political corporations for purposes of local self-
government carries with it the power to confer on such local governmental agencies the power to tax. 9 Under
the New Constitution, local governments are granted the autonomous authority to create their own sources of
revenue and to levy taxes. Section 5, Article XI provides: "Each local government unit shall have the power to
create its sources of revenue and to levy taxes, subject to such limitations as may be provided by law." Withal,
it cannot be said that Section 2 of Republic Act No. 2264 emanated from beyond the sphere of the legislative
power to enact and vest in local governments the power of local taxation.
The plenary nature of the taxing power thus delegated, contrary to plaintiff-appellant's pretense, would not
suffice to invalidate the said law as confiscatory and oppressive. In delegating the authority, the State is not
limited 6 the exact measure of that which is exercised by itself. When it is said that the taxing power may be
delegated to municipalities and the like, it is meant that there may be delegated such measure of power to
impose and collect taxes as the legislature may deem expedient. Thus, municipalities may be permitted to tax
subjects which for reasons of public policy the State has not deemed wise to tax for more general
purposes. 10 This is not to say though that the constitutional injunction against deprivation of property without
due process of law may be passed over under the guise of the taxing power, except when the taking of the
property is in the lawful exercise of the taxing power, as when (1) the tax is for a public purpose; (2) the rule on
uniformity of taxation is observed; (3) either the person or property taxed is within the jurisdiction of the
government levying the tax; and (4) in the assessment and collection of certain kinds of taxes notice and
opportunity for hearing are provided. 11 Due process is usually violated where the tax imposed is for a private as
distinguished from a public purpose; a tax is imposed on property outside the State, i.e., extraterritorial taxation;
and arbitrary or oppressive methods are used in assessing and collecting taxes. But, a tax does not violate the
due process clause, as applied to a particular taxpayer, although the purpose of the tax will result in an injury
rather than a benefit to such taxpayer. Due process does not require that the property subject to the tax or the
amount of tax to be raised should be determined by judicial inquiry, and a notice and hearing as to the amount
of the tax and the manner in which it shall be apportioned are generally not necessary to due process of law. 12
There is no validity to the assertion that the delegated authority can be declared unconstitutional on the theory
of double taxation. It must be observed that the delegating authority specifies the limitations and enumerates
the taxes over which local taxation may not be exercised. 13 The reason is that the State has exclusively
reserved the same for its own prerogative. Moreover, double taxation, in general, is not forbidden by our
fundamental law, since We have not adopted as part thereof the injunction against double taxation found in the
Constitution of the United States and some states of the Union.14 Double taxation becomes obnoxious only
where the taxpayer is taxed twice for the benefit of the same governmental entity 15 or by the same jurisdiction
for the same purpose, 16 but not in a case where one tax is imposed by the State and the other by the city or
municipality. 17
2. The plaintiff-appellant submits that Ordinance No. 23 and 27 constitute double taxation, because these two
ordinances cover the same subject matter and impose practically the same tax rate. The thesis proceeds from
its assumption that both ordinances are valid and legally enforceable. This is not so. As earlier quoted,
Ordinance No. 23, which was approved on September 25, 1962, levies or collects from soft drinks producers or
manufacturers a tax of one-sixteen (1/16) of a centavo for .every bottle corked, irrespective of the volume
contents of the bottle used. When it was discovered that the producer or manufacturer could increase the
volume contents of the bottle and still pay the same tax rate, the Municipality of Tanauan enacted Ordinance
No. 27, approved on October 28, 1962, imposing a tax of one centavo (P0.01) on each gallon (128 fluid
ounces, U.S.) of volume capacity. The difference between the two ordinances clearly lies in the tax rate of the
soft drinks produced: in Ordinance No. 23, it was 1/16 of a centavo for every bottle corked; in Ordinance No.
27, it is one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The intention of the
Municipal Council of Tanauan in enacting Ordinance No. 27 is thus clear: it was intended as a plain substitute
for the prior Ordinance No. 23, and operates as a repeal of the latter, even without words to that
effect. 18 Plaintiff-appellant in its brief admitted that defendants-appellees are only seeking to enforce Ordinance
No. 27, series of 1962. Even the stipulation of facts confirms the fact that the Acting Municipal Treasurer of
Tanauan, Leyte sought t6 compel compliance by the plaintiff-appellant of the provisions of said Ordinance No.
27, series of 1962. The aforementioned admission shows that only Ordinance No. 27, series of 1962 is being
enforced by defendants-appellees. Even the Provincial Fiscal, counsel for defendants-appellees admits in his
brief "that Section 7 of Ordinance No. 27, series of 1962 clearly repeals Ordinance No. 23 as the provisions of
the latter are inconsistent with the provisions of the former."
That brings Us to the question of whether the remaining Ordinance No. 27 imposes a percentage or a specific
tax. Undoubtedly, the taxing authority conferred on local governments under Section 2, Republic Act No. 2264,
is broad enough as to extend to almost "everything, accepting those which are mentioned therein." As long as
the text levied under the authority of a city or municipal ordinance is not within the exceptions and limitations in
the law, the same comes within the ambit of the general rule, pursuant to the rules of exclucion
attehus and exceptio firmat regulum in cabisus non excepti 19 The limitation applies, particularly, to the
prohibition against municipalities and municipal districts to impose "any percentage tax or other taxes in any
form based thereon nor impose taxes on articles subject to specific tax except gasoline, under the provisions of
the National Internal Revenue Code." For purposes of this particular limitation, a municipal ordinance which
prescribes a set ratio between the amount of the tax and the volume of sale of the taxpayer imposes a sales
tax and is null and void for being outside the power of the municipality to enact. 20 But, the imposition of "a tax of
one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity" on all soft drinks produced or
manufactured under Ordinance No. 27 does not partake of the nature of a percentage tax on sales, or other
taxes in any form based thereon. The tax is levied on the produce (whether sold or not) and not on the sales.
The volume capacity of the taxpayer's production of soft drinks is considered solely for purposes of determining
the tax rate on the products, but there is not set ratio between the volume of sales and the amount of the tax.21
Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed on specified articles, such
as distilled spirits, wines, fermented liquors, products of tobacco other than cigars and cigarettes, matches
firecrackers, manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel oil, cinematographic films,
playing cards, saccharine, opium and other habit-forming drugs. 22 Soft drink is not one of those specified.
3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on all softdrinks, produced
or manufactured, or an equivalent of 1-½ centavos per case, 23 cannot be considered unjust and unfair. 24 an
increase in the tax alone would not support the claim that the tax is oppressive, unjust and confiscatory.
Municipal corporations are allowed much discretion in determining the reates of imposable taxes. 25 This is in
line with the constutional policy of according the widest possible autonomy to local governments in matters of
local taxation, an aspect that is given expression in the Local Tax Code (PD No. 231, July 1, 1973). 26 Unless
the amount is so excessive as to be prohibitive, courts will go slow in writing off an ordinance as unreasonable.
27 Reluctance should not deter compliance with an ordinance such as Ordinance No. 27 if the purpose of the
law to further strengthen local autonomy were to be realized. 28
Finally, the municipal license tax of P1,000.00 per corking machine with five but not more than ten crowners or
P2,000.00 with ten but not more than twenty crowners imposed on manufacturers, producers, importers and
dealers of soft drinks and/or mineral waters under Ordinance No. 54, series of 1964, as amended by Ordinance
No. 41, series of 1968, of defendant Municipality, 29 appears not to affect the resolution of the validity of
Ordinance No. 27. Municipalities are empowered to impose, not only municipal license taxes upon persons
engaged in any business or occupation but also to levy for public purposes, just and uniform taxes. The
ordinance in question (Ordinance No. 27) comes within the second power of a municipality.
ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264, otherwise known as the Local
Autonomy Act, as amended, is hereby upheld and Municipal Ordinance No. 27 of the Municipality of Tanauan,
Leyte, series of 1962, re-pealing Municipal Ordinance No. 23, same series, is hereby declared of valid and
legal effect. Costs against petitioner-appellant.
SO ORDERED.
G.R. No. L-22814 August 28, 1968
PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC., plaintiff-appellant,

vs.
CITY OF BUTUAN, MEMBERS OF THE MUNICIPAL BOARD,
THE CITY MAYOR and THE CITY TREASURER, all of the CITY OF BUTUAN, defendants-appellees.
Sabido, Sabido and Associates for plaintiff-appellant.

The City Attorney of Butuan City for defendants-appellees.
CONCEPCION, C.J.:
Direct appeal to this Court, from a decision of the Court of First Instance of Agusan, dismissing plaintiff's
complaint, with costs.
Plaintiff, Pepsi-Cola Bottling Company of the Philippines, is a domestic corporation with offices and principal
place of business in Quezon City. The defendants are the City of Butuan, its City Mayor, the members of its
municipal board and its City Treasurer. Plaintiff — seeks to recover the sums paid by it to the City of Butuan —
hereinafter referred to as the City and collected by the latter, pursuant to its Municipal Ordinance No. 110, as
amended by Municipal Ordinance No. 122, both series of 1960, which plaintiff assails as null and void, and to
prevent the enforcement thereof. Both parties submitted the case for decision in the lower court upon a
stipulation to the effect:
1. That plaintiff's warehouse in the City of Butuan serves as a storage for its products the "Pepsi-Cola"
soft drinks for sale to customers in the City of Butuan and all the municipalities in the Province of
Agusan. These "Pepsi-Cola Cola" soft drinks are bottled in Cebu City and shipped to the Butuan City
warehouse of plaintiff for distribution and sale in the City of Butuan and all municipalities of Agusan. .
2. That on August 16, 1960, the City of Butuan enacted Ordinance No. 110 which was subsequently
amended by Ordinance No. 122 and effective November 28, 1960. A copy of Ordinance No. 110,
Series of 1960 and Ordinance No. 122 are incorporated herein as Exhibits "A" and "B", respectively.
3. That Ordinance No. 110 as amended, imposes a tax on any person, association, etc., of P0.10 per
case of 24 bottles of Pepsi-Cola and the plaintiff paid under protest the amount of P4,926.63 from
August 16 to December 31, 1960 and the amount of P9,250.40 from January 1 to July 30, 1961.
4. That the plaintiff filed the foregoing complaint for the recovery of the total amount of P14,177.03 paid
under protest and those that if may later on pay until the termination of this case on the ground that
Ordinance No. 110 as amended of the City of Butuan is illegal, that the tax imposed is excessive and
that it is unconstitutional.
5. That pursuant to Ordinance No. 110 as amended, the City Treasurer of Butuan City, has prepared a
form to be accomplished by the plaintiff for the computation of the tax. A copy of the form is enclosed
herewith as Exhibit "C".
6. That the Profit and Loss Statement of the plaintiff for the period from January 1, 1961 to July 30,
1961 of its warehouse in Butuan City is incorporated herein as Exhibits "D" to "D-1" to "D-5". In this
Profit and Loss Statement, the defendants claim that the plaintiff is not entitled to a depreciation of
P3,052.63 but only P1,202.55 in which case the profit of plaintiff will be increased from P1,254.44 to
P3,104.52. The plaintiff differs only on the claim of depreciation which the company claims to be
P3,052.62. This is in accordance with the findings of the representative of the undersigned City
Attorney who verified the records of the plaintiff.
7. That beginning November 21, 1960, the price of Pepsi-Cola per case of 24 bottles was increased to
P1.92 which price is uniform throughout the Philippines. Said increase was made due to the increase in
the production cost of its manufacture.
8. That the parties reserve the right to submit arguments on the constitutionality and illegality of
Ordinance No. 110, as amended of the City of Butuan in their respective memoranda.
xxx xxx xxx 1äw phï1.ñët
Section 1 of said Ordinance No. 110, as amended, states what products are "liquors", within the purview
thereof. Section 2 provides for the payment by "any agent and/or consignee" of any dealer "engaged in selling
liquors, imported or local, in the City," of taxes at specified rates. Section 3 prescribes a tax of P0.10 per case
of 24 bottles of the soft drinks and carbonated beverages therein named, and "all other soft drinks or
carbonated drinks." Section 3-A, defines the meaning of the term "consignee or agent" for purposes of the
ordinance. Section 4 provides that said taxes "shall be paid at the end of every calendar month." Pursuant to
Section 5, the taxes "shall be based and computed from the cargo manifest or bill of lading or any other record
showing the number of cases of soft drinks, liquors or all other soft drinks or carbonated drinks received within
the month." Sections 6, 7 and 8 specify the surcharge to be added for failure to pay the taxes within the period
prescribed and the penalties imposable for "deliberate and willful refusal to pay the tax mentioned in Sections 2
and 3" or for failure "to furnish the office of the City Treasurer a copy of the bill of lading or cargo manifest or
record of soft drinks, liquors or carbonated drinks for sale in the City." Section 9 makes the ordinance
applicable to soft drinks, liquors or carbonated drinks "received outside" but "sold within" the City. Section 10 of
the ordinance provides that the revenue derived therefrom "shall be alloted as follows: 40% for Roads and
Bridges Fund; 40% for the General Fund and 20% for the School Fund."
Plaintiff maintains that the disputed ordinance is null and void because: (1) it partakes of the nature of an import
tax; (2) it amounts to double taxation; (3) it is excessive, oppressive and confiscatory; (4) it is highly unjust and
discriminatory; and (5) section 2 of Republic Act No. 2264, upon the authority of which it was enacted, is an
unconstitutional delegation of legislative powers.
The second and last objections are manifestly devoid of merit. Indeed — independently of whether or not the
tax in question, when considered in relation to the sales tax prescribed by Acts of Congress, amounts to double
taxation, on which we need not and do not express any opinion - double taxation, in general, is not forbidden by
our fundamental law. We have not adopted, as part thereof, the injunction against double taxation found in the
Constitution of the United States and of some States of the Union.1 Then, again, the general principle against
delegation of legislative powers, in consequence of the theory of separation of powers2 is subject to one well-
established exception, namely: legislative powers may be delegated to local governments — to which said
theory does not apply3 — in respect of matters of local concern.
The third objection is, likewise, untenable. The tax of "P0.10 per case of 24 bottles," of soft drinks or
carbonated drinks — in the production and sale of which plaintiff is engaged — or less than P0.0042 per bottle,
is manifestly too small to be excessive, oppressive, or confiscatory.
The first and the fourth objections merit, however, serious consideration. In this connection, it is noteworthy that
the tax prescribed in section 3 of Ordinance No. 110, as originally approved, was imposed upon dealers
"engaged in selling" soft drinks or carbonated drinks. Thus, it would seem that the intent was then to levy a tax
upon the sale of said merchandise. As amended by Ordinance No. 122, the tax is, however, imposed only upon
"any agent and/or consignee of any person, association, partnership, company or corporation engaged in
selling ... soft drinks or carbonated drinks." And, pursuant to section 3-A, which was inserted by said Ordinance
No. 122:
... — Definition of the Term Consignee or Agent. — For purposes of this Ordinance, a consignee of
agent shall mean any person, association, partnership, company or corporation who acts in the place of
another by authority from him or one entrusted with the business of another or to whom is consigned or
shipped no less than 1,000 cases of hard liquors or soft drinks every month for resale, either retail or
wholesale.
As a consequence, merchants engaged in the sale of soft drink or carbonated drinks, are not subject to the
tax, unless they are agents and/or consignees of another dealer, who, in the very nature of things, must be one
engaged in business outside the City. Besides, the tax would not be applicable to such agent and/or consignee,
if less than 1,000 cases of soft drinks are consigned or shipped to him every month. When we consider, also,
that the tax "shall be based and computed from the cargo manifest or bill of lading ... showing the number of
cases" — not sold — but "received" by the taxpayer, the intention to limit the application of the ordinance to soft
drinks and carbonated drinks brought into the City from outside thereof becomes apparent. Viewed from this
angle, the tax partakes of the nature of an import duty, which is beyond defendant's authority to impose by
express provision of law.4
Even however, if the burden in question were regarded as a tax on the sale of said beverages, it would still be
invalid, as discriminatory, and hence, violative of the uniformity required by the Constitution and the law
therefor, since only sales by "agents or consignees" of outside dealers would be subject to the tax. Sales by
local dealers, not acting for or on behalf of other merchants, regardless of the volume of their sales, and even if
the same exceeded those made by said agents or consignees of producers or merchants established outside
the City of Butuan, would be exempt from the disputed tax.
It is true that the uniformity essential to the valid exercise of the power of taxation does not require identity or
equality under all circumstances, or negate the authority to classify the objects of taxation.5 The classification
made in the exercise of this authority, to be valid, must, however, be reasonable6 and this requirement is not
deemed satisfied unless: (1) it is based upon substantial distinctions which make real differences; (2) these are
germane to the purpose of the legislation or ordinance; (3) the classification applies, not only to present
conditions, but, also, to future conditions substantially identical to those of the present; and (4) the classification
applies equally all those who belong to the same class.7
These conditions are not fully met by the ordinance in question.8 Indeed, if its purpose were merely to levy a
burden upon the sale of soft drinks or carbonated beverages, there is no reason why sales thereof by sealers
other than agents or consignees of producers or merchants established outside the City of Butuan should be
exempt from the tax.
WHEREFORE, the decision appealed from is hereby reversed, and another one shall be entered annulling
Ordinance No. 110, as amended by Ordinance No. 122, and sentencing the City of Butuan to refund to plaintiff
herein the amounts collected from and paid under protest by the latter, with interest thereon at the legal rate
from the date of the promulgation of this decision, in addition to the costs, and defendants herein are,
accordingly, restrained and prohibited permanently from enforcing said Ordinance, as amended. It is so
ordered.
Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur. 1äw phï1.ñët
Footnotes
[G.R. NO. 164171 : February 20, 2006]
HON. EXECUTIVE SECRETARY, HON. SECRETARY OF THE DEPARTMENT OF TRANSPORTATION AND

COMMUNICATIONS (DOTC), COMMISSIONER OF CUSTOMS, ASSISTANT SECRETARY, LAND
TRANSPORTATION OFFICE (LTO), COLLECTOR OF CUSTOMS, SUBIC BAY FREE PORT ZONE, AND CHIEF OF
LTO, SUBIC BAY FREE PORT ZONE, Petitioners, v. SOUTHWING HEAVY INDUSTRIES, INC., represented by its
President JOSE T. DIZON, UNITED AUCTIONEERS, INC., represented by its President DOMINIC SYTIN, and
MICROVAN, INC., represented by its President MARIANO C. SONON, Respondents.
[G.R. NO. 164172 : February 20, 2006]
HON. EXECUTIVE SECRETARY, SECRETARY OF THE DEPARTMENT OF TRANSPORTATION AND

COMMUNICATION (DOTC), COMMISSIONER OF CUSTOMS, ASSISTANT SECRETARY, LAND TRANSPORTATION
OFFICE (LTO), COLLECTOR OF CUSTOMS, SUBIC BAY FREE PORT ZONE AND CHIEF OF LTO, SUBIC BAY FREE
PORT ZONE, Petitioners, v. SUBIC INTEGRATED MACRO VENTURES CORP., represented by its President
YOLANDA AMBAR, Respondent.
[G.R. NO. 168741 : February 20, 2006]
HON. EXECUTIVE SECRETARY, HON. SECRETARY OF FINANCE, THE CHIEF OF THE LAND TRANSPORTATION
OFFICE, THE COMMISSIONER OF CUSTOMS, and THE COLLECTOR OF CUSTOMS, SUBIC SPECIAL ECONOMIC
ZONE, Petitioners, v. MOTOR VEHICLE IMPORTERS ASSOCIATION OF SUBIC BAY FREEPORT, INC.,
represented by its President ALFREDO S. GALANG, Respondent.
DECISION
YNARES-SANTIAGO, J.:
The instant consolidated petitions seek to annul and set aside the Decisions of the Regional Trial Court of Olongapo City,
Branch 72, in Civil Case No. 20-0-04 and Civil Case No. 22-0-04, both dated May 24, 2004; and the February 14, 2005
Decision of the Court of Appeals in CA-G.R. SP. No. 83284, which declared Article 2, Section 3.1 of Executive Order No.
156 (EO 156) unconstitutional. Said executive issuance prohibits the importation into the country, inclusive of the
Special Economic and Freeport Zone or the Subic Bay Freeport (SBF or Freeport), of used motor vehicles, subject to a
few exceptions.
The undisputed facts show that on December 12, 2002, President Gloria Macapagal-Arroyo, through Executive Secretary
Alberto G. Romulo, issued EO 156, entitled "Providing for a comprehensive industrial policy and directions for the motor
vehicle development program and its implementing guidelines." The challenged provision states:
3.1 The importation into the country, inclusive of the Freeport, of all types of used motor vehicles is
prohibited, except for the following:
3.1.1 A vehicle that is owned and for the personal use of a returning resident or immigrant and covered by an authority
to import issued under the No-dollar Importation Program. Such vehicles cannot be resold for at least three (3) years;
3.1.2 A vehicle for the use of an official of the Diplomatic Corps and authorized to be imported by the Department of
Foreign Affairs;
3.1.3 Trucks excluding pickup trucks;
1. with GVW of 2.5-6.0 tons covered by an authority to import issued by the DTI.
2. With GVW above 6.0 tons.
3.1.4 Buses:
1. with GVW of 6-12 tons covered by an authority to import issued by DTI;
2. with GVW above 12 tons.
3.1.5 Special purpose vehicles:
1. fire trucks
2. ambulances
3. funeral hearse/coaches
4. crane lorries
5. tractor heads and truck tractors
6. boom trucks
7. tanker trucks
8. tank lorries with high pressure spray gun
9. reefers or refrigerated trucks
10. mobile drilling derricks
11. transit/concrete mixers
12. mobile radiological units
13. wreckers or tow trucks
14. concrete pump trucks
15. aerial/bucket flat-form trucks
16. street sweepers
17. vacuum trucks
18. garbage compactors
19. self loader trucks
20. man lift trucks
21. lighting trucks
22. trucks mounted with special purpose equipment
23. all other types of vehicle designed for a specific use.
The issuance of EO 156 spawned three separate actions for declaratory relief before Branch 72 of the Regional Trial
Court of Olongapo City, all seeking the declaration of the unconstitutionality of Article 2, Section 3.1 of said executive
order. The cases were filed by herein respondent entities, who or whose members, are classified as Subic Bay Freeport
Enterprises and engaged in the business of, among others, importing and/or trading used motor vehicles.
[G.R. NO. 164171]
On January 16, 2004, respondents Southwing Heavy Industries, Inc., (Southwing) United Auctioneers, Inc. (United
Auctioneers), and Microvan, Inc. (Microvan), instituted a declaratory relief case docketed as Civil Case No. 20-0-
04,1 against the Executive Secretary, Secretary of Transportation and Communication, Commissioner of Customs,
Assistant Secretary and Head of the Land Transportation Office, Subic Bay Metropolitan Authority (SBMA), Collector of
Customs for the Port at Subic Bay Freeport Zone, and the Chief of the Land Transportation Office at Subic Bay Freeport
Zone.
Southwing, United Auctioneers and Microvan prayed that judgment be rendered (1) declaring Article 2, Section 3.1 of
EO 156 unconstitutional and illegal; (2) directing the Secretary of Finance, Commissioner of Customs, Collector of
Customs and the Chairman of the SBMA to allow the importation of used motor vehicles; (2) ordering the Land
Transportation Office and its subordinates inside the Subic Special Economic Zone to process the registration of the
imported used motor vehicles; and (3) in general, to allow the unimpeded entry and importation of used motor vehicles
subject only to the payment of the required customs duties.
Upon filing of petitioners' answer/comment, respondents Southwing and Microvan filed a motion for summary judgment
which was granted by the trial court. On May 24, 2004, a summary judgment was rendered declaring that Article 2,
Section 3.1 of EO 156 constitutes an unlawful usurpation of legislative power vested by the Constitution with Congress.
The trial court further held that the proviso is contrary to the mandate of Republic Act No. 7227 (RA 7227) or the Bases
Conversion and Development Act of 1992 which allows the free flow of goods and capital within the Freeport. The
dispositive portion of the said decision reads:
WHEREFORE, judgment is hereby rendered in favor of petitioner declaring Executive Order 156 [Article 2, Section] 3.1
for being unconstitutional and illegal; directing respondents Collector of Customs based at SBMA to allow the
importation and entry of used motor vehicles pursuant to the mandate of RA 7227; directing respondent Chief of the
Land Transportation Office and its subordinates inside the Subic Special Economic Zone or SBMA to process the
registration of imported used motor vehicle; and in general, to allow unimpeded entry and importation of used motor
vehicles to the Philippines subject only to the payment of the required customs duties.
SO ORDERED.2
From the foregoing decision, petitioners sought relief before this Court via a Petition for Review on Certiorari, docketed
as G.R. No. 164171.
[G.R. NO. 164172]
On January 20, 2004, respondent Subic Integrated Macro Ventures Corporation (Macro Ventures) filed with the same
trial court, a similar action for declaratory relief docketed as Civil Case No. 22-0-04,3 with the same prayer and against
the same parties4 as those in Civil Case No. 20-0-04.
In this case, the trial court likewise rendered a summary judgment on May 24, 2004, holding that Article 2, Section 3.1
of EO 156, is repugnant to the constitution.5 Elevated to this Court via a Petition for Review on Certiorari, Civil Case No.
22-0-04 was docketed as G.R. No. 164172.
[G.R. NO. 168741]
On January 22, 2003, respondent Motor Vehicle Importers Association of Subic Bay Freeport, Inc. (Association), filed
another action for declaratory relief with essentially the same prayer as those in Civil Case No. 22-0-04 and Civil Case
No. 20-0-04, against the Executive Secretary, Secretary of Finance, Chief of the Land Transportation Office,
Commissioner of Customs, Collector of Customs at SBMA and the Chairman of SBMA. This was docketed as Civil Case
No. 30-0-2003,6 before the same trial court.
In a decision dated March 10, 2004, the court a quo granted the Association's prayer and declared the assailed proviso
as contrary to the Constitution, to wit:
WHEREFORE, judgment is hereby rendered in favor of petitioner declaring Executive Order 156 [Article 2, Section] 3.1
for being unconstitutional and illegal; directing respondents Collector of Customs based at SBMA to allow the
importation and entry of used motor vehicles pursuant to the mandate of RA 7227; directing respondent Chief of the
Land Transportation Office and its subordinates inside the Subic Special Economic Zone or SBMA to process the
registration of imported used motor vehicles; directing the respondent Chairman of the SBMA to allow the entry into the
Subic Special Economic Zone or SBMA imported used motor vehicle; and in general, to allow unimpeded entry and
importation of used motor vehicles to the Philippines subject only to the payment of the required customs duties.
SO ORDERED.7
Aggrieved, the petitioners in Civil Case No. 30-0-2003, filed a petition for certiorari 8 with the Court of Appeals (CA-G.R.
SP. No. 83284) which denied the petition on February 14, 2005 and sustained the finding of the trial court that Article
2, Section 3.1 of EO 156, is void for being repugnant to the constitution. The dispositive portion thereof, reads:
WHEREFORE, the instant petition for certiorari is hereby DENIED. The assailed decision of the Regional Trial Court, Third
Judicial Region, Branch 72, Olongapo City, in Civil Case No. 30-0-2003, accordingly, STANDS.
SO ORDERED.9
The aforequoted decision of the Court of Appeals was elevated to this Court and docketed as G.R. No. 168741. In a
Resolution dated October 4, 2005,10 said case was consolidated with G.R. No. 164171 and G.R. No. 164172.
Petitioners are now before this Court contending that Article 2, Section 3.1 of EO 156 is valid and applicable to the
entire country, including the Freeeport. In support of their arguments, they raise procedural and substantive issues
bearing on the constitutionality of the assailed proviso. The procedural issues are: the lack of respondents' locus
standi to question the validity of EO 156, the propriety of challenging EO 156 in a declaratory relief proceeding and the
applicability of a judgment on the pleadings in this case.
Petitioners argue that respondents will not be affected by the importation ban considering that their certificate of
registration and tax exemption do not authorize them to engage in the importation and/or trading of used cars. They
also aver that the actions filed by respondents do not qualify as declaratory relief cases. Section 1, Rule 63 of the Rules
of Court provides that a petition for declaratory relief may be filed before there is a breach or violation of rights.
Petitioners claim that there was already a breach of respondents' supposed right because the cases were filed more
than a year after the issuance of EO 156. In fact, in Civil Case No. 30-0-2003, numerous warrants of seizure and
detention were issued against imported used motor vehicles belonging to respondent Association's members.
Petitioners' arguments lack merit.
The established rule that the constitutionality of a law or administrative issuance can be challenged by one who will
sustain a direct injury as a result of its enforcement11 has been satisfied in the instant case. The broad subject of the
prohibited importation is "all types of used motor vehicles." Respondents would definitely suffer a direct injury from
the implementation of EO 156 because their certificate of registration and tax exemption authorize them to trade and/or
import new and used motor vehicles and spare parts, except "used cars."12 Other types of motor vehicles imported
and/or traded by respondents and not falling within the category of used cars would thus be subjected to the ban to
the prejudice of their business. Undoubtedly, respondents have the legal standing to assail the validity of EO 156.
As to the propriety of declaratory relief as a vehicle for assailing the executive issuance, suffice it to state that any
breach of the rights of respondents will not affect the case. In Commission on Audit of the Province of Cebu v. Province
of Cebu,13 the Court entertained a suit for declaratory relief to finally settle the doubt as to the proper interpretation of
the conflicting laws involved, notwithstanding a violation of the right of the party affected. We find no reason to deviate
from said ruling mindful of the significance of the present case to the national economy.
So also, summary judgments were properly rendered by the trial court because the issues involved in the instant case
were pure questions of law. A motion for summary judgment is premised on the assumption that the issues presented
need not be tried either because these are patently devoid of substance or that there is no genuine issue as to any
pertinent fact. It is a method sanctioned by the Rules of Court for the prompt disposition of a civil action in which the
pleadings raise only a legal issue, not a genuine issue as to any material fact.14
At any rate, even assuming the procedural flaws raised by petitioners truly exist, the Court is not precluded from
brushing aside these technicalities and taking cognizance of the action filed by respondents considering its importance
to the public and in keeping with the duty to determine whether the other branches of the government have kept
themselves within the limits of the Constitution.15
We now come to the substantive issues, which are: (1) whether there is statutory basis for the issuance of EO 156; and
(2) if the answer is in the affirmative, whether the application of Article 2, Section 3.1 of EO 156, reasonable and within
the scope provided by law.
The main thrust of the petition is that EO 156 is constitutional because it was issued pursuant to EO 226, the Omnibus
Investment Code of the Philippines and that its application should be extended to the Freeport because the guarantee of
RA 7227 on the free flow of goods into the said zone is merely an exemption from customs duties and taxes on items
brought into the Freeport and not an open floodgate for all kinds of goods and materials without restriction.
In G.R. No. 168741, the Court of Appeals invalidated Article 2, Section 3.1 of EO 156, on the ground of lack of any
statutory basis for the President to issue the same. It held that the prohibition on the importation of used motor
vehicles is an exercise of police power vested on the legislature and absent any enabling law, the exercise thereof by
the President through an executive issuance, is void.
Police power is inherent in a government to enact laws, within constitutional limits, to promote the order, safety, health,
morals, and general welfare of society. It is lodged primarily with the legislature. By virtue of a valid delegation of
legislative power, it may also be exercised by the President and administrative boards, as well as the lawmaking bodies
on all municipal levels, including the barangay.16 Such delegation confers upon the President quasi-legislative
power which may be defined as the authority delegated by the law-making body to the administrative body to adopt
rules and regulations intended to carry out the provisions of the law and implement legislative policy.17 To be valid, an
administrative issuance, such as an executive order, must comply with the following requisites:
(1) Its promulgation must be authorized by the legislature;

(2) It must be promulgated in accordance with the prescribed procedure;
(3) It must be within the scope of the authority given by the legislature; and cra lawlib rary
(4) It must be reasonable.18
Contrary to the conclusion of the Court of Appeals, EO 156 actually satisfied the first requisite of a valid administrative
order. It has both constitutional and statutory bases.
Delegation of legislative powers to the President is permitted in Section 28(2) of Article VI of the Constitution. It
provides:
(2) The Congress may, by law, authorize the President to fix within specified limits, and subject to such limitations and
restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or
imposts within the framework of the national development program of the Government.19 (Emphasis supplied) c ralawli bra ry
The relevant statutes to execute this provision are:
1) The Tariff and Customs Code which authorizes the President, in the interest of national economy, general welfare
and/or national security, to, inter alia, prohibit the importation of any commodity. Section 401 thereof, reads:
Sec. 401. Flexible Clause. -
A. In the interest of national economy, general welfare and/or national security, and subject to the
limitations herein prescribed, the President, upon recommendation of the National Economic and
Development Authority (hereinafter referred to as NEDA), is hereby empowered: x x x (2) to establish
import quota or to ban imports of any commodity, as may be necessary; x x x Provided, That upon periodic
investigations by the Tariff Commission and recommendation of the NEDA, the President may cause a gradual reduction
of protection levels granted in Section One hundred and four of this Code, including those subsequently granted
pursuant to this section. (Emphasis supplied) c ralawl ibra ry
2) Executive Order No. 226, the Omnibus Investment Code of the Philippines which was issued on July 16, 1987, by
then President Corazon C. Aquino, in the exercise of legislative power under the Provisional Freedom
Constitution,20 empowers the President to approve or reject the prohibition on the importation of any equipment or raw
materials or finished products. Pertinent provisions thereof, read:
ART. 4. Composition of the board. The Board of Investments shall be composed of seven (7) governors: The Secretary
of Trade and Industry, three (3) Undersecretaries of Trade and Industry to be chosen by the President; and three (3)
representatives from the government agencies and the private sector x x x.
ART. 7. Powers and duties of the Board.
xxx
(12) Formulate and implement rationalization programs for certain industries whose operation may result in dislocation,
overcrowding or inefficient use of resources, thus impeding economic growth. For this purpose, the Board may
formulate guidelines for progressive manufacturing programs, local content programs, mandatory sourcing
requirements and dispersal of industries. In appropriate cases and upon approval of the President, the Board
may restrict, either totally or partially, the importation of any equipment or raw materials or finished
products involved in the rationalization program; (Emphasis supplied) c ralawli bra ry
3) Republic Act No. 8800, otherwise known as the "Safeguard Measures Act" (SMA), and entitled "An Act Protecting
Local Industries By Providing Safeguard Measures To Be Undertaken In Response To Increased Imports And Providing
Penalties For Violation Thereof,"21 designated the Secretaries22 of the Department of Trade and Industry (DTI) and the
Department of Agriculture, in their capacity as alter egos of the President, as the implementing authorities of the
safeguard measures, which include, inter alia, modification or imposition of any quantitative restriction on the
importation of a product into the Philippines. The purpose of the SMA is stated in the declaration of policy, thus:
SEC. 2. Declaration of Policy. - The State shall promote competitiveness of domestic industries and producers based on
sound industrial and agricultural development policies, and efficient use of human, natural and technical resources. In
pursuit of this goal and in the public interest, the State shall provide safeguard measures to protect domestic industries
and producers from increased imports which cause or threaten to cause serious injury to those domestic industries and
producers.
There are thus explicit constitutional and statutory permission authorizing the President to ban or regulate importation
of articles and commodities into the country.
Anent the second requisite, that is, that the order must be issued or promulgated in accordance with the prescribed
procedure, it is necessary that the nature of the administrative issuance is properly determined. As in the enactment of
laws, the general rule is that, the promulgation of administrative issuances requires previous notice and hearing, the
only exception being where the legislature itself requires it and mandates that the regulation shall be based on certain
facts as determined at an appropriate investigation.23 This exception pertains to the issuance of legislative rules as
distinguished from interpretative rules which give no real consequence more than what the law itself has already
prescribed;24 and are designed merely to provide guidelines to the law which the administrative agency is in charge of
enforcing.25 A legislative rule, on the other hand, is in the nature of subordinate legislation, crafted to implement a
primary legislation.
In Commissioner of Internal Revenue v. Court of Appeals,26 and Commissioner of Internal Revenue v. Michel J. Lhuillier
Pawnshop, Inc.,27 the Court enunciated the doctrine that when an administrative rule goes beyond merely providing for
the means that can facilitate or render less cumbersome the implementation of the law and substantially increases the
burden of those governed, it behooves the agency to accord at least to those directly affected a chance to be heard
and, thereafter, to be duly informed, before the issuance is given the force and effect of law.
In the instant case, EO 156 is obviously a legislative rule as it seeks to implement or execute primary legislative
enactments intended to protect the domestic industry by imposing a ban on the importation of a specified product not
previously subject to such prohibition. The due process requirements in the issuance thereof are embodied in Section
40128 of the Tariff and Customs Code and Sections 5 and 9 of the SMA29 which essentially mandate the conduct of
investigation and public hearings before the regulatory measure or importation ban may be issued.
In the present case, respondents neither questioned before this Court nor with the courts below the procedure that
paved the way for the issuance of EO 156. What they challenged in their petitions before the trial court was the absence
of "substantive due process" in the issuance of the EO.30 Their main contention before the court a quo is that the
importation ban is illogical and unfair because it unreasonably drives them out of business to the prejudice of the
national economy.
Considering the settled principle that in the absence of strong evidence to the contrary, acts of the other branches of
the government are presumed to be valid,31 and there being no objection from the respondents as to the procedure in
the promulgation of EO 156, the presumption is that said executive issuance duly complied with the procedures and
limitations imposed by law.
To determine whether EO 156 has complied with the third and fourth requisites of a valid administrative issuance, to
wit, that it was issued within the scope of authority given by the legislature and that it is reasonable, an examination of
the nature of a Freeport under RA 7227 and the primordial purpose of the importation ban under the questioned EO is
necessary.
RA 7227 was enacted providing for, among other things, the sound and balanced conversion of the Clark and Subic
military reservations and their extensions into alternative productive uses in the form of Special Economic and Freeport
Zone, or the Subic Bay Freeport, in order to promote the economic and social development of Central Luzon in
particular and the country in general.
The Rules and Regulations Implementing RA 7227 specifically defines the territory comprising the Subic Bay Freeport,
referred to as the Special Economic and Freeport Zone in Section 12 of RA 7227 as "a separate customs territory
consisting of the City of Olongapo and the Municipality of Subic, Province of Zambales, the lands occupied by the Subic
Naval Base and its contiguous extensions as embraced, covered and defined by the 1947 Philippine-U.S. Military Base
Agreement as amended and within the territorial jurisdiction of Morong and Hermosa, Province of Bataan, the metes
and bounds of which shall be delineated by the President of the Philippines; provided further that pending establishment
of secure perimeters around the entire SBF, the SBF shall refer to the area demarcated by the SBMA pursuant to
Section 1332 hereof."
Among the salient provisions of RA 7227 are as follows:
SECTION 12. Subic Special Economic Zone. -
xxx
The abovementioned zone shall be subject to the following policies:
xxx
(a) Within the framework and subject to the mandate and limitations of the Constitution and the pertinent provisions of
the Local Government Code, the Subic Special Economic Zone shall be developed into a self-sustaining, industrial,
commercial, financial and investment center to generate employment opportunities in and around the zone and to
attract and promote productive foreign investments;
(b) The Subic Special Economic Zone shall be operated and managed as a separate customs territory ensuring free flow
or movement of goods and capital within, into and exported out of the Subic Special Economic Zone, as well as provide
incentives such as tax and duty-free importations of raw materials, capital and equipment. However, exportation or
removal of goods from the territory of the Subic Special Economic Zone to the other parts of the Philippine territory
shall be subject to customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the
Philippines;
The Freeport was designed to ensure free flow or movement of goods and capital within a portion of the Philippine
territory in order to attract investors to invest their capital in a business climate with the least governmental
intervention. The concept of this zone was explained by Senator Guingona in this wise:
Senator Guingona. Mr. President, the special economic zone is successful in many places, particularly Hong Kong, which
is a free port. The difference between a special economic zone and an industrial estate is simply expansive in the sense
that the commercial activities, including the establishment of banks, services, financial institutions, agro-industrial
activities, maybe agriculture to a certain extent.
This delineates the activities that would have the least of government intervention, and the running of the
affairs of the special economic zone would be run principally by the investors themselves, similar to a
housing subdivision, where the subdivision owners elect their representatives to run the affairs of the
subdivision, to set the policies, to set the guidelines.
We would like to see Subic area converted into a little Hong Kong, Mr. President, where there is a hub of free port and
free entry, free duties and activities to a maximum spur generation of investment and jobs.
While the investor is reluctant to come in the Philippines, as a rule, because of red tape and perceived delays, we
envision this special economic zone to be an area where there will be minimum government interference.
The initial outlay may not only come from the Government or the Authority as envisioned here, but from them
themselves, because they would be encouraged to invest not only for the land but also for the buildings and factories.
As long as they are convinced that in such an area they can do business and reap reasonable profits, then many from
other parts, both local and foreign, would invest, Mr. President.33(Emphasis, added)
With minimum interference from the government, investors can, in general, engage in any kind of business as well as
import and export any article into and out of the Freeport. These are among the rights accorded to Subic Bay Freeport
Enterprises under Section 39 of the Rules and Regulations Implementing RA 7227, thus'
SEC. 39. Rights and Obligations. - SBF Enterprises shall have the following rights and obligations:
A. To freely engage in any business, trade, manufacturing, financial or service activity, and to import and export freely
all types of goods into and out of the SBF, subject to the provisions of the Act, these Rules and other regulations that
may be promulgated by the SBMA;
Citing, inter alia, the interpellations of Senator Enrile, petitioners claim that the "free flow or movement of goods and
capital" only means that goods and material brought within the Freeport shall not be subject to customs duties and
other taxes and should not be construed as an open floodgate for entry of all kinds of goods. They thus surmise that the
importation ban on motor vehicles is applicable within the Freeport. Pertinent interpellations of Senator Enrile on the
concept of Freeport is as follows:
Senator Enrile: Mr. President, I think we are talking here of sovereign concepts, not territorial concepts. The concept
that we are supposed to craft here is to carve out a portion of our terrestrial domain as well as our adjacent waters and
say to the world: "Well, you can set up your factories in this area that we are circumscribing, and bringing your
equipment and bringing your goods, you are not subject to any taxes and duties because you are not within the
customs jurisdiction of the Republic of the Philippines, whether you store the goods or only for purposes of
transshipment or whether you make them into finished products again to be reexported to other lands."
xxxx
My understanding of a "free port" is, we are in effect carving out a part of our territory and make it as if it
were foreign territory for purposes of our customs laws, and that people can come, bring their goods, store
them there and bring them out again, as long as they do not come into the domestic commerce of the
Republic.
We do not really care whether these goods are stored here. The only thing that we care is for our people to have an
employment because of the entry of these goods that are being discharged, warehoused and reloaded into the ships so
that they can be exported. That will generate employment for us. For as long as that is done, we are saying, in effect,
that we have the least contact with our tariff and customs laws and our tax laws. Therefore, we consider these goods as
outside of the customs jurisdiction of the Republic of the Philippines as yet, until we draw them from this territory and
bring them inside our domestic commerce. In which case, they have to pass through our customs gate. I thought we
are carving out this entire area and convert it into this kind of concept.34
However, contrary to the claim of petitioners, there is nothing in the foregoing excerpts which absolutely limits the
incentive to Freeport investors only to exemption from customs duties and taxes. Mindful of the legislative intent to
attract investors, enhance investment and boost the economy, the legislature could not have limited the enticement
only to exemption from taxes. The minimum interference policy of the government on the Freeport extends to the kind
of business that investors may embark on and the articles which they may import or export into and out of the zone. A
contrary interpretation would defeat the very purpose of the Freeport and drive away investors.
It does not mean, however, that the right of Freeport enterprises to import all types of goods and article is absolute.
Such right is of course subject to the limitation that articles absolutely prohibited by law cannot be imported into the
Freeport.35 Nevertheless, in determining whether the prohibition would apply to the Freeport, resort to the purpose of
the prohibition is necessary.
In issuing EO 156, particularly the prohibition on importation under Article 2, Section 3.1, the President envisioned to
rationalize the importation of used motor vehicles and to enhance the capabilities of the Philippine motor manufacturing
firms to be globally competitive producers of completely build-up units and their parts and components for the local and
export markets.36 In justifying the issuance of EO 156, petitioners alleged that there has been a decline in the sales of
new vehicles and a remarkable growth of the sales of imported used motor vehicles. To address the same, the President
issued the questioned EO to prevent further erosion of the already depressed market base of the local motor vehicle
industry and to curtail the harmful effects of the increase in the importation of used motor vehicles.37
Taking our bearings from the foregoing discussions, we hold that the importation ban runs afoul the third requisite for
a valid administrative order. To be valid, an administrative issuance must not be ultra viresor beyond the limits of the
authority conferred. It must not supplant or modify the Constitution, its enabling statute and other existing laws, for
such is the sole function of the legislature which the other branches of the government cannot usurp. As held in United
BF Homeowner's Association v. BF Homes, Inc.:38
The rule-making power of a public administrative body is a delegated legislative power, which it may not use either to
abridge the authority given it by Congress or the Constitution or to enlarge its power beyond the scope intended.
Constitutional and statutory provisions control what rules and regulations may be promulgated by such a body, as well
as with respect to what fields are subject to regulation by it. It may not make rules and regulations which are
inconsistent with the provisions of the Constitution or a statute, particularly the statute it is administering or which
created it, or which are in derogation of, or defeat, the purpose of a statute.
In the instant case, the subject matter of the laws authorizing the President to regulate or forbid importation of used
motor vehicles, is the domestic industry. EO 156, however, exceeded the scope of its application by extending the
prohibition on the importation of used cars to the Freeport, which RA 7227, considers to some extent, a foreign
territory. The domestic industry which the EO seeks to protect is actually the "customs territory" which is defined
under the Rules and Regulations Implementing RA 7227, as follows:
"the portion of the Philippines outside the Subic Bay Freeport where the Tariff and Customs Code of the
Philippines and other national tariff and customs laws are in force and effect."39
The proscription in the importation of used motor vehicles should be operative only outside the Freeport and the
inclusion of said zone within the ambit of the prohibition is an invalid modification of RA 7227. Indeed, when the
application of an administrative issuance modifies existing laws or exceeds the intended scope, as in the instant case,
the issuance becomes void, not only for being ultra vires, but also for being unreasonable.
This brings us to the fourth requisite. It is an axiom in administrative law that administrative authorities should not
act arbitrarily and capriciously in the issuance of rules and regulations. To be valid, such rules and regulations must be
reasonable and fairly adapted to secure the end in view. If shown to bear no reasonable relation to the purposes for
which they were authorized to be issued, then they must be held to be invalid.40
There is no doubt that the issuance of the ban to protect the domestic industry is a reasonable exercise of police
power. The deterioration of the local motor manufacturing firms due to the influx of imported used motor vehicles is an
urgent national concern that needs to be swiftly addressed by the President. In the exercise of delegated police power,
the executive can therefore validly proscribe the importation of these vehicles. Thus, in Taxicab Operators of Metro
Manila, Inc. v. Board of Transportation,41 the Court held that a regulation phasing out taxi cabs more than six years old
is a valid exercise of police power. The regulation was sustained as reasonable holding that the purpose thereof was to
promote the convenience and comfort and protect the safety of the passengers.
The problem, however, lies with respect to the application of the importation ban to the Freeport. The Court finds no
logic in the all encompassing application of the assailed provision to the Freeport which is outside the customs territory.
As long as the used motor vehicles do not enter the customs territory, the injury or harm sought to be prevented or
remedied will not arise. The application of the law should be consistent with the purpose of and reason for the
law. Ratione cessat lex, et cessat lex. When the reason for the law ceases, the law ceases. It is not the letter alone but
the spirit of the law also that gives it life.42 To apply the proscription to the Freeport would not serve the purpose of the
EO. Instead of improving the general economy of the country, the application of the importation ban in the Freeport
would subvert the avowed purpose of RA 7227 which is to create a market that would draw investors and ultimately
boost the national economy.
In similar cases, we also declared void the administrative issuance or ordinances concerned for being unreasonable. To
illustrate, in De la Cruz v. Paras,43 the Court held as unreasonable and unconstitutional an ordinance characterized by
overbreadth. In that case, the Municipality of Bocaue, Bulacan, prohibited the operation of all night clubs, cabarets and
dance halls within its jurisdiction for the protection of public morals. As explained by the Court:
x x x It cannot be said that such a sweeping exercise of a lawmaking power by Bocaue could qualify under the term
reasonable. The objective of fostering public morals, a worthy and desirable end can be attained by a measure that
does not encompass too wide a field. Certainly the ordinance on its face is characterized by overbreadth. The purpose
sought to be achieved could have been attained by reasonable restrictions rather than by an absolute prohibition. The
admonition in Salaveria should be heeded: "The Judiciary should not lightly set aside legislative action when there is not
a clear invasion of personal or property rights under the guise of police regulation." It is clear that in the guise of a
police regulation, there was in this instance a clear invasion of personal or property rights, personal in the case of those
individuals desirous of patronizing those night clubs and property in terms of the investments made and salaries to be
earned by those therein employed.
Lupangco v. Court of Appeals,44 is a case involving a resolution issued by the Professional Regulation Commission which
prohibited examinees from attending review classes and receiving handout materials, tips, and the like three days
before the date of examination in order to preserve the integrity and purity of the licensure examinations in
accountancy. Besides being unreasonable on its face and violative of academic freedom, the measure was found to be
more sweeping than what was necessary, viz:
Needless to say, the enforcement of Resolution No. 105 is not a guarantee that the alleged leakages in the licensure
examinations will be eradicated or at least minimized. Making the examinees suffer by depriving them of legitimate
means of review or preparation on those last three precious days - when they should be refreshing themselves with all
that they have learned in the review classes and preparing their mental and psychological make-up for the examination
day itself - would be like uprooting the tree to get rid of a rotten branch. What is needed to be done by the respondent
is to find out the source of such leakages and stop it right there. If corrupt officials or personnel should be terminated
from their loss, then so be it. Fixers or swindlers should be flushed out. Strict guidelines to be observed by examiners
should be set up and if violations are committed, then licenses should be suspended or revoked. x x x
In Lucena Grand Central Terminal, Inc. v. JAC Liner, Inc.,45 the Court likewise struck down as unreasonable and
overbreadth a city ordinance granting an exclusive franchise for 25 years, renewable for another 25 years, to one entity
for the construction and operation of one common bus and jeepney terminal facility in Lucena City. While professedly
aimed towards alleviating the traffic congestion alleged to have been caused by the existence of various bus and
jeepney terminals within the city, the ordinance was held to be beyond what is reasonably necessary to solve the traffic
problem in the city.
By parity of reasoning, the importation ban in this case should also be declared void for its too sweeping and
unnecessary application to the Freeport which has no bearing on the objective of the prohibition. If the aim of the EO is
to prevent the entry of used motor vehicles from the Freeport to the customs territory, the solution is not to forbid
entry of these vehicles into the Freeport, but to intensify governmental campaign and measures to thwart illegal ingress
of used motor vehicles into the customs territory.
At this juncture, it must be mentioned that on June 19, 1993, President Fidel V. Ramos issued Executive Order No. 97-
A, "Further Clarifying The Tax And Duty-Free Privilege Within The Subic Special Economic And Free Port Zone," Section
1 of which provides:
SECTION 1. The following guidelines shall govern the tax and duty-free privilege within the Secured Area of the Subic
Special Economic and Free Port Zone:
1.1. The Secured Area consisting of the presently fenced-in former Subic Naval Base shall be the only completely tax
and duty-free area in the SSEFPZ. Business enterprises and individuals (Filipinos and foreigners) residing within the
Secured Area are free to import raw materials, capital goods, equipment, and consumer items tax and dutry-free.
Consumption items, however, must be consumed within the Secured Area. Removal of raw materials, capital goods,
equipment and consumer items out of the Secured Area for sale to non-SSEFPZ registered enterprises shall be subject
to the usual taxes and duties, except as may be provided herein.
In Tiu v. Court of Appeals46 as reiterated in Coconut Oil Refiners Association, Inc. v. Torres,47 this provision limiting the
special privileges on tax and duty-free importation in the presently fenced-in former Subic Naval Base has been
declared valid and constitutional and in accordance with RA 7227. Consistent with these rulings and for easier
management and monitoring of activities and to prevent fraudulent importation of merchandise and smuggling, the free
flow and importation of used motor vehicles shall be operative only within the "secured area."
In sum, the Court finds that Article 2, Section 3.1 of EO 156 is void insofar as it is made applicable to the presently
secured fenced-in former Subic Naval Base area as stated in Section 1.1 of EO 97-A. Pursuant to the separability
clause48 of EO 156, Section 3.1 is declared valid insofar as it applies to the customs territory or the Philippine territory
outside the presently secured fenced-in former Subic Naval Base area as stated in Section 1.1 of EO 97-A. Hence, used
motor vehicles that come into the Philippine territory via the secured fenced-in former Subic Naval Base area may be
stored, used or traded therein, or exported out of the Philippine territory, but they cannot be imported into the
Philippine territory outside of the secured fenced-in former Subic Naval Base area.
WHEREFORE, the petitions are PARTIALLY GRANTED and the May 24, 2004 Decisions of Branch 72, Regional Trial Court
of Olongapo City, in Civil Case No. 20-0-04 and Civil Case No. 22-0-04; and the February 14, 2005 Decision of the
Court of Appeals in CA-G.R. SP No. 63284, are MODIFIED insofar as they declared Article 2, Section 3.1 of Executive
Order No. 156, void in its entirety.
Said provision is declared VALID insofar as it applies to the Philippine territory outside the presently fenced-in former
Subic Naval Base area and VOID with respect to its application to the secured fenced-in former Subic Naval Base area.
SO ORDERED.
G.R. No. L-4043 May 26, 1952
CENON S. CERVANTES, petitioner,

vs.
THE AUDITOR GENERAL, respondent.
Cenon Cervantes in his own behalf.

Office of the Solicitor General Pompeyo Diaz and Solicitor Felix V. Makasiar for respondent.
REYES, J.:
This is a petition to review a decision of the Auditor General denying petitioner's claim for quarters allowance as
manager of the National Abaca and Other Fibers Corporation, otherwise known as the NAFCO.
It appears that petitioner was in 1949 the manager of the NAFCO with a salary of P15,000 a year. By a
resolution of the Board of Directors of this corporation approved on January 19 of that year, he was granted
quarters allowance of not exceeding P400 a month effective the first of that month. Submitted the Control
Committee of the Government Enterprises Council for approval, the said resolution was on August 3, 1949,
disapproved by the said Committee on strenght of the recommendation of the NAFCO auditor, concurred in by
the Auditor General, (1) that quarters allowance constituted additional compensation prohibited by the charter
of the NAFCO, which fixes the salary of the general manager thereof at the sum not to exceed P15,000 a year,
and (2) that the precarious financial condition of the corporation did not warrant the granting of such allowance.
On March 16, 1949, the petitioner asked the Control Committee to reconsider its action and approve his claim
for allowance for January to June 15, 1949, amounting to P1,650. The claim was again referred by the Control
Committee to the auditor General for comment. The latter, in turn referred it to the NAFCO auditor, who
reaffirmed his previous recommendation and emphasized that the fact that the corporation's finances had not
improved. In view of this, the auditor General also reiterated his previous opinion against the granting of the
petitioner's claim and so informed both the Control Committee and the petitioner. But as the petitioner insisted
on his claim the Auditor General Informed him on June 19, 1950, of his refusal to modify his decision. Hence
this petition for review.
The NAFCO was created by the Commonwealth Act No. 332, approved on June 18, 1939, with a capital stock
of P20,000,000, 51 per cent of which was to be able to be subscribed by the National Government and the
remainder to be offered to provincial, municipal, and the city governments and to the general public. The
management the corporation was vested in a board of directors of not more than 5 members appointed by the
president of the Philippines with the consent of the Commission on Appointments. But the corporation was
made subject to the provisions of the corporation law in so far as they were compatible with the provisions of its
charter and the purposes of which it was created and was to enjoy the general powers mentioned in the
corporation law in addition to those granted in its charter. The members of the board were to receive each a per
diem of not to exceed P30 for each day of meeting actually attended, except the chairman of the board, who
was to be at the same time the general manager of the corporation and to receive a salary not to exceed
P15,000 per annum.
On October 4, 1946, Republic Act No. 51 was approved authorizing the President of the Philippines, among
other things, to effect such reforms and changes in government owned and controlled corporations for the
purpose of promoting simplicity, economy and efficiency in their operation Pursuant to this authority, the
President on October 4, 1947, promulgated Executive Order No. 93 creating the Government Enterprises
Council to be composed of the President of the Philippines as chairman, the Secretary of Commerce and
Industry as vice-chairman, the chairman of the board of directors and managing heads of all such corporations
as ex-officio members, and such additional members as the President might appoint from time to time with the
consent of the Commission on Appointments. The council was to advise the President in the excercise of his
power of supervision and control over these corporations and to formulate and adopt such policy and measures
as might be necessary to coordinate their functions and activities. The Executive Order also provided that the
council was to have a Control Committee composed of the Secretary of Commerce and Industry as chairman,
a member to be designated by the President from among the members of the council as vice-chairman and the
secretary as ex-officio member, and with the power, among others —
(1) To supervise, for and under the direction of the President, all the corporations owned or controlled
by the Government for the purpose of insuring efficiency and economy in their operations;
(2) To pass upon the program of activities and the yearly budget of expenditures approved by the
respective Boards of Directors of the said corporations; and
(3) To carry out the policies and measures formulated by the Government Enterprises Council with the
approval of the President. (Sec. 3, Executive Order No. 93.)
With its controlling stock owned by the Government and the power of appointing its directors vested in the
President of the Philippines, there can be no question that the NAFCO is Government controlled corporation
subject to the provisions of Republic Act No. 51 and the executive order (No. 93) promulgated in accordance
therewith. Consequently, it was also subject to the powers of the Control Committee created in said executive
order, among which is the power of supervision for the purpose of insuring efficiency and economy in the
operations of the corporation and also the power to pass upon the program of activities and the yearly budget
of expenditures approved by the board of directors. It can hardly be questioned that under these powers the
Control Committee had the right to pass upon, and consequently to approve or disapprove, the resolution of the
NAFCO board of directors granting quarters allowance to the petitioners as such allowance necessarily
constitute an item of expenditure in the corporation's budget. That the Control Committee had good grounds for
disapproving the resolution is also clear, for, as pointed out by the Auditor General and the NAFCO auditor, the
granting of the allowance amounted to an illegal increase of petitioner's salary beyond the limit fixed in the
corporate charter and was furthermore not justified by the precarious financial condition of the corporation.
It is argued, however, that Executive Order No. 93 is null and void, not only because it is based on a law that is
unconstitutional as an illegal delegation of legislature power to executive, but also because it was promulgated
beyond the period of one year limited in said law.
The second ground ignores the rule that in the computation of the time for doing an act, the first day is
excluded and the last day included (Section 13 Rev. Ad. Code.) As the act was approved on October 4, 1946,
and the President was given a period of one year within which to promulgate his executive order and that the
order was in fact promulgated on October 4, 1947, it is obvious that under the above rule the said executive
order was promulgated within the period given.
As to the first ground, the rule is that so long as the Legislature "lays down a policy and a standard is
established by the statute" there is no undue delegation. (11 Am. Jur. 957). Republic Act No. 51 in authorizing
the President of the Philippines, among others, to make reforms and changes in government-controlled
corporations, lays down a standard and policy that the purpose shall be to meet the exigencies attendant upon
the establishment of the free and independent government of the Philippines and to promote simplicity,
economy and efficiency in their operations. The standard was set and the policy fixed. The President had to
carry the mandate. This he did by promulgating the executive order in question which, tested by the rule above
cited, does not constitute an undue delegation of legislative power.
It is also contended that the quarters allowance is not compensation and so the granting of it to the petitioner
by the NAFCO board of directors does not contravene the provisions of the NAFCO charter that the salary of
the chairman of said board who is also to be general manager shall not exceed P15,000 per anum. But
regardless of whether quarters allowance should be considered as compensation or not, the resolution of the
board of the directors authorizing payment thereof to the petitioner cannot be given effect since it was
disapproved by the Control Committee in the exercise of powers granted to it by Executive Order No. 93. And
in any event, petitioner's contention that quarters allowance is not compensation, a proposition on which
American authorities appear divided, cannot be insisted on behalf of officers and employees working for the
Government of the Philippines and its Instrumentalities, including, naturally, government-controlled
corporations. This is so because Executive Order No. 332 of 1941, which prohibits the payment of additional
compensation to those working for the Government and its Instrumentalities, including government-controlled
corporations, was in 1945 amended by Executive Order No. 77 by expressly exempting from the prohibition the
payment of quarters allowance "in favor of local government officials and employees entitled to this under
existing law." The amendment is a clear indication that quarters allowance was meant to be included in the
term "additional compensation", for otherwise the amendment would not have expressly excepted it from the
prohibition. This being so, we hold that, for the purpose of the executive order just mentioned, quarters
allowance is considered additional compensation and, therefore, prohibited.
In view of the foregoing, the petition for review is dismissed, with costs.
Paras, C.J., Feria, Pablo, Bengzon, Tuason, Montemayor and Bautista Angelo, JJ., concur.
G.R. No. 88291 June 8, 1993
ERNESTO M. MACEDA, petitioner,

vs.
HON. CATALINO MACARAIG, JR., in his capacity as Executive Secretary, Office of the President, HON.
VICENTE JAYME, ETC., ET AL., respondents.
Angara, Abello, Concepcion & Cruz for respondent Pilipinas Shell Petroleum Corporation.
Siguion Reyna, Montecillo & Ongsiako for Caltex.
NOCON, J.:
Just like lightning which does strike the same place twice in some instances, this matter of indirect tax
exemption of the private respondent National Power Corporation (NPC) is brought to this Court a second time.
Unfazed by the Decision We promulgated on May 31, 19911 petitioner Ernesto Maceda asks this Court to
reconsider said Decision. Lest We be criticized for denying due process to the petitioner. We have decided to
take a second look at the issues. In the process, a hearing was held on July 9, 1992 where all parties
presented their respective arguments. Etched in this Court's mind are the paradoxical claims by both petitioner
and private respondents that their respective positions are for the benefit of the Filipino people.
I
A Chronological review of the relevant NPC laws, specially with respect to its tax exemption provisions, at the
risk of being repetitious is, therefore, in order.
On November 3, 1936, Commonwealth Act No. 120 was enacted creating the National Power Corporation, a
public corporation, mainly to develop hydraulic power from all water sources in the Philippines.2 The sum of
P250,000.00 was appropriated out of the funds in the Philippine Treasury for the purpose of organizing the
NPC and conducting its preliminary work.3 The main source of funds for the NPC was the flotation of bonds in
the capital markets4 and these bonds
. . . issued under the authority of this Act shall be exempt from the payment of all taxes by the
Commonwealth of the Philippines, or by any authority, branch, division or political subdivision
thereof and subject to the provisions of the Act of Congress, approved March 24, 1934,
otherwise known as the Tydings McDuffle Law, which facts shall be stated upon the face of said
bonds. . . . .5
On June 24, 1938, C.A. No. 344 was enacted increasing to P550,000.00 the funds needed for the initial
operations of the NPC and reiterating the provision of the flotation of bonds as soon as the first construction of
any hydraulic power project was to be decided by the NPC Board.6 The provision on tax exemption in relation to
the issuance of the NPC bonds was neither amended nor deleted.
On September 30, 1939, C.A. No. 495 was enacted removing the provision on the payment of the bond's
principal and interest in "gold coins" but adding that payment could be made in United States dollars.7 The
provision on tax exemption in relation to the issuance of the NPC bonds was neither amended nor deleted.
On June 4, 1949, Republic Act No. 357 was enacted authorizing the President of the Philippines to guarantee,
absolutely and unconditionally, as primary obligor, the payment of any and all NPC loans.8 He was also
authorized to contract on behalf of the NPC with the International Bank for Reconstruction and Development
(IBRD) for NPC loans for the accomplishment of NPC's corporate objectives9 and for the reconstruction and
development of the economy of the country. 10 It was expressly stated that:
Any such loan or loans shall be exempt from taxes, duties, fees, imposts, charges, contributions
and restrictions of the Republic of the Philippines, its provinces, cities and municipalities. 11
On the same date, R.A. No. 358 was enacted expressly authorizing the NPC, for the first time, to incur other
types of indebtedness, aside from indebtedness incurred by flotation of bonds. 12 As to the pertinent tax
exemption provision, the law stated as follows:
To facilitate payment of its indebtedness, the National Power Corporation shall be exempt from
all taxes, duties, fees, imposts, charges, and restrictions of the Republic of the Philippines, its
provinces, cities and municipalities. 13
On July 10, 1952, R.A. No. 813 was enacted amending R.A. No. 357 in that, aside from the IBRD, the
President of the Philippines was authorized to negotiate, contract and guarantee loans with the Export-Import
Bank of of Washigton, D.C., U.S.A., or any other international financial institution. 14 The tax provision for
repayment of these loans, as stated in R.A. No. 357, was not amended.
On June 2, 1954, R.A. No. 987 was enacted specifically to withdraw NPC's tax exemption for real estate taxes.
As enacted, the law states as follows:
To facilitate payment of its indebtedness, the National Power Corporation shall be exempt from
all taxes, except real property tax, and from all duties, fees, imposts, charges, and restrictions of
the Republic of the Philippines, its provinces, cities, and municipalities.15
On September 8, 1955, R.A. No. 1397 was enacted directing that the NPC projects to be funded by the
increased indebtedness 16 should bear the National Economic Council's stamp of approval. The tax exemption
provision related to the payment of this total indebtedness was not amended nor deleted.
On June 13, 1958, R.A. No. 2055 was enacted increasing the total amount of foreign loans NPC was
authorized to incur to US$100,000,000.00 from the US$50,000,000.00 ceiling in R.A. No. 357. 17 The tax
provision related to the repayment of these loans was not amended nor deleted.
On June 13, 1958, R.A. No. 2058 was enacting fixing the corporate life of NPC to December 31, 2000. 18 All
laws or provisions of laws and executive orders contrary to said R.A. No. 2058 were expressly repealed. 19
On June 18, 1960, R.A. No 2641 was enacted converting the NPC from a public corporation into a stock
corporation with an authorized capital stock of P100,000,000.00 divided into 1,000.000 shares having a par
value of P100.00 each, with said capital stock wholly subscribed to by the Government. 20 No tax exemption
was incorporated in said Act.
On June 17, 1961, R.A. No. 3043 was enacted increasing the above-mentioned authorized capital stock to
P250,000,000.00 with the increase to be wholly subscribed by the Government. 21 No tax provision was
incorporated in said Act.
On June 17, 1967, R.A. No 4897 was enacted. NPC's capital stock was increased again to P300,000,000.00,
the increase to be wholly subscribed by the Government. No tax provision was incorporated in said Act. 22
On September 10, 1971, R.A. No. 6395 was enacted revising the charter of the NPC, C.A. No. 120, as
amended. Declared as primary objectives of the nation were:
Declaration of Policy. — Congress hereby declares that (1) the comprehensive development,
utilization and conservation of Philippine water resources for all beneficial uses, including power
generation, and (2) the total electrification of the Philippines through the development of power
from all sources to meet the needs of industrial development and dispersal and the needs of
rural electrification are primary objectives of the nation which shall be pursued coordinately and
supported by all instrumentalities and agencies of the government, including the financial
institutions. 23
Section 4 of C.A. No. 120, was renumbered as Section 8, and divided into sections 8 (a) (Authority to incur
Domestic Indebtedness) and Section 8 (b) (Authority to Incur Foreign Loans).
As to the issuance of bonds by the NPC, Paragraph No. 3 of Section 8(a), states as follows:
The bonds issued under the authority of this subsection shall be exempt from the payment of all
taxes by the Republic of the Philippines, or by any authority, branch, division or political
subdivision thereof which facts shall be stated upon the face of said bonds. . . . 24
As to the foreign loans the NPC was authorized to contract, Paragraph No. 5, Section 8(b), states as follows:
The loans, credits and indebtedness contracted under this subsection and the payment of the
principal, interest and other charges thereon, as well as the importation of machinery,
equipment, materials and supplies by the Corporation, paid from the proceeds of any loan,
credit or indebtedeness incurred under this Act, shall also be exempt from all taxes, fees,
imposts, other charges and restrictions, including import restrictions, by the Republic of the
Philippines, or any of its agencies and political subdivisions. 25
A new section was added to the charter, now known as Section 13, R.A. No. 6395, which declares the non-
profit character and tax exemptions of NPC as follows:
The Corporation shall be non-profit and shall devote all its returns from its capital investment, as
well as excess revenues from its operation, for expansion. To enable the Corporation to pay its
indebtedness and obligations and in furtherance and effective implementation of the policy
enunciated in Section one of this Act, the Corporation is hereby declared exempt:
(a) From the payment of all taxes, duties, fees, imposts, charges costs and service fees in any
court or administrative proceedings in which it may be a party, restrictions and duties to the
Republic of the Philippines, its provinces, cities, and municipalities and other government
agencies and instrumentalities;
(b) From all income taxes, franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other government agencies and
instrumentalities;
(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees on
import of foreign goods required for its operations and projects; and
(d) From all taxes, duties, fees, imposts and all other charges its provinces, cities, municipalities
and other government agencies and instrumentalities, on all petroleum products used by the
Corporation in the generation, transmission, utilization, and sale of electric power. 26
On November 7, 1972, Presidential Decree No. 40 was issued declaring that the electrification
of the entire country was one of the primary concerns of the country. And in connection with
this, it was specifically stated that:
The setting up of transmission line grids and the construction of associated generation facilities
in Luzon, Mindanao and major islands of the country, including the Visayas, shall be the
responsibility of the National Power Corporation (NPC) as the authorized implementing agency
of the State. 27
xxx xxx xxx
It is the ultimate objective of the State for the NPC to own and operate as a single integrated
system all generating facilities supplying electric power to the entire area embraced by any grid
set up by the NPC. 28
On January 22, 1974, P.D. No. 380 was issued giving extra powers to the NPC to enable it to fulfill its role
under aforesaid P.D. No. 40. Its authorized capital stock was raised to P2,000,000,000.00, 29 its total domestic
indebtedness was pegged at a maximum of P3,000,000,000.00 at any one time, 30 and the NPC was authorized
to borrow a total of US$1,000,000,000.00 31 in foreign loans.
The relevant tax exemption provision for these foreign loans states as follows:
equipment, materials, supplies and services, by the Corporation, paid from the proceeds of any
loan, credit or indebtedness incurred under this Act, shall also be exempt from all direct and
indirect taxes, fees, imposts, other charges and restrictions, including import restrictions
previously and presently imposed, and to be imposed by the Republic of the Philippines, or any
of its agencies and political subdivisions. 32(Emphasis supplied)
Section 13(a) and 13(d) of R.A. No 6395 were amended to read as follows:
(a) From the payment of all taxes, duties, fees, imposts, charges and restrictions to the
Republic of the Philippines, its provinces, cities, municipalities and other government agencies
and instrumentalities including the taxes, duties, fees, imposts and other charges provided for
under the Tariff and Customs Code of the Philippines, Republic Act Numbered Nineteen
Hundred Thirty-Seven, as amended, and as further amended by Presidential Decree No. 34
dated October 27, 1972, and Presidential Decree No. 69, dated November 24, 1972, and costs
and service fees in any court or administrative proceedings in which it may be a party;
xxx xxx xxx
(d) From all taxes, duties, fees, imposts, and all other charges imposed directly or indirectly by
the Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities, on all petroleum products used by the Corporation in the
generation, transmission, utilization and sale of electric power. 33 (Emphasis supplied)
On February 26, 1970, P.D. No. 395 was issued removing certain restrictions in the NPC's sale of electricity to
its different customers. 34 No tax exemption provision was amended, deleted or added.
On July 31, 1975, P.D. No. 758 was issued directing that P200,000,000.00 would be appropriated annually to
cover the unpaid subscription of the Government in the NPC authorized capital stock, which amount would be
taken from taxes accruing to the General Funds of the Government, proceeds from loans, issuance of bonds,
treasury bills or notes to be issued by the Secretary of Finance for this particular purpose. 35
On May 27, 1976 P.D. No. 938 was issued
(I)n view of the accelerated expansion programs for generation and transmission facilities which
includes nuclear power generation, the present capitalization of National Power Corporation
(NPC) and the ceilings for domestic and foreign borrowings are deemed insufficient; 36
xxx xxx xxx
(I)n the application of the tax exemption provisions of the Revised Charter, the non-profit
character of NPC has not been fully utilized because of restrictive interpretation of the taxing
agencies of the government on said provisions; 37
xxx xxx xxx
(I)n order to effect the accelerated expansion program and attain the declared objective of total
electrification of the country, further amendments of certain sections of Republic Act No. 6395,
as amended by Presidential Decrees Nos. 380, 395 and 758, have become imperative; 38
Thus NPC's capital stock was raised to P8,000,000,000.00, 39 the total domestic indebtedness ceiling was
increased to P12,000,000,000.00, 40 the total foreign loan ceiling was raised to US$4,000,000,000.00 41 and
Section 13 of R.A. No. 6395, was amended to read as follows:
The Corporation shall be non-profit and shall devote all its returns from its capital investment as
well as excess revenues from its operation, for expansion. To enable the Corporation to pay to
its indebtedness and obligations and in furtherance and effective implementation of the policy
enunciated in Section one of this Act, the Corporation, including its subsidiaries, is hereby
declared exempt from the payment of all forms of taxes, duties, fees, imposts as well as costs
and service fees including filing fees, appeal bonds, supersedeas bonds, in any court or
administrative proceedings. 42
II
On the other hand, the pertinent tax laws involved in this controversy are P.D. Nos. 882, 1177, 1931 and
Executive Order No. 93 (S'86).
On January 30, 1976, P.D. No. 882 was issued withdrawing the tax exemption of NPC with regard to imports
as follows:
WHEREAS, importations by certain government agencies, including government-owned or

controlled corporation, are exempt from the payment of customs duties and compensating tax;
and
WHEREAS, in order to reduce foreign exchange spending and to protect domestic industries, it
is necessary to restrict and regulate such tax-free importations.
NOW THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the

powers vested in me by the Constitution, and do hereby decree and order the following:
Sec. 1. All importations of any government agency, including government-owned or controlled

corporations which are exempt from the payment of customs duties and internal revenue taxes,
shall be subject to the prior approval of an Inter-Agency Committee which shall insure
compliance with the following conditions:
(a) That no such article of local manufacture are available in sufficient quantity and comparable
quality at reasonable prices;
(b) That the articles to be imported are directly and actually needed and will be used exclusively
by the grantee of the exemption for its operations and projects or in the conduct of its functions;
and
(c) The shipping documents covering the importation are in the name of the grantee to whom
the goods shall be delivered directly by customs authorities.
xxx xxx xxx
Sec. 3. The Committee shall have the power to regulate and control the tax-free importation of
government agencies in accordance with the conditions set forth in Section 1 hereof and the
regulations to be promulgated to implement the provisions of this Decree. Provided, however,
That any government agency or government-owned or controlled corporation, or any local
manufacturer or business firm adversely affected by any decision or ruling of the Inter-Agency
Committee may file an appeal with the Office of the President within ten days from the date of
notice thereof. . . . .
xxx xxx xxx
Sec. 6. . . . . Section 13 of Republic Act No. 6395; . . .. and all similar provisions of all general
and special laws and decrees are hereby amended accordingly.
xxx xxx xxx
On July 30, 1977, P.D. 1177 was issued as it was
. . . declared the policy of the State to formulate and implement a National Budget that is an
instrument of national development, reflective of national objectives, strategies and plans. The
budget shall be supportive of and consistent with the socio-economic development plan and
shall be oriented towards the achievement of explicit objectives and expected results, to ensure
that funds are utilized and operations are conducted effectively, economically and efficiently.
The national budget shall be formulated within a context of a regionalized government structure
and of the totality of revenues and other receipts, expenditures and borrowings of all levels of
government-owned or controlled corporations. The budget shall likewise be prepared within the
context of the national long-term plan and of a long-term budget program. 43
In line with such policy, the law decreed that
All units of government, including government-owned or controlled corporations, shall pay income taxes,
customs duties and other taxes and fees are imposed under revenues laws: provided, that organizations
otherwise exempted by law from the payment of such taxes/duties may ask for a subsidy from the General
Fund in the exact amount of taxes/duties due: provided, further, that a procedure shall be established by the
Secretary of Finance and the Commissioner of the Budget, whereby such subsidies shall automatically be
considered as both revenue and expenditure of the General Fund. 44
The law also declared that —
[A]ll laws, decrees, executive orders, rules and regulations or parts thereof which are
inconsistent with the provisions of the Decree are hereby repealed and/or modified
accordingly. 45
On July 11, 1984, most likely due to the economic morass the Government found itself in after the Aquino
assassination, P.D. No. 1931 was issued to reiterate that:
WHEREAS, Presidential Decree No. 1177 has already expressly repealed the grant of tax
privileges to any government-owned or controlled corporation and all other units of
government; 46
and since there was a
. . . need for government-owned or controlled corporations and all other units of government
enjoying tax privileges to share in the requirements of development, fiscal or otherwise, by
paying the duties, taxes and other charges due from them. 47
it was decreed that:
Sec. 1. The provisions of special on general law to the contrary notwithstanding, all exemptions
from the payment of duties, taxes, fees, imposts and other charges heretofore granted in favor
of government-owned or controlled corporations including their subsidiaries, are hereby
withdrawn.
Sec. 2. The President of the Philippines and/or the Minister of Finance, upon the
recommendation of the Fiscal Incentives Review Board created under Presidential Decree No.
776, is hereby empowered to restore, partially or totally, the exemptions withdrawn by Section 1
above, any applicable tax and duty, taking into account, among others, any or all of the
following:
1) The effect on the relative price levels;
2) The relative contribution of the corporation to the revenue generation effort;
3) The nature of the activity in which the corporation is engaged in; or
4) In general the greater national interest to be served.
xxx xxx xxx
Sec. 5. The provisions of Presidential Decree No. 1177 as well as all other laws, decrees,
executive orders, administrative orders, rules, regulations or parts thereof which are
inconsistent with this Decree are hereby repealed, amended or modified accordingly.
On December 17, 1986, E.O. No. 93 (S'86) was issued with a view to correct presidential restoration or grant of
tax exemption to other government and private entities without benefit of review by the Fiscal Incentives
Review Board, to wit:
WHEREAS, Presidential Decree Nos. 1931 and 1955 issued on June 11, 1984 and October 14,
1984, respectively, withdrew the tax and duty exemption privileges, including the preferential tax
treatment, of government and private entities with certain exceptions, in order that the
requirements of national economic development, in terms of fiscals and other resources, may
be met more adequately;
xxx xxx xxx
WHEREAS, in addition to those tax and duty exemption privileges were restored by the Fiscal
Incentives Review Board (FIRB), a number of affected entities, government and private, had
their tax and duty exemption privileges restored or granted by Presidential action without benefit
or review by the Fiscal Incentives Review Board (FIRB);
xxx xxx xxx
Since it was decided that:
[A]ssistance to government and private entities may be better provided where necessary by
explicit subsidy and budgetary support rather than tax and duty exemption privileges if only to
improve the fiscal monitoring aspects of government operations.
It was thus ordered that:
Sec. 1. The Provisions of any general or special law to the contrary notwithstanding, all tax and
duty incentives granted to government and private entities are hereby withdrawn, except:
a) those covered by the non-impairment clause of the Constitution;
b) those conferred by effective internation agreement to which the Government of the Republic
of the Philippines is a signatory;
c) those enjoyed by enterprises registered with:
(i) the Board of Investment pursuant to Presidential Decree No. 1789, as

amended;
(ii) the Export Processing Zone Authority, pursuant to Presidential Decree No.
66 as amended;
(iii) the Philippine Veterans Investment Development Corporation Industrial

Authority pursuant to Presidential Decree No. 538, was amended.
d) those enjoyed by the copper mining industry pursuant to the provisions of Letter of
Instructions No. 1416;
e) those conferred under the four basic codes namely:
(i) the Tariff and Customs Code, as amended;
(ii) the National Internal Revenue Code, as amended;

(iii) the Local Tax Code, as amended;
(iv) the Real Property Tax Code, as amended;
f) those approved by the President upon the recommendation of the Fiscal

Incentives Review Board.
Sec. 2. The Fiscal Incentives Review Board created under Presidential Decree No. 776, as
amended, is hereby authorized to:
a) restore tax and/or duty exemptions withdrawn hereunder in whole or in part;
b) revise the scope and coverage of tax and/or duty exemption that may be restored;
c) impose conditions for the restoration of tax and/or duty exemption;
d) prescribe the date of period of effectivity of the restoration of tax and/or duty exemption;
e) formulate and submit to the President for approval, a complete system for the grant of
subsidies to deserving beneficiaries, in lieu of or in combination with the restoration of tax and
duty exemptions or preferential treatment in taxation, indicating the source of funding therefor,
eligible beneficiaries and the terms and conditions for the grant thereof taking into consideration
the international commitment of the Philippines and the necessary precautions such that the
grant of subsidies does not become the basis for countervailing action.
Sec. 3. In the discharge of its authority hereunder, the Fiscal Incentives Review Board shall
take into account any or all of the following considerations:
a) the effect on relative price levels;
b) relative contribution of the beneficiary to the revenue generation effort;
c) nature of the activity the beneficiary is engaged; and
d) in general, the greater national interest to be served.
xxx xxx xxx
Sec. 5. All laws, orders, issuances, rules and regulations or parts thereof inconsistent with this
Executive Order are hereby repealed or modified accordingly.
E.O. No. 93 (S'86) was decreed to be effective 48 upon the promulgation of the rules and regulations, to be
issued by the Ministry of Finance. 49 Said rules and regulations were promulgated and published in the Official
Gazette
on February 23, 1987. These became effective on the 15th day after promulgation 50 in the Official
Gasetter, 51 which 15th day was March 10, 1987.
III
Now to some definitions. We refer to the very simplistic approach that all would-be lawyers, learn in their
TAXATION I course, which fro convenient reference, is as follows:
Classifications or kinds of Taxes:
According to Persons who pay or who bear the burden:

a. Direct Tax — the where the person supposed to pay the tax really pays
it. WITHOUT transferring the burden to someone else.
Examples: Individual income tax, corporate income tax, transfer taxes (estate tax, donor's tax),
residence tax, immigration tax
b. Indirect Tax — that where the tax is imposed upon goods BEFORE reaching the consumer
who ultimately pays for it, not as a tax, but as a part of the purchase price.
Examples: the internal revenue indirect taxes (specific tax, percentage taxes, (VAT) and the
tariff and customs indirect taxes (import duties, special import tax and other dues) 52
IV
To simply matter, the issues raised by petitioner in his motion for reconsideration can be reduced to the
following:
(1) What kind of tax exemption privileges did NPC have?
(2) For what periods in time were these privileges being enjoyed?
(3) If there are taxes to be paid, who shall pay for these taxes?
Petitioner contends that P.D. No. 938 repealed the indirect tax exemption of NPC as the phrase "all forms of
taxes etc.," in its section 10, amending Section 13, R.A. No. 6395, as amended by P.D. No. 380, does not
expressly include "indirect taxes."
His point is not well-taken.
A chronological review of the NPC laws will show that it has been the lawmaker's intention that the NPC was to
be completely tax exempt from all forms of taxes — direct and indirect.
NPC's tax exemptions at first applied to the bonds it was authorized to float to finance its operations upon its
creation by virtue of C.A. No. 120.
When the NPC was authorized to contract with the IBRD for foreign financing, any loans obtained were to be
completely tax exempt.
After the NPC was authorized to borrow from other sources of funds — aside issuance of bonds — it was again
specifically exempted from all types of taxes "to facilitate payment of its indebtedness." Even when the ceilings
for domestic and foreign borrowings were periodically increased, the tax exemption privileges of the NPC were
maintained.
NPC's tax exemption from real estate taxes was, however, specifically withdrawn by Rep. Act No. 987, as
above stated. The exemption was, however, restored by R.A. No. 6395.
Section 13, R.A. No. 6395, was very comprehensive in its enumeration of the tax exemptions allowed NPC. Its
section 13(d) is the starting point of this bone of contention among the parties. For easy reference, it is
reproduced as follows:
[T]he Corporation is hereby declared exempt:
xxx xxx xxx

(d) From all taxes, duties, fees, imposts and all other charges imposed by the Republic of the
Philippines, its provinces, cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the Corporation in the generation,
transmission, utilization, and sale of electric power.
P.D. No. 380 added phrase "directly or indirectly" to said Section 13(d), which now reads as follows:
xxx xxx xxx
(d) From all taxes, duties, fees, imposts, and all other charges imposed directly or indirectly by
the Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities, on all petroleum products used by the Corporation in the
generation, transmission, utilization and sale of electric power. (Emphasis supplied)
Then came P.D. No. 938 which amended Sec. 13(a), (b), (c) and (d) into one very simple paragraph as follows:
The Corporation shall be non-profit and shall devote all its returns from its capital investment as
well as excess revenues from its operation, for expansion. To enable the Corporation to pay its
indebtedness and obligations and in furtherance and effective implementation of the policy
enunciated in Section one of this Act, the Corporation, including its subsidiaries, is hereby
declared exempt from the payment of ALL FORMS OF taxes, duties, fees, imposts as well as
costs and service fees including filing fees, appeal bonds, supersedeas bonds, in any court or
administrative proceedings. (Emphasis supplied)
Petitioner reminds Us that:
[I]t must be borne in mind that Presidential Decree Nos. 380

and 938 were issued by one man, acting as such the Executive and Legislative. 53
xxx xxx xxx
[S]ince both presidential decrees were made by the same person, it would have been very easy
for him to retain the same or similar language used in P.D. No. 380 P.D. No. 938 if his intention
were to preserve the indirect tax exemption of NPC. 54
Actually, P.D. No. 938 attests to the ingenuousness of then President Marcos no matter what his fault were. It
should be noted that section 13, R.A. No. 6395, provided for tax exemptions for the following items:
13(a) : court or administrative proceedings;
13(b) : income, franchise, realty taxes;
13(c) : import of foreign goods required for its operations and projects;
13(d) : petroleum products used in generation of electric power.
P.D. No. 938 lumped up 13(b), 13(c), and 13(d) into the phrase "ALL FORMS OF TAXES, ETC.,", included
13(a) under the "as well as" clause and added PNOC subsidiaries as qualified for tax exemptions.
This is the only conclusion one can arrive at if he has read all the NPC laws in the order of enactment or
issuance as narrated above in part I hereof. President Marcos must have considered all the NPC statutes from
C.A. No. 120 up to its latest amendments, P.D. No. 380, P.D. No. 395 and P.D. No. 759, AND came up 55 with a
very simple Section 13, R.A. No. 6395, as amended by P.D. No. 938.
One common theme in all these laws is that the NPC must be enable to pay its indebtedness 56 which, as of
P.D. No. 938, was P12 Billion in total domestic indebtedness, at any one time, and U$4 Billion in total foreign
loans at any one time. The NPC must be and has to be exempt from all forms of taxes if this goal is to be
achieved.
By virtue of P.D. No. 938 NPC's capital stock was raised to P8 Billion. It must be remembered that to pay the
government share in its capital stock P.D. No. 758 was issued mandating that P200 Million would be
appropriated annually to cover the said unpaid subscription of the Government in NPC's authorized capital
stock. And significantly one of the sources of this annual appropriation of P200 million is TAX MONEY accruing
to the General Fund of the Government. It does not stand to reason then that former President Marcos would
order P200 Million to be taken partially or totally from tax money to be used to pay the Government subscription
in the NPC, on one hand, and then order the NPC to pay all its indirect taxes, on the other.
The above conclusion that then President Marcos lumped up Sections 13 (b), 13 (c) and (d) into the phrase "All
FORMS OF" is supported by the fact that he did not do the same for the tax exemption provision for the foreign
loans to be incurred.
The tax exemption on foreign loans found in Section 8(b), R.A. No. 6395, reads as follows:
equipment, materials and supplies by the Corporation, paid from the proceeds of any loan,
credit or indebtedness incurred under this Act, shall also be exempt from all taxes, fees,
imposts, other charges and restrictions, including import restrictions, by the Republic of the
Philippines, or any of its agencies and political subdivisions. 57
The same was amended by P.D. No. 380 as follows:
The loans, credits and indebtedness contracted this subsection and the payment of the
equipment, materials, supplies and services, by the Corporation, paid from the proceeds of any
loan, credit or indebtedness incurred under this Act, shall also be exempt from all direct and
indirect taxes, fees, imposts, other charges and restrictions, including import
restrictions previously and presently imposed, and to be imposed by the Republic of the
Philippines, or any of its agencies and political subdivisions. 58(Emphasis supplied)
P.D. No. 938 did not amend the same 59 and so the tax exemption provision in Section 8 (b), R.A. No. 6395, as
amended by P.D. No. 380, still stands. Since the subject matter of this particular Section 8 (b) had to do only
with loans and machinery imported, paid for from the proceeds of these foreign loans, THERE WAS NO
OTHER SUBJECT MATTER TO LUMP IT UP WITH, and so, the tax exemption stood as is — with the express
mention of "direct
and indirect" tax exemptions. And this "direct and indirect" tax exemption privilege extended to "taxes, fees,
imposts, other charges . . . to be imposed" in the future — surely, an indication that the lawmakers wanted the
NPC to be exempt from ALL FORMS of taxes — direct and indirect.
It is crystal clear, therefore, that NPC had been granted tax exemption privileges for both direct and indirect
taxes under P.D. No. 938.
VI
Five (5) years on into the now discredited New Society, the Government decided to rationalize government
receipts and expenditures by formulating and implementing a National Budget. 60 The NPC, being a government
owned and controlled corporation had to be shed off its tax exemption status privileges under P.D. No. 1177. It
was, however, allowed to ask for a subsidy from the General Fund in the exact amount of taxes/duties due.
Actually, much earlier, P.D. No. 882 had already repealed NPC's tax-free importation privileges. It allowed,
however, NPC to appeal said repeal with the Office of the President and to avail of tax-free importation
privileges under its Section 1, subject to the prior approval of an Inter-Agency Committed created by virtue of
said P.D. No. 882. It is presumed that the NPC, being the special creation of the State, was allowed to continue
its tax-free importations.
This Court notes that petitioner brought to the attention of this Court, the matter of the abolition of NPC's tax
exemption privileges by P.D. No. 1177 61 only in his Common Reply/Comment to private Respondents'
"Opposition" and "Comment" to Motion for Reconsideration, four (4) months AFTER the motion for
Reconsideration had been filed. During oral arguments heard on July 9, 1992, he proceeded to discuss this tax
exemption withdrawal as explained by then Secretary of Justice Vicente Abad Santos in opinion No. 133 (S
'77). 62 A careful perusal of petitioner's senate Blue Ribbon Committee Report No. 474, the basis of the petition
at bar, fails to yield any mention of said P.D. No. 1177's effect on NPC's tax exemption privileges. 63 Applying by
analogy Pulido vs. Pablo, 64 the court declares that the matter of P.D. No. 1177 abolishing NPC's tax exemption
privileges was not seasonably invoked 65 by the petitioner.
Be that as it may, the Court still has to discuss the effect of P.D. No. 1177 on the NPC tax exemption privileges
as this statute has been reiterated twice in P.D. No. 1931. The express repeal of tax privileges of any
government-owned or controlled corporation (GOCC). NPC included, was reiterated in the fourth whereas
clause of P.D. No. 1931's preamble. The subsidy provided for in Section 23, P.D. No. 1177, being inconsistent
with Section 2, P.D. No. 1931, was deemed repealed as the Fiscal Incentives Revenue Board was tasked with
recommending the partial or total restoration of tax exemptions withdrawn by Section 1, P.D. No. 1931.
The records before Us do not indicate whether or not NPC asked for the subsidy contemplated in Section 23,
P.D. No. 1177. Considering, however, that under Section 16 of P.D. No. 1177, NPC had to submit to the Office
of the President its request for the P200 million mandated by P.D. No. 758 to be appropriated annually by the
Government to cover its unpaid subscription to the NPC authorized capital stock and that under Section 22, of
the same P.D. No. NPC had to likewise submit to the Office of the President its internal operating budget for
review due to capital inputs of the government (P.D. No. 758) and to the national government's guarantee of
the domestic and foreign indebtedness of the NPC, it is clear that NPC was covered by P.D. No. 1177.
There is reason to believe that NPC availed of subsidy granted to exempt GOCC's that suddenly found
themselves having to pay taxes. It will be noted that Section 23, P.D. No. 1177, mandated that the Secretary of
Finance and the Commissioner of the Budget had to establish the necessary procedure to accomplish the tax
payment/tax subsidy scheme of the Government. In effect, NPC, did not put any cash to pay any tax as it got
from the General Fund the amounts necessary to pay different revenue collectors for the taxes it had to pay.
In his memorandum filed July 16, 1992, petitioner submits:
[T]hat with the enactment of P.D. No. 1177 on July 30, 1977, the NPC lost all its duty and tax
exemptions, whether direct or indirect. And so there was nothing to be withdrawn or to be
restored under P.D. No. 1931, issued on June 11, 1984. This is evident from sections 1 and 2 of
said P.D. No. 1931, which reads:
"Section 1. The provisions of special or general law to the contrary

notwithstanding, all exemptions from the payment of duties, taxes, fees, imports
and other charges heretofore granted in favor of government-owned or
controlled corporations including their subsidiaries are hereby withdrawn."
Sec. 2. The President of the Philippines and/or the Minister of Finance, upon the
recommendation of the Fiscal Incentives Review Board created under P.D. No.
776, is hereby empowered to restore partially or totally, the exemptions
withdrawn by section 1 above. . . .
Hence, P.D. No. 1931 did not have any effect or did it change NPC's status. Since it had
already lost all its tax exemptions privilege with the issuance of P.D. No. 1177 seven (7) years
earlier or on July 30, 1977, there were no tax exemptions to be withdrawn by section 1 which
could later be restored by the Minister of Finance upon the recommendation of the FIRB under
Section 2 of P.D. No. 1931. Consequently, FIRB resolutions No. 10-85, and 1-86, were all
illegally and validly issued since FIRB acted beyond their statutory authority by creating and not
merely restoring the tax exempt status of NPC. The same is true for FIRB Res. No. 17-87 which
restored NPC's tax exemption under E.O. No. 93 which likewise abolished all duties and tax
exemptions but allowed the President upon recommendation of the FIRB to restore those
abolished.
The Court disagrees.
Applying by analogy the weight of authority that:
When a revised and consolidated act re-enacts in the same or substantially the same terms the
provisions of the act or acts so revised and consolidated, the revision and consolidation shall be
taken to be a continuation of the former act or acts, although the former act or acts may be
expressly repealed by the revised and consolidated act; and all rights
and liabilities under the former act or acts are preserved and may be enforced. 66
the Court rules that when P.D. No. 1931 basically reenacted in its Section 1 the first half of Section 23, P.D. No.
1177, on withdrawal of tax exemption privileges of all GOCC's said Section 1, P.D. No. 1931 was deemed to be
a continuation of the first half of Section 23, P.D. No. 1177, although the second half of Section 23, P.D. No.
177, on the subsidy scheme for former tax exempt GOCCs had been expressly repealed by Section 2 with its
institution of the FIRB recommendation of partial/total restoration of tax exemption privileges.
The NPC tax privileges withdrawn by Section 1. P.D. No. 1931, were, therefore, the same NPC tax exemption
privileges withdrawn by Section 23, P.D. No. 1177. NPC could no longer obtain a subsidy for the taxes it had to
pay. It could, however, under P.D. No. 1931, ask for a total restoration of its tax exemption privileges, which, it
did, and the same were granted under FIRB Resolutions Nos. 10-85 67 and 1-86 68 as approved by the Minister
of Finance.
Consequently, contrary to petitioner's submission, FIRB Resolutions Nos. 10-85 and 1-86 were both legally and
validly issued by the FIRB pursuant to P.D. No. 1931. FIRB did not created NPC's tax exemption status but
merely restored it. 69
Some quarters have expressed the view that P.D. No. 1931 was illegally issued under the now rather infamous
Amendment No. 6 70 as there was no showing that President Marcos' encroachment on legislative prerogatives
was justified under the then prevailing condition that he could legislate "only if the Batasang Pambansa 'failed
or was unable to act inadequately on any matter that in his judgment required immediate action' to meet the
'exigency'. 71
Actually under said Amendment No. 6, then President Marcos could issue decrees not only when the Interim
Batasang Pambansa failed or was unable to act adequately on any matter for any reason that in his (Marcos')
judgment required immediate action, but also when there existed a grave emergency or a threat or thereof. It
must be remembered that said Presidential Decree was issued only around nine (9) months after the
Philippines unilaterally declared a moratorium on its foreign debt payments 72 as a result of the economic crisis
triggered by loss of confidence in the government brought about by the Aquino assassination. The Philippines
was then trying to reschedule its debt payments. 73 One of the big borrowers was the NPC 74 which had a US$
2.1 billion white elephant of a Bataan Nuclear Power Plant on its back. 75 From all indications, it must have been
this grave emergency of a debt rescheduling which compelled Marcos to issue P.D. No. 1931, under his
Amendment 6 power. 76
The rule, therefore, that under the 1973 Constitution "no law granting a tax exemption shall be passed without
the concurrence of a majority of all the members of the Batasang Pambansa" 77 does not apply as said P.D. No.
1931 was not passed by the Interim Batasang Pambansa but by then President Marcos under His Amendment
No. 6 power.
P.D. No. 1931 was, therefore, validly issued by then President Marcos under his Amendment No. 6 authority.
Under E.O No. 93 (S'86) NPC's tax exemption privileges were again clipped by, this time, President Aquino. Its
section 2 allowed the NPC to apply for the restoration of its tax exemption privileges. The same was granted
under FIRB Resolution No. 17-87 78 dated June 24, 1987 which restored NPC's tax exemption privileges
effective, starting March 10, 1987, the date of effectivity of E.O. No. 93 (S'86).
FIRB Resolution No. 17-87 was approved by the President on October 5, 1987. 79 There is no indication,
however, from the records of the case whether or not similar approvals were given by then President Marcos
for FIRB Resolutions Nos. 10-85 and 1- 86. This has led some quarters to believe that a "travesty of justice"
might have occurred when the Minister of Finance approved his own recommendation as Chairman of the
Fiscal Incentives Review Board as what happened in Zambales Chromate vs. Court of Appeals 80 when the
Secretary of Agriculture and Natural Resources approved a decision earlier rendered by him when he was the
Director of Mines, 81 and in Anzaldo vs. Clave 82 where Presidential Executive Assistant Clave affirmed, on
appeal to Malacañang, his own decision as Chairman of the Civil Service Commission. 83
Upon deeper analysis, the question arises as to whether one can talk about "due process" being violated when
FIRB Resolutions Nos. 10-85 and 1-86 were approved by the Minister of Finance when the same were
recommended by him in his capacity as Chairman of the Fiscal Incentives Review Board. 84
In Zambales Chromite and Anzaldo, two (2) different parties were involved: mining groups and scientist-
doctors, respectively. Thus, there was a need for procedural due process to be followed.
In the case of the tax exemption restoration of NPC, there is no other comparable entity — not even a single
public or private corporation — whose rights would be violated if NPC's tax exemption privileges were to be
restored. While there might have been a MERALCO before Martial Law, it is of public knowledge that the
MERALCO generating plants were sold to the NPC in line with the State policy that NPC was to be the State
implementing arm for the electrification of the entire country. Besides, MERALCO was limited to Manila and its
environs. And as of 1984, there was no more MERALCO — as a producer of electricity — which could have
objected to the restoration of NPC's tax exemption privileges.
It should be noted that NPC was not asking to be granted tax exemption privileges for the first time. It was just
asking that its tax exemption privileges be restored. It is for these reasons that, at least in NPC's case, the
recommendation and approval of NPC's tax exemption privileges under FIRB Resolution Nos. 10-85 and 1-86,
done by the same person acting in his dual capacities as Chairman of the Fiscal Incentives Review Board and
Minister of Finance, respectively, do not violate procedural due process.
While as above-mentioned, FIRB Resolution No. 17-87 was approved by President Aquino on October 5, 1987,
the view has been expressed that President Aquino, at least with regard to E.O. 93 (S'86), had no authority to
sub-delegate to the FIRB, which was allegedly not a delegate of the legislature, the power delegated to her
thereunder.
A misconception must be cleared up.
When E.O No. 93 (S'86) was issued, President Aquino was exercising both Executive and Legislative powers.
Thus, there was no power delegated to her, rather it was she who was delegating her power. She delegated it
to the FIRB, which, for purposes of E.O No. 93 (S'86), is a delegate of the legislature. Clearly, she was not sub-
delegating her power.
And E.O. No. 93 (S'86), as a delegating law, was complete in itself — it set forth the policy to be carried
out 85 and it fixed the standard to which the delegate had to conform in the performance of his functions, 86 both
qualities having been enunciated by this Court in Pelaez vs. Auditor General. 87
Thus, after all has been said, it is clear that the NPC had its tax exemption privileges restored from June 11,
1984 up to the present.
VII
The next question that projects itself is — who pays the tax?
The answer to the question could be gleamed from the manner by which the Commissaries of the Armed
Forces of the Philippines sell their goods.
By virtue of P.D. No. 83, 88 veterans, members of the Armed of the Philippines, and their defendants but
groceries and other goods free of all taxes and duties if bought from any AFP Commissaries.
In practice, the AFP Commissary suppliers probably treat the unchargeable specific, ad valorem and other
taxes on the goods earmarked for AFP Commissaries as an added cost of operation and distribute it over the
total units of goods sold as it would any other cost. Thus, even the ordinary supermarket buyer probably pays
for the specific, ad valorem and other taxes which theses suppliers do not charge the AFP Commissaries. 89
IN MUCH THE SAME MANNER, it is clear that private respondents-oil companies have to absorb the taxes
they add to the bunker fuel oil they sell to NPC.
It should be stated at this juncture that, as early as May 14, 1954, the Secretary of Justice renders an
opinion, 90wherein he stated and We quote:
xxx xxx xxx
Republic Act No. 358 exempts the National Power Corporation from "all taxes, duties, fees,
imposts, charges, and restrictions of the Republic of the Philippines and its provinces, cities,
and municipalities." This exemption is broad enough to include all taxes, whether direct or
indirect, which the National Power Corporation may be required to pay, such as the specific tax
on petroleum products. That it is indirect or is of no amount [should be of no moment], for it is
the corporation that ultimately pays it. The view which refuses to accord the exemption because
the tax is first paid by the seller disregards realities and gives more importance to form than to
substance. Equity and law always exalt substance over from.
xxx xxx xxx
Tax exemptions are undoubtedly to be construed strictly but not so grudgingly as knowledge
that many impositions taxpayers have to pay are in the nature of indirect taxes. To limit the
exemption granted the National Power Corporation to direct taxes notwithstanding the general
and broad language of the statue will be to thwrat the legislative intention in giving exemption
from all forms of taxes and impositions without distinguishing between those that are direct and
those that are not. (Emphasis supplied)
In view of all the foregoing, the Court rules and declares that the oil companies which supply bunker fuel oil to
NPC have to pay the taxes imposed upon said bunker fuel oil sold to NPC. By the very nature of indirect
taxation, the economic burden of such taxation is expected to be passed on through the channels of commerce
to the user or consumer of the goods sold. Because, however, the NPC has been exempted from both direct
and indirect taxation, the NPC must beheld exempted from absorbing the economic burden of indirect taxation.
This means, on the one hand, that the oil companies which wish to sell to NPC absorb all or part of the
economic burden of the taxes previously paid to BIR, which could they shift to NPC if NPC did not enjoy
exemption from indirect taxes. This means also, on the other hand, that the NPC may refuse to pay the part of
the "normal" purchase price of bunker fuel oil which represents all or part of the taxes previously paid by the oil
companies to BIR. If NPC nonetheless purchases such oil from the oil companies — because to do so may be
more convenient and ultimately less costly for NPC than NPC itself importing and hauling and storing the oil
from overseas — NPC is entitled to be reimbursed by the BIR for that part of the buying price of NPC which
verifiably represents the tax already paid by the oil company-vendor to the BIR.
It should be noted at this point in time that the whole issue of who WILL pay these indirect taxes HAS BEEN
RENDERED moot and academic by E.O. No. 195 issued on June 16, 1987 by virtue of which the ad
valorem tax rate on bunker fuel oil was reduced to ZERO (0%) PER CENTUM. Said E.O. no. 195 reads as
follows:
EXECUTIVE ORDER NO. 195

AMENDING PARAGRAPH (b) OF SECTION 128 OF THE NATIONAL INTERNAL REVENUE
CODE, AS AMENDED BY REVISING THE EXCISE TAX RATES OF CERTAIN PETROLEUM
PRODUCTS.
xxx xxx xxx
Sec. 1. Paragraph (b) of Section 128 of the National Internal Revenue Code, as amended, is
hereby amended to read as follows:
Par. (b) — For products subject to ad valorem tax only:
PRODUCT AD VALOREM TAX RATE
1. . . .
2. . . .
3. . . .
4. Fuel oil, commercially known as bunker oil and on similar fuel oils having more or less the
same generating power 0%
xxx xxx xxx
Sec. 3. This Executive Order shall take effect immediately.
Done in the city of Manila, this 17th day of June, in the year of Our Lord, nineteen hundred and
eighty-seven. (Emphasis supplied)
The oil companies can now deliver bunker fuel oil to NPC without having to worry about who is going to bear
the economic burden of the ad valorem taxes. What this Court will now dispose of are petitioner's complaints
that some indirect tax money has been illegally refunded by the Bureau of Internal Revenue to the NPC and
that more claims for refunds by the NPC are being processed for payment by the BIR.
A case in point is the Tax Credit Memo issued by the Bureau of Internal Revenue in favor of the NPC last July
7, 1986 for P58.020.110.79 which were for "erroneously paid specific and ad valorem taxes during the period
from October 31, 1984 to April 27, 1985. 91 Petitioner asks Us to declare this Tax Credit Memo illegal as the
PNC did not have indirect tax exemptions with the enactment of P.D. No. 938. As We have already ruled
otherwise, the only questions left are whether NPC Is entitled to a tax refund for the tax component of the price
of the bunker fuel oil purchased from Caltex (Phils.) Inc. and whether the Bureau of Internal Revenue properly
refunded the amount to NPC.
After P.D. No. 1931 was issued on June 11, 1984 withdrawing the
tax exemptions of all GOCCs — NPC included, it was only on May 8, 1985 when the BIR issues its letter
authority to the NPC authorizing it to withdraw tax-free bunker fuel oil from the oil companies pursuant to FIRB
Resolution No. 10-85. 92 Since the tax exemption restoration was retroactive to June 11, 1984 there was a
need. therefore, to recover said amount as Caltex (PhiIs.) Inc. had already paid the BIR the specific and ad
valorem taxes on the bunker oil it sold NPC during the period above indicated and had billed NPC
correspondingly. 93 It should be noted that the NPC, in its letter-claim dated September 11, 1985 to the
Commissioner of the Bureau of Internal Revenue DID NOT CATEGORICALLY AND UNEQUIVOCALLY
STATE that itself paid the P58.020,110.79 as part of the bunker fuel oil price it purchased from Caltex (Phils)
Inc. 94
The law governing recovery of erroneously or illegally, collected taxes is section 230 of the National Internal
Revenue Code of 1977, as amended which reads as follows:
Sec. 230. Recover of tax erroneously or illegally collected. — No suit or proceeding shall be
maintained in any court for the recovery of any national internal revenue tax hereafter alleged to
have been erroneously or illegally assessed or collected, or of any penalty claimed to have
been collected without authority, or of any sum alleged to have been excessive or in any
Manner wrongfully collected. until a claim for refund or credit has been duly filed with the
Commissioner; but such suit or proceeding may be maintained, whether or not such tax,
penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be begun after the expiration of two years from the
date of payment of the tax or penalty regardless of any supervening cause that may arise after
payment; Provided, however, That the Commissioner may, even without a written claim
therefor, refund or credit any tax, where on the face of the return upon which payment was
made, such payment appears clearly, to have been erroneously paid.
xxx xxx xxx
Inasmuch as NPC filled its claim for P58.020,110.79 on September 11, 1985, 95 the Commissioner correctly
issued the Tax Credit Memo in view of NPC's indirect tax exemption.
Petitioner, however, asks Us to restrain the Commissioner from acting favorably on NPC's claim for
P410.580,000.00 which represents specific and ad valorem taxes paid by the oil companies to the BIR from
June 11, 1984 to the early part of 1986. 96
A careful examination of petitioner's pleadings and annexes attached thereto does not reveal when the alleged
claim for a P410,580,000.00 tax refund was filed. It is only stated In paragraph No. 2 of the Deed of
Assignment 97executed by and between NPC and Caltex (Phils.) Inc., as follows:
That the ASSIGNOR(NPC) has a pending tax credit claim with the Bureau of Internal Revenue
amounting to P442,887,716.16. P58.020,110.79 of which is due to Assignor's oil purchases
from the Assignee (Caltex [Phils.] Inc.)
Actually, as the Court sees it, this is a clear case of a "Mexican standoff." We cannot restrain the BIR from
refunding said amount because of Our ruling that NPC has both direct and indirect tax exemption privileges.
Neither can We order the BIR to refund said amount to NPC as there is no pending petition for review
on certiorari of a suit for its collection before Us. At any rate, at this point in time, NPC can no longer file any
suit to collect said amount EVEN IF lt has previously filed a claim with the BIR because it is time-barred under
Section 230 of the National Internal Revenue Code of 1977. as amended, which states:
In any case, no such suit or proceeding shall be begun after the expiration of two years from the
date of payment of the tax or penalty REGARDLESS of any supervening cause that may arise
after payment. . . . (Emphasis supplied)
The date of the Deed of Assignment is June 6. 1986. Even if We were to assume that payment by NPC for the
amount of P410,580,000.00 had been made on said date. it is clear that more than two (2) years had already
elapsed from said date. At the same time, We should note that there is no legal obstacle to the BIR granting,
even without a suit by NPC, the tax credit or refund claimed by NPC, assuming that NPC's claim had been
made seasonably, and assuming the amounts covered had actually been paid previously by the oil companies
to the BIR.
WHEREFORE, in view of all the foregoing, the Motion for Reconsideration of petitioner is hereby DENIED for
lack of merit and the decision of this Court promulgated on May 31, 1991 is hereby AFFIRMED.
SO ORDERED.
G.R. No. 159647 April 15, 2005
COMMISSIONER OF INTERNAL REVENUE, Petitioners,

vs.
CENTRAL LUZON DRUG CORPORATION, Respondent.
DECISION
PANGANIBAN, J.:
The 20 percent discount required by the law to be given to senior citizens is a tax credit, not merely a tax
deductionfrom the gross income or gross sale of the establishment concerned. A tax credit is used by a private
establishment only after the tax has been computed; a tax deduction, before the tax is computed. RA 7432
unconditionally grants a tax credit to all covered entities. Thus, the provisions of the revenue regulation that
withdraw or modify such grant are void. Basic is the rule that administrative regulations cannot amend or
revoke the law.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to set aside the August 29,
2002 Decision2 and the August 11, 2003 Resolution3 of the Court of Appeals (CA) in CA-GR SP No. 67439. The
assailed Decision reads as follows:
"WHEREFORE, premises considered, the Resolution appealed from is AFFIRMED in toto. No costs."4
The assailed Resolution denied petitioner’s Motion for Reconsideration.
The Facts
The CA narrated the antecedent facts as follows:
"Respondent is a domestic corporation primarily engaged in retailing of medicines and other pharmaceutical
products. In 1996, it operated six (6) drugstores under the business name and style ‘Mercury Drug.’
"From January to December 1996, respondent granted twenty (20%) percent sales discount to qualified senior
citizens on their purchases of medicines pursuant to Republic Act No. [R.A.] 7432 and its Implementing Rules
and Regulations. For the said period, the amount allegedly representing the 20% sales discount granted by
respondent to qualified senior citizens totaled ₱904,769.00.
"On April 15, 1997, respondent filed its Annual Income Tax Return for taxable year 1996 declaring therein that
it incurred net losses from its operations.
"On January 16, 1998, respondent filed with petitioner a claim for tax refund/credit in the amount of
₱904,769.00 allegedly arising from the 20% sales discount granted by respondent to qualified senior citizens in
compliance with [R.A.] 7432. Unable to obtain affirmative response from petitioner, respondent elevated its
claim to the Court of Tax Appeals [(CTA or Tax Court)] via a Petition for Review.
"On February 12, 2001, the Tax Court rendered a Decision5 dismissing respondent’s Petition for lack of merit. In
said decision, the [CTA] justified its ruling with the following ratiocination:
‘x x x, if no tax has been paid to the government, erroneously or illegally, or if no amount is due and collectible
from the taxpayer, tax refund or tax credit is unavailing. Moreover, whether the recovery of the tax is made by
means of a claim for refund or tax credit, before recovery is allowed[,] it must be first established that there was
an actual collection and receipt by the government of the tax sought to be recovered. x x x.
‘x x x x x x x x x
‘Prescinding from the above, it could logically be deduced that tax credit is premised on the existence of tax
liability on the part of taxpayer. In other words, if there is no tax liability, tax credit is not available.’
"Respondent lodged a Motion for Reconsideration. The [CTA], in its assailed resolution,6 granted respondent’s
motion for reconsideration and ordered herein petitioner to issue a Tax Credit Certificate in favor of respondent
citing the decision of the then Special Fourth Division of [the CA] in CA G.R. SP No. 60057 entitled ‘Central
[Luzon] Drug Corporation vs. Commissioner of Internal Revenue’ promulgated on May 31, 2001, to wit:
‘However, Sec. 229 clearly does not apply in the instant case because the tax sought to be refunded or
credited by petitioner was not erroneously paid or illegally collected. We take exception to the CTA’s sweeping
but unfounded statement that ‘both tax refund and tax credit are modes of recovering taxes which are either
erroneously or illegally paid to the government.’ Tax refunds or credits do not exclusively pertain to illegally
collected or erroneously paid taxes as they may be other circumstances where a refund is warranted. The tax
refund provided under Section 229 deals exclusively with illegally collected or erroneously paid taxes but there
are other possible situations, such as the refund of excess estimated corporate quarterly income tax paid, or
that of excess input tax paid by a VAT-registered person, or that of excise tax paid on goods locally produced
or manufactured but actually exported. The standards and mechanics for the grant of a refund or credit under
these situations are different from that under Sec. 229. Sec. 4[.a)] of R.A. 7432, is yet another instance of a tax
credit and it does not in any way refer to illegally collected or erroneously paid taxes, x x x.’"7
Ruling of the Court of Appeals
The CA affirmed in toto the Resolution of the Court of Tax Appeals (CTA) ordering petitioner to issue a tax
credit certificate in favor of respondent in the reduced amount of ₱903,038.39. It reasoned that Republic Act
No. (RA) 7432 required neither a tax liability nor a payment of taxes by private establishments prior to the
availment of a tax credit. Moreover, such credit is not tantamount to an unintended benefit from the law, but
rather a just compensation for the taking of private property for public use.
Hence this Petition.8
The Issues
Petitioner raises the following issues for our consideration:
"Whether the Court of Appeals erred in holding that respondent may claim the 20% sales discount as a tax
credit instead of as a deduction from gross income or gross sales.
"Whether the Court of Appeals erred in holding that respondent is entitled to a refund."9
These two issues may be summed up in only one: whether respondent, despite incurring a net loss, may still
claim the 20 percent sales discount as a tax credit.
The Court’s Ruling
The Petition is not meritorious.

Sole Issue:
Claim of 20 Percent Sales Discount
as Tax Credit Despite Net Loss
Section 4a) of RA 743210 grants to senior citizens the privilege of obtaining a 20 percent discount on their
purchase of medicine from any private establishment in the country.11 The latter may then claim the cost of the
discount as a tax credit.12 But can such credit be claimed, even though an establishment operates at a loss?
We answer in the affirmative.
Tax Credit versus
Tax Deduction
Although the term is not specifically defined in our Tax Code,13 tax credit generally refers to an amount that is
"subtracted directly from one’s total tax liability."14 It is an "allowance against the tax itself"15 or "a deduction from
what is owed"16 by a taxpayer to the government. Examples of tax credits are withheld taxes, payments of
estimated tax, and investment tax credits.17
Tax credit should be understood in relation to other tax concepts. One of these is tax deduction -- defined as a
subtraction "from income for tax purposes,"18 or an amount that is "allowed by law to reduce income prior to [the]
application of the tax rate to compute the amount of tax which is due."19 An example of a tax deduction is any of
the allowable deductions enumerated in Section 3420 of the Tax Code.
A tax credit differs from a tax deduction. On the one hand, a tax credit reduces the tax due, including --
whenever applicable -- the income tax that is determined after applying the corresponding tax rates to taxable
income.21 A tax deduction, on the other, reduces the income that is subject to tax22 in order to arrive at taxable
income.23 To think of the former as the latter is to avoid, if not entirely confuse, the issue. A tax credit is used
only after the tax has been computed; a tax deduction, before.
Tax Liability Required
for Tax Credit
Since a tax credit is used to reduce directly the tax that is due, there ought to be a tax liability before the tax
creditcan be applied. Without that liability, any tax credit application will be useless. There will be no reason for
deducting the latter when there is, to begin with, no existing obligation to the government. However, as will be
presented shortly, the existence of a tax credit or its grant by law is not the same as the availment or use of
such credit. While the grant is mandatory, the availment or use is not.
If a net loss is reported by, and no other taxes are currently due from, a business establishment, there will
obviously be no tax liability against which any tax credit can be applied.24 For the establishment to choose the
immediate availment of a tax credit will be premature and impracticable. Nevertheless, the irrefutable fact
remains that, under RA 7432, Congress has granted without conditions a tax credit benefit to all covered
establishments.
Although this tax credit benefit is available, it need not be used by losing ventures, since there is no tax liability
that calls for its application. Neither can it be reduced to nil by the quick yet callow stroke of an administrative
pen, simply because no reduction of taxes can instantly be effected. By its nature, the tax credit may still be
deducted from a future, not a present, tax liability, without which it does not have any use. In the meantime, it
need not move. But it breathes.
Prior Tax Payments Not

Required for Tax Credit
While a tax liability is essential to the availment or use of any tax credit, prior tax payments are not. On the
contrary, for the existence or grant solely of such credit, neither a tax liability nor a prior tax payment is needed.
The Tax Code is in fact replete with provisions granting or allowing tax credits, even though no taxes have
been previously paid.
For example, in computing the estate tax due, Section 86(E) allows a tax credit -- subject to certain limitations -
- for estate taxes paid to a foreign country. Also found in Section 101(C) is a similar provision for donor’s taxes
-- again when paid to a foreign country -- in computing for the donor’s tax due. The tax credits in both instances
allude to the prior payment of taxes, even if not made to our government.
Under Section 110, a VAT (Value-Added Tax)- registered person engaging in transactions -- whether or not
subject to the VAT -- is also allowed a tax credit that includes a ratable portion of any input tax not directly
attributable to either activity. This input tax may either be the VAT on the purchase or importation of goods or
services that is merely due from -- not necessarily paid by -- such VAT-registered person in the course of trade
or business; or the transitional input tax determined in accordance with Section 111(A). The latter type may in
fact be an amount equivalent to only eight percent of the value of a VAT-registered person’s beginning
inventory of goods, materials and supplies, when such amount -- as computed -- is higher than the actual VAT
paid on the said items.25 Clearly from this provision, the tax credit refers to an input tax that is either due only or
given a value by mere comparison with the VAT actually paid -- then later prorated. No tax is actually paid prior
to the availment of such credit.
In Section 111(B), a one and a half percent input tax credit that is merely presumptive is allowed. For the
purchase of primary agricultural products used as inputs -- either in the processing of sardines, mackerel and
milk, or in the manufacture of refined sugar and cooking oil -- and for the contract price of public work contracts
entered into with the government, again, no prior tax payments are needed for the use of the tax credit.
More important, a VAT-registered person whose sales are zero-rated or effectively zero-rated may, under
Section 112(A), apply for the issuance of a tax credit certificate for the amount of creditable input taxes merely
due -- again not necessarily paid to -- the government and attributable to such sales, to the extent that the input
taxes have not been applied against output taxes.26 Where a taxpayer
is engaged in zero-rated or effectively zero-rated sales and also in taxable or exempt sales, the amount of
creditable input taxes due that are not directly and entirely attributable to any one of these transactions shall be
proportionately allocated on the basis of the volume of sales. Indeed, in availing of such tax credit for VAT
purposes, this provision -- as well as the one earlier mentioned -- shows that the prior payment of taxes is not a
requisite.
It may be argued that Section 28(B)(5)(b) of the Tax Code is another illustration of a tax credit allowed, even
though no prior tax payments are not required. Specifically, in this provision, the imposition of a final
withholding tax rate on cash and/or property dividends received by a nonresident foreign corporation from a
domestic corporation is subjected to the condition that a foreign tax credit will be given by the domiciliary
country in an amount equivalent to taxes that are merely deemed paid.27 Although true, this provision actually
refers to the tax credit as a condition only for the imposition of a lower tax rate, not as a deduction from the
corresponding tax liability. Besides, it is not our government but the domiciliary country that credits against the
income tax payable to the latter by the foreign corporation, the tax to be foregone or spared.28
In contrast, Section 34(C)(3), in relation to Section 34(C)(7)(b), categorically allows as credits, against the
income tax imposable under Title II, the amount of income taxes merely incurred -- not necessarily paid -- by a
domestic corporation during a taxable year in any foreign country. Moreover, Section 34(C)(5) provides that for
such taxes incurred but not paid, a tax credit may be allowed, subject to the condition precedent that the
taxpayer shall simply give a bond with sureties satisfactory to and approved by petitioner, in such sum as may
be required; and further conditioned upon payment by the taxpayer of any tax found due, upon petitioner’s
redetermination of it.
In addition to the above-cited provisions in the Tax Code, there are also tax treaties and special laws that grant
or allow tax credits, even though no prior tax payments have been made.
Under the treaties in which the tax credit method is used as a relief to avoid double taxation, income that is
taxed in the state of source is also taxable in the state of residence, but the tax paid in the former is merely
allowed as a credit against the tax levied in the latter.29 Apparently, payment is made to the state of source, not
the state of residence. No tax, therefore, has been previously paid to the latter.
Under special laws that particularly affect businesses, there can also be tax credit incentives. To illustrate, the
incentives provided for in Article 48 of Presidential Decree No. (PD) 1789, as amended by Batas Pambansa
Blg. (BP) 391, include tax credits equivalent to either five percent of the net value earned, or five or ten percent
of the net local content of exports.30 In order to avail of such credits under the said law and still achieve its
objectives, no prior tax payments are necessary.
From all the foregoing instances, it is evident that prior tax payments are not indispensable to the availment of
a tax credit. Thus, the CA correctly held that the availment under RA 7432 did not require prior tax payments by
private establishments concerned.31 However, we do not agree with its finding32 that the carry-over of tax
credits under the said special law to succeeding taxable periods, and even their application against internal
revenue taxes, did not necessitate the existence of a tax liability.
The examples above show that a tax liability is certainly important in the availment or use, not the existence or
grant, of a tax credit. Regarding this matter, a private establishment reporting a net loss in its financial
statements is no different from another that presents a net income. Both are entitled to the tax credit provided
for under RA 7432, since the law itself accords that unconditional benefit. However, for the losing establishment
to immediately apply such credit, where no tax is due, will be an improvident usance.
Sections 2.i and 4 of Revenue
Regulations No. 2-94 Erroneous
RA 7432 specifically allows private establishments to claim as tax credit the amount of discounts they grant.33 In
turn, the Implementing Rules and Regulations, issued pursuant thereto, provide the procedures for its
availment.34To deny such credit, despite the plain mandate of the law and the regulations carrying out that
mandate, is indefensible.
First, the definition given by petitioner is erroneous. It refers to tax credit as the amount representing the 20
percent discount that "shall be deducted by the said establishments from their gross income for income tax
purposes and from their gross sales for value-added tax or other percentage tax purposes."35 In ordinary
business language, the tax credit represents the amount of such discount. However, the manner by which the
discount shall be credited against taxes has not been clarified by the revenue regulations.
By ordinary acceptation, a discount is an "abatement or reduction made from the gross amount or value of
anything."36 To be more precise, it is in business parlance "a deduction or lowering of an amount of money;"37 or
"a reduction from the full amount or value of something, especially a price."38 In business there are many kinds
of discount, the most common of which is that affecting the income statement39 or financial report upon which
the income tax is based.
Business Discounts
Deducted from Gross Sales
A cash discount, for example, is one granted by business establishments to credit customers for their prompt
payment.40 It is a "reduction in price offered to the purchaser if payment is made within a shorter period of time
than the maximum time specified."41 Also referred to as a sales discount on the part of the seller and a purchase
discounton the part of the buyer, it may be expressed in such
terms as "5/10, n/30."42
A quantity discount, however, is a "reduction in price allowed for purchases made in large quantities, justified
by savings in packaging, shipping, and handling."43 It is also called a volume or bulk discount.44
A "percentage reduction from the list price x x x allowed by manufacturers to wholesalers and by wholesalers to
retailers"45 is known as a trade discount. No entry for it need be made in the manual or computerized books of
accounts, since the purchase or sale is already valued at the net price actually charged the buyer.46 The
purpose for the discount is to encourage trading or increase sales, and the prices at which the purchased
goods may be resold are also suggested.47 Even a chain discount -- a series of discounts from one list price -- is
recorded at net.48
Finally, akin to a trade discount is a functional discount. It is "a supplier’s price discount given to a purchaser
based on the [latter’s] role in the [former’s] distribution system."49 This role usually involves warehousing or
advertising.
Based on this discussion, we find that the nature of a sales discount is peculiar. Applying generally accepted
accounting principles (GAAP) in the country, this type of discount is reflected in the income statement50 as a line
item deducted -- along with returns, allowances, rebates and other similar expenses -- from gross sales to
arrive at net sales.51 This type of presentation is resorted to, because the accounts receivable and sales figures
that arise from sales discounts, -- as well as from quantity, volume or bulk discounts -- are recorded in the
manual and computerized books of accounts and reflected in the financial statements at the gross amounts of
the invoices.52This manner of recording credit sales -- known as the gross method -- is most widely used,
because it is simple, more convenient to apply than the net method, and produces no material errors over
time.53
However, under the net method used in recording trade, chain or functional discounts, only the net amounts of
the invoices -- after the discounts have been deducted -- are recorded in the books of accounts54 and reflected
in the financial statements. A separate line item cannot be shown,55 because the transactions themselves
involving both accounts receivable and sales have already been entered into, net of the said discounts.
The term sales discounts is not expressly defined in the Tax Code, but one provision adverts to amounts
whose sum -- along with sales returns, allowances and cost of goods sold56 -- is deducted from gross sales to
come up with the gross income, profit or margin57 derived from business.58 In another provision therein, sales
discounts that are granted and indicated in the invoices at the time of sale -- and that do not depend upon the
happening of any future event -- may be excluded from the gross sales within the same quarter they were
given.59 While determinative only of the VAT, the latter provision also appears as a suitable reference point for
income tax purposes already embraced in the former. After all, these two provisions affirm that sales
discounts are amounts that are always deductible from gross sales.
Reason for the Senior Citizen Discount:
The Law, Not Prompt Payment
A distinguishing feature of the implementing rules of RA 7432 is the private establishment’s outright deduction
of the discount from the invoice price of the medicine sold to the senior citizen.60 It is, therefore, expected that
for each retail sale made under this law, the discount period lasts no more than a day, because such discount
is given -- and the net amount thereof collected -- immediately upon perfection of the sale.61 Although prompt
payment is made for an arm’s-length transaction by the senior citizen, the real and compelling reason for the
private establishment giving the discount is that the law itself makes it mandatory.
What RA 7432 grants the senior citizen is a mere discount privilege, not a sales discount or any of the above
discounts in particular. Prompt payment is not the reason for (although a necessary consequence of) such
grant. To be sure, the privilege enjoyed by the senior citizen must be equivalent to the tax credit benefit
enjoyed by the private establishment granting the discount. Yet, under the revenue regulations promulgated by
our tax authorities, this benefit has been erroneously likened and confined to a sales discount.
To a senior citizen, the monetary effect of the privilege may be the same as that resulting from a sales
discount. However, to a private establishment, the effect is different from a simple reduction in price that results
from such discount. In other words, the tax credit benefit is not the same as a sales discount. To repeat from
our earlier discourse, this benefit cannot and should not be treated as a tax deduction.
To stress, the effect of a sales discount on the income statement and income tax return of an establishment
covered by RA 7432 is different from that resulting from the availment or use of its tax credit benefit. While the
former is a deduction before, the latter is a deduction after, the income tax is computed. As mentioned earlier, a
discount is not necessarily a sales discount, and a tax credit for a simple discount privilege should not be
automatically treated like a sales discount. Ubi lex non distinguit, nec nos distinguere debemus. Where the law
does not distinguish, we ought not to distinguish.
Sections 2.i and 4 of Revenue Regulations No. (RR) 2-94 define tax credit as the 20 percent discount
deductible from gross income for income tax purposes, or from gross sales for VAT or other percentage tax
purposes. In effect, the tax credit benefit under RA 7432 is related to a sales discount. This contrived definition
is improper, considering that the latter has to be deducted from gross sales in order to compute the gross
income in the income statementand cannot be deducted again, even for purposes of computing the income tax.
When the law says that the cost of the discount may be claimed as a tax credit, it means that the amount --
when claimed -- shall be treated as a reduction from any tax liability, plain and simple. The option to avail of
the tax creditbenefit depends upon the existence of a tax liability, but to limit the benefit to a sales discount --
which is not even identical to the discount privilege that is granted by law -- does not define it at all and serves
no useful purpose. The definition must, therefore, be stricken down.
Laws Not Amended
by Regulations
Second, the law cannot be amended by a mere regulation. In fact, a regulation that "operates to create a rule
out of harmony with
the statute is a mere nullity";62 it cannot prevail.
It is a cardinal rule that courts "will and should respect the contemporaneous construction placed upon a statute
by the executive officers whose duty it is to enforce it x x x."63 In the scheme of judicial tax administration, the
need for certainty and predictability in the implementation of tax laws is crucial.64 Our tax authorities fill in the
details that "Congress may not have the opportunity or competence to provide."65 The regulations these
authorities issue are relied upon by taxpayers, who are certain that these will be followed by the
courts.66 Courts, however, will not uphold these authorities’ interpretations when clearly absurd, erroneous or
improper.
In the present case, the tax authorities have given the term tax credit in Sections 2.i and 4 of RR 2-94 a
meaning utterly in contrast to what RA 7432 provides. Their interpretation has muddled up the intent of
Congress in granting a mere discount privilege, not a sales discount. The administrative agency issuing these
regulations may not enlarge, alter or restrict the provisions of the law it administers; it cannot engraft additional
requirements not contemplated by the legislature.67
In case of conflict, the law must prevail.68 A "regulation adopted pursuant to law is law."69 Conversely, a
regulation or any portion thereof not adopted pursuant to law is no law and has neither the force nor the effect
of law.70
Availment of Tax
Credit Voluntary
Third, the word may in the text of the statute71 implies that the
availability of the tax credit benefit is neither unrestricted nor mandatory.72 There is no absolute right conferred
upon respondent, or any similar taxpayer, to avail itself of the tax credit remedy whenever it chooses; "neither
does it impose a duty on the part of the government to sit back and allow an important facet of tax collection to
be at the sole control and discretion of the taxpayer."73 For the tax authorities to compel respondent to deduct
the 20 percent discount from either its gross income or its gross sales74 is, therefore, not only to make an
imposition without basis in law, but also to blatantly contravene the law itself.
What Section 4.a of RA 7432 means is that the tax credit benefit is merely permissive, not imperative.
Respondent is given two options -- either to claim or not to claim the cost of the discounts as a tax credit. In
fact, it may even ignore the credit and simply consider the gesture as an act of beneficence, an expression of
its social conscience.
Granting that there is a tax liability and respondent claims such cost as a tax credit, then the tax credit can
easily be applied. If there is none, the credit cannot be used and will just have to be carried over and
revalidated75 accordingly. If, however, the business continues to operate at a loss and no other taxes are due,
thus compelling it to close shop, the credit can never be applied and will be lost altogether.
In other words, it is the existence or the lack of a tax liability that determines whether the cost of the discounts
can be used as a tax credit. RA 7432 does not give respondent the unfettered right to avail itself of the credit
whenever it pleases. Neither does it allow our tax administrators to expand or contract the legislative mandate.
"The ‘plain meaning rule’ or verba legis in statutory construction is thus applicable x x x. Where the words of a
statute are clear, plain and free from ambiguity, it must be given its literal meaning and applied without
attempted interpretation."76
Tax Credit Benefit
Deemed Just Compensation
Fourth, Sections 2.i and 4 of RR 2-94 deny the exercise by the State of its power of eminent domain. Be it
stressed that the privilege enjoyed by senior citizens does not come directly from the State, but rather from the
private establishments concerned. Accordingly, the tax credit benefit granted to these establishments can be
deemed as their just compensation for private property taken by the State for public use.77
The concept of public use is no longer confined to the traditional notion of use by the public, but held
synonymous with public interest, public benefit, public welfare, and public convenience.78 The discount privilege
to which our senior citizens are entitled is actually a benefit enjoyed by the general public to which these
citizens belong. The discounts given would have entered the coffers and formed part of the gross sales of the
private establishments concerned, were it not for RA 7432. The permanent reduction in their total revenues is a
forced subsidy corresponding to the taking of private property for public use or benefit.
As a result of the 20 percent discount imposed by RA 7432, respondent becomes entitled to a just
compensation. This term refers not only to the issuance of a tax credit certificate indicating the correct amount
of the discounts given, but also to the promptness in its release. Equivalent to the payment of property taken by
the State, such issuance -- when not done within a reasonable time from the grant of the discounts -- cannot be
considered as just compensation. In effect, respondent is made to suffer the consequences of being
immediately deprived of its revenues while awaiting actual receipt, through the certificate, of the equivalent
amount it needs to cope with the reduction in its revenues.79
Besides, the taxation power can also be used as an implement for the exercise of the power of eminent
domain.80Tax measures are but "enforced contributions exacted on pain of penal sanctions"81 and "clearly
imposed for a public purpose."82 In recent years, the power to tax has indeed become a most effective tool to
realize social justice, public welfare, and the equitable distribution of wealth.83
While it is a declared commitment under Section 1 of RA 7432, social justice "cannot be invoked to trample on
the rights of property owners who under our Constitution and laws are also entitled to protection. The social
justice consecrated in our [C]onstitution [is] not intended to take away rights from a person and give them to
another who is not entitled thereto."84 For this reason, a just compensation for income that is taken away from
respondent becomes necessary. It is in the tax credit that our legislators find support to realize social justice,
and no administrative body can alter that fact.
To put it differently, a private establishment that merely breaks even85 -- without the discounts yet -- will surely
start to incur losses because of such discounts. The same effect is expected if its mark-up is less than 20
percent, and if all its sales come from retail purchases by senior citizens. Aside from the observation we have
already raised earlier, it will also be grossly unfair to an establishment if the discounts will be treated merely as
deductions from either its gross income or its gross sales. Operating at a loss through no fault of its own, it will
realize that the tax credit limitation under RR 2-94 is inutile, if not improper. Worse, profit-generating
businesses will be put in a better position if they avail themselves of tax credits denied those that are losing,
because no taxes are due from the latter.
Grant of Tax Credit
Intended by the Legislature
Fifth, RA 7432 itself seeks to adopt measures whereby senior citizens are assisted by the community as a
whole and to establish a program beneficial to them.86 These objectives are consonant with the constitutional
policy of making "health x x x services available to all the people at affordable cost"87 and of giving "priority for
the needs of the x x x elderly."88 Sections 2.i and 4 of RR 2-94, however, contradict these constitutional policies
and statutory objectives.
Furthermore, Congress has allowed all private establishments a simple tax credit, not a deduction. In fact, no
cash outlay is required from the government for the availment or use of such credit. The deliberations on
February 5, 1992 of the Bicameral Conference Committee Meeting on Social Justice, which finalized RA 7432,
disclose the true intent of our legislators to treat the sales discounts as a tax credit, rather than as a deduction
from gross income. We quote from those deliberations as follows:
"THE CHAIRMAN (Rep. Unico). By the way, before that ano, about deductions from taxable income. I think we
incorporated there a provision na - on the responsibility of the private hospitals and drugstores, hindi ba?
SEN. ANGARA. Oo.
THE CHAIRMAN. (Rep. Unico), So, I think we have to put in also a provision here about the deductions from
taxable income of that private hospitals, di ba ganon 'yan?
MS. ADVENTO. Kaya lang po sir, and mga discounts po nila affecting government and public institutions, so,
puwede na po nating hindi isama yung mga less deductions ng taxable income.
THE CHAIRMAN. (Rep. Unico). Puwede na. Yung about the private hospitals. Yung isiningit natin?
MS. ADVENTO. Singit na po ba yung 15% on credit. (inaudible/did not use the microphone).
SEN. ANGARA. Hindi pa, hindi pa.
THE CHAIRMAN. (Rep. Unico) Ah, 'di pa ba naisama natin?
SEN. ANGARA. Oo. You want to insert that?
THE CHAIRMAN (Rep. Unico). Yung ang proposal ni Senator Shahani, e.
SEN. ANGARA. In the case of private hospitals they got the grant of 15% discount, provided that, the private
hospitals can claim the expense as a tax credit.
REP. AQUINO. Yah could be allowed as deductions in the perpetrations of (inaudible) income.
SEN. ANGARA. I-tax credit na lang natin para walang cash-out ano?
REP. AQUINO. Oo, tax credit. Tama, Okay. Hospitals ba o lahat ng establishments na covered.
THE CHAIRMAN. (Rep. Unico). Sa kuwan lang yon, as private hospitals lang.
REP. AQUINO. Ano ba yung establishments na covered?
SEN. ANGARA. Restaurant lodging houses, recreation centers.
REP. AQUINO. All establishments covered siguro?
SEN. ANGARA. From all establishments. Alisin na natin 'Yung kuwan kung ganon. Can we go back to Section
4 ha?
REP. AQUINO. Oho.
SEN. ANGARA. Letter A. To capture that thought, we'll say the grant of 20% discount from all establishments
et cetera, et cetera, provided that said establishments - provided that private establishments may claim the cost
as a tax credit. Ganon ba 'yon?
REP. AQUINO. Yah.
SEN. ANGARA. Dahil kung government, they don't need to claim it.
THE CHAIRMAN. (Rep. Unico). Tax credit.
SEN. ANGARA. As a tax credit [rather] than a kuwan - deduction, Okay.
REP. AQUINO Okay.
SEN. ANGARA. Sige Okay. Di subject to style na lang sa Letter A".89
Special Law
Over General Law
Sixth and last, RA 7432 is a special law that should prevail over the Tax Code -- a general law. "x x x [T]he rule
is that on a specific matter the special law shall prevail over the general law, which shall
be resorted to only to supply deficiencies in the former."90 In addition, "[w]here there are two statutes, the earlier
special and the later general -- the terms of the general broad enough to include the matter provided for in the
special -- the fact that one is special and the other is general creates a presumption that the special is to be
considered as remaining an exception to the general,91 one as a general law of the land, the other as the law of
a particular case."92 "It is a canon of statutory construction that a later statute, general in its terms and not
expressly repealing a prior special statute, will ordinarily not affect the special provisions of such earlier
statute."93
RA 7432 is an earlier law not expressly repealed by, and therefore remains an exception to, the Tax Code -- a
later law. When the former states that a tax credit may be claimed, then the requirement of prior tax payments
under certain provisions of the latter, as discussed above, cannot be made to apply. Neither can the instances
of or references to a tax deduction under the Tax Code94 be made to restrict RA 7432. No provision of any
revenue regulation can supplant or modify the acts of Congress.
WHEREFORE, the Petition is hereby DENIED. The assailed Decision and Resolution of the Court of Appeals
AFFIRMED. No pronouncement as to costs.
SO ORDERED.
G.R. No. 210588, November 29, 2016
SECRETARY OF FINANCE CESAR B. PURISIMA AND COMMISSIONER OF INTERNAL REVENUE KIM S.

JACINTO-HENARES, Petitioners, v. REPRESENTATIVE CARMELO F. LAZATIN AND ECOZONE PLASTIC
ENTERPRISES CORPORATION, Respondents.
DECISION
BRION, J.:
This is a direct recourse to this Court from the Regional Trial Court (RTC), Branch 58, Angeles City, through a petition
for review on certiorari1 under Rule 45 of the Rules of Court on a pure question of law. The petition seeks the reversal of
the November 8, 2013 decision2 of the RTC in SCA Case No. 12-410. In the assailed decision, the RTC declared Revenue
Regulation (RR) No. 2-2012 unconstitutional and without force and effect.
The Facts
In response to reports of smuggling of petroleum and petroleum products and to ensure the correct taxes are paid and
collected, petitioner Secretary of Finance Cesar V. Purisima - pursuant to his authority to interpret tax laws3 and upon
the recommendation of petitioner Commissioner of Internal Revenue (CIR) Kim S. Jacinto-Henares signed RR 2-2012 on
February 17, 2012.
The RR requires the payment of value-added tax (VAT) and excise tax on the importation of all petroleum and
petroleum products coming directly from abroad and brought into the Philippines, including Freeport and economic
zones (FEZs).4 It then allows the credit or refund of any VAT or excise tax paid if the taxpayer proves that the
petroleum previously brought in has been sold to a duly registered FEZ locator and used pursuant to the registered
activity of such locator.5
In other words, an FEZ locator must first pay the required taxes upon entry into the FEZ of a petroleum product, and
must thereafter prove the use of the petroleum product for the locator's registered activity in order to secure a credit
for the taxes paid.
On March 7, 2012, Carmelo F. Lazatin, in his capacity as Pampanga First District Representative, filed a petition for
prohibition and injunction6 against the petitioners to annul and set aside RR 2-2012.
Lazatin posits that Republic Act No. (RA) 94007 treats the Clark Special Economic Zone and Clark Freeport Zone
(together hereinafter referred to as Clark FEZ) as a separate customs territory and allows tax and duty-free
importations of raw materials, capital and equipment into the zone. Thus, the imposition of VAT and excise tax, even on
the importation of petroleum products into FEZs (like Clark FEZ), directly contravenes the law.
The respondent Ecozone Plastic Enterprises Corporation (EPEC) sought to intervene in the proceedings as a co-
petitioner and accordingly entered its appearance and moved for leave of court to file its petition-in-intervention.8
EPEC claims that, as a Clark FEZ locator, it stands to suffer when RR 2-2012 is implemented. EPEC insists that RR 2-
2012's mechanism of requiring even locators to pay the tax first and to subsequently claim a credit or to refund the
taxes paid effectively removes the locators' tax-exempt status.
The RTC initially issued a temporary restraining order to stay the implementation of RR 2-2012. It eventually issued a
writ of preliminary injunction in its order dated April 4, 2012.
The petitioners questioned the issuance of the writ. On May 17, 2012, they filed a petition for certiorari9before the Court
of Appeals (CA) assailing the RTC's order. The CA granted the petition10 and denied the respondents' subsequent motion
for reconsideration.11
The respondents stood their ground by filing a petition for review on certiorari before this Court (G.R. No. 208387) to
reinstate the RTC's injunction against the implementation of RR 2-2012, and by moving for the issuance of a temporary
restraining order and/or writ of preliminary injunction. We denied the motion but nevertheless required the petitioners
to comment on the petition.
The proceedings before the RTC in the meanwhile continued. On April 18, 2012, petitioner Lazatin amended his original
petition, converting it to a petition for declaratory relief.12 The RTC admitted the amended petition and allowed EPEC to
intervene.
In its decision dated November 8, 2013, the RTC ruled in favor of Lazatin and EPEC.
First, on the procedural aspect, the RTC held that the original petition's amendment is allowed by the rules and that
amendments are largely preferred; it allowed the amendment in the exercise of its sound judicial discretion to avoid
multiplicity of suits and to give the parties an opportunity to thresh out the issues and finally reach a conclusion.13
Second, the RTC held that Lazatin and EPEC had legal standing to question the validity of RR 2-2012. Lazatin's
allegation that RR 2-2012 effectively amends and modifies RA 9400 gave him standing as a legislator: the amendment
of a tax law is a power that belongs exclusively to Congress. Lazatin's allegation, according to the RTC, sufficiently
shows how his rights, privileges, and prerogatives as a member of Congress were impaired by the issuance of RR 2-
2012.
The RTC also ruled that the case warrants a relaxation on the rules on legal standing because the issues touched upon
are of transcendental importance. The trial court considered the encompassing effect that RR 2-2012 may have in the
numerous freeport and economic zones in the Philippines, as well as its potential impact on hundreds of investors
operating within the zones.
The RTC then held that even if Lazatin does not have legal standing, EPEC's intervention cured this defect: EPEC, as a
locator within the Clark FEZ, would be adversely affected by the implementation of RR 2-2012.
Finally, the RTC declared RR 2-2012 unconstitutional. RR 2-2012 violates RA 9400 because it imposes taxes that, by
law, are not due in the first place.14 Since RA 9400 clearly grants tax and duty-free incentives to Clark FEZ locators, a
revocation of these incentives by an RR directly contravenes the express intent of the Legislature.15 In effect, the
petitioners encroached upon the prerogative to enact, amend, or repeal laws, which the Constitution exclusively granted
to Congress.
The Petition
The petitioners anchor their present petition on two arguments: 1) respondents have no legal standing, and 2) RR 2-
2012 is valid and constitutional.
The petitioners submit that the Lazatin and EPEC do not have legal standing to assail the validity of RR 2-2012.
First, the petitioners claim that Lazatin does not have the requisite legal standing as he failed to exactly show how the
implementation of RR 2- 2012 would impair the exercise his official functions. Respondent Lazatin merely generally
alleged that his constitutional prerogatives to pass or amend laws were gravely impaired or were about to be impaired
by the issuance of RR 2-2012. He did not specify the power that he, as a legislator, would be encroached upon.
While the Clark FEZ is within the district that respondent Lazatin represents, the petitioners emphasize that Lazatin
failed to show that he is authorized to file a case on behalf of the locators in the FEZ, the local government unit, or his
constituents in general.16 To the petitioners, if RR 2- 2012 ever caused injury to the locators or to any of Lazatin's
constituents, only these injured parties possess the personality to question the petitioners' actions; respondent Lazatin
cannot claim this right on their behalf.17
The petitioners claim, too, that the RTC should not have brushed aside the rules on standing on account of
transcendental importance. To them, this case does not involve public funds, only a speculative loss of profits upon the
implementation of RR 2-2012; nor is Lazatin a party with more direct and specific interest to raise the issues in his
petition.18 Citing Senate v. Ermita,19 the petitioners argue that the rules on standing cannot be relaxed.
Second, petitioners also argue that EPEC does not have legal standing to intervene. That EPEC will ultimately bear the
VAT and excise tax as an end-user, is misguided.20 The burden of payment of VAT and excise tax may be shifted to the
buyer21 and this burden, from the point of view of the transferee is no longer a tax but merely a component of the cost
of goods purchased. The statutory liability for the tax remains with the seller. Thus, EPEC cannot say that when the
burden is passed on to it, RR 2-2012 effectively imposes tax on it as a Clark FEZ locator.
The petitioners point out that RR 2-2012 imposes an "advance tax" only upon importers of petroleum products. If EPEC
is indeed a locator, then it enjoys tax and duty exemptions granted by RA 9400 so long as it does not bring the
petroleum or petroleum products to the Philippine customs territory.22
The petitioners legally argue that RR 2-2012 is valid and constitutional.
First, petitioner submit that RR 2-2012's issuance and implementation are within their powers to undertake.23 RR 2-
2012 is an administrative issuance that enjoys the presumption of validity in the manner that statutes enjoy this
presumption; thus, it cannot be nullified without clear and convincing evidence to the contrary.24
Second, petitioners contend that while RA 9400 does grant tax and customs duty incentives to Clark FEZ locators, there
are conditions before these benefits may be availed of. The locators cannot invoke outright exemption from VAT and
excise tax on its importations without first satisfying the conditions set by RA 9400, that is, the importation must not be
removed from the FEZ and introduced into the Philippine customs territory.25
These locators enjoy what petitioners call a qualified tax exemption. They must first pay the corresponding taxes on its
imported petroleum. Then, they must submit the documents required under RR 2-2012. If they have sufficiently shown
that the imported products have not been removed from the FEZ, their earlier payment shall be subject to a refund.
The petitioners lastly argue that RR 2-2012 does not withdraw the locators' tax exemption privilege. The regulation
simply requires proof that a locator has complied with the conditions for tax exemption. If the locator cannot show that
the goods were retained and/or consumed within the FEZ, such failure creates the presumption that the goods have
been introduced into the customs territory without the appropriate permits.26 On the other hand, if they have duly
proven the disposition of the goods within the FEZ, their "advance payment" is subject to a refund. Thus, to the
petitioners, to the extent that a refund is allowable, there is in reality a tax exemption.27
Counter-arguments
Respondents Lazatin and EPEC, maintaining that they have standing to question its validity, insist that RR 2-2012 is
unconstitutional.
Respondents have standing as

lawmaker and FEZ locator.
The respondents argue that a member of Congress has standing to protect the prerogatives, powers, and privileges
vested by the Constitution in his office.28 As a member of Congress, his standing to question executive issuances that
infringe on the right of Congress to enact, amend, or repeal laws has already been recognized.29 He suffers substantial
injury whenever the executive oversteps and intrudes into his power as a lawmaker.30
On the other hand, the respondents point out that RR 2-2012 explicitly covers FEZs. Thus, being a Clark FEZ locator,
EPEC is among the many businesses that would have been directly affected by its implementation.31
RR 2-2012 illegally imposes taxes

on Clark FEZs.
The respondents underscore that RA 9400 provides FEZ locators certain incentives, such as tax- and duty-free
importations of raw materials and capital equipment. These provisions of the law must be interpreted in a way that will
give full effect to law's policy and objective, which is to maximize the benefits derived from the FEZs in promoting
economic and social development.32
They admit that the law subjects to taxes and duties the goods that were brought into the FEZ and subsequently
introduced to the Philippine customs territory. However, contrary to petitioners' position that locators' tax and duty
exemptions are qualified, their incentives apply automatically.
According to the respondents, petitioners' interpretation of the law contravenes the policy laid down by RA 9400,
because it makes the incentives subject to a suspensive condition. They claim that the condition — the removal of the
goods from the FEZ and their subsequent introduction to the customs territory — is resolutory; locators enjoy the
granted incentives upon bringing the goods into the FEZ. It is only when the goods are shown to have been brought into
the customs territory will the proper taxes and duties have to be paid.33 RR 2-2012 reverses this process by requiring
the locators to pay "advance" taxes and duties first and to subsequently prove that they are entitled to a refund,
thereafter.34 RR 2-2012 indeed allows a refund, but a refund of taxes that were not due in the first place.35
The respondents add that even the refund mechanism under RR 2-2012 is problematic. They claim that RR 2-2012 only
allows a refund when the petroleum products brought into the FEZ are subsequently soldto FEZ locators or to entities
that similarly enjoy exemption from direct and indirect taxes. The issuance does not envision a situation where the
petroleum products are directly brought into the FEZ and are consumed by the same entity/locator.36 Further, the
refund process takes a considerable length of time to secure, thus requiring cash outlay on the part of locators;37 even
when the claim for refund is granted, the refund will not be in cash, but in the form of a Tax Credit Certificate (TCC).38
As the challenged regulation directly contravenes incentives legitimately granted by a legislative act, the respondents
argue that in issuing RR 2-2012, the petitioners not only encroached upon congressional prerogatives and arrogated
powers unto themselves; they also effectively violated, brushed aside, and rendered nugatory the rigorous process
required in enacting or amending laws.39
Issues
We shall decide the following issues:
I. Whether respondents Lazatin and EPEC have legal standing to bring the action of declaratory relief; and
II. Whether RR 2-2012 is valid and constitutional.
The Court's Ruling
We do not find the petition meritorious.
I. Respondents have
legal standing to
file petition for
declaratory relief.
The party seeking declaratory relief must have a legal interest in the controversy for the action to prosper.40 This
interest must be material not merely incidental. It must be an interest that which will be affected by the challenged
decree, law or regulation. It must be a present substantial interest, as opposed to a mere expectancy or a future,
contingent, subordinate, or consequential interest.41
Moreover, in case the petition for declaratory relief specifically involves a question of constitutionality, the courts will
not assume jurisdiction over the case unless the person challenging the validity of the act possesses the requisite legal
standing to pose the challenge.42
Locus standi is a personal and substantial interest in a case such that the party has sustained or will sustain direct
injury as a result of the challenged governmental act. The question is whether the challenging party alleges such
personal stake in the outcome of the controversy so as to assure the existence of concrete adverseness that would
sharpen the presentation of issues and illuminate the court in ruling on the constitutional question posed.43
We rule that the respondents satisfy these standards.
Lazatin has legal standing as

a legislator.
Lazatin filed the petition for declaratory relief before the RTC in his capacity as a member of Congress.44He alleged that
RR 2-2012 was issued directly contravening RA 9400, a legislative enactment. Thus, the regulation encroached upon
the Congress' exclusive power to enact, amend, or repeal laws.45 According to Lazatin, a member of Congress has
standing to challenge the validity of an executive issuance if it tends to impair his prerogatives as a legislator.46
We agree with Lazatin.
In Biraogo v. The Philippine Truth Commission,47 we ruled that legislators have the legal standing to ensure that the
prerogatives, powers, and privileges vested by the Constitution in their office remain inviolate. To this end, members of
Congress are allowed to question the validity of any official action that infringes on their prerogatives as legislators.48
Thus, members of Congress possess the legal standing to question acts that amount to a usurpation of the legislative
power of Congress.49 Legislative power is exclusively vested in the Legislature. When the implementing rules and
regulations issued by the Executive contradict or add to what Congress has provided by legislation, the issuance of
these rules amounts to an undue exercise of legislative power and an encroachment of Congress' prerogatives.
To the same extent that the Legislature cannot surrender or abdicate its legislative power without violating the
Constitution,50 so also is a constitutional violation committed when rules and regulations implementing legislative
enactments are contrary to existing statutes. No law can be amended by a mere administrative rule issued for its
implementation; administrative or executive acts are invalid if they contravene the laws or to the Constitution.51
Thus, the allegation that RR. 2-2012 — an executive issuance purporting to implement the provisions of the Tax Code
— directly contravenes RA 9400 clothes a member of Congress with legal standing to question the issuance to prevent
undue encroachment of legislative power by the executive.
EPEC has legal standing as a

Clark FEZ locator.
EPEC intervened in the proceedings before the RTC based on the allegation that, as a Clark FEZ locator, it will be
directly affected by the implementation of RR 2-2012.52
We agree with EPEC.
It is not disputed that RR 2-2012 relates to the imposition of VAT and excise tax and applies to all petroleum and
petroleum products that are imported directly from abroad to the Philippines, including FEZs.53
As an enterprise located in the Clark FEZ, its importations of petroleum and petroleum products will be directly affected
by RR 2-2012. Thus, its interest in the subject matter — a personal and substantial one — gives it legal standing to
question the issuance's validity.
In sum, the respondents' respective interests in this case are sufficiently substantial to be directly affected by the
implementation of RR 2-2012. The RTC therefore did not err when it gave due course to Lazatin's petition for
declaratory relief as well as PEC's petition-in-intervention.
In light of this ruling, we see no need to rule on the claimed transcendental importance of the issues raised.
II. RR 2-2012 is
invalid and
unconstitutional.
On the merits of the case, we rule that RR 2-2012 is invalid and unconstitutional because: a) it illegally imposes taxes
upon FEZ enterprises, which, by law, enjoy tax-exempt status, and b) it effectively amends the law (i.e., RA 7227, as
amended by RA 9400) and thereby encroaches upon the legislative authority reserved exclusively by the Constitution
for Congress.
FEZ enterprises enjoy tax- and

duty-free incentives on its
importations.
In 1992, Congress enacted RA 7227 otherwise known as the "Bases Conversion and Development Act of 1992" to
enhance the benefits to be derived from the Subic and Clark military reservations.54 RA 7227 established the Subic
Special economic zone and granted such special territory various tax and duty incentives.
To effectively extend the same benefits enjoyed in Subic to the Clark FEZ, the legislature enacted RA 9400 to amend RA
7227.55 Subsequently, the Department of Finance issued Department Order No. 3-200856 to implement RA 9400
(Implementing Rules).
Under RA 9400 and its Implementing Rules, Clark FEZ is considered a customs territory separate and distinct from the
Philippines customs territory. Thus, as opposed to importations into and establishments in the Philippines customs
territory,57 which are fully subject to Philippine customs and tax laws, importations into and establishments located
within the Clark FEZ (FEZ Enterprises)58 enjoy special incentives, including tax and duty-free importation.59 More
specifically, Clark FEZ enterprises shall be entitled to the freeport status of the zone and a 5% preferential income tax
rate on its gross income, in lieu of national and local taxes.60
RA 9400 and its Implementing Rules grant the following:

First, the law provides that importations of raw materials and capital equipment into the FEZs shall betax- and duty-
free. It is the specific transaction (i.e., importation) that is exempt from taxes and duties.
Second, the law also grants FEZ enterprises tax- and duty-free importation and a preferential rate in the payment of
income tax, in lieu of all national and local taxes. These incentives exempt the establishmentitself from taxation.
Thus, the Legislature intended FEZs to enjoy tax incentives in general — whether with respect to thetransactions that
take place within its special jurisdiction, or the persons/establishments within the jurisdiction. From this perspective, the
tax incentives enjoyed by FEZ enterprises must be understood to necessarily include the tax exemption of importations
of selected articles into the FEZ.
We have ruled in the past that FEZ enterprises' tax exemptions must be interpreted within the context and in a manner
that promotes the legislative intent of RA 722761 and, by extension, RA 9400. Thus, we recognized that FEZ enterprises
are exempt from both direct and indirect internal revenue taxes.62 In particular, they are considered VAT-exempt
entities.63
In line with this comprehensive interpretation, we rule that the tax exemption enjoyed by FEZ enterprises covers
internal revenue taxes imposed on goods brought into the FEZ, including the Clark FEZ, such as VAT and excise tax.
RR 2-2012 illegally imposes VAT and excise

tax on goods brought into the FEZs.
Section 3 of RR 2-2012 provides the following:
First, whenever petroleum and petroleum products are imported and/or brought directly to the Philippines,
the importer of these goods is required to pay the corresponding VAT and excise tax due on the importation.
Second, the importer, as the payor of the taxes, may subsequently seek a refund of the amount previously paid by
filing a corresponding claim with the Bureau of Customs (BOC).
Third, the claim shall only be granted upon showing that the necessary condition has been fulfilled.
At first glance, this imposition — a mere tax administration measure according to the petitioners — appears to be
consistent with the taxation of similar imported articles under the Tax Code, specifically under its Sections 10764 and
14865 (in relation with Sections 12966 and 13167) .
However, RR 2-2012 explicitly covers even petroleum and petroleum products imported and/or brought into the various
FEZs in the Philippines. Hence, when an FEZ enterprise brings petroleum and petroleum products into the FEZ, under
RR 2-2012, it shall be considered an importer liable for the taxes due on these products.
The crux of the controversy can be found in this feature of the challenged regulation.
The petitioners assert that RR 2-2012 simply implements the provisions of the Tax Code on collection of internal
revenue taxes, more specifically VAT and excise tax, on the importation of petroleum and petroleum products. To them,
FEZ enterprises enjoy a qualified tax exemption such that they have to pay the tax due on the importation first, and
thereafter claim a refund, which shall be allowed only upon showing that the goods were not introduced to the
Philippine customs territory.
On the other hand, the respondents contend that RR 2-2012 imposes taxes on FEZ enterprises, which in the first place
are not liable for taxes. They emphasize that the tax incentives under RA 9400 apply automatically upon the
importation of the goods. The proper taxes on the importation shall only be due if the enterprises can later show that
the goods were subsequently introduced to the Philippine customs territory.
Since the tax exemptions enjoyed by FEZ enterprises under the law extend even to VAT and excise tax, as we discussed
above, it follows and we accordingly rule that the taxes imposed by Section 3 of RR 2-2012 directly contravene these
exemptions. First, the regulation erroneously considers petroleum and petroleum products brought into a FEZ as
taxable importations. Second, it unreasonably burdens FEZ enterprises by making them pay the corresponding taxes —
an obligation from which the law specifically exempts them — even if there is a subsequent opportunity to refund the
payments made.
Petroleum and petroleum products brought

into the FEZ and which remain therein are
not taxable importations.
RR 2-2012 clearly imposes VAT and excise tax on the importation of petroleum and petroleum products into FEZs.
Strictly speaking, however, articles brought into these FEZs are not taxable importations under the law based on the
following considerations:
First, importation refers to bringing goods from abroad into the Philippine customs jurisdiction. It begins from the time
the goods enter the Philippine jurisdiction and is deemed terminated when the applicable taxes and duties have been
paid or the goods have left the jurisdiction of the BOC.68
Second, under the Tax Code, imported goods are subject to VAT and excise tax. These taxes shall be paid prior to the
release of the goods from customs custody.69 Also, for VAT purposes,70 an importer refers to any person who brings
goods into the Philippines.
Third, the Philippine VAT system adheres to the cross border doctrine.71 Under this rule, no VAT shall be imposed to
form part of the cost of the goods destined for consumption outside the Philippine customs territory.72 Thus, we
have already ruled before that an FEZ enterprise cannot be directlycharged for the VAT on its sales, nor can VAT be
passed on to them indirectly as added cost to their purchases.73
Fourth, laws such as RA 7227, RA 7916, and RA 9400 have established certain special areas as separate customs
territories.74 In this regard, we have already held that such jurisdictions, such as the Clark FEZ, are, by legal
fiction, foreign territories.75
Fifth, the Implementing Rules provides that goods initially introduced into the FEZs and subsequently brought
out therefrom and introduced into the Philippine customs territory shall be considered asimportations and thereby
subject to the VAT.76 One such instance is the sale by any FEZ enterprise to a customer located in the customs territory,
which the VAT regulations refer to as a technical importation.77
We find it clear from all these that when goods (e.g., petroleum and petroleum products) are brought into an FEZ, the
goods remain to be in foreign territory and are not therefore goods introduced into Philippine customs territory subject
to Philippine customs and tax laws.78
Stated differently, goods brought into and traded within an FEZ are generally beyond the reach of national internal
revenue taxes and customs duties enforced in the Philippine customs territory. This is consistent with the incentive
granted to FEZs exempting the importation itself from taxes and duties.
Therefore, the act of bringing the goods into an FEZ is not a taxable importation. As long as the goods remain (e.g.,
sale and/or consumption of the article within the FEZ) in the FEZ or re-exported to another foreign jurisdiction, they
shall continue to be tax-free.79 However, once the goods are introduced into the Philippine customs territory, it ceases
to enjoy the tax privileges accorded to FEZs. It shall then be considered as an importation subject to all applicable
national internal revenue taxes and customs duties.
The tax exemption granted to FEZ

enterprises is an immunity from tax liability
and from the payment of the tax.
The respondents claim that when RR 2-2012 was issued, petroleum and petroleum products brought into the FEZ by
FEZ enterprises suddenly became subject to VAT and excise tax, in direct contravention of RA 9400 (with respect to
Clark FEZ enterprises). Such imposition is not authorized under any law, including the Tax Code.80
On the other hand, the petitioners argue that RR 2-2012 does not withdraw the tax exemption privileges of FEZ
enterprises. As their tax exemption is merely qualified, they cannot invoke outright exemption. Thus, FEZ enterprises
are required to pay internal revenue taxes first on their imported petroleum under RR 2-2012. They may then refund
their previous payment upon showing that the condition under RA 9400 has been satisfied — that is, the goods have
not been introduced to the Philippines customs territory.81 To the petitioners, to the extent that a refund is allowable,
there is still in reality a tax exemption.82
We disagree with this contention.
First, FEZ enterprises bringing goods into the FEZ should not be considered as importers subject to tax in the same
manner that the very act of bringing goods into these special territories does not make themtaxable importations. We
emphasize that the exemption from taxes and duties under RA 9400 are granted not only to importations into the FEZ,
but also specifically to each FEZ enterprise. As discussed, the tax exemption enjoyed by FEZ enterprises necessarily
includes the tax exemption of the importations of selected articles into the FEZ.
Second, the essence of a tax exemption is the immunity or freedom from a charge or burden to which others are
subjected.83 It is a waiver of the government's right to collect84 the amounts that would have been collectible under our
tax laws. Thus, when the law speaks of a tax exemption, it should be understood as freedom from the imposition and
payment of a particular tax.
Based on this premise, we rule that the refund mechanism provided by RR 2-2012 does not amount to a tax exemption.
Even if the possibility of a subsequent refund exists, the fact remains that FEZ enterprises must still spend money and
other resources to pay for something they should be immune to in the first place. This completely contradicts the
essence of their tax exemption.
In the same vein, we cannot agree with the view that FEZ enterprises have the duty to prove their entitlement to tax
exemption first before fully enjoying the same; we find it illogical to determine whether a person is exempted from tax
without first determining if he is subject to the tax being imposed. We have reminded the tax authorities to determine
first if a person is liable for a particular tax, applying the rule of strict interpretation of tax laws, before asking him to
prove his exemption therefrom.85 Indeed, as entities exempted on taxes on importations, FEZ enterprises are clearly
beyond the coverage of any law imposing those very charges. There is no justifiable reason to require them to prove
that they are exempted from it.
More importantly, we have also recognized that the exemption from local and national taxes granted under RA 7227, as
amended by RA 9400, are ipso facto accorded to FEZs. In case of doubt, conflicts with respect to such tax exemption
privilege shall be resolved in favor of these special territories.86
RR 2-2012 is unconstitutional.
According to the respondents, the power to enact, amend, or repeal laws belong exclusively to Congress.87 In passing
RR 2-2012, petitioners illegally amended the law — a power solely vested on the Legislature.
We agree with the respondents.
The power of the petitioners to interpret tax laws is not absolute. The rule is that regulations may not enlarge, alter,
restrict, or otherwise go beyond the provisions of the law they administer; administrators and implementors cannot
engraft additional requirements not contemplated by the legislature.88
It is worthy to note that RR 2-2012 does not even refer to a specific Tax Code provision it wishes to implement. While it
purportedly establishes mere administration measures for the collection of VAT and excise tax on the importation of
petroleum and petroleum products, not once did it mention the pertinent chapters of the Tax Code on VAT and excise
tax.
While we recognize petitioners' essential rationale in issuing RR 2-2012, the procedures proposed by the issuance
cannot be implemented at the expense of entities that have been clearly granted statutory tax immunity.
Tax exemptions are granted for specific public interests that the Legislature considers sufficient to offset the monetary
loss in the grant of exemptions.89 To limit the tax-free importation privilege of FEZ enterprises by requiring them to pay
subject to a refund clearly runs counter to the Legislature's intent to create a free port where the "free flow of goods or
capital within, into, and out of the zones" is ensured.90
Finally, the State's inherent power to tax is vested exclusively in the Legislature.91 We have since ruled that the power
to tax includes the power to grant tax exemptions.92 Thus, the imposition of taxes, as well as the grant and withdrawal
of tax exemptions, shall only be valid pursuant to a legislative enactment.
As RR 2-2012, an executive issuance, attempts to withdraw the tax incentives clearly accorded by the legislative to FEZ
enterprises, the *petitioners have arrogated upon themselves a power reserved exclusively to Congress, in violation of
the doctrine of separation of powers.
In these lights, we hereby rule and declare that RR 2-2012 is null and void.
WHEREFORE, we hereby DISMISS the petition for lack of merit, and accordingly AFFIRM decision of the Regional
Trial Court dated November 8, 2013 2001 in SCA Case No. 12-410.
SO ORDERED.
Sereno, C.J., Carpio, Velasco, Jr., Leonardo-De Castro, Peralta, Bersamin, Del Castillo, Perez, Mendoza, Reyes, Perlas-
Bernabe, Leonen, and Caguioa, JJ., concur.
Jardeleza,* J., no part.
Endnotes:
G.R. No. 168056 September 1, 2005
ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S. ALCANTARA and ED
VINCENT S. ALBANO, Petitioners,
vs.
THE HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA; HONORABLE SECRETARY OF THE
DEPARTMENT OF FINANCE CESAR PURISIMA; and HONORABLE COMMISSIONER OF INTERNAL
REVENUE GUILLERMO PARAYNO, JR., Respondent.
x-------------------------x
G.R. No. 168207
AQUILINO Q. PIMENTEL, JR., LUISA P. EJERCITO-ESTRADA, JINGGOY E. ESTRADA, PANFILO M.

LACSON, ALFREDO S. LIM, JAMBY A.S. MADRIGAL, AND SERGIO R. OSMEÑA III, Petitioners,
vs.
EXECUTIVE SECRETARY EDUARDO R. ERMITA, CESAR V. PURISIMA, SECRETARY OF FINANCE,
GUILLERMO L. PARAYNO, JR., COMMISSIONER OF THE BUREAU OF INTERNAL
REVENUE, Respondent.
x-------------------------x
G.R. No. 168461

ASSOCIATION OF PILIPINAS SHELL DEALERS, INC. represented by its President, ROSARIO ANTONIO;
PETRON DEALERS’ ASSOCIATION represented by its President, RUTH E. BARBIBI; ASSOCIATION OF
CALTEX DEALERS’ OF THE PHILIPPINES represented by its President, MERCEDITAS A. GARCIA;
ROSARIO ANTONIO doing business under the name and style of "ANB NORTH SHELL SERVICE STATION";
LOURDES MARTINEZ doing business under the name and style of "SHELL GATE – N. DOMINGO";
BETHZAIDA TAN doing business under the name and style of "ADVANCE SHELL STATION"; REYNALDO P.
MONTOYA doing business under the name and style of "NEW LAMUAN SHELL SERVICE STATION"; EFREN
SOTTO doing business under the name and style of "RED FIELD SHELL SERVICE STATION"; DONICA
CORPORATION represented by its President, DESI TOMACRUZ; RUTH E. MARBIBI doing business under
the name and style of "R&R PETRON STATION"; PETER M. UNGSON doing business under the name and
style of "CLASSIC STAR GASOLINE SERVICE STATION"; MARIAN SHEILA A. LEE doing business under the
name and style of "NTE GASOLINE & SERVICE STATION"; JULIAN CESAR P. POSADAS doing business
under the name and style of "STARCARGA ENTERPRISES"; ADORACION MAÑEBO doing business under
the name and style of "CMA MOTORISTS CENTER"; SUSAN M. ENTRATA doing business under the name
and style of "LEONA’S GASOLINE STATION and SERVICE CENTER"; CARMELITA BALDONADO doing
business under the name and style of "FIRST CHOICE SERVICE CENTER"; MERCEDITAS A. GARCIA doing
business under the name and style of "LORPED SERVICE CENTER"; RHEAMAR A. RAMOS doing business
under the name and style of "RJRAM PTT GAS STATION"; MA. ISABEL VIOLAGO doing business under the
name and style of "VIOLAGO-PTT SERVICE CENTER"; MOTORISTS’ HEART CORPORATION represented
by its Vice-President for Operations, JOSELITO F. FLORDELIZA; MOTORISTS’ HARVARD CORPORATION
represented by its Vice-President for Operations, JOSELITO F. FLORDELIZA; MOTORISTS’ HERITAGE
CORPORATION represented by its Vice-President for Operations, JOSELITO F. FLORDELIZA; PHILIPPINE
STANDARD OIL CORPORATION represented by its Vice-President for Operations, JOSELITO F.
FLORDELIZA; ROMEO MANUEL doing business under the name and style of "ROMMAN GASOLINE
STATION"; ANTHONY ALBERT CRUZ III doing business under the name and style of "TRUE SERVICE
STATION", Petitioners,
vs.
CESAR V. PURISIMA, in his capacity as Secretary of the Department of Finance and GUILLERMO L.
PARAYNO, JR., in his capacity as Commissioner of Internal Revenue, Respondent.
x-------------------------x
G.R. No. 168463
FRANCIS JOSEPH G. ESCUDERO, VINCENT CRISOLOGO, EMMANUEL JOEL J. VILLANUEVA, RODOLFO

G. PLAZA, DARLENE ANTONINO-CUSTODIO, OSCAR G. MALAPITAN, BENJAMIN C. AGARAO, JR. JUAN
EDGARDO M. ANGARA, JUSTIN MARC SB. CHIPECO, FLORENCIO G. NOEL, MUJIV S. HATAMAN,
RENATO B. MAGTUBO, JOSEPH A. SANTIAGO, TEOFISTO DL. GUINGONA III, RUY ELIAS C. LOPEZ,
RODOLFO Q. AGBAYANI and TEODORO A. CASIÑO, Petitioners,
vs.
CESAR V. PURISIMA, in his capacity as Secretary of Finance, GUILLERMO L. PARAYNO, JR., in his
capacity as Commissioner of Internal Revenue, and EDUARDO R. ERMITA, in his capacity as Executive
Secretary,Respondent.
x-------------------------x
G.R. No. 168730
BATAAN GOVERNOR ENRIQUE T. GARCIA, JR. Petitioner,

vs.
HON. EDUARDO R. ERMITA, in his capacity as the Executive Secretary; HON. MARGARITO TEVES, in his
capacity as Secretary of Finance; HON. JOSE MARIO BUNAG, in his capacity as the OIC Commissioner of the
Bureau of Internal Revenue; and HON. ALEXANDER AREVALO, in his capacity as the OIC Commissioner of
the Bureau of Customs, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
The expenses of government, having for their object the interest of all, should be borne by everyone, and the
more man enjoys the advantages of society, the more he ought to hold himself honored in contributing to those
expenses.
-Anne Robert Jacques Turgot (1727-1781)
French statesman and economist
Mounting budget deficit, revenue generation, inadequate fiscal allocation for education, increased emoluments
for health workers, and wider coverage for full value-added tax benefits … these are the reasons why Republic
Act No. 9337 (R.A. No. 9337)1 was enacted. Reasons, the wisdom of which, the Court even with its extensive
constitutional power of review, cannot probe. The petitioners in these cases, however, question not only the
wisdom of the law, but also perceived constitutional infirmities in its passage.
Every law enjoys in its favor the presumption of constitutionality. Their arguments notwithstanding, petitioners
failed to justify their call for the invalidity of the law. Hence, R.A. No. 9337 is not unconstitutional.
LEGISLATIVE HISTORY
R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill Nos. 3555 and 3705, and Senate
Bill No. 1950.
House Bill No. 35552 was introduced on first reading on January 7, 2005. The House Committee on Ways and
Means approved the bill, in substitution of House Bill No. 1468, which Representative (Rep.) Eric D. Singson
introduced on August 8, 2004. The President certified the bill on January 7, 2005 for immediate enactment. On
January 27, 2005, the House of Representatives approved the bill on second and third reading.
House Bill No. 37053 on the other hand, substituted House Bill No. 3105 introduced by Rep. Salacnib F.
Baterina, and House Bill No. 3381 introduced by Rep. Jacinto V. Paras. Its "mother bill" is House Bill No. 3555.
The House Committee on Ways and Means approved the bill on February 2, 2005. The President also certified
it as urgent on February 8, 2005. The House of Representatives approved the bill on second and third reading
on February 28, 2005.
Meanwhile, the Senate Committee on Ways and Means approved Senate Bill No. 19504 on March 7, 2005, "in
substitution of Senate Bill Nos. 1337, 1838 and 1873, taking into consideration House Bill Nos. 3555 and
3705." Senator Ralph G. Recto sponsored Senate Bill No. 1337, while Senate Bill Nos. 1838 and 1873 were
both sponsored by Sens. Franklin M. Drilon, Juan M. Flavier and Francis N. Pangilinan. The President certified
the bill on March 11, 2005, and was approved by the Senate on second and third reading on April 13, 2005.
On the same date, April 13, 2005, the Senate agreed to the request of the House of Representatives for a
committee conference on the disagreeing provisions of the proposed bills.
Before long, the Conference Committee on the Disagreeing Provisions of House Bill No. 3555, House Bill No.
3705, and Senate Bill No. 1950, "after having met and discussed in full free and conference," recommended
the approval of its report, which the Senate did on May 10, 2005, and with the House of Representatives
agreeing thereto the next day, May 11, 2005.
On May 23, 2005, the enrolled copy of the consolidated House and Senate version was transmitted to the
President, who signed the same into law on May 24, 2005. Thus, came R.A. No. 9337.
July 1, 2005 is the effectivity date of R.A. No. 9337.5 When said date came, the Court issued a temporary
restraining order, effective immediately and continuing until further orders, enjoining respondents from
enforcing and implementing the law.
Oral arguments were held on July 14, 2005. Significantly, during the hearing, the Court speaking through Mr.
Justice Artemio V. Panganiban, voiced the rationale for its issuance of the temporary restraining order on July
1, 2005, to wit:
J. PANGANIBAN : . . . But before I go into the details of your presentation, let me just tell you a little
background. You know when the law took effect on July 1, 2005, the Court issued a TRO at about 5 o’clock in
the afternoon. But before that, there was a lot of complaints aired on television and on radio. Some people in a
gas station were complaining that the gas prices went up by 10%. Some people were complaining that their
electric bill will go up by 10%. Other times people riding in domestic air carrier were complaining that the prices
that they’ll have to pay would have to go up by 10%. While all that was being aired, per your presentation and
per our own understanding of the law, that’s not true. It’s not true that the e-vat law necessarily increased
prices by 10% uniformly isn’t it?
ATTY. BANIQUED : No, Your Honor.
J. PANGANIBAN : It is not?
ATTY. BANIQUED : It’s not, because, Your Honor, there is an Executive Order that granted the Petroleum
companies some subsidy . . . interrupted
J. PANGANIBAN : That’s correct . . .
ATTY. BANIQUED : . . . and therefore that was meant to temper the impact . . . interrupted
J. PANGANIBAN : . . . mitigating measures . . .
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : As a matter of fact a part of the mitigating measures would be the elimination of the Excise
Tax and the import duties. That is why, it is not correct to say that the VAT as to petroleum dealers increased
prices by 10%.
J. PANGANIBAN : And therefore, there is no justification for increasing the retail price by 10% to cover the E-
Vat tax. If you consider the excise tax and the import duties, the Net Tax would probably be in the
neighborhood of 7%? We are not going into exact figures I am just trying to deliver a point that different
industries, different products, different services are hit differently. So it’s not correct to say that all prices must
go up by 10%.
ATTY. BANIQUED : You’re right, Your Honor.
J. PANGANIBAN : Now. For instance, Domestic Airline companies, Mr. Counsel, are at present imposed a
Sales Tax of 3%. When this E-Vat law took effect the Sales Tax was also removed as a mitigating measure.
So, therefore, there is no justification to increase the fares by 10% at best 7%, correct?
ATTY. BANIQUED : I guess so, Your Honor, yes.
J. PANGANIBAN : There are other products that the people were complaining on that first day, were being
increased arbitrarily by 10%. And that’s one reason among many others this Court had to issue TRO because
of the confusion in the implementation. That’s why we added as an issue in this case, even if it’s tangentially
taken up by the pleadings of the parties, the confusion in the implementation of the E-vat. Our people were
subjected to the mercy of that confusion of an across the board increase of 10%, which you yourself now admit
and I think even the Government will admit is incorrect. In some cases, it should be 3% only, in some cases it
should be 6% depending on these mitigating measures and the location and situation of each product, of each
service, of each company, isn’t it?
J. PANGANIBAN : Alright. So that’s one reason why we had to issue a TRO pending the clarification of all
these and we wish the government will take time to clarify all these by means of a more detailed implementing
rules, in case the law is upheld by this Court. . . .6
The Court also directed the parties to file their respective Memoranda.
G.R. No. 168056
Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition for prohibition
on May 27, 2005. They question the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337, amending
Sections 106, 107 and 108, respectively, of the National Internal Revenue Code (NIRC). Section 4 imposes a
10% VAT on sale of goods and properties, Section 5 imposes a 10% VAT on importation of goods, and Section
6 imposes a 10% VAT on sale of services and use or lease of properties. These questioned provisions contain
a uniform proviso authorizing the President, upon recommendation of the Secretary of Finance, to raise the
VAT rate to 12%, effective January 1, 2006, after any of the following conditions have been satisfied, to wit:
. . . That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006,
raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has been
satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds
two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent
(1 ½%).
Petitioners argue that the law is unconstitutional, as it constitutes abandonment by Congress of its exclusive
authority to fix the rate of taxes under Article VI, Section 28(2) of the 1987 Philippine Constitution.
G.R. No. 168207
On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a petition for certiorari likewise assailing the
constitutionality of Sections 4, 5 and 6 of R.A. No. 9337.
Aside from questioning the so-called stand-by authority of the President to increase the VAT rate to 12%, on
the ground that it amounts to an undue delegation of legislative power, petitioners also contend that the
increase in the VAT rate to 12% contingent on any of the two conditions being satisfied violates the due
process clause embodied in Article III, Section 1 of the Constitution, as it imposes an unfair and additional tax
burden on the people, in that: (1) the 12% increase is ambiguous because it does not state if the rate would be
returned to the original 10% if the conditions are no longer satisfied; (2) the rate is unfair and unreasonable, as
the people are unsure of the applicable VAT rate from year to year; and (3) the increase in the VAT rate, which
is supposed to be an incentive to the President to raise the VAT collection to at least 2 4/5 of the GDP of the
previous year, should only be based on fiscal adequacy.
Petitioners further claim that the inclusion of a stand-by authority granted to the President by the Bicameral
Conference Committee is a violation of the "no-amendment rule" upon last reading of a bill laid down in Article
VI, Section 26(2) of the Constitution.
G.R. No. 168461
Thereafter, a petition for prohibition was filed on June 29, 2005, by the Association of Pilipinas Shell Dealers,
Inc., et al., assailing the following provisions of R.A. No. 9337:
1) Section 8, amending Section 110 (A)(2) of the NIRC, requiring that the input tax on depreciable goods shall
be amortized over a 60-month period, if the acquisition, excluding the VAT components, exceeds One Million
Pesos (₱1, 000,000.00);
2) Section 8, amending Section 110 (B) of the NIRC, imposing a 70% limit on the amount of input tax to be
credited against the output tax; and
3) Section 12, amending Section 114 (c) of the NIRC, authorizing the Government or any of its political
subdivisions, instrumentalities or agencies, including GOCCs, to deduct a 5% final withholding tax on gross
payments of goods and services, which are subject to 10% VAT under Sections 106 (sale of goods and
properties) and 108 (sale of services and use or lease of properties) of the NIRC.
Petitioners contend that these provisions are unconstitutional for being arbitrary, oppressive, excessive, and
confiscatory.
Petitioners’ argument is premised on the constitutional right of non-deprivation of life, liberty or property without
due process of law under Article III, Section 1 of the Constitution. According to petitioners, the contested
sections impose limitations on the amount of input tax that may be claimed. Petitioners also argue that the input
tax partakes the nature of a property that may not be confiscated, appropriated, or limited without due process
of law. Petitioners further contend that like any other property or property right, the input tax credit may be
transferred or disposed of, and that by limiting the same, the government gets to tax a profit or value-added
even if there is no profit or value-added.
Petitioners also believe that these provisions violate the constitutional guarantee of equal protection of the law
under Article III, Section 1 of the Constitution, as the limitation on the creditable input tax if: (1) the entity has a
high ratio of input tax; or (2) invests in capital equipment; or (3) has several transactions with the government,
is not based on real and substantial differences to meet a valid classification.
Lastly, petitioners contend that the 70% limit is anything but progressive, violative of Article VI, Section 28(1) of
the Constitution, and that it is the smaller businesses with higher input tax to output tax ratio that will suffer the
consequences thereof for it wipes out whatever meager margins the petitioners make.
G.R. No. 168463
Several members of the House of Representatives led by Rep. Francis Joseph G. Escudero filed this petition
for certiorari on June 30, 2005. They question the constitutionality of R.A. No. 9337 on the following grounds:
1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue delegation of legislative power, in violation of
Article VI, Section 28(2) of the Constitution;
2) The Bicameral Conference Committee acted without jurisdiction in deleting the no pass on provisions
present in Senate Bill No. 1950 and House Bill No. 3705; and
3) Insertion by the Bicameral Conference Committee of Sections 27, 28, 34, 116, 117, 119, 121, 125,7 148,
151, 236, 237 and 288, which were present in Senate Bill No. 1950, violates Article VI, Section 24(1) of the
Constitution, which provides that all appropriation, revenue or tariff bills shall originate exclusively in the House
of Representatives
G.R. No. 168730
On the eleventh hour, Governor Enrique T. Garcia filed a petition for certiorari and prohibition on July 20, 2005,
alleging unconstitutionality of the law on the ground that the limitation on the creditable input tax in effect allows
VAT-registered establishments to retain a portion of the taxes they collect, thus violating the principle that tax
collection and revenue should be solely allocated for public purposes and expenditures. Petitioner Garcia
further claims that allowing these establishments to pass on the tax to the consumers is inequitable, in violation
of Article VI, Section 28(1) of the Constitution.
RESPONDENTS’ COMMENT
The Office of the Solicitor General (OSG) filed a Comment in behalf of respondents. Preliminarily, respondents
contend that R.A. No. 9337 enjoys the presumption of constitutionality and petitioners failed to cast doubt on its
validity.
Relying on the case of Tolentino vs. Secretary of Finance, 235 SCRA
630 (1994), respondents argue that the procedural issues raised by petitioners, i.e., legality of the bicameral
proceedings, exclusive origination of revenue measures and the power of the Senate concomitant thereto,
have already been settled. With regard to the issue of undue delegation of legislative power to the President,
respondents contend that the law is complete and leaves no discretion to the President but to increase the rate
to 12% once any of the two conditions provided therein arise.
Respondents also refute petitioners’ argument that the increase to 12%, as well as the 70% limitation on the
creditable input tax, the 60-month amortization on the purchase or importation of capital goods exceeding
₱1,000,000.00, and the 5% final withholding tax by government agencies, is arbitrary, oppressive, and
confiscatory, and that it violates the constitutional principle on progressive taxation, among others.
Finally, respondents manifest that R.A. No. 9337 is the anchor of the government’s fiscal reform agenda. A
reform in the value-added system of taxation is the core revenue measure that will tilt the balance towards a
sustainable macroeconomic environment necessary for economic growth.
ISSUES
The Court defined the issues, as follows:
PROCEDURAL ISSUE
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)
SUBSTANTIVE ISSUES
1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC, violate the
following provisions of the Constitution:
a. Article VI, Section 28(1), and
2. Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and Section 12
of R.A. No. 9337, amending Section 114(C) of the NIRC, violate the following provisions of the Constitution:
b. Article III, Section 1
RULING OF THE COURT
As a prelude, the Court deems it apt to restate the general principles and concepts of value-added tax (VAT),
as the confusion and inevitably, litigation, breeds from a fallacious notion of its nature.
The VAT is a tax on spending or consumption. It is levied on the sale, barter, exchange or lease of goods or
properties and services.8 Being an indirect tax on expenditure, the seller of goods or services may pass on the
amount of tax paid to the buyer,9 with the seller acting merely as a tax collector.10 The burden of VAT is
intended to fall on the immediate buyers and ultimately, the end-consumers.
In contrast, a direct tax is a tax for which a taxpayer is directly liable on the transaction or business it engages
in, without transferring the burden to someone else.11 Examples are individual and corporate income taxes,
transfer taxes, and residence taxes.12
In the Philippines, the value-added system of sales taxation has long been in existence, albeit in a different
mode. Prior to 1978, the system was a single-stage tax computed under the "cost deduction method" and was
payable only by the original sellers. The single-stage system was subsequently modified, and a mixture of the
"cost deduction method" and "tax credit method" was used to determine the value-added tax payable.13 Under
the "tax credit method," an entity can credit against or subtract from the VAT charged on its sales or outputs the
VAT paid on its purchases, inputs and imports.14
It was only in 1987, when President Corazon C. Aquino issued Executive Order No. 273, that the VAT system
was rationalized by imposing a multi-stage tax rate of 0% or 10% on all sales using the "tax credit method."15
E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT Law,16 R.A. No. 8241 or the Improved VAT
Law,17 R.A. No. 8424 or the Tax Reform Act of 1997,18 and finally, the presently beleaguered R.A. No. 9337,
also referred to by respondents as the VAT Reform Act.
The Court will now discuss the issues in logical sequence.
PROCEDURAL ISSUE
I.
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and
A. The Bicameral Conference Committee
Petitioners Escudero, et al., and Pimentel, et al., allege that the Bicameral Conference Committee exceeded its
authority by:
1) Inserting the stand-by authority in favor of the President in Sections 4, 5, and 6 of R.A. No. 9337;
2) Deleting entirely the no pass-on provisions found in both the House and Senate bills;
3) Inserting the provision imposing a 70% limit on the amount of input tax to be credited against the output tax;
and
4) Including the amendments introduced only by Senate Bill No. 1950 regarding other kinds of taxes in addition
to the value-added tax.
Petitioners now beseech the Court to define the powers of the Bicameral Conference Committee.
It should be borne in mind that the power of internal regulation and discipline are intrinsic in any legislative body
for, as unerringly elucidated by Justice Story, "[i]f the power did not exist, it would be utterly impracticable
to transact the business of the nation, either at all, or at least with decency, deliberation, and
order."19 Thus, Article VI, Section 16 (3) of the Constitution provides that "each House may determine the rules
of its proceedings." Pursuant to this inherent constitutional power to promulgate and implement its own rules of
procedure, the respective rules of each house of Congress provided for the creation of a Bicameral Conference
Committee.
Thus, Rule XIV, Sections 88 and 89 of the Rules of House of Representatives provides as follows:
Sec. 88. Conference Committee. – In the event that the House does not agree with the Senate on the
amendment to any bill or joint resolution, the differences may be settled by the conference committees of both
chambers.
In resolving the differences with the Senate, the House panel shall, as much as possible, adhere to and support
the House Bill. If the differences with the Senate are so substantial that they materially impair the House Bill,
the panel shall report such fact to the House for the latter’s appropriate action.
Sec. 89. Conference Committee Reports. – . . . Each report shall contain a detailed, sufficiently explicit
statement of the changes in or amendments to the subject measure.
...
The Chairman of the House panel may be interpellated on the Conference Committee Report prior to the voting
thereon. The House shall vote on the Conference Committee Report in the same manner and procedure as it
votes on a bill on third and final reading.
Rule XII, Section 35 of the Rules of the Senate states:
Sec. 35. In the event that the Senate does not agree with the House of Representatives on the provision of any
bill or joint resolution, the differences shall be settled by a conference committee of both Houses which shall
meet within ten (10) days after their composition. The President shall designate the members of the Senate
Panel in the conference committee with the approval of the Senate.
Each Conference Committee Report shall contain a detailed and sufficiently explicit statement of the changes
in, or amendments to the subject measure, and shall be signed by a majority of the members of each House
panel, voting separately.
A comparative presentation of the conflicting House and Senate provisions and a reconciled version thereof
with the explanatory statement of the conference committee shall be attached to the report.
...
The creation of such conference committee was apparently in response to a problem, not addressed by any
constitutional provision, where the two houses of Congress find themselves in disagreement over changes or
amendments introduced by the other house in a legislative bill. Given that one of the most basic powers of the
legislative branch is to formulate and implement its own rules of proceedings and to discipline its members,
may the Court then delve into the details of how Congress complies with its internal rules or how it conducts its
business of passing legislation? Note that in the present petitions, the issue is not whether provisions of the
rules of both houses creating the bicameral conference committee are unconstitutional, but whether the
bicameral conference committee has strictly complied with the rules of both houses, thereby remaining
within the jurisdiction conferred upon it by Congress.
In the recent case of Fariñas vs. The Executive Secretary,20 the Court En Banc, unanimously reiterated and
emphasized its adherence to the "enrolled bill doctrine," thus, declining therein petitioners’ plea for the Court to
go behind the enrolled copy of the bill. Assailed in said case was Congress’s creation of two sets of bicameral
conference committees, the lack of records of said committees’ proceedings, the alleged violation of said
committees of the rules of both houses, and the disappearance or deletion of one of the provisions in the
compromise bill submitted by the bicameral conference committee. It was argued that such irregularities in the
passage of the law nullified R.A. No. 9006, or the Fair Election Act.
Striking down such argument, the Court held thus:
Under the "enrolled bill doctrine," the signing of a bill by the Speaker of the House and the Senate President
and the certification of the Secretaries of both Houses of Congress that it was passed are conclusive of its due
enactment. A review of cases reveals the Court’s consistent adherence to the rule. The Court finds no reason
to deviate from the salutary rule in this case where the irregularities alleged by the petitioners mostly
involved the internal rules of Congress, e.g., creation of the 2nd or 3rd Bicameral Conference Committee
by the House. This Court is not the proper forum for the enforcement of these internal rules of
Congress, whether House or Senate. Parliamentary rules are merely procedural and with their
observance the courts have no concern. Whatever doubts there may be as to the formal validity of Rep.
Act No. 9006 must be resolved in its favor.The Court reiterates its ruling in Arroyo vs. De Venecia, viz.:
But the cases, both here and abroad, in varying forms of expression, all deny to the courts the power to
inquire into allegations that, in enacting a law, a House of Congress failed to comply with its own rules,
in the absence of showing that there was a violation of a constitutional provision or the rights of private
individuals. In Osmeña v. Pendatun, it was held: "At any rate, courts have declared that ‘the rules adopted by
deliberative bodies are subject to revocation, modification or waiver at the pleasure of the body adopting
them.’ And it has been said that "Parliamentary rules are merely procedural, and with their observance,
the courts have no concern. They may be waived or disregarded by the legislative body."
Consequently, "mere failure to conform to parliamentary usage will not invalidate the action (taken by a
deliberative body) when the requisite number of members have agreed to a particular
measure."21 (Emphasis supplied)
The foregoing declaration is exactly in point with the present cases, where petitioners allege irregularities
committed by the conference committee in introducing changes or deleting provisions in the House and Senate
bills. Akin to the Fariñas case,22 the present petitions also raise an issue regarding the actions taken by the
conference committee on matters regarding Congress’ compliance with its own internal rules. As stated earlier,
one of the most basic and inherent power of the legislature is the power to formulate rules for its proceedings
and the discipline of its members. Congress is the best judge of how it should conduct its own business
expeditiously and in the most orderly manner. It is also the sole
concern of Congress to instill discipline among the members of its conference committee if it believes that said
members violated any of its rules of proceedings. Even the expanded jurisdiction of this Court cannot apply to
questions regarding only the internal operation of Congress, thus, the Court is wont to deny a review of the
internal proceedings of a co-equal branch of government.
Moreover, as far back as 1994 or more than ten years ago, in the case of Tolentino vs. Secretary of
Finance,23 the Court already made the pronouncement that "[i]f a change is desired in the practice [of the
Bicameral Conference Committee] it must be sought in Congress since this question is not covered by
any constitutional provision but is only an internal rule of each house." 24 To date, Congress has not seen
it fit to make such changes adverted to by the Court. It seems, therefore, that Congress finds the practices of
the bicameral conference committee to be very useful for purposes of prompt and efficient legislative action.
Nevertheless, just to put minds at ease that no blatant irregularities tainted the proceedings of the bicameral
conference committees, the Court deems it necessary to dwell on the issue. The Court observes that there was
a necessity for a conference committee because a comparison of the provisions of House Bill Nos. 3555 and
3705 on one hand, and Senate Bill No. 1950 on the other, reveals that there were indeed disagreements. As
pointed out in the petitions, said disagreements were as follows:
House Bill No. 3555 House Bill No.3705 Senate Bill No. 1950
With regard to "Stand-By Authority" in favor of President
Provides for 12% VAT on every Provides for 12% VAT in general on Provides for a single rate of 10%
sale of goods or properties sales of goods or properties and VAT on sale of goods or
(amending Sec. 106 of NIRC); reduced rates for sale of certain properties (amending Sec. 106
12% VAT on importation of locally manufactured goods and of NIRC), 10% VAT on sale of
goods (amending Sec. 107 of petroleum products and raw services including sale of
NIRC); and 12% VAT on sale of materials to be used in the electricity by generation
services and use or lease of manufacture thereof (amending companies, transmission and
properties (amending Sec. 108 Sec. 106 of NIRC); 12% VAT on distribution companies, and use
of NIRC) importation of goods and reduced or lease of properties (amending
rates for certain imported products Sec. 108 of NIRC)
including petroleum products
(amending Sec. 107 of NIRC); and
12% VAT on sale of services and
use or lease of properties and a
reduced rate for certain services
including power generation
(amending Sec. 108 of NIRC)
With regard to the "no pass-on" provision
No similar provision Provides that the VAT imposed on Provides that the VAT imposed
power generation and on the sale of on sales of electricity by
petroleum products shall be generation companies and
absorbed by generation companies services of transmission
or sellers, respectively, and shall not companies and distribution
be passed on to consumers companies, as well as those of
franchise grantees of electric
utilities shall not apply to
residential
end-users. VAT shall be

absorbed by generation,
transmission, and distribution
companies.
With regard to 70% limit on input tax credit
Provides that the input tax No similar provision Provides that the input tax credit
credit for capital goods on for capital goods on which a VAT
which a VAT has been paid has been paid shall be equally
shall be equally distributed over distributed over 5 years or the
5 years or the depreciable life depreciable life of such capital
of such capital goods; the input goods; the input tax credit for
tax credit for goods and goods and services other than
services other than capital capital goods shall not exceed
goods shall not exceed 5% of 90% of the output VAT.
the total amount of such goods
and services; and for persons
engaged in retail trading of
goods, the allowable input tax
credit shall not exceed 11% of
the total amount of goods
purchased.
With regard to amendments to be made to NIRC provisions regarding income and excise
taxes
No similar provision No similar provision Provided for amendments to
several NIRC provisions
regarding corporate income,
percentage, franchise and
excise taxes
The disagreements between the provisions in the House bills and the Senate bill were with regard to (1) what
rate of VAT is to be imposed; (2) whether only the VAT imposed on electricity generation, transmission and
distribution companies should not be passed on to consumers, as proposed in the Senate bill, or both the VAT
imposed on electricity generation, transmission and distribution companies and the VAT imposed on sale of
petroleum products should not be passed on to consumers, as proposed in the House bill; (3) in what manner
input tax credits should be limited; (4) and whether the NIRC provisions on corporate income taxes,
percentage, franchise and excise taxes should be amended.
There being differences and/or disagreements on the foregoing provisions of the House and Senate bills, the
Bicameral Conference Committee was mandated by the rules of both houses of Congress to act on the same
by settling said differences and/or disagreements. The Bicameral Conference Committee acted on the
disagreeing provisions by making the following changes:
1. With regard to the disagreement on the rate of VAT to be imposed, it would appear from the Conference
Committee Report that the Bicameral Conference Committee tried to bridge the gap in the difference between
the 10% VAT rate proposed by the Senate, and the various rates with 12% as the highest VAT rate proposed
by the House, by striking a compromise whereby the present 10% VAT rate would be retained until certain
conditions arise, i.e., the value-added tax collection as a percentage of gross domestic product (GDP) of the
previous year exceeds 2 4/5%, or National Government deficit as a percentage of GDP of the previous year
exceeds 1½%, when the President, upon recommendation of the Secretary of Finance shall raise the rate of
VAT to 12% effective January 1, 2006.
2. With regard to the disagreement on whether only the VAT imposed on electricity generation, transmission
and distribution companies should not be passed on to consumers or whether both the VAT imposed on
electricity generation, transmission and distribution companies and the VAT imposed on sale of petroleum
products may be passed on to consumers, the Bicameral Conference Committee chose to settle such
disagreement by altogether deleting from its Report any no pass-on provision.
3. With regard to the disagreement on whether input tax credits should be limited or not, the Bicameral
Conference Committee decided to adopt the position of the House by putting a limitation on the amount of input
tax that may be credited against the output tax, although it crafted its own language as to the amount of the
limitation on input tax credits and the manner of computing the same by providing thus:
(A) Creditable Input Tax. – . . .
...
Provided, The input tax on goods purchased or imported in a calendar month for use in trade or business for
which deduction for depreciation is allowed under this Code, shall be spread evenly over the month of
acquisition and the fifty-nine (59) succeeding months if the aggregate acquisition cost for such goods,
excluding the VAT component thereof, exceeds one million Pesos (₱1,000,000.00): PROVIDED, however, that
if the estimated useful life of the capital good is less than five (5) years, as used for depreciation purposes, then
the input VAT shall be spread over such shorter period: . . .
(B) Excess Output or Input Tax. – If at the end of any taxable quarter the output tax exceeds the input tax, the
excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess shall be
carried over to the succeeding quarter or quarters: PROVIDED that the input tax inclusive of input VAT carried
over from the previous quarter that may be credited in every quarter shall not exceed seventy percent (70%) of
the output VAT: PROVIDED, HOWEVER, THAT any input tax attributable to zero-rated sales by a VAT-
registered person may at his option be refunded or credited against other internal revenue taxes, . . .
4. With regard to the amendments to other provisions of the NIRC on corporate income tax, franchise,
percentage and excise taxes, the conference committee decided to include such amendments and basically
adopted the provisions found in Senate Bill No. 1950, with some changes as to the rate of the tax to be
imposed.
Under the provisions of both the Rules of the House of Representatives and Senate Rules, the Bicameral
Conference Committee is mandated to settle the differences between the disagreeing provisions in the House
bill and the Senate bill. The term "settle" is synonymous to "reconcile" and "harmonize."25 To reconcile or
harmonize disagreeing provisions, the Bicameral Conference Committee may then (a) adopt the specific
provisions of either the House bill or Senate bill, (b) decide that neither provisions in the House bill or the
provisions in the Senate bill would
be carried into the final form of the bill, and/or (c) try to arrive at a compromise between the disagreeing
provisions.
In the present case, the changes introduced by the Bicameral Conference Committee on disagreeing
provisions were meant only to reconcile and harmonize the disagreeing provisions for it did not inject any idea
or intent that is wholly foreign to the subject embraced by the original provisions.
The so-called stand-by authority in favor of the President, whereby the rate of 10% VAT wanted by the Senate
is retained until such time that certain conditions arise when the 12% VAT wanted by the House shall be
imposed, appears to be a compromise to try to bridge the difference in the rate of VAT proposed by the two
houses of Congress. Nevertheless, such compromise is still totally within the subject of what rate of VAT
should be imposed on taxpayers.
The no pass-on provision was deleted altogether. In the transcripts of the proceedings of the Bicameral
Conference Committee held on May 10, 2005, Sen. Ralph Recto, Chairman of the Senate Panel, explained the
reason for deleting the no pass-on provision in this wise:
. . . the thinking was just to keep the VAT law or the VAT bill simple. And we were thinking that no sector should
be a beneficiary of legislative grace, neither should any sector be discriminated on. The VAT is an indirect
tax. It is a pass on-tax. And let’s keep it plain and simple. Let’s not confuse the bill and put a no pass-on
provision. Two-thirds of the world have a VAT system and in this two-thirds of the globe, I have yet to see a
VAT with a no pass-though provision. So, the thinking of the Senate is basically simple, let’s keep the VAT
simple.26 (Emphasis supplied)
Rep. Teodoro Locsin further made the manifestation that the no pass-on provision "never really enjoyed the
support of either House."27
With regard to the amount of input tax to be credited against output tax, the Bicameral Conference Committee
came to a compromise on the percentage rate of the limitation or cap on such input tax credit, but again, the
change introduced by the Bicameral Conference Committee was totally within the intent of both houses to put a
cap on input tax that may be
credited against the output tax. From the inception of the subject revenue bill in the House of Representatives,
one of the major objectives was to "plug a glaring loophole in the tax policy and administration by creating vital
restrictions on the claiming of input VAT tax credits . . ." and "[b]y introducing limitations on the claiming of tax
credit, we are capping a major leakage that has placed our collection efforts at an apparent disadvantage."28
As to the amendments to NIRC provisions on taxes other than the value-added tax proposed in Senate Bill No.
1950, since said provisions were among those referred to it, the conference committee had to act on the same
and it basically adopted the version of the Senate.
Thus, all the changes or modifications made by the Bicameral Conference Committee were germane to
subjects of the provisions referred
to it for reconciliation. Such being the case, the Court does not see any grave abuse of discretion amounting to
lack or excess of jurisdiction committed by the Bicameral Conference Committee. In the earlier cases
of Philippine Judges Association vs. Prado29 and Tolentino vs. Secretary of Finance,30 the Court recognized the
long-standing legislative practice of giving said conference committee ample latitude for compromising
differences between the Senate and the House. Thus, in the Tolentino case, it was held that:
. . . it is within the power of a conference committee to include in its report an entirely new provision that is not
found either in the House bill or in the Senate bill. If the committee can propose an amendment consisting of
one or two provisions, there is no reason why it cannot propose several provisions, collectively considered as
an "amendment in the nature of a substitute," so long as such amendment is germane to the subject of the bills
before the committee. After all, its report was not final but needed the approval of both houses of Congress to
become valid as an act of the legislative department. The charge that in this case the Conference
Committee acted as a third legislative chamber is thus without any basis.31 (Emphasis supplied)
B. R.A. No. 9337 Does Not Violate Article VI, Section 26(2) of the Constitution on the "No-Amendment Rule"
Article VI, Sec. 26 (2) of the Constitution, states:
No bill passed by either House shall become a law unless it has passed three readings on separate days, and
printed copies thereof in its final form have been distributed to its Members three days before its passage,
except when the President certifies to the necessity of its immediate enactment to meet a public calamity or
emergency. Upon the last reading of a bill, no amendment thereto shall be allowed, and the vote thereon shall
be taken immediately thereafter, and the yeas and nays entered in the Journal.
Petitioners’ argument that the practice where a bicameral conference committee is allowed to add or delete
provisions in the House bill and the Senate bill after these had passed three readings is in effect a
circumvention of the "no amendment rule" (Sec. 26 (2), Art. VI of the 1987 Constitution), fails to convince the
Court to deviate from its ruling in the Tolentino case that:
Nor is there any reason for requiring that the Committee’s Report in these cases must have undergone three
readings in each of the two houses. If that be the case, there would be no end to negotiation since each house
may seek modification of the compromise bill. . . .
Art. VI. § 26 (2) must, therefore, be construed as referring only to bills introduced for the first time in
either house of Congress, not to the conference committee report.32 (Emphasis supplied)
The Court reiterates here that the "no-amendment rule" refers only to the procedure to be followed by
each house of Congress with regard to bills initiated in each of said respective houses, before said bill
is transmitted to the other house for its concurrence or amendment. Verily, to construe said provision in a
way as to proscribe any further changes to a bill after one house has voted on it would lead to absurdity as this
would mean that the other house of Congress would be deprived of its constitutional power to amend or
introduce changes to said bill. Thus, Art. VI, Sec. 26 (2) of the Constitution cannot be taken to mean that the
introduction by the Bicameral Conference Committee of amendments and modifications to disagreeing
provisions in bills that have been acted upon by both houses of Congress is prohibited.
C. R.A. No. 9337 Does Not Violate Article VI, Section 24 of the Constitution on Exclusive Origination of
Revenue Bills
Coming to the issue of the validity of the amendments made regarding the NIRC provisions on corporate
income taxes and percentage, excise taxes. Petitioners refer to the following provisions, to wit:
Section 27 Rates of Income Tax on Domestic Corporation

28(A)(1) Tax on Resident Foreign Corporation
28(B)(1) Inter-corporate Dividends
34(B)(1) Inter-corporate Dividends
116 Tax on Persons Exempt from VAT
117 Percentage Tax on domestic carriers and keepers of Garage
119 Tax on franchises
121 Tax on banks and Non-Bank Financial Intermediaries
148 Excise Tax on manufactured oils and other fuels
151 Excise Tax on mineral products
236 Registration requirements
237 Issuance of receipts or sales or commercial invoices
288 Disposition of Incremental Revenue
Petitioners claim that the amendments to these provisions of the NIRC did not at all originate from the House.
They aver that House Bill No. 3555 proposed amendments only regarding Sections 106, 107, 108, 110 and 114
of the NIRC, while House Bill No. 3705 proposed amendments only to Sections 106, 107,108, 109, 110 and
111 of the NIRC; thus, the other sections of the NIRC which the Senate amended but which amendments were
not found in the House bills are not intended to be amended by the House of Representatives. Hence, they
argue that since the proposed amendments did not originate from the House, such amendments are a violation
of Article VI, Section 24 of the Constitution.
The argument does not hold water.
Article VI, Section 24 of the Constitution reads:
Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local
application, and private bills shall originate exclusively in the House of Representatives but the Senate may
propose or concur with amendments.
In the present cases, petitioners admit that it was indeed House Bill Nos. 3555 and 3705 that initiated the move
for amending provisions of the NIRC dealing mainly with the value-added tax. Upon transmittal of said House
bills to the Senate, the Senate came out with Senate Bill No. 1950 proposing amendments not only to NIRC
provisions on the value-added tax but also amendments to NIRC provisions on other kinds of taxes. Is the
introduction by the Senate of provisions not dealing directly with the value- added tax, which is the only kind of
tax being amended in the House bills, still within the purview of the constitutional provision authorizing the
Senate to propose or concur with amendments to a revenue bill that originated from the House?
The foregoing question had been squarely answered in the Tolentino case, wherein the Court held, thus:
. . . To begin with, it is not the law – but the revenue bill – which is required by the Constitution to "originate
exclusively" in the House of Representatives. It is important to emphasize this, because a bill originating in the
House may undergo such extensive changes in the Senate that the result may be a rewriting of the whole. . . .
At this point, what is important to note is that, as a result of the Senate action, a distinct bill may be
produced. To insist that a revenue statute – and not only the bill which initiated the legislative process
culminating in the enactment of the law – must substantially be the same as the House bill would be to
deny the Senate’s power not only to "concur with amendments" but also to "propose amendments." It
would be to violate the coequality of legislative power of the two houses of Congress and in fact make the
House superior to the Senate.
…Given, then, the power of the Senate to propose amendments, the Senate can propose its own
version even with respect to bills which are required by the Constitution to originate in the House.
...
Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff or tax bills, bills
authorizing an increase of the public debt, private bills and bills of local application must come from the House
of Representatives on the theory that, elected as they are from the districts, the members of the House can
be expected to be more sensitive to the local needs and problems. On the other hand, the senators,
who are elected at large, are expected to approach the same problems from the national perspective.
Both views are thereby made to bear on the enactment of such laws.33 (Emphasis supplied)
Since there is no question that the revenue bill exclusively originated in the House of Representatives, the
Senate was acting within its
constitutional power to introduce amendments to the House bill when it included provisions in Senate Bill No.
1950 amending corporate income taxes, percentage, excise and franchise taxes. Verily, Article VI, Section 24
of the Constitution does not contain any prohibition or limitation on the extent of the amendments that may be
introduced by the Senate to the House revenue bill.
Furthermore, the amendments introduced by the Senate to the NIRC provisions that had not been touched in
the House bills are still in furtherance of the intent of the House in initiating the subject revenue bills. The
Explanatory Note of House Bill No. 1468, the very first House bill introduced on the floor, which was later
substituted by House Bill No. 3555, stated:
One of the challenges faced by the present administration is the urgent and daunting task of solving the
country’s serious financial problems. To do this, government expenditures must be strictly monitored and
controlled and revenues must be significantly increased. This may be easier said than done, but our fiscal
authorities are still optimistic the government will be operating on a balanced budget by the year 2009. In fact,
several measures that will result to significant expenditure savings have been identified by the administration. It
is supported with a credible package of revenue measures that include measures to improve tax
administration and control the leakages in revenues from income taxes and the value-added tax (VAT).
(Emphasis supplied)
Rep. Eric D. Singson, in his sponsorship speech for House Bill No. 3555, declared that:
In the budget message of our President in the year 2005, she reiterated that we all acknowledged that on top of
our agenda must be the restoration of the health of our fiscal system.
In order to considerably lower the consolidated public sector deficit and eventually achieve a balanced budget
by the year 2009, we need to seize windows of opportunities which might seem poignant in the
beginning, but in the long run prove effective and beneficial to the overall status of our economy. One
such opportunity is a review of existing tax rates, evaluating the relevance given our present
conditions.34 (Emphasis supplied)
Notably therefore, the main purpose of the bills emanating from the House of Representatives is to bring in
sizeable revenues for the government
to supplement our country’s serious financial problems, and improve tax administration and control of the
leakages in revenues from income taxes and value-added taxes. As these house bills were transmitted to the
Senate, the latter, approaching the measures from the point of national perspective, can introduce
amendments within the purposes of those bills. It can provide for ways that would soften the impact of the VAT
measure on the consumer, i.e., by distributing the burden across all sectors instead of putting it entirely on the
shoulders of the consumers. The sponsorship speech of Sen. Ralph Recto on why the provisions on income
tax on corporation were included is worth quoting:
All in all, the proposal of the Senate Committee on Ways and Means will raise ₱64.3 billion in additional
revenues annually even while by mitigating prices of power, services and petroleum products.
However, not all of this will be wrung out of VAT. In fact, only ₱48.7 billion amount is from the VAT on twelve
goods and services. The rest of the tab – ₱10.5 billion- will be picked by corporations.
What we therefore prescribe is a burden sharing between corporate Philippines and the consumer. Why should
the latter bear all the pain? Why should the fiscal salvation be only on the burden of the consumer?
The corporate world’s equity is in form of the increase in the corporate income tax from 32 to 35 percent, but up
to 2008 only. This will raise ₱10.5 billion a year. After that, the rate will slide back, not to its old rate of 32
percent, but two notches lower, to 30 percent.
Clearly, we are telling those with the capacity to pay, corporations, to bear with this emergency provision that
will be in effect for 1,200 days, while we put our fiscal house in order. This fiscal medicine will have an expiry
date.
For their assistance, a reward of tax reduction awaits them. We intend to keep the length of their sacrifice brief.
We would like to assure them that not because there is a light at the end of the tunnel, this government will
keep on making the tunnel long.
The responsibility will not rest solely on the weary shoulders of the small man. Big business will be there to
share the burden.35
As the Court has said, the Senate can propose amendments and in fact, the amendments made on provisions
in the tax on income of corporations are germane to the purpose of the house bills which is to raise revenues
for the government.
Likewise, the Court finds the sections referring to other percentage and excise taxes germane to the reforms to
the VAT system, as these sections would cushion the effects of VAT on consumers. Considering that certain
goods and services which were subject to percentage tax and excise tax would no longer be VAT-exempt, the
consumer would be burdened more as they would be paying the VAT in addition to these taxes. Thus, there is
a need to amend these sections to soften the impact of VAT. Again, in his sponsorship speech, Sen. Recto
said:
However, for power plants that run on oil, we will reduce to zero the present excise tax on bunker fuel, to
lessen the effect of a VAT on this product.
For electric utilities like Meralco, we will wipe out the franchise tax in exchange for a VAT.
And in the case of petroleum, while we will levy the VAT on oil products, so as not to destroy the VAT chain, we
will however bring down the excise tax on socially sensitive products such as diesel, bunker, fuel and kerosene.
...
What do all these exercises point to? These are not contortions of giving to the left hand what was taken from
the right. Rather, these sprang from our concern of softening the impact of VAT, so that the people can cushion
the blow of higher prices they will have to pay as a result of VAT.36
The other sections amended by the Senate pertained to matters of tax administration which are necessary for
the implementation of the changes in the VAT system.
To reiterate, the sections introduced by the Senate are germane to the subject matter and purposes of the
house bills, which is to supplement our country’s fiscal deficit, among others. Thus, the Senate acted within its
power to propose those amendments.
SUBSTANTIVE ISSUES
I.
Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC, violate the
following provisions of the Constitution:
A. No Undue Delegation of Legislative Power
Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et al., and Escudero, et al. contend in common
that Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the NIRC
giving the President the stand-by authority to raise the VAT rate from 10% to 12% when a certain condition is
met, constitutes undue delegation of the legislative power to tax.
The assailed provisions read as follows:
SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 106. Value-Added Tax on Sale of Goods or Properties. –
(A) Rate and Base of Tax. – There shall be levied, assessed and collected on every sale, barter or exchange of
goods or properties, a value-added tax equivalent to ten percent (10%) of the gross selling price or gross value
in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or
transferor: provided, that the President, upon the recommendation of the Secretary of Finance, shall,
effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the
following conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-half
percent (1 ½%).
SEC. 5. Section 107 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 107. Value-Added Tax on Importation of Goods. –
(A) In General. – There shall be levied, assessed and collected on every importation of goods a value-added
tax equivalent to ten percent (10%) based on the total value used by the Bureau of Customs in determining
tariff and customs duties, plus customs duties, excise taxes, if any, and other charges, such tax to be paid by
the importer prior to the release of such goods from customs custody: Provided, That where the customs duties
are determined on the basis of the quantity or volume of the goods, the value-added tax shall be based on the
landed cost plus excise taxes, if any: provided, further, that the President, upon the recommendation of
the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve
percent (12%) after any of the following conditions has been satisfied.
percent (1 ½%).
SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties –
(A) Rate and Base of Tax. – There shall be levied, assessed and collected, a value-added tax equivalent to ten
percent (10%) of gross receipts derived from the sale or exchange of services: provided, that the President,
upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of
value-added tax to twelve percent (12%), after any of the following conditions has been satisfied.
percent (1 ½%). (Emphasis supplied)
Petitioners allege that the grant of the stand-by authority to the President to increase the VAT rate is a virtual
abdication by Congress of its exclusive power to tax because such delegation is not within the purview of
Section 28 (2), Article VI of the Constitution, which provides:
The Congress may, by law, authorize the President to fix within specified limits, and may impose, tariff rates,
import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the
national development program of the government.
They argue that the VAT is a tax levied on the sale, barter or exchange of goods and properties as well as on
the sale or exchange of services, which cannot be included within the purview of tariffs under the exempted
delegation as the latter refers to customs duties, tolls or tribute payable upon merchandise to the government
and usually imposed on goods or merchandise imported or exported.
Petitioners ABAKADA GURO Party List, et al., further contend that delegating to the President the legislative
power to tax is contrary to republicanism. They insist that accountability, responsibility and transparency should
dictate the actions of Congress and they should not pass to the President the decision to impose taxes. They
also argue that the law also effectively nullified the President’s power of control, which includes the authority to
set aside and nullify the acts of her subordinates like the Secretary of Finance, by mandating the fixing of the
tax rate by the President upon the recommendation of the Secretary of Finance.
Petitioners Pimentel, et al. aver that the President has ample powers to cause, influence or create the
conditions provided by the law to bring about either or both the conditions precedent.
On the other hand, petitioners Escudero, et al. find bizarre and revolting the situation that the imposition of the
12% rate would be subject to the whim of the Secretary of Finance, an unelected bureaucrat, contrary to the
principle of no taxation without representation. They submit that the Secretary of Finance is not mandated to
give a favorable recommendation and he may not even give his recommendation. Moreover, they allege that
no guiding standards are provided in the law on what basis and as to how he will make his recommendation.
They claim, nonetheless, that any recommendation of the Secretary of Finance can easily be brushed aside by
the President since the former is a mere alter ego of the latter, such that, ultimately, it is the President who
decides whether to impose the increased tax rate or not.
A brief discourse on the principle of non-delegation of powers is instructive.
The principle of separation of powers ordains that each of the three great branches of government has
exclusive cognizance of and is supreme in matters falling within its own constitutionally allocated sphere.37 A
logical
corollary to the doctrine of separation of powers is the principle of non-delegation of powers, as expressed in
the Latin maxim: potestas delegata non delegari potest which means "what has been delegated, cannot be
delegated."38 This doctrine is based on the ethical principle that such as delegated power constitutes not only a
right but a duty to be performed by the delegate through the instrumentality of his own judgment and not
through the intervening mind of another.39
With respect to the Legislature, Section 1 of Article VI of the Constitution provides that "the Legislative power
shall be vested in the Congress of the Philippines which shall consist of a Senate and a House of
Representatives." The powers which Congress is prohibited from delegating are those which are strictly, or
inherently and exclusively, legislative. Purely legislative power, which can never be delegated, has been
described as the authority to make a complete law – complete as to the time when it shall take effect and
as to whom it shall be applicable – and to determine the expediency of its enactment.40 Thus, the rule is
that in order that a court may be justified in holding a statute unconstitutional as a delegation of legislative
power, it must appear that the power involved is purely legislative in nature – that is, one appertaining
exclusively to the legislative department. It is the nature of the power, and not the liability of its use or the
manner of its exercise, which determines the validity of its delegation.
Nonetheless, the general rule barring delegation of legislative powers is subject to the following recognized
limitations or exceptions:
(1) Delegation of tariff powers to the President under Section 28 (2) of Article VI of the Constitution;
(2) Delegation of emergency powers to the President under Section 23 (2) of Article VI of the Constitution;
(3) Delegation to the people at large;

(4) Delegation to local governments; and
(5) Delegation to administrative bodies.
In every case of permissible delegation, there must be a showing that the delegation itself is valid. It is valid
only if the law (a) is complete in itself, setting forth therein the policy to be executed, carried out, or
implemented by the delegate;41 and (b) fixes a standard — the limits of which are sufficiently determinate and
determinable — to which the delegate must conform in the performance of his functions.42 A sufficient standard
is one which defines legislative policy, marks its limits, maps out its boundaries and specifies the public agency
to apply it. It indicates the circumstances under which the legislative command is to be effected.43 Both tests
are intended to prevent a total transference of legislative authority to the delegate, who is not allowed to step
into the shoes of the legislature and exercise a power essentially legislative.44
In People vs. Vera,45 the Court, through eminent Justice Jose P. Laurel, expounded on the concept and extent
of delegation of power in this wise:
In testing whether a statute constitutes an undue delegation of legislative power or not, it is usual to inquire
whether the statute was complete in all its terms and provisions when it left the hands of the legislature so that
nothing was left to the judgment of any other appointee or delegate of the legislature.
...
‘The true distinction’, says Judge Ranney, ‘is between the delegation of power to make the law, which
necessarily involves a discretion as to what it shall be, and conferring an authority or discretion as to
its execution, to be exercised under and in pursuance of the law. The first cannot be done; to the latter
no valid objection can be made.’
...
It is contended, however, that a legislative act may be made to the effect as law after it leaves the hands of the
legislature. It is true that laws may be made effective on certain contingencies, as by proclamation of the
executive or the adoption by the people of a particular community. In Wayman vs. Southard, the Supreme
Court of the United States ruled that the legislature may delegate a power not legislative which it may itself
rightfully exercise. The power to ascertain facts is such a power which may be delegated. There is
nothing essentially legislative in ascertaining the existence of facts or conditions as the basis of the
taking into effect of a law. That is a mental process common to all branches of the
government. Notwithstanding the apparent tendency, however, to relax the rule prohibiting delegation of
legislative authority on account of the complexity arising from social and economic forces at work in this
modern industrial age, the orthodox pronouncement of Judge Cooley in his work on Constitutional Limitations
finds restatement in Prof. Willoughby's treatise on the Constitution of the United States in the following
language — speaking of declaration of legislative power to administrative agencies: The principle which
permits the legislature to provide that the administrative agent may determine when the circumstances
are such as require the application of a law is defended upon the ground that at the time this authority
is granted, the rule of public policy, which is the essence of the legislative act, is determined by the
legislature. In other words, the legislature, as it is its duty to do, determines that, under given
circumstances, certain executive or administrative action is to be taken, and that, under other
circumstances, different or no action at all is to be taken. What is thus left to the administrative official
is not the legislative determination of what public policy demands, but simply the ascertainment of
what the facts of the case require to be done according to the terms of the law by which he is
governed. The efficiency of an Act as a declaration of legislative will must, of course, come from
Congress, but the ascertainment of the contingency upon which the Act shall take effect may be left to
such agencies as it may designate. The legislature, then, may provide that a law shall take effect upon
the happening of future specified contingencies leaving to some other person or body the power to
determine when the specified contingency has arisen. (Emphasis supplied).46
In Edu vs. Ericta,47 the Court reiterated:

What cannot be delegated is the authority under the Constitution to make laws and to alter and repeal them;
the test is the completeness of the statute in all its terms and provisions when it leaves the hands of the
legislature. To determine whether or not there is an undue delegation of legislative power, the inquiry must be
directed to the scope and definiteness of the measure enacted. The legislative does not abdicate its
functions when it describes what job must be done, who is to do it, and what is the scope of his
authority. For a complex economy, that may be the only way in which the legislative process can go
forward. A distinction has rightfully been made between delegation of power to make the laws which
necessarily involves a discretion as to what it shall be, which constitutionally may not be done, and
delegation of authority or discretion as to its execution to be exercised under and in pursuance of the
law, to which no valid objection can be made. The Constitution is thus not to be regarded as denying the
legislature the necessary resources of flexibility and practicability. (Emphasis supplied).48
Clearly, the legislature may delegate to executive officers or bodies the power to determine certain facts or
conditions, or the happening of contingencies, on which the operation of a statute is, by its terms, made to
depend, but the legislature must prescribe sufficient standards, policies or limitations on their authority.49 While
the power to tax cannot be delegated to executive agencies, details as to the enforcement and administration
of an exercise of such power may be left to them, including the power to determine the existence of facts on
which its operation depends.50
The rationale for this is that the preliminary ascertainment of facts as basis for the enactment of legislation is
not of itself a legislative function, but is simply ancillary to legislation. Thus, the duty of correlating information
and making recommendations is the kind of subsidiary activity which the legislature may perform through its
members, or which it may delegate to others to perform. Intelligent legislation on the complicated problems of
modern society is impossible in the absence of accurate information on the part of the legislators, and any
reasonable method of securing such information is proper.51 The Constitution as a continuously operative
charter of government does not require that Congress find for itself
every fact upon which it desires to base legislative action or that it make for itself detailed determinations which
it has declared to be prerequisite to application of legislative policy to particular facts and circumstances
impossible for Congress itself properly to investigate.52
In the present case, the challenged section of R.A. No. 9337 is the common proviso in Sections 4, 5 and 6
which reads as follows:
That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006,
raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has been
satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds
two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent
(1 ½%).
The case before the Court is not a delegation of legislative power. It is simply a delegation of ascertainment of
facts upon which enforcement and administration of the increase rate under the law is contingent. The
legislature has made the operation of the 12% rate effective January 1, 2006, contingent upon a specified fact
or condition. It leaves the entire operation or non-operation of the 12% rate upon factual matters outside of the
control of the executive.
No discretion would be exercised by the President. Highlighting the absence of discretion is the fact that the
word shall is used in the common proviso. The use of the word shall connotes a mandatory order. Its use in a
statute denotes an imperative obligation and is inconsistent with the idea of discretion.53 Where the law is clear
and unambiguous, it must be taken to mean exactly what it says, and courts have no choice but to see to it that
the mandate is obeyed.54
Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon the existence of any of
the conditions specified by Congress. This is a duty which cannot be evaded by the President. Inasmuch as the
law specifically uses the word shall, the exercise of discretion by the President does not come into play. It is a
clear directive to impose the 12% VAT rate when the specified conditions are present. The time of taking into
effect of the 12% VAT rate is based on the happening of a certain specified contingency, or upon the
ascertainment of certain facts or conditions by a person or body other than the legislature itself.
The Court finds no merit to the contention of petitioners ABAKADA GURO Party List, et al. that the law
effectively nullified the President’s power of control over the Secretary of Finance by mandating the fixing of the
tax rate by the President upon the recommendation of the Secretary of Finance. The Court cannot also
subscribe to the position of petitioners
Pimentel, et al. that the word shall should be interpreted to mean may in view of the phrase "upon the
recommendation of the Secretary of Finance." Neither does the Court find persuasive the submission of
petitioners Escudero, et al. that any recommendation by the Secretary of Finance can easily be brushed aside
by the President since the former is a mere alter ego of the latter.
When one speaks of the Secretary of Finance as the alter ego of the President, it simply means that as head of
the Department of Finance he is the assistant and agent of the Chief Executive. The multifarious executive and
administrative functions of the Chief Executive are performed by and through the executive departments, and
the acts of the secretaries of such departments, such as the Department of Finance, performed and
promulgated in the regular course of business, are, unless disapproved or reprobated by the Chief Executive,
presumptively the acts of the Chief Executive. The Secretary of Finance, as such, occupies a political position
and holds office in an advisory capacity, and, in the language of Thomas Jefferson, "should be of the
President's bosom confidence" and, in the language of Attorney-General Cushing, is "subject to the direction of
the President."55
In the present case, in making his recommendation to the President on the existence of either of the two
conditions, the Secretary of Finance is not acting as the alter ego of the President or even her subordinate. In
such instance, he is not subject to the power of control and direction of the President. He is acting as the agent
of the legislative department, to determine and declare the event upon which its expressed will is to take
effect.56 The Secretary of Finance becomes the means or tool by which legislative policy is determined and
implemented, considering that he possesses all the facilities to gather data and information and has a much
broader perspective to properly evaluate them. His function is to gather and collate statistical data and other
pertinent information and verify if any of the two conditions laid out by Congress is present. His personality in
such instance is in reality but a projection of that of Congress. Thus, being the agent of Congress and not of the
President, the President cannot alter or modify or nullify, or set aside the findings of the Secretary of Finance
and to substitute the judgment of the former for that of the latter.
Congress simply granted the Secretary of Finance the authority to ascertain the existence of a fact, namely,
whether by December 31, 2005, the value-added tax collection as a percentage of Gross Domestic Product
(GDP) of the previous year exceeds two and four-fifth percent (24/5%) or the national government deficit as a
percentage of GDP of the previous year exceeds one and one-half percent (1½%). If either of these two
instances has occurred, the Secretary of Finance, by legislative mandate, must submit such information to the
President. Then the 12% VAT rate must be imposed by the President effective January 1, 2006. There is no
undue delegation of legislative power but only of the discretion as to the execution of a law. This is
constitutionally permissible.57 Congress does not abdicate its functions or unduly delegate power when it
describes what job must be done, who must do it, and what is the scope of his authority; in our complex
economy that is frequently the only way in which the legislative process can go forward.58
As to the argument of petitioners ABAKADA GURO Party List, et al. that delegating to the President the
legislative power to tax is contrary to the principle of republicanism, the same deserves scant consideration.
Congress did not delegate the power to tax but the mere implementation of the law. The intent and will to
increase the VAT rate to 12% came from Congress and the task of the President is to simply execute the
legislative policy. That Congress chose to do so in such a manner is not within the province of the Court to
inquire into, its task being to interpret the law.59
The insinuation by petitioners Pimentel, et al. that the President has ample powers to cause, influence or create
the conditions to bring about either or both the conditions precedent does not deserve any merit as this
argument is highly speculative. The Court does not rule on allegations which are manifestly conjectural, as
these may not exist at all. The Court deals with facts, not fancies; on realities, not appearances. When the
Court acts on appearances instead of realities, justice and law will be short-lived.
B. The 12% Increase VAT Rate Does Not Impose an Unfair and Unnecessary Additional Tax Burden
Petitioners Pimentel, et al. argue that the 12% increase in the VAT rate imposes an unfair and additional tax
burden on the people. Petitioners also argue that the 12% increase, dependent on any of the 2 conditions set
forth in the contested provisions, is ambiguous because it does not state if the VAT rate would be returned to
the original 10% if the rates are no longer satisfied. Petitioners also argue that such rate is unfair and
unreasonable, as the people are unsure of the applicable VAT rate from year to year.
Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of the two conditions set forth
therein are satisfied, the President shall increase the VAT rate to 12%. The provisions of the law are clear. It
does not provide for a return to the 10% rate nor does it empower the President to so revert if, after the rate is
increased to 12%, the VAT collection goes below the 24/5 of the GDP of the previous year or that the national
government deficit as a percentage of GDP of the previous year does not exceed 1½%.
Therefore, no statutory construction or interpretation is needed. Neither can conditions or limitations be

introduced where none is provided for. Rewriting the law is a forbidden ground that only Congress may tread
upon.60
Thus, in the absence of any provision providing for a return to the 10% rate, which in this case the Court finds
none, petitioners’ argument is, at best, purely speculative. There is no basis for petitioners’ fear of a fluctuating
VAT rate because the law itself does not provide that the rate should go back to 10% if the conditions provided
in Sections 4, 5 and 6 are no longer present. The rule is that where the provision of the law is clear and
unambiguous, so that there is no occasion for the court's seeking the legislative intent, the law must be taken
as it is, devoid of judicial addition or subtraction.61
Petitioners also contend that the increase in the VAT rate, which was allegedly an incentive to the President to
raise the VAT collection to at least 2 4/5 of the GDP of the previous year, should be based on fiscal adequacy.
Petitioners obviously overlooked that increase in VAT collection is not the only condition. There is another
condition, i.e., the national government deficit as a percentage of GDP of the previous year exceeds one and
one-half percent (1 ½%).
Respondents explained the philosophy behind these alternative conditions:
1. VAT/GDP Ratio > 2.8%
The condition set for increasing VAT rate to 12% have economic or fiscal meaning. If VAT/GDP is less than
2.8%, it means that government has weak or no capability of implementing the VAT or that VAT is not effective
in the function of the tax collection. Therefore, there is no value to increase it to 12% because such action will
also be ineffectual.
2. Nat’l Gov’t Deficit/GDP >1.5%
The condition set for increasing VAT when deficit/GDP is 1.5% or less means the fiscal condition of
government has reached a relatively sound position or is towards the direction of a balanced budget position.
Therefore, there is no need to increase the VAT rate since the fiscal house is in a relatively healthy position.
Otherwise stated, if the ratio is more than 1.5%, there is indeed a need to increase the VAT rate.62
That the first condition amounts to an incentive to the President to increase the VAT collection does not render
it unconstitutional so long as there is a public purpose for which the law was passed, which in this case, is
mainly to raise revenue. In fact, fiscal adequacy dictated the need for a raise in revenue.
The principle of fiscal adequacy as a characteristic of a sound tax system was originally stated by Adam Smith
in his Canons of Taxation (1776), as:
IV. Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little
as possible over and above what it brings into the public treasury of the state.63
It simply means that sources of revenues must be adequate to meet government expenditures and their
variations.64
The dire need for revenue cannot be ignored. Our country is in a quagmire of financial woe. During the
Bicameral Conference Committee hearing, then Finance Secretary Purisima bluntly depicted the country’s
gloomy state of economic affairs, thus:
First, let me explain the position that the Philippines finds itself in right now. We are in a position where 90
percent of our revenue is used for debt service. So, for every peso of revenue that we currently raise, 90 goes
to debt service. That’s interest plus amortization of our debt. So clearly, this is not a sustainable situation.
That’s the first fact.
The second fact is that our debt to GDP level is way out of line compared to other peer countries that borrow
money from that international financial markets. Our debt to GDP is approximately equal to our GDP. Again,
that shows you that this is not a sustainable situation.
The third thing that I’d like to point out is the environment that we are presently operating in is not as benign as
what it used to be the past five years.
What do I mean by that?
In the past five years, we’ve been lucky because we were operating in a period of basically global growth and
low interest rates. The past few months, we have seen an inching up, in fact, a rapid increase in the interest
rates in the leading economies of the world. And, therefore, our ability to borrow at reasonable prices is going
to be challenged. In fact, ultimately, the question is our ability to access the financial markets.
When the President made her speech in July last year, the environment was not as bad as it is now, at least
based on the forecast of most financial institutions. So, we were assuming that raising 80 billion would put us in
a position where we can then convince them to improve our ability to borrow at lower rates. But conditions have
changed on us because the interest rates have gone up. In fact, just within this room, we tried to access the
market for a billion dollars because for this year alone, the Philippines will have to borrow 4 billion dollars. Of
that amount, we have borrowed 1.5 billion. We issued last January a 25-year bond at 9.7 percent cost. We
were trying to access last week and the market was not as favorable and up to now we have not accessed and
we might pull back because the conditions are not very good.
So given this situation, we at the Department of Finance believe that we really need to front-end our deficit
reduction. Because it is deficit that is causing the increase of the debt and we are in what we call a debt spiral.
The more debt you have, the more deficit you have because interest and debt service eats and eats more of
your revenue. We need to get out of this debt spiral. And the only way, I think, we can get out of this debt spiral
is really have a front-end adjustment in our revenue base.65
The image portrayed is chilling. Congress passed the law hoping for rescue from an inevitable catastrophe.
Whether the law is indeed sufficient to answer the state’s economic dilemma is not for the Court to judge. In
the Fariñas case, the Court refused to consider the various arguments raised therein that dwelt on the wisdom
of Section 14 of R.A. No. 9006 (The Fair Election Act), pronouncing that:
. . . policy matters are not the concern of the Court. Government policy is within the exclusive dominion of the
political branches of the government. It is not for this Court to look into the wisdom or propriety of legislative
determination. Indeed, whether an enactment is wise or unwise, whether it is based on sound economic theory,
whether it is the best means to achieve the desired results, whether, in short, the legislative discretion within its
prescribed limits should be exercised in a particular manner are matters for the judgment of the legislature, and
the serious conflict of opinions does not suffice to bring them within the range of judicial cognizance.66
In the same vein, the Court in this case will not dawdle on the purpose of Congress or the executive policy,
given that it is not for the judiciary to "pass upon questions of wisdom, justice or expediency of legislation."67
II.
Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and Section 12 of
R.A. No. 9337, amending Section 114(C) of the NIRC, violate the following provisions of the Constitution:
b. Article III, Section 1
A. Due Process and Equal Protection Clauses
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue that Section 8 of R.A. No. 9337, amending
Sections 110 (A)(2), 110 (B), and Section 12 of R.A. No. 9337, amending Section 114 (C) of the NIRC are
arbitrary, oppressive, excessive and confiscatory. Their argument is premised on the constitutional right against
deprivation of life, liberty of property without due process of law, as embodied in Article III, Section 1 of the
Constitution.
Petitioners also contend that these provisions violate the constitutional guarantee of equal protection of the law.
The doctrine is that where the due process and equal protection clauses are invoked, considering that they are
not fixed rules but rather broad standards, there is a need for proof of such persuasive character as would lead
to such a conclusion. Absent such a showing, the presumption of validity must prevail.68
Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC imposes a limitation on the amount of input
tax that may be credited against the output tax. It states, in part: "[P]rovided, that the input tax inclusive of the
input VAT carried over from the previous quarter that may be credited in every quarter shall not exceed seventy
percent (70%) of the output VAT: …"
Input Tax is defined under Section 110(A) of the NIRC, as amended, as the value-added tax
due from or paid by a VAT-registered person on the importation of goods or local purchase of good and
services, including lease or use of property, in the course of trade or business, from a VAT-registered person,
and Output Tax is the value-added tax due on the sale or lease of taxable goods or properties or services by
any person registered or required to register under the law.
Petitioners claim that the contested sections impose limitations on the amount of input tax that may be claimed.
In effect, a portion of the input tax that has already been paid cannot now be credited against the output tax.
Petitioners’ argument is not absolute. It assumes that the input tax exceeds 70% of the output tax, and
therefore, the input tax in excess of 70% remains uncredited. However, to the extent that the input tax is less
than 70% of the output tax, then 100% of such input tax is still creditable.
More importantly, the excess input tax, if any, is retained in a business’s books of accounts and remains
creditable in the succeeding quarter/s. This is explicitly allowed by Section 110(B), which provides that "if the
input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters." In
addition, Section 112(B) allows a VAT-registered person to apply for the issuance of a tax credit certificate or
refund for any unused input taxes, to the extent that such input taxes have not been applied against the output
taxes. Such unused input tax may be used in payment of his other internal revenue taxes.
The non-application of the unutilized input tax in a given quarter is not ad infinitum, as petitioners exaggeratedly
contend. Their analysis of the effect of the 70% limitation is incomplete and one-sided. It ends at the net effect
that there will be unapplied/unutilized inputs VAT for a given quarter. It does not proceed further to the fact that
such unapplied/unutilized input tax may be credited in the subsequent periods as allowed by the carry-over
provision of Section 110(B) or that it may later on be refunded through a tax credit certificate under Section
112(B).
Therefore, petitioners’ argument must be rejected.
On the other hand, it appears that petitioner Garcia failed to comprehend the operation of the 70% limitation on
the input tax. According to petitioner, the limitation on the creditable input tax in effect allows VAT-registered
establishments to retain a portion of the taxes they collect, which violates the principle that tax collection and
revenue should be for public purposes and expenditures
As earlier stated, the input tax is the tax paid by a person, passed on to him by the seller, when he buys goods.
Output tax meanwhile is the tax due to the person when he sells goods. In computing the VAT payable, three
possible scenarios may arise:
First, if at the end of a taxable quarter the output taxes charged by the seller are equal to the input taxes that he
paid and passed on by the suppliers, then no payment is required;
Second, when the output taxes exceed the input taxes, the person shall be liable for the excess, which has to
be paid to the Bureau of Internal Revenue (BIR);69 and
Third, if the input taxes exceed the output taxes, the excess shall be carried over to the succeeding quarter or
quarters. Should the input taxes result from zero-rated or effectively zero-rated transactions, any excess over
the output taxes shall instead be refunded to the taxpayer or credited against other internal revenue taxes, at
the taxpayer’s option.70
Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input tax. Thus, a person can credit his
input tax only up to the extent of 70% of the output tax. In layman’s term, the value-added taxes that a
person/taxpayer paid and passed on to him by a seller can only be credited up to 70% of the value-added taxes
that is due to him on a taxable transaction. There is no retention of any tax collection because the
person/taxpayer has already previously paid the input tax to a seller, and the seller will subsequently remit such
input tax to the BIR. The party directly liable for the payment of the tax is the seller.71 What only needs to be
done is for the person/taxpayer to apply or credit these input taxes, as evidenced by receipts, against his output
taxes.
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also argue that the input tax partakes the nature of
a property that may not be confiscated, appropriated, or limited without due process of law.
The input tax is not a property or a property right within the constitutional purview of the due process clause. A
VAT-registered person’s entitlement to the creditable input tax is a mere statutory privilege.
The distinction between statutory privileges and vested rights must be borne in mind for persons have no
vested rights in statutory privileges. The state may change or take away rights, which were created by the law
of the state, although it may not take away property, which was vested by virtue of such rights.72
Under the previous system of single-stage taxation, taxes paid at every level of distribution are not recoverable
from the taxes payable, although it becomes part of the cost, which is deductible from the gross revenue. When
Pres. Aquino issued E.O. No. 273 imposing a 10% multi-stage tax on all sales, it was then that the crediting of
the input tax paid on purchase or importation of goods and services by VAT-registered persons against the
output tax was introduced.73 This was adopted by the Expanded VAT Law (R.A. No. 7716),74 and The Tax
Reform Act of 1997 (R.A. No. 8424).75 The right to credit input tax as against the output tax is clearly a privilege
created by law, a privilege that also the law can remove, or in this case, limit.
Petitioners also contest as arbitrary, oppressive, excessive and confiscatory, Section 8 of R.A. No. 9337,
amending Section 110(A) of the NIRC, which provides:
SEC. 110. Tax Credits. –
(A) Creditable Input Tax. – …
Provided, That the input tax on goods purchased or imported in a calendar month for use in trade or business
for which deduction for depreciation is allowed under this Code, shall be spread evenly over the month of
acquisition and the fifty-nine (59) succeeding months if the aggregate acquisition cost for such goods,
excluding the VAT component thereof, exceeds One million pesos (₱1,000,000.00): Provided, however, That if
the estimated useful life of the capital goods is less than five (5) years, as used for depreciation purposes, then
the input VAT shall be spread over such a shorter period: Provided, finally, That in the case of purchase of
services, lease or use of properties, the input tax shall be creditable to the purchaser, lessee or license upon
payment of the compensation, rental, royalty or fee.
The foregoing section imposes a 60-month period within which to amortize the creditable input tax on purchase
or importation of capital goods with acquisition cost of ₱1 Million pesos, exclusive of the VAT component. Such
spread out only poses a delay in the crediting of the input tax. Petitioners’ argument is without basis because
the taxpayer is not permanently deprived of his privilege to credit the input tax.
It is worth mentioning that Congress admitted that the spread-out of the creditable input tax in this case
amounts to a 4-year interest-free loan to the government.76 In the same breath, Congress also justified its move
by saying that the provision was designed to raise an annual revenue of 22.6 billion.77 The legislature also
dispelled the fear that the provision will fend off foreign investments, saying that foreign investors have other
tax incentives provided by law, and citing the case of China, where despite a 17.5% non-creditable VAT,
foreign investments were not deterred.78 Again, for whatever is the purpose of the 60-month amortization, this
involves executive economic policy and legislative wisdom in which the Court cannot intervene.
With regard to the 5% creditable withholding tax imposed on payments made by the government for taxable
transactions, Section 12 of R.A. No. 9337, which amended Section 114 of the NIRC, reads:
SEC. 114. Return and Payment of Value-added Tax. –
(C) Withholding of Value-added Tax. – The Government or any of its political subdivisions, instrumentalities or
agencies, including government-owned or controlled corporations (GOCCs) shall, before making payment on
account of each purchase of goods and services which are subject to the value-added tax imposed in Sections
106 and 108 of this Code, deduct and withhold a final value-added tax at the rate of five percent (5%) of the
gross payment thereof: Provided, That the payment for lease or use of properties or property rights to
nonresident owners shall be subject to ten percent (10%) withholding tax at the time of payment. For purposes
of this Section, the payor or person in control of the payment shall be considered as the withholding agent.
The value-added tax withheld under this Section shall be remitted within ten (10) days following the end of the
month the withholding was made.
Section 114(C) merely provides a method of collection, or as stated by respondents, a more simplified VAT
withholding system. The government in this case is constituted as a withholding agent with respect to their
payments for goods and services.
Prior to its amendment, Section 114(C) provided for different rates of value-added taxes to be withheld -- 3%
on gross payments for purchases of goods; 6% on gross payments for services supplied by contractors other
than by public works contractors; 8.5% on gross payments for services supplied by public work contractors; or
10% on payment for the lease or use of properties or property rights to nonresident owners. Under the present
Section 114(C), these different rates, except for the 10% on lease or property rights payment to nonresidents,
were deleted, and a uniform rate of 5% is applied.
The Court observes, however, that the law the used the word final. In tax usage, final, as opposed to creditable,
means full. Thus, it is provided in Section 114(C): "final value-added tax at the rate of five percent (5%)."
In Revenue Regulations No. 02-98, implementing R.A. No. 8424 (The Tax Reform Act of 1997), the concept of
final withholding tax on income was explained, to wit:
SECTION 2.57. Withholding of Tax at Source
(A) Final Withholding Tax. – Under the final withholding tax system the amount of income tax withheld by the
withholding agent is constituted as full and final payment of the income tax due from the payee on the said
income. The liability for payment of the tax rests primarily on the payor as a withholding agent. Thus, in case of
his failure to withhold the tax or in case of underwithholding, the deficiency tax shall be collected from the
payor/withholding agent. …
(B) Creditable Withholding Tax. – Under the creditable withholding tax system, taxes withheld on certain
income payments are intended to equal or at least approximate the tax due of the payee on said income. …
Taxes withheld on income payments covered by the expanded withholding tax (referred to in Sec. 2.57.2 of
these regulations) and compensation income (referred to in Sec. 2.78 also of these regulations) are creditable
in nature.
As applied to value-added tax, this means that taxable transactions with the government are subject to a 5%
rate, which constitutes as full payment of the tax payable on the transaction. This represents the net VAT
payable of the seller. The other 5% effectively accounts for the standard input VAT (deemed input VAT), in lieu
of the actual input VAT directly or attributable to the taxable transaction.79
The Court need not explore the rationale behind the provision. It is clear that Congress intended to treat
differently taxable transactions with the government.80 This is supported by the fact that under the old provision,
the 5% tax withheld by the government remains creditable against the tax liability of the seller or contractor, to
wit:
SEC. 114. Return and Payment of Value-added Tax. –
(C) Withholding of Creditable Value-added Tax. – The Government or any of its political subdivisions,
instrumentalities or agencies, including government-owned or controlled corporations (GOCCs) shall, before
making payment on account of each purchase of goods from sellers and services rendered by contractors
which are subject to the value-added tax imposed in Sections 106 and 108 of this Code, deduct and withhold
the value-added tax due at the rate of three percent (3%) of the gross payment for the purchase of goods and
six percent (6%) on gross receipts for services rendered by contractors on every sale or installment payment
which shall be creditable against the value-added tax liability of the seller or contractor: Provided,
however, That in the case of government public works contractors, the withholding rate shall be eight and one-
half percent (8.5%): Provided, further, That the payment for lease or use of properties or property rights to
nonresident owners shall be subject to ten percent (10%) withholding tax at the time of payment. For this
purpose, the payor or person in control of the payment shall be considered as the withholding agent.
The valued-added tax withheld under this Section shall be remitted within ten (10) days following the end of the
month the withholding was made. (Emphasis supplied)
As amended, the use of the word final and the deletion of the word creditable exhibits Congress’s intention to
treat transactions with the government differently. Since it has not been shown that the class subject to the 5%
final withholding tax has been unreasonably narrowed, there is no reason to invalidate the provision.
Petitioners, as petroleum dealers, are not the only ones subjected to the 5% final withholding tax. It applies to
all those who deal with the government.
Moreover, the actual input tax is not totally lost or uncreditable, as petitioners believe. Revenue Regulations
No. 14-2005 or the Consolidated Value-Added Tax Regulations 2005 issued by the BIR, provides that should
the actual input tax exceed 5% of gross payments, the excess may form part of the cost. Equally, should the
actual input tax be less than 5%, the difference is treated as income.81
Petitioners also argue that by imposing a limitation on the creditable input tax, the government gets to tax a
profit or value-added even if there is no profit or value-added.
Petitioners’ stance is purely hypothetical, argumentative, and again, one-sided. The Court will not engage in a
legal joust where premises are what ifs, arguments, theoretical and facts, uncertain. Any disquisition by the
Court on this point will only be, as Shakespeare describes life in Macbeth,82 "full of sound and fury, signifying
nothing."
What’s more, petitioners’ contention assumes the proposition that there is no profit or value-added. It need not
take an astute businessman to know that it is a matter of exception that a business will sell goods or services
without profit or value-added. It cannot be overstressed that a business is created precisely for profit.
The equal protection clause under the Constitution means that "no person or class of persons shall be deprived
of the same protection of laws which is enjoyed by other persons or other classes in the same place and in like
circumstances."83
The power of the State to make reasonable and natural classifications for the purposes of taxation has long
been established. Whether it relates to the subject of taxation, the kind of property, the rates to be levied, or the
amounts to be raised, the methods of assessment, valuation and collection, the State’s power is entitled to
presumption of validity. As a rule, the judiciary will not interfere with such power absent a clear showing of
unreasonableness, discrimination, or arbitrariness.84
Petitioners point out that the limitation on the creditable input tax if the entity has a high ratio of input tax, or
invests in capital equipment, or has several transactions with the government, is not based on real and
substantial differences to meet a valid classification.
The argument is pedantic, if not outright baseless. The law does not make any classification in the subject of
taxation, the kind of property, the rates to be levied or the amounts to be raised, the methods of assessment,
valuation and collection. Petitioners’ alleged distinctions are based on variables that bear different
consequences. While the implementation of the law may yield varying end results depending on one’s profit
margin and value-added, the Court cannot go beyond what the legislature has laid down and interfere with the
affairs of business.
The equal protection clause does not require the universal application of the laws on all persons or things
without distinction. This might in fact sometimes result in unequal protection. What the clause requires is
equality among equals as determined according to a valid classification. By classification is meant the grouping
of persons or things similar to each other in certain particulars and different from all others in these same
particulars.85
Petitioners brought to the Court’s attention the introduction of Senate Bill No. 2038 by Sens. S.R. Osmeña III
and Ma. Ana Consuelo A.S. – Madrigal on June 6, 2005, and House Bill No. 4493 by Rep. Eric D. Singson. The
proposed legislation seeks to amend the 70% limitation by increasing the same to 90%. This, according to
petitioners, supports their stance that the 70% limitation is arbitrary and confiscatory. On this score, suffice it to
say that these are still proposed legislations. Until Congress amends the law, and absent any unequivocal
basis for its unconstitutionality, the 70% limitation stays.
B. Uniformity and Equitability of Taxation
Article VI, Section 28(1) of the Constitution reads:

The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of
taxation.
Uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the
same rate. Different articles may be taxed at different amounts provided that the rate is uniform on the same
class everywhere with all people at all times.86
In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or 12%) on all goods and
services. Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the
NIRC, provide for a rate of 10% (or 12%) on sale of goods and properties, importation of goods, and sale of
services and use or lease of properties. These same sections also provide for a 0% rate on certain sales and
transaction.
Neither does the law make any distinction as to the type of industry or trade that will bear the 70% limitation on
the creditable input tax, 5-year amortization of input tax paid on purchase of capital goods or the 5% final
withholding tax by the government. It must be stressed that the rule of uniform taxation does not deprive
Congress of the power to classify subjects of taxation, and only demands uniformity within the particular class.87
R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The VAT rate of 0% or 10% (or
12%) does not apply to sales of goods or services with gross annual sales or receipts not exceeding
₱1,500,000.00.88Also, basic marine and agricultural food products in their original state are still not subject to
the tax,89 thus ensuring that prices at the grassroots level will remain accessible. As was stated in Kapatiran ng
mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan:90
The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons engaged
in business with an aggregate gross annual sales exceeding ₱200,000.00. Small corner sari-sari stores are
consequently exempt from its application. Likewise exempt from the tax are sales of farm and marine products,
so that the costs of basic food and other necessities, spared as they are from the incidence of the VAT, are
expected to be relatively lower and within the reach of the general public.
It is admitted that R.A. No. 9337 puts a premium on businesses with low profit margins, and unduly favors
those with high profit margins. Congress was not oblivious to this. Thus, to equalize the weighty burden the law
entails, the law, under Section 116, imposed a 3% percentage tax on VAT-exempt persons under Section
109(v), i.e., transactions with gross annual sales and/or receipts not exceeding ₱1.5 Million. This acts as a
equalizer because in effect, bigger businesses that qualify for VAT coverage and VAT-exempt taxpayers stand
on equal-footing.
Moreover, Congress provided mitigating measures to cushion the impact of the imposition of the tax on those
previously exempt. Excise taxes on petroleum products91 and natural gas92 were reduced. Percentage tax on
domestic carriers was removed.93 Power producers are now exempt from paying franchise tax.94
Aside from these, Congress also increased the income tax rates of corporations, in order to distribute the
burden of taxation. Domestic, foreign, and non-resident corporations are now subject to a 35% income tax rate,
from a previous 32%.95 Intercorporate dividends of non-resident foreign corporations are still subject to 15%
final withholding tax but the tax credit allowed on the corporation’s domicile was increased to 20%.96 The
Philippine Amusement and Gaming Corporation (PAGCOR) is not exempt from income taxes anymore.97 Even
the sale by an artist of his works or services performed for the production of such works was not spared.
All these were designed to ease, as well as spread out, the burden of taxation, which would otherwise rest
largely on the consumers. It cannot therefore be gainsaid that R.A. No. 9337 is equitable.
C. Progressivity of Taxation
Lastly, petitioners contend that the limitation on the creditable input tax is anything but regressive. It is the
smaller business with higher input tax-output tax ratio that will suffer the consequences.
Progressive taxation is built on the principle of the taxpayer’s ability to pay. This principle was also lifted from
Adam Smith’s Canons of Taxation, and it states:
I. The subjects of every state ought to contribute towards the support of the government, as nearly as possible,
in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy
under the protection of the state.
Taxation is progressive when its rate goes up depending on the resources of the person affected.98
The VAT is an antithesis of progressive taxation. By its very nature, it is regressive. The principle of progressive
taxation has no relation with the VAT system inasmuch as the VAT paid by the consumer or business for every
goods bought or services enjoyed is the same regardless of income. In
other words, the VAT paid eats the same portion of an income, whether big or small. The disparity lies in the
income earned by a person or profit margin marked by a business, such that the higher the income or profit
margin, the smaller the portion of the income or profit that is eaten by VAT. A converso, the lower the income or
profit margin, the bigger the part that the VAT eats away. At the end of the day, it is really the lower income
group or businesses with low-profit margins that is always hardest hit.
Nevertheless, the Constitution does not really prohibit the imposition of indirect taxes, like the VAT. What it
simply provides is that Congress shall "evolve a progressive system of taxation." The Court stated in
the Tolentino case, thus:
The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive.
What it simply provides is that Congress shall ‘evolve a progressive system of taxation.’ The constitutional
provision has been interpreted to mean simply that ‘direct taxes are . . . to be preferred [and] as much as
possible, indirect taxes should be minimized.’ (E. FERNANDO, THE CONSTITUTION OF THE PHILIPPINES
221 (Second ed. 1977)) Indeed, the mandate to Congress is not to prescribe, but to evolve, a progressive tax
system. Otherwise, sales taxes, which perhaps are the oldest form of indirect taxes, would have been
prohibited with the proclamation of Art. VIII, §17 (1) of the 1973 Constitution from which the present Art. VI, §28
(1) was taken. Sales taxes are also regressive.
Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to
avoid them by imposing such taxes according to the taxpayers' ability to pay. In the case of the VAT, the law
minimizes the regressive effects of this imposition by providing for zero rating of certain transactions (R.A. No.
7716, §3, amending §102 (b) of the NIRC), while granting exemptions to other transactions. (R.A. No. 7716, §4
amending §103 of the NIRC)99
CONCLUSION
It has been said that taxes are the lifeblood of the government. In this case, it is just an enema, a first-aid
measure to resuscitate an economy in distress. The Court is neither blind nor is it turning a deaf ear on the
plight of the masses. But it does not have the panacea for the malady that the law seeks to remedy. As in other
cases, the Court cannot strike down a law as unconstitutional simply because of its yokes.
Let us not be overly influenced by the plea that for every wrong there is a remedy, and that the judiciary should
stand ready to afford relief. There are undoubtedly many wrongs the judicature may not correct, for instance,
those involving political questions. . . .
Let us likewise disabuse our minds from the notion that the judiciary is the repository of remedies for all political
or social ills; We should not forget that the Constitution has judiciously allocated the powers of government to
three distinct and separate compartments; and that judicial interpretation has tended to the preservation of the
independence of the three, and a zealous regard of the prerogatives of each, knowing full well that one is not
the guardian of the others and that, for official wrong-doing, each may be brought to account, either by
impeachment, trial or by the ballot box.100
The words of the Court in Vera vs. Avelino101 holds true then, as it still holds true now. All things considered,
there is no raison d'être for the unconstitutionality of R.A. No. 9337.
WHEREFORE, Republic Act No. 9337 not being unconstitutional, the petitions in G.R. Nos. 168056, 168207,
168461, 168463, and 168730, are hereby DISMISSED.
There being no constitutional impediment to the full enforcement and implementation of R.A. No. 9337, the
temporary restraining order issued by the Court on July 1, 2005 is LIFTED upon finality of herein decision.
SO ORDERED.
G.R. No. 168056 ' ABAKADA GURO PARTY LIST, ET AL. VS. EXECUTIVE SECRETARY EDUARDO
ERMITA, ET AL.
G.R. No. 168207 ' AQUILINO PIMENTEL, JR., ET AL. VS. EXECUTIVE SECRETARY EDUARDO
ERMITA, ET AL.
G.R. No. 168461 ' ASSOCIATION OF PILIPINAS SHELL DEALERS, INC., ET AL. VS. CESAR V.
PURISIMA, ET AL.
G.R. No. 168463 ' FRANCIS JOSEPH G. ESCUDERO, ET AL. VS. CESAR V. PURISIMA, ET AL.
Promulgated:
September 1, 2005
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
CONCURRING AND
DISSENTING OPINION
PUNO, J.:
The main opinion of Madam Justice Martinez exhaustively discusses the numerous constitutional and legal
issues raised by the petitioners. Be that as it may, I wish to raise the following points, viz:
First. Petitioners assail sections 4 to 6 of Republic Act No. 9337 as violative of the principle of non-
delegation of legislative power. These sections authorize the President, upon recommendation of the
Secretary of Finance, to raise the value-added tax (VAT) rate to 12% effective January 1, 2006, upon
satisfaction of the following conditions: viz:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the
previous year exceeds two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one
and one-half percent (1 '%).
The power of judicial review under Article VIII, section 5(2) of the 1987 Constitution is limited to the review
of 'actual cases and controversies.[1] As rightly stressed by retired Justice Vicente V. Mendoza, this
requirement gives the judiciary 'the opportunity, denied to the legislature, of seeing the actual operation of
the statute as it is applied to actual facts and thus enables it to reach sounder judgment and 'enhances
public acceptance of its role in our system of government.[2] It also assures that the judiciary does not
intrude on areas committed to the other branches of government and is confined to its role as defined by
the Constitution.[3] Apposite thereto is the doctrine of ripeness whose basic rationale is to prevent the
courts, through premature adjudication, from entangling themselves in abstract disagreements.[4] Central
to the doctrine is the determination of 'whether the case involves uncertain or contingent future events
that may not occur as anticipated, or indeed may not occur at all.[5] The ripeness requirement must be
satisfied for each challenged legal provision and parts of a statute so that those which are 'not
immediately involved are not thereby thrown open for a judicial determination of constitutionality.[6]
It is manifest that the constitutional challenge to sections 4 to 6 of R.A. No. 9337 cannot hurdle the
requirement of ripeness. These sections give the President the power to raise the VAT rate to 12% on
January 1, 2006 upon satisfaction of certain fact-based conditions. We are not endowed with the
infallible gift of prophesy to know whether these conditions are certain to happen. The power to adjust the
tax rate given to the President is futuristic and may or may not be exercised. The Court is therefore
beseeched to render a conjectural judgment based on hypothetical facts. Such a supplication has to be
rejected.
Second. With due respect, I submit that the most important constitutional issue posed by the petitions at
bar relates to the parameters of power of a Bicameral Conference Committee. Most of the issues in the
petitions at bar arose because the Bicameral Conference Committee concerned exercised powers that went
beyond reconciling the differences between Senate Bill No. 1950 and House Bill Nos. 3705 and 3555. In
Tolentino v. Secretary of Finance,[7] I ventured the view that a Bicameral Conference Committee has
limited powers and cannot be allowed to act as if it were a 'third house of Congress. I further warned that
unless its roving powers are reigned in, a Bicameral Conference Committee can wreck the lawmaking
process which is a cornerstone of the democratic, republican regime established in our Constitution. The
passage of time fortifies my faith that there ought to be no legal u-turn on this preeminent principle. I wish,
therefore, to reiterate my reasons for this unbending view, viz:[8]
Section 209, Rule XII of the Rules of the Senate provides:
In the event that the Senate does not agree with the House of
Representatives on the provision of any bill or joint resolution, the
differences shall be settled by a conference committee of both Houses which
shall meet within ten days after their composition.
Each Conference Committee Report shall contain a detailed and

sufficiently explicit statement of the changes in or amendments to the subject
measure, and shall be signed by the conferees. (Emphasis supplied)
The counterpart rule of the House of Representatives is cast in near identical

language. Section 85 of the Rules of the House of Representatives pertinently provides:
In the event that the House does not agree with the Senate on the
amendments to any bill or joint resolution, the differences may be settled by a
conference committee of both chambers.
x x x. Each report shall contain a detailed, sufficiently explicit statement

of the changes in or amendments to the subject measure. (Emphasis supplied)
The Jefferson's Manual has been adopted as a supplement to our parliamentary rules and
practice. Section 456 of Jefferson's Manual similarly confines the powers of a conference
committee, viz:
The managers of a conference must confine themselves to the

differences committed to them ' and may not include subjects not within the
disagreements, even though germane to a question in issue.
This rule of antiquity has been honed and honored in practice by the Congress of the United
States. Thus, it is chronicled by Floyd Biddick, Parliamentarian Emeritus of the United States
Senate, viz:
Committees of conference are appointed for the sole purpose of

compromising and adjusting the differing and conflicting opinions of the two
Houses and the committees of conference alone can grant compromises and
modify propositions of either Houses within the limits of the disagreement.
Conferees are limited to the consideration of differences between the two
Houses.
Congress shall not insert in their report matters not committed to them
by either House, nor shall they strike from the bill matters agreed to by both
Houses. No matter on which there is nothing in either the Senate or House
passed versions of a bill may be included in the conference report and actions
to the contrary would subject the report to a point of order. (Emphasis ours)
In fine, there is neither a sound nor a syllable in the Rules of the Senate and the House of
Representatives to support the thesis of the respondents that a bicameral conference
committee is clothed with an ex post veto power.
But the thesis that a Bicameral Conference Committee can wield ex post veto power
does not only contravene the rules of both the Senate and the House. It wages war against
our settled ideals of representative democracy. For the inevitable, catastrophic effect of the
thesis is to install a Bicameral Conference Committee as the Third Chamber of our
Congress, similarly vested with the power to make laws but with the dissimilarity that its laws
are not the subject of a free and full discussion of both Houses of Congress. With such a
vagrant power, a Bicameral Conference Committee acting as a Third Chamber will be a
constitutional monstrosity.
It needs no omniscience to perceive that our Constitution did not provide for a
Congress composed of three chambers. On the contrary, section 1, Article VI of the
Constitution provides in clear and certain language: 'The legislative power shall be vested
in the Congress of the Philippines which shall consist of a Senate and a House of
Representatives Note that in vesting legislative power exclusively to the Senate and the
House, the Constitution used the word 'shall. Its command for a Congress of two houses is
mandatory. It is not mandatory sometimes.
In vesting legislative power to the Senate, the Constitution means the Senate
composed of twenty-four Senators xxx elected at large by the qualified voters of the
Philippines Similarly, when the Constitution vested the legislative power to the House, it
means the House composed of not more than two hundred and fifty members xxx who shall
be elected from legislative districts xxx and those who xxx shall be elected through a party-
list system of registered national, regional, and sectoral parties or organizations. The
Constitution thus, did not vest on a Bicameral Conference Committee with an ad hoc
membership the power to legislate for it exclusively vested legislative power to the Senate
and the House as co-equal bodies. To be sure, the Constitution does not mention the
Bicameral Conference Committees of Congress. No constitutional status is accorded to
them. They are not even statutory creations. They owe their existence from the internal rules
of the two Houses of Congress. Yet, respondents peddle the disconcerting idea that they
should be recognized as a Third Chamber of Congress and with ex post veto power at that.
The thesis that a Bicameral Conference Committee can exercise law making power
with ex post veto power is freighted with mischief. Law making is a power that can be used
for good or for ill, hence, our Constitution carefully laid out a plan and a procedure for its
exercise. Firstly, it vouchsafed that the power to make laws should be exercised by no other
body except the Senate and the House. It ought to be indubitable that what is contemplated
is the Senate acting as a full Senate and the House acting as a full House. It is only when
the Senate and the House act as whole bodies that they truly represent the people. And it
is only when they represent the people that they can legitimately pass laws. Laws that are
not enacted by the people's rightful representatives subvert the people's sovereignty.
Bicameral Conference Committees, with their ad hoc character and limited membership,
cannot pass laws for they do not represent the people. The Constitution does not allow the
tyranny of the majority. Yet, the respondents will impose the worst kind of tyranny ' the
tyranny of the minority over the majority. Secondly, the Constitution delineated in deft
strokes the steps to be followed in making laws. The overriding purpose of these procedural
rules is to assure that only bills that successfully survive the searching scrutiny of the proper
committees of Congress and the full and unfettered deliberations of both Houses can
become laws. For this reason, a bill has to undergo three (3) mandatory separate readings
in each House. In the case at bench, the additions and deletions made by the Bicameral
Conference Committee did not enjoy the enlightened studies of appropriate committees. It
is meet to note that the complexities of modern day legislations have made our committee
system a significant part of the legislative process. Thomas Reed called the committee
system as 'the eye, the ear, the hand, and very often the brain of the house. President
Woodrow Wilson of the United States once referred to the government of the United States
as 'a government by the Chairmen of the Standing Committees of Congress Neither did
these additions and deletions of the Bicameral Conference Committee pass through the
coils of collective deliberation of the members of the two Houses acting separately. Due to
this shortcircuiting of the constitutional procedure of making laws, confusion shrouds the
enactment of R.A. No. 7716. Who inserted the additions and deletions remains a mystery.
Why they were inserted is a riddle. To use a Churchillian phrase, lawmaking should not be
a riddle wrapped in an enigma. It cannot be, for Article II, section 28 of the Constitution
mandates the State to adopt and implement a 'policy of full public disclosure of all its
transactions involving public interest. The Constitution could not have contemplated a
Congress of invisible and unaccountable John and Mary Does. A law whose rationale is a
riddle and whose authorship is obscure cannot bind the people.
All these notwithstanding, respondents resort to the legal cosmetology that these
additions and deletions should govern the people as laws because the Bicameral
Conference Committee Report was anyway submitted to and approved by the Senate and
the House of Representatives. The submission may have some merit with respect to
provisions agreed upon by the Committee in the process of reconciling conflicts between
S.B. No. 1630 and H.B. No. 11197. In these instances, the conflicting provisions had been
previously screened by the proper committees, deliberated upon by both Houses and
approved by them. It is, however, a different matter with respect to additions and deletions
which were entirely new and which were made not to reconcile inconsistencies between
S.B. No. 1630 and H.B. No. 11197. The members of the Bicameral Conference Committee
did not have any authority to add new provisions or delete provisions already approved by
both Houses as it was not necessary to discharge their limited task of reconciling differences
in bills. At that late stage of law making, the Conference Committee cannot add/delete
provisions which can become laws without undergoing the study and deliberation of both
chambers given to bills on 1st, 2nd, and 3rd readings. Even the Senate and the House cannot
enact a law which will not undergo these mandatory three (3) readings required by the
Constitution. If the Senate and the House cannot enact such a law, neither can the lesser
Bicameral Conference Committee.
Moreover, the so-called choice given to the members of both Houses to either
approve or disapprove the said additions and deletions is more of an optical illusion. These
additions and deletions are not submitted separately for approval. They are tucked to the
entire bill. The vote is on the bill as a package, i.e., together with the insertions and deletions.
And the vote is either 'aye or 'nay, without any further debate and deliberation. Quite often,
legislators vote 'yes' because they approve of the bill as a whole although they may object
to its amendments by the Conference Committee. This lack of real choice is well observed
by Robert Luce:
Their power lies chiefly in the fact that reports of conference

committees must be accepted without amendment or else rejected in toto. The
impulse is to get done with the matter and so the motion to accept has undue
advantage, for some members are sure to prefer swallowing unpalatable
provisions rather than prolong controversy. This is the more likely if the report
comes in the rush of business toward the end of a session, when to seek
further conference might result in the loss of the measure altogether. At any
time in the session there is some risk of such a result following the rejection of
a conference report, for it may not be possible to secure a second conference,
or delay may give opposition to the main proposal chance to develop more
strength.
In a similar vein, Prof. Jack Davies commented that conference reports are returned to
assembly and Senate on a take-it or leave-it-basis, and the bodies are generally placed in
the position that to leave-it is a practical impossibility. Thus, he concludes that 'conference
committee action is the most undemocratic procedure in the legislative process.
The respondents also contend that the additions and deletions made by the
Bicameral Conference Committee were in accord with legislative customs and usages. The
argument does not persuade for it misappreciates the value of customs and usages in the
hierarchy of sources of legislative rules of procedure. To be sure, every legislative assembly
has the inherent right to promulgate its own internal rules. In our jurisdiction, Article VI,
section 16(3) of the Constitution provides that 'Each House may determine the rules of its
proceedings x x x. But it is hornbook law that the sources of Rules of Procedure are many
and hierarchical in character. Mason laid them down as follows:
xxx
1. Rules of Procedure are derived from several sources. The

principal sources are as follows:
a. Constitutional rules.
b. Statutory rules or charter provisions.
c. Adopted rules.
d. Judicial decisions.
e. Adopted parliamentary authority.
f. Parliamentary law.
g. Customs and usages.
2. The rules from the different sources take precedence in the order
listed above except that judicial decisions, since they are interpretations of
rules from one of the other sources, take the same precedence as the source
interpreted. Thus, for example, an interpretation of a constitutional provision
takes precedence over a statute.
3. Whenever there is conflict between rules from these sources the

rule from the source listed earlier prevails over the rule from the source listed
later. Thus, where the Constitution requires three readings of bills, this
provision controls over any provision of statute, adopted rules, adopted
manual, or of parliamentary law, and a rule of parliamentary law controls
over a local usage but must give way to any rule from a higher source of
authority. (Emphasis ours)
As discussed above, the unauthorized additions and deletions made by the Bicameral
Conference Committee violated the procedure fixed by the Constitution in the making of
laws. It is reasonless for respondents therefore to justify these insertions as sanctioned by
customs and usages.
Finally, respondents seek sanctuary in the conclusiveness of an enrolled bill to bar any
judicial inquiry on whether Congress observed our constitutional procedure in the passage
of R.A. No. 7716. The enrolled bill theory is a historical relic that should not continuously
rule us from the fossilized past. It should be immediately emphasized that the enrolled bill
theory originated in England where there is no written constitution and where Parliament is
supreme. In this jurisdiction, we have a written constitution and the legislature is a body of
limited powers. Likewise, it must be pointed out that starting from the decade of the 40s,
even American courts have veered away from the rigidity and unrealism of the
conclusiveness of an enrolled bill. Prof. Sutherland observed:
xxx
Where the failure of constitutional compliance in the enactment of

statutes is not discoverable from the face of the act itself but may be
demonstrated by recourse to the legislative journals, debates, committee
reports or papers of the governor, courts have used several conflicting theories
with which to dispose of the issue. They have held: (1) that the enrolled bill is
conclusive and like the sheriff's return cannot be attacked; (2) that the enrolled
bill is prima facie correct and only in case the legislative journal shows
affirmative contradiction of the constitutional requirement will the bill be held
invalid; (3) that although the enrolled bill is prima facie correct, evidence from
the journals, or other extrinsic sources is admissible to strike the bill down; (4)
that the legislative journal is conclusive and the enrolled bills is valid only if it
accords with the recital in the journal and the constitutional procedure.
Various jurisdictions have adopted these alternative approaches in view of strong dissent
and dissatisfaction against the philosophical underpinnings of the conclusiveness of an
enrolled bill. Prof. Sutherland further observed:
x x x. Numerous reasons have been given for this rule. Traditionally,

an enrolled bill was 'a record and as such was not subject to attack at common
law. Likewise, the rule of conclusiveness was similar to the common law rule
of the inviolability of the sheriff's return. Indeed, they had the same origin, that
is, the sheriff was an officer of the king and likewise the parliamentary act was
a regal act and no official might dispute the king's word. Transposed to our
democratic system of government, courts held that as the legislature was an
official branch of government the court must indulge every presumption that
the legislative act was valid. The doctrine of separation of powers was
advanced as a strong reason why the court should treat the acts of a co-
ordinate branch of government with the same respect as it treats the action of
its own officers; indeed, it was thought that it was entitled to even greater
respect, else the court might be in the position of reviewing the work of a
supposedly equal branch of government. When these arguments failed, as
they frequently did, the doctrine of convenience was advanced, that is, that it
was not only an undue burden upon the legislature to preserve its records to
meet the attack of persons not affected by the procedure of enactment, but
also that it unnecessarily complicated litigation and confused the trial of
substantive issues.
Although many of these arguments are persuasive and are indeed the
basis for the rule in many states today, they are not invulnerable to attack. The
rule most relied on ' the sheriff's return or sworn official rule ' did not in civil
litigation deprive the injured party of an action, for always he could sue the
sheriff upon his official bond. Likewise, although collateral attack was not
permitted, direct attack permitted raising the issue of fraud, and at a later date
attack in equity was also available; and that the evidence of the sheriff was not
of unusual weight was demonstrated by the fact that in an action against the
sheriff no presumption of its authenticity prevailed.
The argument that the enrolled bill is a record and therefore

unimpeachable is likewise misleading, for the correction of records is a matter
of established judicial procedure. Apparently, the justification is either the
historical one that the king's word could not be questioned or the separation
of powers principle that one branch of the government must treat as valid the
acts of another.
Persuasive as these arguments are, the tendency today is to avoid

reaching results by artificial presumptions and thus it would seem desirable to
insist that the enrolled bill stand or fall on the basis of the relevant evidence
which may be submitted for or against it. (Emphasis ours)
Thus, as far back as the 1940s, Prof. Sutherland confirmed that 'x x x the tendency seems
to be toward the abandonment of the conclusive presumption rule and the adoption of the
third rule leaving only a prima facie presumption of validity which may be attacked by any
authoritative source of information.
Third. I respectfully submit that it is only by strictly following the contours of powers of a Bicameral
Conference Committee, as delineated by the rules of the House and the Senate, that we can prevent
said Committee from acting as a 'third chamber of Congress. Under the clear rules of both the Senate and
House, its power can go no further than settling differences in their bills or joint resolutions. Sections 88
and 89, Rule XIV of the Rules of the House of Representatives provide as follows:
Sec. 88. Conference Committee. ' In the event that the House does not agree with the
Senate on the amendment to any bill or joint resolution, the differences may be settled by
the conference committees of both chambers.
In resolving the differences with the Senate, the House panel shall, as much as possible,
adhere to and support the House Bill. If the differences with the Senate are so substantial
that they materially impair the House Bill, the panel shall report such fact to the House for
the latter's appropriate action.
Sec. 89. Conference Committee Reports. - . . . Each report shall contain a detailed,
sufficiently explicit statement of the changes in or amendments to the subject measure.
...
The Chairman of the House panel may be interpellated on the Conference Committee
Report prior to the voting thereon. The House shall vote on the Conference Committee
Report in the same manner and procedure as it votes a bill on third and final reading.
Section 35, Rule XII of the Rules of the Senate states:
Sec. 35. In the event that the Senate does not agree with the House of Representatives on
the provision of any bill or joint resolution, the differences shall be settled by a conference
committee of both Houses which shall meet within ten (10) days after their composition. The
President shall designate the members of the Senate Panel in the conference committee
with the approval of the Senate.
Each Conference Committee Report shall contain a detailed and sufficiently explicit
statement of the changes in, or amendments to the subject measure, and shall be signed
by a majority of the members of each House panel, voting separately.
The House rule brightlines the following: (1) the power of the Conference Committee is limited . . . it is only
to settle differences with the Senate; (2) if the differences are substantial, the Committee must report to
the House for the latter's appropriate action; and (3) the Committee report has to be voted upon in the same
manner and procedure as a bill on third and final reading. Similarly, the Senate rule underscores in crimson
that (1) the power of the Committee is limited - - - to settle differences with the House; (2) it can make
changes or amendments only in the discharge of this limited power to settle differences with the House;
and (3) the changes or amendments are merely recommendatory for they still have to be approved by the
Senate.
Under both rules, it is obvious that a Bicameral Conference Committee is a mere agent of the House or
the Senate with limited powers. The House contingent in the Committee cannot, on its own, settle
differences which are substantial in character. If it is confronted with substantial differences, it has to go
back to the chamber that created it 'for the latter's appropriate action. In other words, it must take the
proper instructions from the chambers that created it. It cannot exercise its unbridled discretion. Where
there is no difference between the bills, it cannot make any change. Where the difference is substantial,
it has to return to the chamber of its origin and ask for appropriate instructions. It ought to be indubitable
that it cannot create a new law, i.e., that which has never been discussed in either chamber of Congress.
Its parameters of power are not porous, for they are hedged by the clear limitation that its only power is
to settle differences in bills and joint resolutions of the two chambers of Congress. '
Fourth. Prescinding from these premises, I respectfully submit that the following acts of the Bicameral
Conference Committee constitute grave abuse of discretion amounting to lack or excess of jurisdiction and
should be struck down as unconstitutional nullities, viz:
a. Its deletion of the pro poor 'no pass on provision which is
common in both Senate Bill No. 1950 and House Bill No. 3705.
Sec. 1 of House Bill No. 3705[9] provides:
Section 106 of the National Internal Revenue Code of 1997, as amended, is hereby further
amended to read as follows:
SEC. 106. Value-added Tax on Sale of Goods or Properties. '
xxx
Provided, further, that notwithstanding the provision of the second paragraph of Section 105
of this Code, the Value-added Tax herein levied on the sale of petroleum products under
Subparagraph (1) hereof shall be paid and absorbed by the sellers of petroleum products
who shall be prohibited from passing on the cost of such tax payments, either directly
or indirectly[,] to any consumer in whatever form or manner, it being the express intent
of this act that the Value-added Tax shall be borne and absorbed exclusively by the sellers
of petroleum products x x x.
Sec. 3 of the same House bill provides:
Section 108 of the National Internal Revenue Code of 1997, as amended, is hereby further
amended to read as follows:
Sec. 108. Value-added Tax on Sale of Goods or Properties. '
Provided, further, that notwithstanding the provision of the second paragraph of Section 105
of this Code, the Value-added Tax imposed under this paragraph shall be paid and absorbed
by the subject generation companies who shall be prohibited from passing on the cost
of such tax payments, either directly or indirectly[,] to any consumer in whatever form
or manner, it being the express intent of this act that the Value-added Tax shall be borne
and absorbed exclusively [by] the power-generating companies.
In contrast and comparison, Sec. 5 of Senate Bill No. 1950 provides:
Value-added Tax on sale of Services and Use or Lease of Properties. '
x x x Provided, that the VAT on sales of electricity by generation companies, and services of
transmission companies and distribution companies, as well as those of franchise grantees
of electrical utilities shall not apply to residential end-users: Provided, that the Value-added
Tax herein levied shall be absorbed and paid by the generation, transmission and distribution
companies concerned. The said companies shall not pass on such tax payments to
NAPOCOR or ultimately to the consumers, including but not limited to residential end
users, either as costs or in any other form whatsoever, directly or indirectly. x x x.
Even the faintest eye contact with the above provisions will reveal that: (a) both the House bill and the
Senate bill prohibited the passing on to consumers of the VAT on sales of electricity and (b) the House
bill prohibited the passing on to consumers of the VAT on sales of petroleum products while the Senate bill
is silent on the prohibition.
In the guise of reconciling disagreeing provisions of the House and the Senate bills on the matter, the
Bicameral Conference Committee deleted the 'no pass on provision on both the sales of electricity
and petroleum products. This action by the Committee is not warranted by the rules of either the Senate
or the House. As aforediscussed, the only power of a Bicameral Conference Committee is to reconcile
disagreeing provisions in the bills or joint resolutions of the two houses of Congress. The House and the
Senate bills both prohibited the passing on to consumers of the VAT on sales of electricity. 'The Bicameral
Conference Committee cannot override this unequivocal decision of the Senate and the House. Nor
is it clear that there is a conflict between the House and Senate versions on the 'no pass on provisions' of
the VAT on sales of petroleum products. The House version contained a 'no pass on provision but the
Senate had none. Elementary logic will tell us that while there may be a difference in the two versions,
it does not necessarily mean that there is a disagreement or conflict between the Senate and the
House. The silence of the Senate on the issue cannot be interpreted as an outright opposition to the
House decision prohibiting the passing on of the VAT to the consumers on sales of petroleum products.
Silence can even be conformity, albeit implicit in nature. But granting for the nonce that there is conflict
between the two versions, the conflict cannot escape the characterization as a substantial difference. The
seismic consequence of the deletion of the 'no pass on provision of the VAT on sales of petroleum products
on the ability of our consumers, especially on the roofless and the shirtless of our society, to survive the
onslaught of spiraling prices ought to be beyond quibble. The rules require that the Bicameral Conference
Committee should not, on its own, act on this substantial conflict. It has to seek guidance from the chamber
that created it. It must receive proper instructions from its principal, for it is the law of nature that no spring
can rise higher than its source. The records of both the Senate and the House do not reveal that this step
was taken by the members of the Bicameral Conference Committee. They bypassed their principal and ran
riot with the exercise of powers that the rules never bestowed on them.
b. Even more constitutionally obnoxious are the added restrictions on local government's use of
incremental revenue from the VAT in Section 21 of R.A. No. 9337 which were not present in the Senate
or House Bills. Section 21 of R.A. No. 9337 provides:
Fifty percent of the local government unit's share from VAT shall be allocated and used
exclusively for the following purposes:
1. Fifteen percent (15%) for public elementary and secondary

education to finance the construction of buildings, purchases of school
furniture and in-service teacher trainings;
2. Ten percent (10%) for health insurance premiums of enrolled

indigents as a counterpart contribution of the local government to
sustain the universal coverage of the national health insurance
program;
3. Fifteen percent (15%) for environmental conservation to fully

implement a comprehensive national reforestation program; and
4. Ten percent (10%) for agricultural modernization to finance the

construction of farm-to-market roads and irrigation facilities.
Such allocations shall be segregated as separate trust funds by the national treasury and
shall be over and above the annual appropriation for similar purposes.
These amendments did not harmonize conflicting provisions between the constituent bills of R.A. No.
9337 but are entirely new and extraneous concepts which fall beyond the median thereof. They
transgress the limits of the Bicameral Conference Committee's authority and must be struck down.
I cannot therefore subscribe to the thesis of the majority that 'the changes introduced by the Bicameral
Conference Committee on disagreeing provisions were meant only to reconcile and harmonize the
disagreeing provisions for it did not inject any idea or intent that is wholly foreign to the subject
embraced by the original provisions.

Fifth. The majority further defends the constitutionality of the above provisions by holding that 'all the
changes or modifications were germane to subjects of the provisions referred to it for reconciliation.
With due respect, it is high time to re-examine the test of germaneness proffered in Tolentino.
The test of germaneness is overly broad and is the fountainhead of mischief for it allows the Bicameral
Conference Committee to change provisions in the bills of the House and the Senate when they are not
even in disagreement. Worse still, it enables the Committee to introduce amendments which are entirely
new and have not previously passed through the coils of scrutiny of the members of both houses. The
Constitution did not establish a Bicameral Conference Committee that can act as a 'third house of Congress
with super veto power over bills passed by the Senate and the House. We cannot concede that super
veto power without wrecking the delicate architecture of legislative power so carefully laid down in our
Constitution. The clear intent of our fundamental law is to install a lawmaking structure composed only of
two houses whose members would thoroughly debate proposed legislations in representation of the will
of their respective constituents. The institution of this lawmaking structure is unmistakable from the
following provisions: (1) requiring that legislative power shall be vested in a bicameral legislature;[10] (2)
providing for quorum requirements;[11] (3) requiring that appropriation, revenue or tariff bills, bills
authorizing increase of public debt, bills of local application, and private bills originate exclusively in the
House of Representatives;[12] (4) requiring

that bills embrace one subject expressed in the title thereof;[13] and (5) mandating that bills undergo three
readings on separate days in each House prior to passage into law and prohibiting amendments on the last
reading thereof.[14] A Bicameral Conference Committee with untrammeled powers will destroy this
lawmaking structure. At the very least, it will diminish the free and open debate of proposed legislations and
facilitate the smuggling of what purports to be laws.
On this point, Mr. Robert Luce's disconcerting observations are apropos:
Their power lies chiefly in the fact that reports of conference committees must be accepted
without amendment or else rejected in toto. The impulse is to get done with the matters
and so the motion to accept has undue advantage, for some members are sure to
prefer swallowing unpalatable provisions rather than prolong controversy. This is more
likely if the report comes in the rush of business toward the end of the session, when to seek
further conference might result in the loss of the measure altogether. At any time in the
session there is some risk of such a result following the rejection of a conference report, for
it may not be possible to secure a second conference, or delay may give opposition to the
main proposal chance to develop more strength.
xxx xxx xxx
Entangled in a network of rule and custom, the Representative who resents and would resist
this theft of his rights, finds himself helpless. Rarely can be vote, rarely can he voice his mind,
in the matter of any fraction of the bill. Usually he cannot even record himself as protesting
against some one feature while accepting the measure as whole. Worst of all, he cannot by
argument or suggested change, try to improve what the other branch has done.
This means more than the subversion of individual rights. It means to a degree the
abandonment of whatever advantage the bicameral system may have. By so much it
in effect transfers the lawmaking power to small group of members who work out in
private a decision that almost always prevails. What is worse, these men are not chosen
in a way to ensure the wisest choice. It has become the practice to name as conferees the
ranking members of the committee, so that the accident of seniority determines. Exceptions
are made, but in general it is not a question of who are most competent to serve. Chance
governs, sometimes giving way to favor, rarely to merit.
xxx xxx xxx
Speaking broadly, the system of legislating by conference committee is unscientific and

therefore defective. Usually it forfeits the benefit of scrutiny and judgment by all the
wisdom available. Uncontrolled, it is inferior to that process by which every
amendment is secured independent discussion and vote. . . .[15]
It cannot be overemphasized that in a republican form of government, laws can only be enacted by all the
duly elected representatives of the people. It cuts against conventional wisdom in democracy to lodge
this power in the hands of a few or in the claws of a committee. It is for these reasons that the argument
that we should overlook the excesses of the Bicameral Conference Committee because its report is anyway
approved by both houses' is a futile attempt to square the circle for an unconstitutional act is void and cannot
be redeemed by any subsequent ratification.
Neither can we shut our eyes to the unconstitutional acts of the Bicameral Conference Committee by holding
that the Court cannot interpose its checking powers over mere violations of the internal rules of Congress.
In Arroyo, et al. v. de Venecia, et al.,[16] we ruled that when the violations affect private rights or impair
the Constitution, the Court has all the power, nay, the duty to strike them down.
In conclusion, I wish to stress that this is not the first time nor will it be last that arguments will be foisted
for the Court to merely wink at assaults

on the Constitution on the ground of some national interest, sometimes clear and at other times inchoate.
To be sure, it cannot be gainsaid that the country is in the vortex of a financial crisis. The broadsheets
scream the disconcerting news that our debt payments for the year 2006 will exceed Pph1 billion daily for
interest alone. Experts underscore some factors that will further drive up the debt service expenses such as
the devaluation of the peso, credit downgrades and a spike in interest rates.[17] But no doomsday scenario
will ever justify the thrashing of the Constitution. The Constitution is meant to be our rule both in good times
as in bad times. 'It is the Court's uncompromising obligation to defend the Constitution at all times lest it be
condemned as an irrelevant relic.
WHEREFORE, I concur with the majority but dissent on the following points:
a) I vote to withhold judgment on the constitutionality of the 'standby authority in Sections 4 to 6 of Republic
Act No. 9337 as this issue is not ripe for adjudication.;
b) I vote to declare unconstitutional the deletion by the Bicameral Conference Committee of the pro poor
'no pass on provision on electricity to residential consumers as it contravened the unequivocal intent of both
Houses of Congress; and
c) I vote to declare Section 21 of Republic Act No. 9337 as unconstitutional as it contains extraneous
provisions not found in its constituent bills.
REYNATO S. PUNO
Associate Justice
EN BANC
Agenda for October 18, 2005
Item No. 45
G.R. No. 168056 (ABAKADA Guro Party List Officer Samson S. Alcantara, et al. vs. The Hon.
Executive Secretary Eduardo R. Ermita); G.R. No. 168207 (Aquilino Q. Pimentel, Jr., et al. vs. Executive
Secretary Eduardo R. Ermita, et al.); G.R. No. 168461 (Association of Pilipinas Shell Dealers, Inc., et al.
vs. Cesar V. Purisima, et al.); G.R. No. 168463 (Francis Joseph G. Escudero vs. Cesar V. Purisima, et
al); and G.R. No. 168730 (Bataan Governor Enrique T. Garcia, Jr. vs. Hon. Eduardo R. Ermita, et al.)
RESOLUTION
For resolution are the following motions for reconsideration of the Court’s Decision dated
September 1, 2005 upholding the constitutionality of Republic Act No. 9337 or the VAT Reform Act[1]:
1) Motion for Reconsideration filed by petitioners in G.R. No. 168463, Escudero, et al., on the
following grounds:
A. THE DELETION OF THE “NO PASS ON PROVISIONS” FOR THE SALE OF

PETROLEUM PRODUCTS AND POWER GENERATION SERVICES CONSTITUTED
GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION ON THE PART OF THE BICAMERAL CONFERENCE COMMITTEE.
B. REPUBLIC ACT NO. 9337 GROSSLY VIOLATES THE CONSTITUTIONAL

IMPERATIVE ON EXCLUSIVE ORIGINATION OF REVENUE BILLS UNDER §24,
ARTICLE VI, 1987 PHILIPPINE CONSTITUTION.
C. REPUBLIC ACT NO. 9337’S STAND-BY AUTHORITY TO THE EXECUTIVE TO INCREASE

THE VAT RATE, ESPECIALLY ON ACCOUNT OF THE EFFECTIVE RECOMMENDATORY
POWER GRANTED TO THE SECRETARY OF FINANCE, CONSTITUTES UNDUE
DELEGATION OF LEGISLATIVE AUTHORITY.
2) Motion for Reconsideration of petitioner in G.R. No. 168730, Bataan Governor Enrique T.
Garcia, Jr., with the argument that burdening the consumers with significantly higher prices
under a VAT regime vis-à-vis a 3% gross tax renders the law unconstitutional for being
arbitrary, oppressive and inequitable.
and
3) Motion for Reconsideration by petitioners Association of Pilipinas Shell Dealers, Inc. in G.R.
No. 168461, on the grounds that:
I. This Honorable Court erred in upholding the constitutionality of Section 110(A)(2) and Section
110(B) of the NIRC, as amended by the EVAT Law, imposing limitations on the amount of input
VAT that may be claimed as a credit against output VAT, as well as Section 114(C) of the NIRC,
as amended by the EVAT Law, requiring the government or any of its instrumentalities to
withhold a 5% final withholding VAT on their gross payments on purchases of goods and
services, and finding that the questioned provisions:
A. are not arbitrary, oppressive and consfiscatory as to amount to a deprivation of
property without due process of law in violation of Article III, Section 1 of the 1987
Philippine Constitution;
B. do not violate the equal protection clause prescribed under Article III, Section 1 of
the 1987 Philippine Constitution; and
C. apply uniformly to all those belonging to the same class and do not violate Article
VI, Section 28(1) of the 1987 Philippine Constitution.
II. This Honorable Court erred in upholding the constitutionality of Section 110(B) of the NIRC,
as amended by the EVAT Law, imposing a limitation on the amount of input VAT that may be
claimed as a credit against output VAT notwithstanding the finding that the tax is not progressive
as exhorted by Article VI, Section 28(1) of the 1987 Philippine Constitution.
Respondents filed their Consolidated Comment. Petitioner Garcia filed his Reply.
Petitioners Escudero, et al., insist that the bicameral conference committee should not even have
acted on the no pass-on provisions since there is no disagreement between House Bill Nos. 3705 and
3555 on the one hand, and Senate Bill No. 1950 on the other, with regard to the no pass-on provision for
the sale of service for power generation because both the Senate and the House were in agreement that
the VAT burden for the sale of such service shall not be passed on to the end-consumer. As to the no
pass-on provision for sale of petroleum products, petitioners argue that the fact that the presence of such
a no pass-on provision in the House version and the absence thereof in the Senate Bill means there is no
conflict because “a House provision cannot be in conflict with something that does not exist.”
Such argument is flawed. Note that the rules of both houses of Congress provide that a conference
committee shall settle the “differences” in the respective bills of each house. Verily, the fact that a no pass-
on provision is present in one version but absent in the other, and one version intends two industries, i.e.,
power generation companies and petroleum sellers, to bear the burden of the tax, while the other version
intended only the industry of power generation, transmission and distribution to be saddled with such
burden, clearly shows that there are indeed differences between the bills coming from each house, which
differences should be acted upon by the bicameral conference committee. It is incorrect to conclude that
there is no clash between two opposing forces with regard to the no pass-on provision for VAT on the sale
of petroleum products merely because such provision exists in the House version while it is absent in the
Senate version. It is precisely the absence of such provision in the Senate bill and the presence thereof in
the House bills that causes the conflict. The absence of the provision in the Senate bill shows the Senate’s
disagreement to the intention of the House of Representatives make the sellers of petroleum bear the
burden of the VAT. Thus, there are indeed two opposing forces: on one side, the House of Representatives
which wants petroleum dealers to be saddled with the burden of paying VAT and on the other, the Senate
which does not see it proper to make that particular industry bear said burden. Clearly, such conflicts and
differences between the no pass-on provisions in the Senate and House bills had to be acted upon by the
bicameral conference committee as mandated by the rules of both houses of Congress.
Moreover, the deletion of the no pass-on provision made the present VAT law more in consonance
with the very nature of VAT which, as stated in the Decision promulgated on September 1, 2005, is a tax on
spending or consumption, thus, the burden thereof is ultimately borne by the end-consumer.
Escudero, et al., then claim that there had been changes introduced in the Rules of the House of
Representatives regarding the conduct of the House panel in a bicameral conference committee, since the
time of Tolentino vs. Secretary of Finance[2] to act as safeguards against possible abuse of authority by the
House members of the bicameral conference committee. Even assuming that the rule requiring the House
panel to report back to the House if there are substantial differences in the House and Senate bills had
indeed been introduced after Tolentino, the Court stands by its ruling that the issue of whether or not the
House panel in the bicameral conference committee complied with said internal rule cannot be inquired into
by the Court. To reiterate, “mere failure to conform to parliamentary usage will not invalidate the action
(taken by a deliberative body) when the requisite number of members have agreed to a particular
measure.”[3]
Escudero, et. al., also contend that Republic Act No. 9337 grossly violates the constitutional
imperative on exclusive origination of revenue bills under Section 24 of Article VI of the Constitution when
the Senate introduced amendments not connected with VAT.
The Court is not persuaded.
Article VI, Section 24 of the Constitution provides:
Sec. 24 All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local
application, and private bills shall originate exclusively in the House of Representatives, but the Senate
may propose or concur with amendments.
Section 24 speaks of origination of certain bills from the House of Representatives which has been
interpreted in the Tolentino case as follows:
… To begin with, it is not the law — but the revenue bill — which is required by the
Constitution to "originate exclusively" in the House of Representatives. It is important to
emphasize this, because a bill originating in the House may undergo such extensive changes
in the Senate that the result may be a rewriting of the whole … At this point, what is important
to note is that, as a result of the Senate action, a distinct bill may be produced. To insist that
a revenue statute — and not only the bill which initiated the legislative process culminating
in the enactment of the law — must substantially be the same as the House bill would be to
deny the Senate's power not only to "concur with amendments" but also to " propose
amendments." It would be to violate the coequality of legislative power of the two houses of
Congress and in fact make the House superior to the Senate.
… Given, then, the power of the Senate to propose amendments, the Senate can
propose its own version even with respect to bills which are required by the Constitution to
originate in the House.
...
Indeed, what the Constitution simply means is that the initiative for filing revenue,
tariff, or tax bills, bills authorizing an increase of the public debt, private bills and bills of local
application must come from the House of Representatives on the theory that, elected as they
are from the districts, the members of the House can be expected to be more sensitive to the
local needs and problems. On the other hand, the senators, who are elected at large, are
expected to approach the same problems from the national perspective. Both views are
thereby made to bear on the enactment of such laws.[4]
Clearly, after the House bills as approved on third reading are duly transmitted to the Senate, the
Constitution states that the latter can propose or concur with amendments. The Court finds that the
subject provisions found in the Senate bill are within the purview of such constitutional provision as
declared in the Tolentino case.
The intent of the House of Representatives in initiating House Bill Nos. 3555 and 3705 was to solve
the country’s serious financial problems. It was stated in the respective explanatory notes that there is a
need for the government to make significant expenditure savings and a credible package of revenue
measures. These measures include improvement of tax administration and control and leakages in
revenues from income taxes and value added tax. It is also stated that one opportunity that could be
beneficial to the overall status of our economy is to review existing tax rates, evaluating the relevance given
our present conditions. Thus, with these purposes in mind and to accomplish these purposes for which the
house bills were filed, i.e., to raise revenues for the government, the Senate introduced amendments on
income taxes, which as admitted by Senator Ralph Recto, would yield about P10.5 billion a year.
Moreover, since the objective of these house bills is to raise revenues, the increase in corporate
income taxes would be a great help and would also soften the impact of VAT measure on the consumers
by distributing the burden across all sectors instead of putting it entirely on the shoulders of the consumers.
As to the other National Internal Revenue Code (NIRC) provisions found in Senate Bill No. 1950,
i.e., percentage taxes, franchise taxes, amusement and excise taxes, these provisions are needed so as to
cushion the effects of VAT on consumers. As we said in our decision, certain goods and services which
were subject to percentage tax and excise tax would no longer be VAT exempt, thus, the consumer would
be burdened more as they would be paying the VAT in addition to these taxes. Thus, there is a need to
amend these sections to soften the impact of VAT. The Court finds no reason to reverse the earlier ruling
that the Senate introduced amendments that are germane to the subject matter and purposes of the house
bills.
Petitioners Escudero, et al., also reiterate that R.A. No. 9337’s stand- by authority to the Executive
to increase the VAT rate, especially on account of the recommendatory power granted to the Secretary of
Finance, constitutes undue delegation of legislative power. They submit that the recommendatory power
given to the Secretary of Finance in regard to the occurrence of either of two events using the Gross
Domestic Product (GDP) as a benchmark necessarily and inherently required extended analysis and
evaluation, as well as policy making.
There is no merit in this contention. The Court reiterates that in making his recommendation to the
President on the existence of either of the two conditions, the Secretary of Finance is not acting as the
alter ego of the President or even her subordinate. He is acting as the agent of the legislative department,
to determine and declare the event upon which its expressed will is to take effect. The Secretary of
Finance becomes the means or tool by which legislative policy is determined and implemented,
considering that he possesses all the facilities to gather data and information and has a much broader
perspective to properly evaluate them. His function is to gather and collate statistical data and other
pertinent information and verify if any of the two conditions laid out by Congress is present. Congress
granted the Secretary of Finance the authority to ascertain the existence of a fact, namely, whether by
December 31, 2005, the value-added tax collection as a percentage of GDP of the previous year exceeds
two and four-fifth percent (24/5%) or the national government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1½%). If either of these two instances has occurred, the
Secretary of Finance, by legislative mandate, must submit such information to the President. Then the
12% VAT rate must be imposed by the President effective January 1, 2006. Congress does not abdicate
its functions or unduly delegate power when it describes what job must be done, who must do it, and what
is the scope of his authority; in our complex economy that is frequently the only way in which the
legislative process can go forward. There is no undue delegation of legislative power but only of the
discretion as to the execution of a law. This is constitutionally permissible. Congress did not delegate the
power to tax but the mere implementation of the law. The intent and will to increase the VAT rate to 12%
came from Congress and the task of the President is to simply execute the legislative policy. That
Congress chose to use the GDP as a benchmark to determine economic growth is not within the province
of the Court to inquire into, its task being to interpret the law.
With regard to petitioner Garcia’s arguments, the Court also finds the same to be without merit. As
stated in the assailed Decision, the Court recognizes the burden that the consumers will be bearing with
the passage of R.A. No. 9337. But as was also stated by the Court, it cannot strike down the law as
unconstitutional simply because of its yokes. The legislature has spoken and the only role that the Court
plays in the picture is to determine whether the law was passed with due regard to the mandates of the
Constitution. Inasmuch as the Court finds that there are no constitutional infirmities with its passage, the
validity of the law must therefore be upheld.
Finally, petitioners Association of Pilipinas Shell Dealers, Inc. reiterated their arguments in the
petition, citing this time, the dissertation of Associate Justice Dante O. Tinga in his Dissenting Opinion.
The glitch in petitioners’ arguments is that it presents figures based on an event that is yet to
happen. Their illustration of the possible effects of the 70% limitation, while seemingly concrete, still remains
theoretical. Theories have no place in this case as the Court must only deal with an existing case or
controversy that is appropriate or ripe for judicial determination, not one that is conjectural or
merely anticipatory.[5] The Court will not intervene absent an actual and substantial controversy admitting
of specific relief through a decree conclusive in nature, as distinguished from an opinion advising what the law
would be upon a hypothetical state of facts.[6]
The impact of the 70% limitation on the creditable input tax will ultimately depend on how one
manages and operates its business. Market forces, strategy and acumen will dictate their moves. With or
without these VAT provisions, an entrepreneur who does not have the ken to adapt to economic variables
will surely perish in the competition. The arguments posed are within the realm of business, and the
solution lies also in business.
Petitioners also reiterate their argument that the input tax is a property or a property right. In the
same breath, the Court reiterates its finding that it is not a property or a property right, and a VAT-registered
person’s entitlement to the creditable input tax is a mere statutory privilege.
Petitioners also contend that even if the right to credit the input VAT is merely a statutory privilege,
it has already evolved into a vested right that the State cannot remove.
As the Court stated in its Decision, the right to credit the input tax is a mere creation of law. Prior to
the enactment of multi-stage sales taxation, the sales taxes paid at every level of distribution are not
recoverable from the taxes payable. With the advent of Executive Order No. 273 imposing a 10% multi-
stage tax on all sales, it was only then that the crediting of the input tax paid on purchase or importation of
goods and services by VAT-registered persons against the output tax was established. This continued with
the Expanded VAT Law (R.A. No. 7716), and The Tax Reform Act of 1997 (R.A. No. 8424). The right to
credit input tax as against the output tax is clearly a privilege created by law, a privilege that also the law
can limit. It should be stressed that a person has no vested right in statutory privileges.[7]
The concept of “vested right” is a consequence of the constitutional guaranty of due process that
expresses a present fixed interest which in right reason and natural justice is protected against arbitrary
state action; it includes not only legal or equitable title to the enforcement of a demand but also exemptions
from new obligations created after the right has become vested. Rights are considered vested when the
right to enjoyment is a present interest, absolute, unconditional, and perfect or fixed and irrefutable.[8] As
adeptly stated by Associate Justice Minita V. Chico-Nazario in her Concurring Opinion, which the Court
adopts, petitioners’ right to the input VAT credits has not yet vested, thus –
It should be remembered that prior to Rep. Act No. 9337, the petroleum dealers’ input
VAT credits were inexistent – they were unrecognized and disallowed by law. The petroleum
dealers had no such property called input VAT credits. It is only rational, therefore, that they
cannot acquire vested rights to the use of such input VAT credits when they were never
entitled to such credits in the first place, at least, not until Rep. Act No. 9337.
My view, at this point, when Rep. Act No. 9337 has not yet even been implemented,
is that petroleum dealers’ right to use their input VAT as credit against their output VAT
unlimitedly has not vested, being a mere expectancy of a future benefit and being contingent
on the continuance of Section 110 of the National Internal Revenue Code of 1997, prior to
its amendment by Rep. Act No. 9337.
The elucidation of Associate Justice Artemio V. Panganiban is likewise worthy of note, to wit:
Moreover, there is no vested right in generally accepted accounting principles. These refer to
accounting concepts, measurement techniques, and standards of presentation in a company’s financial
statements, and are not rooted in laws of nature, as are the laws of physical science, for these are merely
developed and continually modified by local and international regulatory accounting bodies. To state
otherwise and recognize such asset account as a vested right is to limit the taxing power of the
State. Unlimited, plenary, comprehensive and supreme, this power cannot be unduly restricted by mere
creations of the State.
More importantly, the assailed provisions of R.A. No. 9337 already involve legislative policy and
wisdom. So long as there is a public end for which R.A. No. 9337 was passed, the means through which
such end shall be accomplished is for the legislature to choose so long as it is within constitutional
bounds. As stated in Carmichael vs. Southern Coal & Coke Co.:
If the question were ours to decide, we could not say that the legislature, in adopting the present
scheme rather than another, had no basis for its choice, or was arbitrary or unreasonable in its
action. But, as the state is free to distribute the burden of a tax without regard to the particular purpose for
which it is to be used, there is no warrant in the Constitution for setting the tax aside because a court
thinks that it could have distributed the burden more wisely. Those are functions reserved for the
legislature.[9]
WHEREFORE, the Motions for Reconsideration are hereby DENIED WITH FINALITY. The
temporary restraining order issued by the Court is LIFTED.
SO ORDERED.
(The Justices who filed their respective concurring and dissenting opinions maintain their
respective positions. Justice Dante O. Tinga filed a dissenting opinion to the present Resolution; while
Justice Consuelo Ynares- Santiago joins him in his dissenting opinion.)

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4 - (1-3) - Full Case Tax

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G.R. No.

L-22074 April 30, 1965

THE PHILIPPINE GUARANTY CO., INC., petitioner,

Josue H. Gustilo and Ramirez and Ortigas for petitioner.

BENGZON, J.P., J.:

25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . . 46,114.00

TOTAL AMOUNT DUE & COLLECTIBLE . . . .

Withholding tax due thereon at 24% . . . . . . . . P184,411.00

25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . . P184,411.00

TOTAL AMOUNT DUE & COLLECTIBLE . . . . P234,364.00

The pertinent section of the Tax Code States:

The applicable portion of Section 53 provides:

G.R. No. 187631, July 08, 2015

The facts follow.

Trial thereafter ensued.

Hence, this petition.

1. Taxation shall be uniform in each LGU.

G.R. No. 203754 June 16, 2015

FILM DEVELOPMENT COUNCIL OF THE PHILIPPINES, Petitioner,

FILM DEVELOPMENT COUNCIL OF THE PHILIPPINES, Petitioner,

VELASCO, JR., J.:

The facts are simple and undisputed.

CHAPTER XI - Amusement Tax

Rulings of the Trial Courts

(1) Declaring Republic Act No. 9167 as invalid and unconstitutional;

Notify parties and counsels of this order.

The Court's Ruling

We find no reason to disturb the assailed rulings.

Local fiscal autonomy and the constitutionally-delegated power to tax

1. Taxation shall be uniform in each LGU.

2. Taxes, fees, charges and other impositions shall:

a. be equitable and based as far as practicable on the taxpayer's ability to pay;

b. be levied and collected only for public purposes;

c. not be unjust, excessive, oppressive, or confiscatory;

5. Each LGU shall, as far as practicable, evolve a progressive system of taxation.

RA 9167 violates local fiscal autonomy

CHAPTER XI - Amusement Tax

To augment the operational expenses of the Council, the Council may:

RA 9167, Sec. 14 states:

(b) Documentary stamp tax;

(k) Taxes on premiums paid by way or reinsurance or retrocession;

Grant of amusement tax reward incentive:

not a tax exemption

Similarly, the LGC provides as follows:

Declaration by the RTC, Branch 5 of the

(1) Declaring Republic Act No. 9167 as invalid and unconstitutional;

Amounts paid by Colon Heritage

(1) Declaring Republic Act No. 9167 as invalid and unconstitutional;

As regards the refund, the Court cannot subscribe to this position.

xxx xxx xxx

presumption of their validity, the Court said:

xxx xxx xxx

As modified, the decisions of the lower courts shall read:

G.R. No. L-31156 February 27, 1976

PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., plaintiff-appellant,

Sabido, Sabido & Associates for appellant.

There are three capital questions raised in this appeal:

2. — Do Ordinances Nos. 23 and 27 constitute double taxation and impose percentage or

3. — Are Ordinances Nos. 23 and 27 unjust and unfair?

PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC., plaintiff-appellant,

Sabido, Sabido and Associates for plaintiff-appellant.

xxx xxx xxx 1äw phï1.ñët

[G.R. NO. 164171 : February 20, 2006]